Originally from Dispute Resolution Journal

CONSTRUCTION

Preemption of State Notice Provision

The South Carolina Court of Appeals held that the Federal Arbitration Act preempted South Carolina’s notice requirement for arbitration agreements. The fact that the design contemplated use of out-of-state suppliers and contractors established that the contract involved “interstate commerce.”

Blanton contracted to provide design, drawing, and architectural services to Stathos in the construction of a restaurant in Seneca, South Carolina. The contract was a standard American Institute of Architects contract, which contained an arbitration clause. Blanton began work and consulted with several out-of-state companies regarding specifications of components for the project. However, Stathos terminated her contract prior to Blanton’s completion of her contractual duties. Neither procurement of materials nor construction had begun at the time of the breach of contract.

Blanton commenced an arbitration but Stathos did not participate in it. The arbitrator awarded Blanton’s requested damages of $9,669.80 and assessed Stathos $243.98 in arbitrator’s fees. Blanton moved to confirm the award.

The Circuit Court granted the motion and confirmed the award. Stathos appealed, contending that the AIA contract was not enforceable under South Carolina’s Arbitration Act because it did not contain the required notice provision.

The South Carolina Court of Appeals agreed that the contract did not satisfy the notice requirements of S.C. Code Ann. § 15-48-10(a), which requires a notice of arbitration to be typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract. The court noted that these requirements must be strictly adhered to, unless the Federal Arbitration Act applied, in which case it preempted inconsistent state law. (The South Carolina Supreme Court had previously determined that § 15-48-10(a) conflicted with the FAA because it singled out arbitration agreements and rendered them invalid if its notice provisions were not strictly followed.)

The court then held that the FAA applied to the contract in question. Stathos argued that the contract did not evidence interstate commerce because construction had not yet begun, and all work was done by individuals residing in South Carolina, But the court disagreed. The court examined the agreement, the complaint, and the surrounding facts, including Blanton’s affidavit asserting that the contract affected interstate commerce because in performing her duties under the contract she communicated with several suppliers and contractors from out of state. She averred that her “design and drawings contemplated the purchase or acquisition of materials and labor from states other than South Carolina, particularly the state of Georgia,” due to Seneca’s proximity to Georgia. She also averred that “realistically the project could not be constructed without the use of materials in interstate commerce.” The court held that the nature of the project and Blanton ‘s affidavit (which Blanton did not dispute) were sufficient to find that the contract evidenced a transaction involving interstate commerce.

Blanton, v. Stathos, 570 S.E.2d 565 (S.C. App. 2002).