Decision is a good development for developers
2016 Case Notes: Real Estate
December 19, 2016
Co-Authored by Cheryl Shoun & William Chase McNair.
The South Carolina Court of Appeals has offered insight into its opinion on the issue of whether a developer may contractually create and enforce jury trial and class action waivers in a master deed. The Court’s position is good news for developers and those who represent them.[i]
In The Gates at Williams-Brice Condominium Association and Katharine Swinson, individually, and on behalf of all other similarly situated v. DDC Construction, et al, 2016 WL 4537655, the Court specifically examined whether jury trial and class action waivers included in a master deed are enforceable. The Court, reversing the circuit court, found the waivers enforceable.
A number of entities (collectively, “Developer”) developed The Gates at Williams-Brice condominium community (“Gates”). Following the filling of a lawsuit by Katharine Swinson (“Swinson”) individually, and on behalf of others similarly situated, and the Gates at Williams-Brice Condominium Association (“Homeowners”), alleging faulty workmanship during construction. Developer, electing not to attempt to enforce the contractual arbitration provision, moved for a nonjury trial and to strike the class action allegations. The circuit court denied those motions. Developer appealed and the Court of Appeals reversed.
The Court of Appeals focused on four pivotal issues: (1) timeliness of Developer in raising mode of trial issue; (2) ineffectiveness of subsequent amendment of Master Deed; (3) enforceability of waivers and (4) whether Developer’s choice not to pursue arbitration equated to a waiver of a nonjury trial.
In analyzing the timeliness of Developer’s motion for a nonjury trial and to strike a jury trial demand and class action allegations, the Court recognized the requirement that a party must timely raise mode of trial issues at the first opportunity. Foggie v. CSX Transportation, Inc., 315 S.C. 17, 431 S.E.2d 587 (1993). The requirement is to place an opposing party on notice of the issues at stake. See Shirley’s Iron Works, Inc. v City of Union, 403 S.C. 560, 573-74, 743 S.E.2d 778, 785 (2013). In examining Foggie and related cases, the Court concluded, however, that the first opportunity requirement deals with preserving a mode of trial issue for appellate consideration, rather than raising the issue to the circuit court for consideration. Thus, the Court concluded that Developer met the first opportunity requirement by timely appealing the circuit court’s order denying its request for a nonjury trial. The Court further noted that there were general denials related to the class action allegations and the jury trial demand included in the answers of various defendants in the action.[ii]
The next issue examined by the Court was the Homeowners’ amendment of the Master Deed to eliminate the wavier of a jury trial and of a class action. This amendment was done more than six months after the filing of the original complaint. Having determined that the owners knowingly, voluntarily and intelligently waived their rights to a jury trial and to a class action, the Court found that the amendments could not apply retroactively to remove the otherwise agreed upon waivers; such amendment would effectively substitute a new obligation for the original bargain of the parties. See generally Armstrong v. Ledges Homeowners Ass’n, 633 S.E. 2d 78, 87 (N.C. 2006). The Court, unaware of any South Carolina authority which would allow contracting parties to unilaterally alter agreed upon provisions once litigation has begun, concluded that permitting such an amendment is against the weight of authority. See Ellis v. Taylor, 316 S.C. 245, 449 S.E.2d 487, 488 (1994) (“The court’s duty is to enforce the contract made by the parties regardless of its wisdom or folly, apparent unreasonableness, or the parties’ failure to guard their rights carefully.”)
As to the third issue addressed by the Court, South Carolina has long recognized that the right to a jury trial may be waived by contract. See North Charleston Joint Venture v. Kitchens of Island Fudge Shoppe, Inc., et al, citing, Leasing Serv. Corp. v. Crane 804 F.2d 828 (4th Cir. 1986). When a person signs a document, he is responsible for using reasonable care to protect himself by reading the document, making sure of its contents. Regions Bank v. Schmauch, 354 S.C. 648, 582 S.E.2d 432 (Ct. App. 2003). Here, the terms of the Master Deed, including the waiver of a jury trial and of a class action, were expressly incorporated into each purchase contract. By signing the contract at closing, each homeowner was deemed to have read the Master Deed. Additionally, the Master Deed was also incorporated into the bylaws of the Homeowners’ Association, which were available to all who purchased units.
The waivers, in all bold capital letters on the last page of the Master Deed, were conspicuous and unambiguous. The waivers did not limit liability or the right to seek legal remedy; rather, the owners and Developer waived their rights to a jury trial and class action lawsuit. Even if the owners were unaware of the inclusion of the waiver provisions, they cannot avoid the effects of the waivers merely by arguing they were unaware that the provisions were included in the Master Deed absent a showing that the waivers are oppressive and one-sided.
Lastly, the Court found that the Developer did not waive its right to a nonjury trial and to proceed without a class simply because it did not elect to arbitrate. The circuit court pointed to various actions by Developer in support of its conclusion that Developer waived its right to arbitrate and, consequently, its rights to a nonjury trial and to proceed without a class. On review, the Court found, however, that Developer’s decision to request a nonjury trial is wholly unrelated to its decision not to arbitrate. In reaching its conclusion, the Court again relied upon the Master Deed, in which the Developer included language addressing both alternative dispute resolution and the jury trial waiver, finding that such inclusion was intended to afford the opportunity to either arbitrate or seek a nonjury trial.
While at the time of this writing, a Motion for Rehearing is still pending, this opinion demonstrates the Court’s inclination to enforce jury trial and class action waivers included in a master deed. That said, there appears to be no harm in the inclusion of clear, conspicuous and obvious waivers at this time, even if the Court’s opinion is eventually modified.
[i] A Motion for Rehearing is currently pending. Until such time as there is a disposition as to that Motion, this opinion is not established law.
[ii] The Court also relied upon the Homeowner’s subsequent amendment of the Master Deed in support of its conclusion that the Homeowners were on notice of the mode of trial issue following the receipt of one defendant’s answer.