Carmichael et al v. Hilton Head Island Development Company LLC et al

Filing 23

ORDER granting in part and denying in part 5 Motion to Dismiss; granting in part and denying in part 14 Motion to Dismiss; denying 17 Motion to Strike, and dismissing the action without prejudice. Signed by Honorable Patrick Michael Duffy on 08/30/2016.(adeh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
BEAUFORT DIVISION
John Carmichael and Susan Carmichael,

)
)
Plaintiffs,
)
)
v.
)
)
Hilton Head Island Development
)
Company, LLC, Sunrise Vacation
)
Properties, Ltd., Jesse Bellamy, Sheldon
)
Stanhope, and Sherri Smith,
)
)
Defendants.
)
____________________________________)

C.A. No. 9:16-cv-1641-PMD

ORDER

This matter is before the Court on two defense motions to dismiss for lack of jurisdiction
(ECF Nos. 5 & 14), 1 two defense motions to compel arbitration, (id.), and Plaintiffs’ motion to
strike the arbitration provision on which Defendants rely (ECF No. 17). For the reasons stated
herein, the Court denies the motions to dismiss and the motion to strike, grants the motions to
compel arbitration, and dismisses this case without prejudice.
BACKGROUND AND PROCEDURAL HISTORY
This case arises out of the marketing and sale of a timeshare interest on Hilton Head
Island. In 2015, Plaintiffs John and Susan Carmichael purchased an interest in the Coral Sands
Resort. The contract between the Carmichaels and the seller, Defendant Hilton Head Island
Development Company, LLC, includes an arbitration paragraph that provides, in pertinent part,
as follows:

1.
Hilton Head Island Development Company, LLC filed the first motion. Sunrise Vacation Properties, Ltd.,
Sheldon Stanhope, and Sherri Smith jointly filed the second. The motions appear to be substantively identical.
Jesse Bellamy has not made an appearance in this case, and the Court has no record of him being served
with process. Thus, in this Order, “Defendants” means all named defendants except Bellamy.

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Any dispute, claim or controversy arising out of or relating to this Agreement or
the making, breach, termination, enforcement, interpretation or validity thereof
shall be determined by arbitration in Beaufort County, South Carolina, or another
location agreed to by the parties. . . . The arbitration shall be held before a sole
arbitrator and shall be binding with no right of appeal. . . . The parties shall select
an arbitrator by mutual agreement within thirty (30) calendar days of the date the
Demand for Arbitration is filed and served . . . . If the parties are unable to agree
on the selection of an arbitrator within such time, the parties shall petition the
Beaufort County Court of Common Pleas to appoint a member of the Beaufort
County Bar as an arbitrator. 2
(Pls.’ Mot. Strike Arbitration Provision, Ex. B, Contract, ECF No. 17-1, at 5.)
The Carmichaels filed suit in this Court in May 2016, alleging Defendants violated
several South Carolina statutes and committed a variety of common-law tort offenses during the
marketing and sale of the Carmichaels’ timeshare. Defendants filed motions asking the Court
to, inter alia, either dismiss this case for lack of jurisdiction or dismiss after ordering arbitration.
The Carmichaels filed a single response to both defense motions. They also filed a motion to
strike the arbitration provision from their contract. Defendants then filed a joint response
opposing the Carmichaels’ motion and a joint reply in support of the motions to dismiss. All
these motions are thus ripe for consideration.
DISCUSSION
As explained herein, the Court possesses subject matter jurisdiction over this case.
Nevertheless, it will dismiss the case because the Carmichaels’ claims are subject to arbitration.
I.

Subject Matter Jurisdiction

Before the Court can address the arbitration provision’s enforceability, it must first
confirm it has jurisdiction over this matter. See Ness v. Dean Witter Reynolds, Inc., 677 F.
Supp. 861, 865 (D.S.C. 1987) (“[T]his court must first have . . . an independent basis for federal

2.

Hilton Head Island is part of Beaufort County.

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jurisdiction before it may decide [an] arbitration issue.”). Defendants assert jurisdiction is
lacking and have moved to dismiss under Federal Rule of Civil Procedure 12(b)(1).
Because the Carmichaels assert only state-law claims, the Court must determine whether
it has diversity jurisdiction under 28 U.S.C. § 1332. Generally, diversity jurisdiction exists
when: (1) there is complete diversity of citizenship between the parties, and (2) the amount in
controversy exceeds $75,000.00. 28 U.S.C. § 1332(a). The diversity requirement is satisfied
here. The Carmichaels are Maryland citizens, and Defendants do not dispute the complaint’s
allegations that they are all South Carolina citizens.

As for the amount in controversy,

Defendants contend the Carmichaels have not shown that their claims involve more than
$75,000.00.
The Carmichaels allege they “are entitled to actual, incidental, consequential, treble, and
punitive damages in an amount to be determined at trial, as well as attorneys’ fees, costs, and
expenses, in an amount exceeding $75,000.00.” (Compl., ECF No. 1, at ¶ 60.) Nothing in the
record suggests—and Defendants do not contend—that the Carmichaels made that allegation in
bad faith. The Court therefore relies on it. 3 See Clifton v. Nationstar Mortg., LLC, No.
3:12-cv-2074-MBS, 2013 WL 789958, at *6 (D.S.C. Mar. 4, 2013) (rejecting motion to dismiss
based on insufficient amount in controversy; plaintiff alleged his damages exceeded $75,000.00,
and in the absence of any defense accusation that plaintiff made the allegation in bad faith, court

3.
Other materials tend to support that allegation. For example, the timeshare contract, which is repeatedly
referenced in the complaint, indicates the Carmichaels paid $10,000.00 for their timeshare interest. The contract
also states the Carmichaels are to share in the payment of the resort’s common expenses, assessments, maintenance
fees, and other operating expenses. The Carmichaels allege their purchase of the timeshare and their execution of
the contract were induced by Defendants’ fraudulent misrepresentations. The Carmichaels seek actual,
consequential, and punitive damages for that alleged fraud. Even assuming the Carmichaels could not establish
any damages beyond the $10,000.00 purchase price, this Court would not be able to say that an additional punitive
damages award of 6.5 times that amount would be unachievable. Cf. Cody P. v. Bank of Am., N.A., 720 S.E.2d
473, 483 (S.C. Ct. App. 2011) (upholding punitive damages award 7.69 times greater than actual damages award).

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could rely on it); see also St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938)
(“The rule governing dismissal for want of jurisdiction in cases brought in the federal court is
that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is
apparently made in good faith.”). The Court therefore denies Defendant’s motions to dismiss
for lack of subject matter jurisdiction.
II.

The Arbitration Provision

Defendants contend the arbitration provision in the Carmichaels’ contract is enforceable
under the Federal Arbitration Act, 9 U.S.C. §§ 1–16 (“FAA”). The Court agrees.
The Fourth Circuit has instructed that courts are to compel arbitration when the following
elements are met:
(1) the existence of a dispute between the parties, (2) a written agreement that
includes an arbitration provision which purports to cover the dispute, (3) the
relationship of the transaction, which is evidenced by the agreement, to interstate
or foreign commerce, and (4) the failure, neglect or refusal of [a party] to arbitrate
the dispute.
Am. Gen. Life & Accident Ins. Co. v. Wood, 429 F.3d 83, 87 (4th Cir. 2005) (citing Adkins v.
Labor Ready, Inc., 303 F.3d 496, 500–01 (4th Cir. 2002)). Defendants have established these
elements, and in any event, the Carmichaels do not dispute that the elements are met or that the
FAA applies in the first place. Rather, they make the same two arguments in both their motion
to strike the arbitration provision and their opposition to Defendants’ motions to compel
arbitration. The Court finds no merit in either argument.
The Carmichaels first contend their timeshare contract does not comply with South
Carolina Code subsection 15-48-10(a), which provides, in pertinent part, that “[n]otice that a
contract is subject to arbitration pursuant to [the South Carolina Uniform Arbitration Act, S.C.

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Code Ann. §§ 15-48-10 to -240] shall be typed in underlined capital letters, or rubber-stamped
prominently, on the first page of the contract.” Whether the contract complies with subsection
15-48-10(a) is immaterial. For two decades, South Carolina’s Supreme Court has recognized
that the FAA preempts subsection 15-48-10(a) and, accordingly, that arbitration agreements
subject to the FAA need not comply with that state statute. See Soil Remediation Co. v. Nu-Way
Envtl., Inc., 476 S.E.2d 149, 152 (S.C. 1996); see also, e.g., Low Country Rural Health Educ.
Consortium, Inc. v. Greenway Med. Techs., Inc., No. 9:14-cv-874-DCN, 2014 WL 5771850, at
*6 (D.S.C. Nov. 5, 2014) (holding that, under Soil Remediation, contract subject to the FAA was
enforceable despite its noncompliance with subsection 15-48-10(a)). Because the Carmichaels’
contract undisputedly involves interstate commerce, the FAA applies.

Consequently, the

timeshare contract’s alleged noncompliance with subsection 15-48-10(a) would not prevent
arbitration.
The Carmichaels’ second argument relates to the arbitration provision’s mechanism for
selecting an arbitrator.

The parties have thirty days to choose an arbitrator by mutual

agreement. If they cannot do so, they must ask the state court to appoint a member of the
Beaufort County Bar to arbitrate the dispute. The Carmichaels contend that Defendants have
made the mechanism impossible to use and that, under Grant v. Magnolia Manor–Greenwood,
Inc., 678 S.E.2d 439 (S.C. 2009), the impossibility invalidates the arbitration provision.
Assuming, without deciding, that Grant is on point, the Court is not convinced that the
selection mechanism is impossible to use. The Carmichaels baldly assert they are unable to
agree with Defendants on any arbitrator, but they have provided no evidence that they have
served an arbitration demand or even discussed arbitration with Defendants, let alone that they

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are at loggerheads with Defendants over picking an arbitrator. Rather, the Carmichaels appear
to contend mutual agreement cannot be achieved here because their attorneys and defense
counsel have been unable to agree upon arbitrators in other timeshare cases. However, past
disagreement is a dubious basis for predicting the outcome here. In at least one of those past
instances, the arbitration provision restricted the parties’ mutual-agreement options to arbitrators
approved by the South Carolina Bar Association, and the record indicates that restriction
complicated the arbitrator selection process. By contrast, the arbitration provision here contains
no such restriction.

Moreover, Defendants have come forward with several examples of

timeshare cases where the parties selected arbitrators without judicial intervention. It therefore
seems entirely plausible that the parties could find a mutually agreeable arbitrator.
Even if the Carmichaels could show a pattern of defense recalcitrance that would make
mutual agreement impossible in this case, that would not render the contract’s arbitrator
selection mechanism useless. To the contrary, the arbitration provision contemplates such a
scenario: in such circumstances, the state court selects a member of the Beaufort County Bar
Association to serve as arbitrator. The Carmichaels contend that all potential arbitrators are
unavailable because they either have a conflict of interest or they have arbitrated other timeshare
cases and Defendants object to reusing arbitrators. The Carmichaels have not provided any
evidence of Defendants objecting to the reuse of arbitrators, but regardless, such an objection
would have no effect on the state court’s authority to select an otherwise qualified arbitrator.
In sum, the Court sees nothing that legitimately prevents the parties from obtaining an
arbitrator, either by agreement or with the state court’s assistance. The Court therefore rejects
the Carmichaels’ impossibility argument. There being no other challenges to the arbitration

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provision’s validity, the Court concludes the provision is enforceable. Consequently, the Court
will deny the motion to strike the provision and grant the motions to compel arbitration.
Having concluded the arbitration provision is enforceable, the question becomes which of
the Carmichaels’ claims must be arbitrated. Defendants contend—and the Carmichaels do not
dispute—that all the claims are arbitrable. Where all the claims in a case are arbitrable, the
proper course of action is to dismiss the case. See Choice Hotels Int’l v. BSR Tropicana Resort,
252 F.3d 707, 709–10 (4th Cir. 2001) (“[D]ismissal is a proper remedy when all of the issues
presented in a lawsuit are arbitrable.”). The Court will therefore dismiss this action.
CONCLUSION
For the foregoing reasons, it is ORDERED that Defendants’ motions to dismiss for lack
of jurisdiction are DENIED. It is FURTHER ORDERED that the Carmichaels’ motion to
strike is DENIED, Defendants’ motions to compel arbitration are GRANTED, and this action is
DISMISSED without prejudice.
AND IT IS SO ORDERED.

August 30, 2016
Charleston, South Carolina

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