Court Opinion

ID: 4708941
Source: CourtListenerOpinion
Date Created: 2021-08-04 13:28:37.019259+00
Date Added: 2024-06-11T08:06:53.590402
License: Public Domain

THE STATE OF SOUTH CAROLINA
                         In The Court of Appeals

            Daniel Lee Davis, individually and on behalf of all those
            similarly situated, Respondent,

            v.

            ISCO Industries, Inc., Appellant.

            Appellate Case No. 2018-000857

                        Appeal From Spartanburg County
                        R. Keith Kelly, Circuit Court Judge

                             Opinion No. 5840
                 Heard December 8, 2020 – Filed August 4, 2021

                                   AFFIRMED

            Jeffrey Andrew Lehrer, of Ford & Harrison, LLP, of
            Spartanburg, for Appellant.

            John S. Simmons, of Simmons Law Firm, LLC, of
            Columbia; John Belton White, Jr., Ryan Frederick
            McCarty, and Marghretta Hagood Shisko, all of Harrison
            White P.C., of Spartanburg, for Respondent.

KONDUROS, J.: ISCO Industries, Inc. appeals the circuit court's denial of its
motion to compel arbitration in a suit its former employee, Daniel Lee Davis,
brought against it following a data breach. ISCO contends the circuit court erred in
determining an arbitration agreement did not apply due to the unforeseeable and
outrageous tort exception and because Davis's negligence claim did not arise out of
or relate to his employment relationship with ISCO. We affirm.
FACTS/PROCEDURAL HISTORY

ISCO is a Kentucky based corporation, which provides global customized piping
solutions. It has locations and employees in over thirty-five states. Davis worked
for ISCO as a mechanic and fusion technician in South Carolina from March 2007
until March 2015. At the start of his employment, ISCO required Davis to provide
personal identifying information including his Social Security number. He also
signed an arbitration agreement. In the arbitration agreement, he agreed to
exclusively settle by arbitration "any and all claims, disputes or controversies
arising out of or relating to my candidacy for employment, employment and/or
cessation of employment with ISCO."

On March 2, 2016, an employee in ISCO's human resources department received
an e-mail requesting employees' "2015 IRS Form W-2 data" purportedly from a
senior executive at ISCO. The employee gathered and e-mailed the requested data.
The information included the Social Security numbers, addresses, and
compensation and tax withholding information of current and former ISCO
employees. Shortly thereafter, an employee at ISCO realized the e-mail was
actually from an outside third party who had fraudulently disguised his e-mail
address. On March 4, 2016, ISCO notified the affected employees of the data
breach. ISCO provided these employees with free identity theft protection services
through LifeLock, which it later renewed. The data breach affected 449 current
and former employees throughout thirty-five states.

Davis filed an action against ISCO on September 13, 2017, alleging claims for
breach of implied contract and negligence. Davis filed the action on behalf of all
current and former ISCO employees whose personal identifying information was
released as a result of the data breach. He alleged ISCO had a duty to exercise
reasonable care in holding, securing, and protecting that personal identifying
information; it was foreseeable Davis and the others would suffer substantial harm
if ISCO employed inadequate safety practices for securing personal identifying
information; and as a result of ISCO's negligence, Davis and others suffered and
will continue to suffer damages and injury, including out-of-pocket expenses and
the loss of productivity and enjoyment as a result of spending time monitoring and
correcting consequences of the data breach.

ISCO filed a motion to dismiss and compel arbitration. Davis filed an amended
complaint removing his cause of action for breach of contract. ISCO filed a
motion to dismiss Davis's complaint in the event the court did not compel
arbitration, asserting Davis lacked standing and failed to state facts sufficient to
establish a negligence claim or to support an award of punitive damages or
attorney's fees. Davis filed a response in opposition to ISCO's motions.

The circuit court held a hearing on both of ISCO's motions on February 23, 2018.
The court determined the arbitration agreement was not applicable to Davis's cause
of action.1 The court found:

             The arbitration agreement that [Davis] signed applied to
             claims "arising out of or relating to my candidacy for
             employment, employment and/or cessation of
             employment with ISCO," but [Davis's] claims in this case
             arise out of [ISCO's] release of the personal identifying
             information of [Davis] and others to cyber-criminals.
             The [c]ourt finds that there is no relationship between the
             subject matter of [Davis's] claims in this case and the
             arbitration agreement, which relates to employment.
             Like the [c]ourt in Aiken,[2] this [c]ourt holds that
             [Davis's] claims in this case are "for unanticipated and
             unforeseeable tortious conduct" and are, therefore, not
             within the scope of the arbitration agreement.

(citation omitted).

This appeal followed.

STANDARD OF REVIEW

Unless the parties otherwise provide, "[t]he question of the arbitrability of a claim
is an issue for judicial determination." Zabinski v. Bright Acres Assocs., 346 S.C.
580, 596, 553 S.E.2d 110, 118 (2001). Determinations of arbitrability are subject
to de novo review, but if any evidence reasonably supports the circuit court's
factual findings, this court will not overrule those findings. Stokes v. Metro. Life
Ins. Co., 351 S.C. 606, 609-10, 571 S.E.2d 711, 713 (Ct. App. 2002).

1
  The circuit court also denied ISCO's motion to dismiss, but ISCO did not appeal
that ruling.
2
  Aiken v. World Fin. Corp. of S.C., 373 S.C. 144, 644 S.E.2d 705 (2007)
(providing an outrageous torts exception to arbitration enforcement in South
Carolina).
LAW/ANALYSIS

ISCO asserts the circuit court erred by denying its motion to compel arbitration by
ruling Davis's negligence claim did not arise out of or relate to his employment
relationship with ISCO. It argues there was a significant relationship between
Davis's employment relationship and the conduct in this case. We disagree.

             [S]tate law determines questions "concerning the
             validity, revocability, or enforceability of contracts
             generally," Perry v. Thomas, 482 U.S. 483, 493 n.9
             (1987), but the Federal Arbitration Act and the
             Convention on the Recognition and Enforcement of
             Foreign Arbitral Awards "create a body of federal
             substantive law of arbitrability, applicable to any
             arbitration agreement within the coverage of the Act."
             Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
             460 U.S. 1, 24 (1983)[, superseded by statute on other
             grounds as stated in Bradford-Scott Data Corp. v.
             Physician Comput. Network, Inc., 128 F.3d 504, 506
             (7th. Cir. 1997)].

Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 417
n.4 (4th Cir. 2000) (citations omitted). "These statutes constitute 'a congressional
declaration of liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the contrary.'" Id.
(quoting Moses H. Cone Mem'l Hosp., 460 U.S. at 24).

"We must address questions of arbitrability with a healthy regard for the federal
policy favoring arbitration." Towles v. United HealthCare Corp., 338 S.C. 29, 41,
524 S.E.2d 839, 846 (Ct. App. 1999). "Therefore, 'any doubts concerning the
scope of arbitrable issues should be resolved in favor of arbitration," including
"'the construction of the contract language itself.'" Id. (quoting O'Neil v. Hilton
Head Hosp., 115 F.3d 272, 273-74 (4th Cir. 1997)). "Motions to compel
arbitration should not be denied unless the arbitration clause is not susceptible of
any interpretation that would cover the asserted dispute." Id. at 41-42, 524 S.E.2d
at 846. However, our supreme court recently noted that "statements that the law
'favors' arbitration mean simply that courts must respect and enforce a contractual
provision to arbitrate as it respects and enforces all contractual provisions. There
is, however, no public policy—federal or state—'favoring' arbitration." Palmetto
Constr. Grp., LLC v. Restoration Specialists, LLC, 432 S.C. 633, 639, 856 S.E.2d
150, 153 (2021), reh'g denied, S.C. Sup. Ct. Order dated Apr. 20, 2021.

"Generally, 'arbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.'" Int'l
Paper Co., 206 F.3d at 416 (quoting United Steelworkers of Am. v. Warrior & Gulf
Nav. Co., 363 U.S. 574, 582 (1960)). "Arbitration is available only when the
parties involved contractually agree to arbitrate." Berry v. Spang, 433 S.C. 1, 11-
12, 855 S.E.2d 309, 315 (Ct. App. 2021) (quoting Towles, 338 S.C. at 37, 524
S.E.2d at 843-44), reh'g denied, S.C. Ct. App. Order dated Mar. 26, 2021, petition
for cert. filed. "Arbitration rests on the agreement of the parties, and the range of
issues that can be arbitrated is restricted by the terms of the agreement." Zabinski
v. Bright Acres Assocs., 346 S.C. 580, 596-97, 553 S.E.2d 110, 118 (2001).
"Determining whether a party agreed to arbitrate a particular dispute is an issue for
judicial determination to be decided as a matter of contract." Towles, 338 S.C. at
41, 524 S.E.2d at 846. "An arbitration clause is a contractual term, and general
rules of contract interpretation must be applied to determine a clause's applicability
to a particular dispute." Id. "The construction of a clear and unambiguous contract
is a question of law for the court to determine." Williams v. Gov't Emps. Ins. Co.
(GEICO), 409 S.C. 586, 594, 762 S.E.2d 705, 710 (2014) (emphasis omitted).
"The cardinal rule of contract interpretation is to ascertain and give effect to the
intention of the parties and, in determining that intention, the court looks to the
language of the contract." First S. Bank v. Rosenberg, 418 S.C. 170, 180, 790
S.E.2d 919, 925 (Ct. App. 2016) (quoting Watson v. Underwood, 407 S.C. 443,
454-55, 756 S.E.2d 155, 161 (Ct. App. 2014)).

"When a party invokes an arbitration clause after the contractual relationship
between the parties has ended, the parties' intent governs whether the clause's
authority extends beyond the termination of the contract." Towles, 338 S.C. at 41,
524 S.E.2d at 846. "A broadly-worded arbitration clause applies to disputes that
do not arise under the governing contract when a 'significant relationship' exists
between the asserted claims and the contract in which the arbitration clause is
contained." Zabinski, 346 S.C. at 598, 553 S.E.2d at 119. "To decide whether an
arbitration agreement encompasses a dispute, a court must determine whether the
factual allegations underlying the claim are within the scope of the broad
arbitration clause, regardless of the label assigned to the claim." Id. at 597, 553
S.E.2d at 118.

             [T]he mere fact that an arbitration clause might apply to
             matters beyond the express scope of the underlying
             contract does not alone imply that the clause should
             apply to every dispute between the parties. For example,
             a clause compelling arbitration for any claim "arising out
             of or relating to this agreement" may cover disputes
             outside the agreement, but only if those disputes relate to
             the subject matter of that agreement. On the other hand,
             if the clause contains language compelling arbitration of
             any dispute arising out of the relationship of the parties, it
             does not matter whether the particular claim relates to the
             contract containing the clause; it matters only that the
             claim concerns the relationship of the parties. Under
             Zabinski, such a clause would have the broadest scope
             because it could be interpreted to apply to every dispute
             between the parties.

Vestry & Church Wardens of Church of Holy Cross v. Orkin Exterminating Co.,
356 S.C. 202, 209-10, 588 S.E.2d 136, 140 (Ct. App. 2003) (citations omitted).

"Whether a particular claim is subject to arbitration has been examined in many
cases . . . ." New Hope Missionary Baptist Church v. Paragon Builders, 379 S.C.
620, 629 n.7, 667 S.E.2d 1, 5 n.7 (Ct. App. 2008). In Zabinski, the supreme court
found "any claim pursuant to the partnership agreement is arbitrable" because the
arbitration agreement provided "'any controversy or claim arising out of the
partnership agreement' should be settled by arbitration." 346 S.C. at 597, 553
S.E.2d at 119. The court determined "any tort claims between the partners that
relate to the partnership agreement are arbitrable." Id. Further, the court held "the
winding up of the partnership is covered by the arbitration agreement because it
concerns issues that are the direct result of the partnership agreement." Id. at 597-
98, 553 S.E.2d at 119. However, the court also determined "[d]espite South
Carolina's presumption in favor o[f] arbitration, . . . the remaining . . . claims are
not subject to arbitration because a significant relationship does not exist between
the . . . claims and the partnership agreement." Id. at 598, 553 S.E.2d at 119.
Those remaining claims included "the action between [two of the partners]
involv[ing] a dispute over the purchase agreement, which is completely unrelated
to the partnership agreement. . . . The facts involved in this controversy are
completely independent of any dispute arising out of the partnership agreement and
are not arbitrable." Id.

In Landers v. Federal Deposit Insurance Corp., an employee, Landers, "claim[ed]
he was constructively terminated from his employment as a result of [the CEO's]
tortious conduct towards him. [The employer and the CEO] moved to compel
arbitration pursuant to the employment contract." 402 S.C. 100, 103, 739 S.E.2d
209, 210 (2013). "The trial court found that only Landers' breach of contract claim
was subject to the arbitration provision, while his other four causes of action
comprised of several tort and corporate claims were not within the scope of the
arbitration clause." Id. Our supreme court "reverse[d] the trial court's order and
h[e]ld that all of Landers' causes of action must be arbitrated," stating "Landers'
pleadings provide a clear nexus between his claims and the employment contract
sufficient to establish a significant relationship to the employment agreement." Id.
The court determined "the claims are within the scope of the agreement's broad
arbitration provision." Id.

The supreme court explained:

            Landers' tort claims bear a significant relationship to the
            Agreement. The Agreement contains not only monetary
            rights and obligations, but also articulates the duties and
            obligations of Landers and provides that Landers is
            subject to the direction of the employer, requiring him to
            diligently follow and implement all policies and
            decisions of the employer. Furthermore, the Agreement
            contemplates what constitutes cause for termination,
            including a "material diminution in [ ] powers,
            responsibilities, duties or compensation."

            Thus, in light of the breadth of the Agreement and the
            particular manner in which Landers has pled his
            underlying factual allegations, we find Landers' tort
            claims significantly relate to the Agreement. The
            perceived inability to perform one's job certainly relates
            to an employment contract. Even assuming the
            arbitrability of the claims was in doubt, which it is not,
            we cannot say with positive assurance that the arbitration
            clause is not susceptible of an interpretation that Landers'
            slander and intentional infliction of emotional distress
            claims are covered by the clause. Thus, we reverse the
            trial court's order denying Appellants' motion to compel
            the causes of action of slander and intentional infliction
            of emotional distress.
Id. at 111-12, 739 S.E.2d at 215 (alteration in original) (footnote omitted).

             We stress that our decision today is driven by the strong
             policy favoring arbitration, the nature of the Agreement,
             and Landers' underlying factual allegations. Certainly,
             we recognize that even the broadest of clauses have their
             limitations. However, Landers has essentially pled
             himself into a corner with respect to each of his claims.
             Indeed, he has provided a clear nexus between the
             underlying factual allegations of each of his claims and
             his inability to perform the employment Agreement and
             the alleged breach thereof, such that all of his causes of
             action bear a significant relationship to the Agreement.
             Thus, we reverse the trial court with respect to Landers'
             remaining four causes of action and hold that each is to
             be arbitrated. In doing so, we also reject the trial court's
             alternative ruling that the claims are not subject to
             arbitration because they were not foreseeable.

Id. at 115-16, 739 S.E.2d at 217 (footnote omitted).

In the present case, the court found "there is no relationship between the subject
matter of [Davis's] claims in this case and the arbitration agreement, which relates
to employment." The arbitration agreement stated it applied to "any and all claims,
disputes or controversies arising out of or relating to [Davis's] candidacy for
employment, employment and/or cessation of employment with ISCO." Even
though ISCO had Davis's personal identifying information only due to his previous
employment with it, the grounds for his negligence claim—the human resources
employee disclosing his information to hackers—do not truly relate to his
employment. At the time Davis supplied his employer with his information in
starting his employment, he would not have been expected to anticipate employer
would reveal that information to hackers.

Landers is distinguishable from the present case as the facts underlying Landers's
causes of action are completely different than those here. See id. at 112, 739
S.E.2d at 215 ("[I]n light of the breadth of the Agreement and the particular
manner in which Landers has pled his underlying factual allegations, we find
Landers' tort claims significantly relate to the Agreement. The perceived inability
to perform one's job certainly relates to an employment contract."); id. at 115, 739
S.E.2d at 217 ("Landers has essentially pled himself into a corner with respect to
each of his claims. Indeed, he has provided a clear nexus between the underlying
factual allegations of each of his claims and his inability to perform the
employment Agreement and the alleged breach thereof, such that all of his causes
of action bear a significant relationship to the Agreement.").

There was not a significant relationship between Davis's employment relationship
and the conduct in this case. Therefore, the circuit court did not err in finding the
arbitration agreement did not apply here. Accordingly, we affirm the circuit court's
decision.3

CONCLUSION

The circuit court's decision to deny the motion to compel arbitration is

AFFIRMED.

LOCKEMY, C.J., and MCDONALD, J., concur.

3
 Based on our determination of this issue, we need not address ISCO's remaining
arguments on appeal, which concern the denial of its motion to compel arbitration
on the basis of the unforeseeable and outrageous tort exception. See Futch v.
McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d 591, 598
(1999) (noting an appellate court need not review remaining issues when its
determination of a prior issue is dispositive of the appeal).