Court Opinion

ID: 2719242
Source: CourtListenerOpinion
Date Created: 2014-08-20 14:04:30.152667+00
Date Added: 2024-06-11T09:28:36.129162
License: Public Domain

THE STATE OF SOUTH CAROLINA 

              In The Supreme Court 

James Robert Malloy, Plaintiff,

v. 

Swain N. Thompson, Jr., Defendant. 

In the Matter of: Estate of Robert L. Chamblee. 

James Robert Malloy, Respondent,

v. 

Swain N. Thompson, Jr., Merrill Lynch, Pierce, Fenner 

& Smith, Inc., Joseph T. Argo, and Greene and
Company, L.L.P., Defendants,

Of whom Merrill Lynch, Pierce, Fenner & Smith, Inc. is
the Appellant, 

In the Matter of: Estate of Robert L. Chamblee. 

Appellate Case No. 2012-213385 

             Appeal from Anderson County 

        Alexander S. Macaulay, Circuit Court Judge 

                    Opinion No. 27438 

       Heard April 16, 2014 – Filed August 20, 2014 

                      AFFIRMED 

             Christopher A. Ogiba and E. Brandon Gaskins, both of
             Moore & Van Allen, PLLC, of Charleston; Tara A.
             LaClair, Rodney J. Heggy, and Mary H. Tolbert, all of
             Crow & Dunleavy, PC, of Oklahoma City, OK, for
             Appellants.

             James R. Gilreath and William Mitchell Hogan, both of
             Gilreath Law Firm, PA, of Greenville, and S. Alan
             Medlin, of Columbia, for Respondents.

JUSTICE PLEICONES: We affirm the circuit court's denial of Appellant Merrill
Lynch's motion to dismiss and compel arbitration. Because we find Respondent
Robert Malloy's claim is not based on a duty derived from the agreements
containing arbitration clauses as asserted by Merrill Lynch, we agree with the
circuit court that as a non-signatory Malloy cannot be compelled to arbitrate under
these agreements.

                                       FACTS

This action arises out of a dispute between Malloy and Swain R. Thompson,
regarding assets of Robert L. Chamblee (Decedent). The complaint alleges that
Thompson, with the assistance of Merrill Lynch,1 acted to disrupt Decedent's estate
plan and divert Decedent's assets from Malloy to Thompson.

Malloy denominates his claims against Merrill Lynch as: (a) intentional
interference with inheritance;2 (b) aiding and abetting intentional interference with
inheritance; (c) and civil conspiracy.

Merrill Lynch moved to dismiss and compel arbitration arguing that its only
connection to this dispute is through its contractual duties under the client

1
  The complaint also alleges that the other named defendants, Greene and
Company, L.L.P. and Joseph T. Argo, assisted in diverting these assets.
2
  The parties give this claim different titles including: tortious interference with
inheritance, tortious interference with an expectancy of inheritance, intentional
interference with inheritance, and intentional interference with an expectancy of
inheritance. The correct name is intentional interference with inheritance. See
Douglass v. Boyce, 344 S.C. 5, 542 S.E.2d 715 (2001) (discussing "intentional
interference with inheritance").
relationship agreements (CRAs) entered into between Decedent and Merrill Lynch,
which contained mandatory arbitration clauses. Merrill Lynch argued that although
Malloy was a non-signatory to the agreements, any duty, if any, owed by Merrill
Lynch to Malloy derives from the CRAs, and therefore, he is bound by the
arbitration clauses.

The circuit court denied the motion and found that while non-signatories may be
bound to an arbitration agreement under common law principles of contract and
agency law, none of those principles apply in this case, and therefore, there was no
basis to compel Malloy to arbitrate. Merrill Lynch appealed.

                                       ISSUES

   1.	 Whether Malloy has sufficiently pled a valid claim against Merrill Lynch
       since South Carolina has not adopted the tort of intentional interference with
       inheritance?

   2.	 If South Carolina does recognize the tort, are Malloy's claims subject to
       arbitration?

                                   DISCUSSION

   1. Did Malloy's complaint sufficiently allege a valid cause of action?
Merrill Lynch contends for the first time on appeal that the circuit court should
have dismissed Malloy's claim for failure to state a claim upon which relief can be
granted because the tort it alleges, intentional interference with inheritance, is not
recognized by South Carolina. Additionally, Merrill Lynch argues that even if
South Carolina were to recognize the tort, Malloy's complaint fails to allege facts
necessary to sustain such an action. We decline to address these contentions
because this issue was neither argued nor ruled upon in the proceedings below.

At a minimum, issue preservation requires that an issue be raised to and ruled upon
by the trial judge. Wilder Corp. v. Wilke, 330 S.C. 71, 76, 497 S.E.2d 731, 733
(1998). The issue must be sufficiently clear to bring into focus the precise nature of
the alleged error so that it can be reasonably understood by the judge. Id. at 76, 497
S.E.2d at 733. “It is axiomatic that an issue cannot be raised for the first time on
appeal, but must have been raised to and ruled upon by the trial judge to be
preserved for appellate review.” Id.
The issue whether South Carolina recognizes intentional interference with
inheritance was neither raised nor ruled upon below, nor was there any discussion
or ruling as to the sufficiency of Malloy's complaint. While our rules allow us to
affirm the trial court's ruling on any ground appearing in the record, Rule 220
SCACR, Merrill Lynch asks us to reverse on such a ground. We decline to do so,
and this opinion must not be understood as either adopting or rejecting the tort of
intentional interference with inheritance.

    2. Should Malloy's claims against Merrill Lynch be subject to arbitration?
Merrill Lynch contends that Malloy is bound by the arbitration agreement
contained in two CRAs that Decedent executed with Merrill Lynch. Merrill Lynch
avers that at all times germane to this asserted claim, its relationship with Decedent
was pursuant to the CRAs. Merrill Lynch contends that any duty owed to Malloy
was derivative of its duty to Decedent under the CRAs, and therefore, the circuit
court erred in not compelling arbitration. We disagree.

The circuit court ruled that as a non-signatory to the CRAs Malloy could be bound
by an arbitration agreement under common law principles of contract and/or
agency law, but none of those principles apply in this case, and therefore, there was
no basis to compel Malloy to arbitrate. We agree.

The court of appeals has recognized that five theories "'aris[ing] out of common
law principles of contract and agency law' could provide a basis 'for binding
nonsignatories to arbitration agreements: 1) incorporation by references; 2)
assumption; 3) agency; 4) veil piercing/alter ego; and 5) estoppel.'" Pearson v.
Hilton Head Hosp., 400 S.C. 281, 288, 733 S.E.2d 597, 601 (Ct. App. 2012)
(quoting Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206
F.3d 411, 416 (4th Cir. 2000)). In addition to these theories, some federal courts
have recognized that a third-party beneficiary of a contract containing an
arbitration clause may be compelled to arbitrate as a non-signatory. See Bridas
S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347 (5th Cir. 2003).

Merrill Lynch does not argue that any contract, agency, or third-party beneficiary
theory supports a finding that Malloy is obligated to arbitrate pursuant to the
CRAs.3 Instead, it presents its general argument that arbitration should be

3
 Regardless, we agree with the circuit court that in this case none of these theories
could bind Malloy to the arbitration agreement CRAs.
compelled because any duty violated by Merrill Lynch is derivative of its duties to
Decedent under the CRAs.

Merrill Lynch's argument that a derivative "duty" from the CRAs binds Malloy, a
non-signatory to the CRAs, conflates the duties created by the CRA contracts and
general tort duties. Malloy does not claim that Merrill Lynch breached a duty
created by the CRAs, but rather that it breached the duty owed by all persons not to
intentionally interfere with another's expected inheritance. The contractual duties
between Decedent and Merrill Lynch are irrelevant to whether Merrill Lynch
intentionally interfered with Malloy's expected inheritance. Accordingly, we find
that Malloy is not bound by the CRA's arbitration agreements and affirm the circuit
court's denial of Merrill Lynch's motion to dismiss and compel arbitration.

AFFIRMED.

TOAL, C.J., BEATTY, KITTREDGE and HEARN, JJ., concur.