South Carolina Supreme Court Finds Contract Didn’t Involve Interstate Commerce, Reverses Order Compelling Arbitration

In Hicks Unlimited Inc. v. UniFirst Corp., the South Carolina Supreme Court agreed with a trial court ruling that the underlying contract between the parties, which included mandatory arbitration to be governed by the Federal Arbitration Act, did not implicate interstate commerce. The court found that the FAA did not preempt South Carolina’s Arbitration Act (SCAA) and reinstated the trial court’s order denying UniFirst’s motion to compel arbitration.

Hicks and UniFirst entered into a contract wherein Hicks agreed to rent uniforms for its employees. The agreement mandated all disputes would be decided by binding arbitration per the expedited procedures of the commercial arbitration rules of the American Arbitration Association and governed by the FAA. UniFirst moved to compel arbitration of a dispute that arose between the parties, and Hicks opposed the motion on the grounds that the arbitration provision did not comply with the notice requirements of the SCAA and was unenforceable. UniFirst further contended that the arbitration provision was governed by the FAA, which preempts the notice provision set forth in the SCAA. The lower court denied UniFirst’s motion, finding that the FAA did not apply because the agreement did not involve interstate commerce, and the arbitration provision was unenforceable because it did not meet the notice requirements of the SCAA. On appeal by UniFirst, the court reversed the trial court’s ruling, concluding that arbitration should have been compelled because the contract involved interstate commerce and, therefore, the FAA preempted the SCAA. Hicks appealed to the South Carolina Supreme Court.

In reversing the court of appeals’ decision, the court first noted that the determination of whether a contract involves interstate commerce, and whether it preempts applicable state law, is a question of law to be reviewed on a de novo basis. The court then rejected UniFirst’s argument that, because the parties agreed in the contract that the FAA would apply, it was unnecessary to address whether the contract involved interstate commerce. The court ruled that a provision in an arbitration agreement declaring that the FAA applies “is not a fait accompli.” The court refused to apply the FAA to the dispute without first determining whether interstate commerce was involved. The court noted that when deciding whether a contract involves interstate commerce, a court must examine the agreement, the complaint, and the surrounding facts, including any affidavits. The court then found the evidence UniFirst relied upon to support its contention that the agreement involved interstate commerce was untimely, and the court of appeals should not have used those facts in ruling for UniFirst. The court concluded that the contract did not involve interstate commerce, affirmed the trial court’s determination denying UniFirst’s motion to compel arbitration, and reversed the court of appeals’ ruling.

Hicks Unlimited, Inc. v. UniFirst Corp., No. 28158 (S.C. June 14, 2023).