Jeff Winkler, President
It is humbling to step into leadership as the
President of the South Carolina Chapter of ACC. Since the November Annual Meeting, we, meaning all of us on the Board of
Directors, have been busy with the early 2017 activities and we look forward to
leading the way through the remaining months of the year.
ACC membership continues to grow with now over
200 members in South Carolina and over 42,000 members across the globe. Pondering these numbers leads to the
realization that we are all part of something much larger than ourselves. It is this shared collective experience that attracts
many to ACC and this sharing is most prominent at the local level. So, make a point to attend as many Chapter
events as you are able to this year.
Looking at the ACC National 5-Year Strategic
Plan, the focus areas for 2017 include:
- publication of collective
reports on management issues and trends specific to our industry so that we can
benchmark by industry; company; and law department size and geographic
- new leadership
programs to locate and train us as advocates to expand the influence and
visibility of in-house counsel;
- emphasis on developing
opportunities to serve members’ needs in the areas of career mobility and
Here at the South Carolina Chapter, we plan to
engage these 2017 focus areas and follow these initiatives.
I also will take this opportunity to thank our
immediate Past President, Chris Greene, and the 2016 members of the Board for
their diligence and service. It’s a new
year with lots to accomplish. Let me
introduce you to your 2017 Board:
Vice President: Luke Umstetter
Secretary: Van Anderson
Treasurer: Nici Comer
Past President: Chris Greene
Board of Directors:
John Marshall Mosser
At a recent meeting of the Board, plans were
discussed to adapt our programming to better fit the geographic distribution of
our membership which is split among the metropolitan areas around Charleston,
Columbia and Greenville. Additionally, educational
initiatives are in the works to train you to be a better legal professional and
a sharper business professional.
We are pleased to have the participation of 15 firm
sponsors for 2017. As a member, you will be benefiting from programs
Adams & Reese LLP
Bowman and Brooke, LLP
Gallivan White and Boyd, P.A.
Haynsworth Sinkler Boyd, P.A.
Jackson Lewis, P.C.
K&L Gates LLP
McNair Law Firm, P.A.
Moore and Van Allen PLLC
Nelson Mullins Riley & Scarborough, LLP
Nexsen Pruet, LLC
Ogletree Deakins Nash Smoak & Stewart PC
Parker Poe Adams & Bernstein LLP
Turner Padget Graham and Laney, P.A.
Willoughby & Hoefer, P.A.
Womble Carlyle Sandridge & Rice, LLP
Remember that personal invitations are
powerful. As the sponsors plan each of
their activities and invite you, make a point to pass that invitation on to a colleague
or other in-house counsel you know and encourage them to participate. The board
wants to challenge each of you to consider yourself an ACC ambassador who will reach
out to all prospective members in your network.
I am excited about our social, programming and
educational plans for 2017 and thank you for the opportunity to serve as your
President in 2017. Please do not hesitate to contact me. I look forward
to hearing from you.
|Save the Dates for these Upcoming ACC South Carolina Chapter Events
Join us for these upcoming ACC South Carolina Chapter Events:
March 22 - Columbia - South Carolina Men's Baseball Game with Turner Padget
Carolina Stadium, Coke Pavilion
431 Williams Street
Columbia, SC 29201
Join the attorneys of Turner Padget and fellow ACC SC members as the USC Gamecocks take on the Charleston Southern Buccaneers.
Spouses and children are welcome and encouraged to attend!
Food and soft drinks will be served.
Registration will close March 15th at 4:30 PM. Click here to register for this event. Password is accsc.
April 27 - Charleston, Columbia, Greenville - Womble Carlyle Sandridge and Rice CLE Program
Save the Date for this CLE program! More information will be added soon and can be found here.
|Making it Stick: Drafting Enforceable Arbitration Clauses in South Carolina
Patrick J. Cleary, Richard H. Willis, Angela G. Strickland, Bowman and Brooke LLP
It's been one of those rare quiet
afternoons at Acme Manufacturing Company. The shareholder meeting is weeks away, the litigation docket is quiet,
no one is on strike and nothing has exploded. You are catching up on deleting emails when the General Counsel bursts
into your office, having just returned from a ski-LE in Aspen. "Say, while
I was skiing, I mean in a CLE, we had a presentation on using arbitration to
insulate your company from run-away jury verdicts. I took a few minutes in the chalet to draft
up a mandatory arbitration clause that we need to include in our warranties. It says from now on, no one can sue us for
anything, we can't be liable to anyone for monetary damages, and if our
products don't work, too bad, you have to arbitrate. Can we make this stick?"
You take a deep breath and try to
read the scribbled language on the back of a cocktail napkin. You are generally familiar with the basic law
regarding arbitration clauses, but haven't looked at the issue in a few
What you do know is that arbitration
clauses encourage cost-efficient dispute resolution. As part of a well-designed product warranty
and remedy mandatory arbitration typically lowers costs, while providing for a
workable dispute resolution remedy.
Arbitration can provide a decision well before a court or jury can hear
a case, and in dispute resolution, time is money.
But arbitration can provide these
benefits only if the seller can enforce the arbitration clause. Until last year, the prevailing rule in South
Carolina was that (with some very limited exceptions) public policy favored
arbitration and unless the arbitration clause itself was unconscionable, arbitration would be compelled. This view was consistent with the Federal
and the United States Supreme Court's Prima Paint doctrine.
In 2016, the South Carolina
Supreme Court and the South Carolina Court of Appeals issued opinions in two
separate cases that illustrate differing applications of the Prima Paint
doctrine. In the D.R. Horton
case, the Supreme Court affirmed the circuit court's decision not to compel
arbitration provisions in a new home sales contract. 
In the One Belle Hall case, the Court of Appeals reversed the circuit
court's decision finding that the arbitration clause included in a warranty for
roof shingles was unconscionable and unenforceable.
These split opinions create the
potential for confusion over what was previously well-settled law, and permit
trial courts to look beyond the arbitration clause and potentially use
extrinsic evidence to refuse to enforce an arbitration clause.
This article examines the
enforceability of arbitration clauses in South Carolina, discusses the effects
of the D.R. Horton and One Belle Hall cases, and provides practical
guidance on how to write more enforceable arbitration clauses for South
Carolina product sales.
The Federal Arbitration Act and the Prima Paint Doctrine
In 1924, the Federal Arbitration
Act ("FAA") became law,
and generally covers all arbitration agreements affecting interstate commerce. Unless explicitly contracted otherwise, the
FAA applies in federal or state court to any arbitration agreement involving
interstate commerce and preempts contrary state law. In 1967, the United States Supreme Court
decided the Prima Paint
case, holding that that to avoid mandatory arbitration, a party must limit its contractual
defenses to the arbitration agreement itself, and not to the contract as a
South Carolina Cases Applying Prima Paint
In applying Prima Paint,
South Carolina courts have traditionally conformed to the notion that to
challenge the enforceability, "a party must allege that the arbitration
agreement is unconscionable, not that the entire contract is unconscionable."
The South Carolina Supreme Court held in
1993 that "a party cannot avoid arbitration through rescission of the
entire contract when there is no independent challenge to the arbitration
Prior to 2016, with a few exceptions, trial courts in South Carolina were
instructed to apply principles of contract law to determine if the intrinsic
text of the arbitration clause was fair and provided for a neutral forum. That
instruction was consistent with our state policy to "favor arbitration of
D.R. Horton and One Belle Hall
D.R. Horton, Inc.
The D.R. Horton case arose
from allegedly faulty home construction of a home in Dorchester County. In 2005, the owners entered into a Home Purchase
Agreement with D.R. Horton. This Agreement
included a lengthy Warranty and Dispute Resolution clause (Paragraph 14, subparts
(a) through (j)) which required the parties to arbitrate any claim arising out
of the home construction or any dispute over the warranties in the Agreement. Paragraph 14 of the Agreement also included
disclaimers of implied warranties on the home and provided that D.R. Horton
would not be liable for any type of monetary damages. After five years of alleged construction
defects and unsuccessful repairs, the owners filed suit against D.R. Horton.
D.R. Horton filed a motion to
compel arbitration, which the trial court denied, finding the arbitration
agreement was unconscionable. In its
ruling, the court observed that the arbitration agreement included "a
number of oppressive and one-sided provisions" including warranty
disclaimers and a prohibition on monetary damages.
On appeal, both the Court of
Appeals and the Supreme Court affirmed the trial court's ruling. In the majority 3-2 opinion, the Supreme
Court, in ostensibly applying Prima Paint, held that because of the "interlocking
nature" of the warranties and dispute resolution provisions,
the determination of whether the arbitration agreement was unconscionable
required an examination of the entire Agreement, not simply the subparagraph
including the arbitration clause. In
determining whether the Agreement itself was unconscionable, the Court
evaluated all of the subparagraphs in the Agreement, without explaining how this
could be consistent with the Prima Paint doctrine (much to the dismay of
the dissenters). In finding that the warranty disclaimers and exclusion of
monetary damages were unconscionable, the majority affirmed the decisions of
the lower courts not to compel arbitration, holding that that the homeowners
had no meaningful choice and the paragraphs were "clearly one-sided and
oppressive." This invalidated the arbitration clause.
One Belle Hall
The One Belle Hall lawsuit began
following the completion of a condominium project near Charleston. The condominium property association alleged
that the roof shingles used by the roofing subcontractor permitted moisture
intrusion into the property units and caused moisture damage. The admittedly
"take it or leave it" shingle warranty included a binding arbitration
clause and a separate legal remedies section that included implied warranty
disclaimers, limitations on monetary recovery, as well as a severability and
savings clause. Following the discovery
of alleged defective shingles, the manufacturer provided the developer a
warranty kit, per the terms of the Warranty. When the developer failed to comply with the warranty requirements, the
manufacturer inactivated the warranty. The property association then filed suit and the manufacturer then filed
a motion to compel arbitration. The
circuit court denied the motion, finding that the warranty was a contract of
adhesion, and contained terms that were one-sided. The court found that the arbitration clause
within the contract "was so intertwined with the terms of the warranty
that it could not be severed", and was therefore unconscionable and
On appeal, the Court of Appeals
reversed the circuit court, compelling arbitration. In its opinion, the Court, in applying Prima
Paint, held that the arbitration clause in and of itself was not
unconscionable, and could in fact be severed from the warranty disclaimers and
attempted restrictions on monetary recovery. While not explicitly stated in
the opinion, the Court indicated that if the arbitration clause can stand alone
as providing a fair and neutral forum for resolution of disputes, then a trial
court should enforce the arbitration clause and leave the issues as to the
conscionability of the remaining terms of the warranty to determination by the
Enforceable Arbitration Clauses in South Carolina
While there is no explicit
guarantee that a trial court will find that an arbitration clause is
enforceable, following the 4 "C's" described below will help improve
- Commit the
Parties – The arbitration clause should clearly commit the buyer, and any
third-party beneficiary or subsequent purchaser to binding arbitration to be
conducted as described in the clause itself.
– The clause should be conspicuous and set aside from the rest of the
warranty. Approaches to ensure a
conspicuous clause include putting it on a different page, using different
fonts or type sizes, or using other visual cues to set the clause apart. You
may also wish to consider a separate signature/initial from the parties to the
- Complete – The clause should be a "standalone provision," and not require
the purchaser (and by extension a court) to read other sections of the warranty
to understand its effects.
Reasonable – The provisions of the arbitration clause should include a
description of the process for arbitration and provide for a neutral
decision-maker. Examples of this can
include requiring arbitration in accordance with the rules of the American
Arbitration Association or another accepted arbitration process.
In addition to the guidance
provided above, the One Belle Hall and D.R. Horton cases strongly
indicate that an effective arbitration clause might also include the following
Clauses – Providing a
severability clause in the arbitration clause itself may help focus the court
into looking at the arbitration clause on its own. The
absence of a severability clause could be cited as lack of intent.
Clauses – Providing language that "this warranty gives you specific legal
rights and you may have other rights which vary from state to state and
province to province" in the warranty helps save the key provisions of the
warranty from challenge. In addition,
language that states that any provision of the warranty or arbitration
provision that is in violation of applicable state law would be considered null
and void also helps save the arbitration clause.
- Chance for
Independent Review – In cases of the sale of an expensive product or a
product where specific statutory remedies apply, offering the buyer a chance to
have independent counsel review the arbitration agreement before purchase
reduces the chance that the court could agree with an unconscionability
argument based on unequal bargaining power.
required by any case law or statute in South Carolina, adding the following
provisions to the product warranty may help persuade a court, if it goes beyond
the four corners of the arbitration clause itself, to find the arbitration
Benefits in the Warranty – For example, the warranty might provide a longer
repair and replace period than provided by statute.
the Warranty and Arbitration Clauses on External Packaging or on the Internet – This type of notice
puts the buyer on notice of the existence arbitration clause before
the Purchaser to Specifically Acknowledge the Arbitration Clause – One
additional idea is to specifically require the purchaser to acknowledge the
arbitration clause at the time of purchase.
Finally, for those limited cases
involving only intrastate South Carolina commerce (and therefore the FAA and Prima
Paint doctrines were not involved), the arbitration clause is governed by
state law and must comply with the provisions of the South Carolina Uniform
Arbitration Act. Of note, the SCUAA imposes additional notice
requirements on the validity of an arbitration agreement.
"Notice that a contract is subject to
arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber-stamped
prominently, on the first page of
the contract and unless such notice is displayed thereon the contract shall
not be subject to arbitration."
How you write an arbitration
clause effects its enforceability. While
the D.R. Horton and One Belle Hall opinions indicate divergence
in our appellate courts about whether a trial court can look beyond the
arbitration clause itself to determine enforceability, following the
recommendations and guidance in this article, particularly the 4 "C's"
will improve the chances that your arbitration agreement will be
The key to getting trial courts
to enforce arbitration clauses is to resist the urge to write yourself an
advantage over the other party to the agreement. Damages limitations and warranty exclusions,
even though expressly permitted by the UCC, can be made to look like an effort to
deprive a consumer of rights conferred by other South Carolina laws or
statutes. This is not to say these limitations cannot
be enforced. They can. But you must provide that the forum in which
they are to be enforced is neutral and mutual.
To the extent that you try to restrict what an arbitrator can or cannot
do, you increase the risk of your case winding up in front of a jury.
Prima Paint Corp. v. Flood & Conklin Manufacturing Co. 388 U.S. 395 (1967).
Gregory Smith and Stephanie Smith v. D.R. Horton, Inc. et. al., 417 S.C.
42, 790 S.E.2d 1, (2016). This opinion
was filed on July 6, 2016, and a petition for rehearing was denied on September
One Belle Hall Property Owners Assoc. Inc., v. TAMKO Building Products, Inc.
et. al., 418 S.C. Ct. App. 51, 791 S.E.2d, 286 (Ct. App. 2016). This opinion was initially filed June 1,
2016, then withdrawn, substituted and refiled on September 28, 2016. Co-authors
Richard Willis and Angela Strickland filed the brief on behalf of TAMKO and
Richard Willis argued on behalf of TAMKO before the Court of Appeals.
e.g. Cape Romain Contractors, Inc. v. Wando E., LLC, 405 S.C. 115,
121–22, 747 S.E.2d 461, 464 (2013).
v. Green Tree Fin. Corp., 343 S.C. 531, 538, 542 S.E.2d 360, 363 (2001).
Paint Corp. v. Flood & Conklin Manufacturing Co. 388 U.S. 395 (1967).
 See S.C. Pub. Serv. Auth. v. Great W.
Coal (Ky.), Inc., 312 S.C. 559, 562–63, 437 S.E.2d 22, 24 (1993).
Zabinski v. Bright Acres Assocs., 346 S.C. 580, 596, 553 S.E.2d 110,
The appellate record in D.R. Horton indicates that the subparagraphs of
paragraph 14 included cross-references to one another.
Horton, 417 S.C. at 48.
Horton, 417 S.C. at 50-51.
e.g. D.R. Horton, 417 S.C. at 46.
One Belle Hall, TAMKO offered a twenty-five year warranty period for its
Code Ann. § 15-48-10, et. seq.
Code Ann. § 15-48-10(a) (emphasis added).
 See e.g. Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 24-25,
644 S.E.2d 663 (2007) (affirming the denial of a motion to compel arbitration
arising out of the trade of an automobile because the arbitration clause lacked
mutuality and sought to tip the scales in favor of the car dealer).
Cleary defends major automotive and all-terrain manufacturers against product
liability cases in both state and federal court. His most recent focus has been
on the developing technologies and regulations surrounding autonomous vehicles.
Willis is a trial lawyer with more than 34 years of experience practicing in
the areas of product liability defense, environmental litigation, toxic torts,
class actions and commercial litigation. He has tried over 30 cases to
verdict, representing corporate clients in many different areas and venues.
Strickland practices in the areas of product liability and personal injury
defense, with a focus on the defense of automotive and other products, both
consumer and industrial.
|Case Update: South Carolina Court of Appeals Issues New Opinion Offering Insight into Drafting and Interpreting Non-compete and Nondisclosure Agreements
Jordan Crapps and Amy Hill, Gallivan, White, and Boyd, P.A.
According to a March, 2016, U.S.
Department of the Treasury report, nearly 30 million workers are covered by a
These workers run the gamut from CEOs to sandwich makers.[ii]
It is important for firms and individuals to understand the import of these
clauses and to enter into agreements knowing what is expected and required of
them if the employee were ever to leave. Further, when an employee does leave,
the new (hiring) employer, the employee, and the former employer all have
important factors to consider. The South Carolina Court of Appeals issued an opinion
March 1, 2017, which offers employers some important drafting considerations.[iii]
This decision outlines the significant interplay between non-compete agreements
and nondisclosure agreements.
Much like a
prenuptial agreement, employees and some employers find it uncomfortable
discussing and negotiating non-competes on the front end. Some view it as an
acknowledgement that the “marriage” will not work out. Some employers include
this in a “take-it-or-leave-it” contract and eliminate any negotiation at all. Further,
how does an employer protect important and sometimes vital confidential
information and trade secrets without preventing an employee from ever earning
a living? All of these considerations can lead to costly and complex litigation
on the back-end. It is more important that parties to an employment agreement
or an acquisition agreement seek advice of counsel to draft or review non-competes,
and, later, to avoid running afoul of properly drafted non-competes either as
the employee or the new employer.
agreements are contractual agreements which state that an individual, under
certain circumstances, will not operate in the same industry within
geographical area and within a certain time period after their employment ends.
A nondisclosure agreement is often times a provision of a broader non-compete agreement.
They attempt to prevent the dissemination of certain confidential information
or trade secrets by a current or former employee. Both of these agreements
typically arise in employment agreements or as a result of the sale of a
Despite their similarities,
non-compete agreements and nondisclosure agreements may be reviewed and
analyzed differently by the courts. In reviewing a non-compete agreement,
courts could consider such things as:
- The type and size of the business involved;
- The geographic limitations imposed by the
- The time frame of the non-compete agreement;
- The employee’s position within the company;
- The ability of the employee to earn a livelihood;
- Public policy.[iv]
Because covenants not to compete are agreements in partial
restraint of trade, they may be critically examined and construed against the
The extent of this review and the enforceability of the particular portions of
a non-compete agreement varies from state to state.
Further, in reviewing non-compete
agreements, courts take various views on the ability of the court to revise a
non-compete in light of an unreasonable provision. For example, if the court
finds that a geographical restriction in a non-compete is unreasonable, courts
disagree on whether they can strike the unreasonable restriction and provide a
more reasonable one or otherwise save the non-compete agreement. Because these
agreements can be construed against the employer and courts may not bail you
out, firms need to pay particular attention to drafting these clauses with care
contrast, South Carolina statutory law dictates that “[a] contractual duty not
to disclose or divulge a trade secret, to maintain the secrecy of a trade
secret, or to limit the use of a trade secret must not be considered void or
unenforceable or against public policy for lack of a durational or geographical
Therefore, nondisclosure agreements, unlike a non-compete agreement, need not
state or be constrained by reasonable geographic or time limitations. Further,
because nondisclosure agreements do not restrain trade or employment
opportunities but rather disclosure of information, “there is no ancient
disfavor and thus they are not to be strictly construed in favor of the
In reviewing nondisclosure agreements, courts seek to determine if the
provision is “no greater than necessary to protect the employer’s legitimate interests,
and it is not unduly harsh in that it curtails the employee’s ability to earn a
is this contrast of analysis that the South Carolina Court of Appeals was
forced to deal with in the Fay decision
issued March 1, 2017. The Court analyzed an employment agreement that contained
both a non-compete agreement and a nondisclosure agreement.[ix]
The non-disclosure provision prohibited the dissemination and use of
“Confidential Information” at any time during the course of his employment and
at all times thereafter.[x]
Therefore, the non-disclosure agreement did not contain a time period
restriction. The agreement defined Confidential Information very broadly. The
Agreement went on to state that employment with a competing business would
necessarily and inevitably result in [the employee] … using [the company’s]
confidential information to unfairly compete with [the company].” The Agreement
defined Competing Businesses as any person engaged in the motor transport and
related service. Therefore the various provisions of the agreement, in
- Nearly any information received during the
employment was confidential;
- Any employment with a competing business,
defined broadly, anywhere in the United States would require the use of the
- And use of confidential information was
Seemingly, the employer in this case was contractually
imposing what is known as the “inevitable disclosure doctrine.”[xi]
Basically, the employer was saying that any employment within the same industry
would result in the former employee disclosing confidential information.
The Court interpreted the
combination of these provisions to constitute a non-compete agreement as opposed
to a non-disclosure agreement, as it was titled. The Court found that the
employee “could never hold a position similar to his position at TQL with any
competitor of TQL without violating this agreement.”[xii]
As a non-compete agreement, it is subject to the rules surrounding non-competes
as opposed to those surrounding non-disclosure agreements. The Court refused to
apply a time restriction found elsewhere in the agreement or insert a
reasonable time restriction to the nondisclosure agreement because “it would
add a term to the Agreement to which the parties nether negotiated or agreed.[xiii]
Therefore, the Court found that the non-disclosure agreement was in effect a
non-compete provision without a reasonable time restriction and thus void.
The idea of finding that a
nondisclosure agreement may operate as non-compete agreement is not new.[xiv]
South Carolina courts have referenced the idea since at least 1975.[xv]
Recently, in 2012, the South Carolina Supreme Court analyzed a different
non-disclosure agreement and found that, over the argument of the employee, it
did not operate as a non-compete agreement and should not be analyzed under the
higher applicable standard.[xvi]
A comparison between the two may help sharpen what is often a fuzzy line
between permissible and non-permissible restrictions.
In the Milliken case, the Court found that the following
confidentiality/non-disclosure agreement did not operate as non-compete
INFORMATION means all
sensitive information of importance to
and kept in
confidence by Milliken, which becomes
known to me
through my employment with Milliken
and which does
not fall within the definition of Trade
Secret above. Such
Confidential Information may
be valuable to
Milliken because of what it costs to
of the advantages Milliken enjoys
exclusive use, or because its dissemination
Milliken's competitive position.
. . . .
B. EXCEPT as
required in my duties to Milliken, I
either during my employment by Milliken
use or disclose, modify or adapt any
. . .
Confidential Information as defined in paragraph
until three (3) years after the
my employment except as authorized
in the performance of
my duties for Milliken.[xvii]
The employee in Milliken was a physicist operating in Milliken’s Spartanburg plant.
According to the Court, the confidential information Milliken was attempting to
protect was narrow in scope in that the information must be:
- competitively sensitive information
importance to and
- kept in confidence by Milliken,
- which becomes known to the employee through his employment with Milliken, and
- which is not a trade secret.[xviii]
The Court found that this did not cover the employee’s
general skill and knowledge and that Milliken had an important interest in
protecting this type of information.[xix]
Further, the agreement was “designed to strike an appropriate balance between
protecting an employer’s valuable interest in its proprietary information and permitting
an employee to find gainful employment in his chosen field.”[xx]
Therefore, the Court did not apply the standard of review applicable to
non-compete clauses and found it reasonable under the standard applicable to
nondisclosure agreements. A comparison of the two nondisclosure agreements in Milliken and Fay can offer some important drafting assistance.
interesting point in the Fay decision
involves choice of law provisions. In Fay,
the choice of law provision applied Ohio law to the agreement. Ohio does allow
court drafted blue-pencil revisions to non-compete agreements. However, South
Carolina law requires non-compete agreements, even those interpreted under
other states’ laws, to be “reasonable from the standpoint of sound public
policy,” and “the very act of adding a term not negotiated and agreed upon by
the parties violates public policy.” Therefore, the Court found that it need
not apply Ohio “blue-pencil” law because such law itself violates South
Carolina public policy. It was on this issue that the majority and the
concurrence opinion split. The concurrence opinion found that the court should
apply Ohio “blue-pencil” law but that the resulting contract would still fail.
Multi-jurisdictional companies have yet another thing to consider when drafting
agreements and choosing choice of law provisions. What impact that has on the
review and analysis of the contract may yet be determined.
line of permissibility still may not be clear, it is clear that courts will
review nondisclosure agreements for a sense of reasonableness. Employers must
consider this in drafting these agreements and attempt to target important
interests it wants to protect and leave room for employees to find gainful
employment. Going too far in a nondisclosure agreement may result in a court
finding that agreement is void. It is important to note that the Fay decision discussed above is subject
to further appeal to the South Carolina Supreme Court. If review is granted, it
will be a case worthy of following.
and nondisclosure agreements are complicated subject matter and are often a
difficult topic to discuss in the euphoria surrounding a new employment
agreement or acquisition agreement. However, it is important for all parties to
enter into these agreements with a proper understanding of what they prohibit
and what they do not prohibit. In any industry, having a well-crafted
non-compete agreement provides the comfort to allow business to invest in
individuals or businesses and protects individuals from signing their economic
[i] U.S. Dep’t of the
Treasury, Non-compete Contracts: Economic Effects and Policy Implications, available at https://www.treasury.gov/resource-center/economic-policy/Documents/UST%20Non-competes%20Report.pdf
[ii] Clare O’Connor, Does Jimmy John’s Non-Compete Clause for
Sandwich Makers Have Legs?, Forbes (October 15, 2014), http://www.forbes.com/sites/clareoconnor/2014/10/15/does-jimmy-johns-non-compete-clause-for-sandwich-makers-have-legal-legs/#56dd36a02740
[iii] Fay v. Total Quality Logistics, LLC, No. 5471 (S.C. Ct. App. filed
March 1, 2017).
[iv] For an example of a South
Carolina court’s recitation, see, Faces
Boutique v. Gibbs, 318 S.C. 39, 42, 455 S.E.2d 707, 708 (Ct. App. 1995).
[v] Poole v. Incentives Unlimited, Inc., 345 S.C. 378, 381, 548 S.E.2d
207, 208-09 (2001).
[vi] S.C. Code Ann. §
[vii] Milliken & Co. v. Morin, 399 S.C. 23, 32 (2012).
[xi] For a general analysis of
the doctrine, see, Keith Roberson, South Carolina’s Inevitable Adoption of the
Inevitable Disclosure Doctrine: Balancing Protection of Trade Secrets with
Freedom of Employment, 52 S.C. L.Rev. 895 (Summer, 2001).
[xiv] Milliken, 399 S.C. at 33 (Footnote 4).
[xx] Id. at 38-9.
Jordan Crapps handles complex litigation matters out of
the firm’s Columbia, South Carolina office. His practice focuses on banking,
finance, contract disputes, business torts, and securities litigation.
Amy Hill is a litigation attorney practicing out of the
firm’s Columbia, South Carolina office.
With a degree in accounting, her legal practice places an emphasis on
business and commercial litigation with a particular focus on probate
litigation as well as lender liability and FINRA litigation. Amy also represents attorneys in malpractice
claims and disciplinary matters.
Gallivan, White, & Boyd, P.A. is one of the
Southeast’s leading law firms for business and litigation. Founded more than
sixty years ago in Greenville, South Carolina, the firm’s attorneys serve
clients from four offices: Charleston, Columbia, and Greenville, South Carolina
and Charlotte, North Carolina. The firm frequently represents corporations,
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|Should Major Customers Opt-out of or Exclude Themselves from Antitrust Class Actions?
David Eddy, Marguerite Willis, Dennis Lynch, Travis Wheeler, Nexsen Pruet, LLC
legal departments are increasingly asked to be more than just a necessary cost
of doing business, but also to act, when and where appropriate, as a monetary
recovery center that contributes to the company’s bottom line. In our antitrust
litigation practice, we increasingly hear from in-house counsel that they (and
thus we) are to be on the alert for anticompetitive conduct in violation of the
federal or state antitrust laws that may have injured the company. In the event such a potential claim hits
their radar, in-house counsel must assess the merits of the company’s claim,
the potential damages suffered, and, if merited, determine the best path
forward for the company to obtain a recovery.
the context of antitrust law violations (especially where a company does not
have dedicated antitrust counsel), a legal department may not learn of the
company’s potential claim until after class notices of a litigation or
settlement class begin trickling in from the company’s various divisions and
operating facilities. The notices will provide
hard deadlines for the company either (1) to remain a passive member of the
class (generally requiring no action) or (2) to take steps to exclude the
company from or “opt out” of the class (timely written notice to a class action
administrator) to pursue an independent path for the recovery on its claim.
consequences of this decision, for the reasons discussed below, can be
significant. If the company elects to
remain in a litigation class, it will be bound by any judgment for or against
the class. If it elects to remain in a settlement class, it will be bound by
the terms of the class settlement and, in particular, the broad release of
claims given to the defendants. We set
forth below: (a) a brief overview of the antitrust laws, (b) how antitrust
class actions arise, and (c) the factors to be considered in deciding whether
or not a corporation should remain in or exclude itself from a class action.
- Brief Summary of the Federal Antitrust
the federal antitrust laws (the Sherman Act, 15 U.S.C. §§ 1-7, and the Clayton
Act, 15 U.S.C. §§ 12-27), companies and individuals that engage in collusive
anticompetitive conduct, such as price-fixing, bid-rigging, and/or allocation
of markets/customers (which are all deemed to be per se illegal), face the potential for felony convictions and
substantial criminal penalties. Criminal fines can run into the hundreds of
millions of dollars and
executives face imprisonment of up to ten years.
addition to this extensive criminal exposure, companies that violate the
antitrust laws may face very significant civil damages as well. As the U.S. Supreme Court noted, Congress
designed the antitrust laws to incentivize civil plaintiffs to serve as
“private attorneys general.” For
example: (1) a defendant can be held jointly and severally liable for all the
damages caused to a plaintiff by the entire conspiracy and all of its members;
(2) if a plaintiff obtains a judgment its damages are automatically trebled, so
that it will recover three times the damages the jury awarded; (3) the
plaintiff is entitled to recover its reasonable attorneys’ fees and certain
costs; and (4) prejudgment interest is also recoverable in some instances.
- How Antitrust Class Actions Generally
DOJ’s Antitrust Division (the “DOJ”), through grand juries and leniency
applications, investigates potential anticompetitive conduct by companies to,
among other things, fix prices, rig bids, and/or allocate customers or markets
in violation of the Sherman Act. There generally are more than 60 sitting
grand juries investigating antitrust violations at any one time. In
addition, the DOJ views it Leniency Program as its most important investigative
tool for detecting cartel activity. This
Program provides powerful incentives for companies to self-report their illegal
anticompetitive conduct, because generally the first company to inform the DOJ of
the conspiracy will escape criminal prosecution and fines and its executives
will not face prosecution.
a DOJ investigation comes to light, class action complaints (often by the
dozens) inevitably soon follow. Class action cases may also
arise even absent governmental action. The
Federal Rules of Civil Procedure provide that members of a certified class must
be notified of the class action and given the opportunity to remain in the
class (either a settlement class or litigation class) or to exclude themselves
from the class (called “opting out”) to potentially pursue recovery of their
damages separate and apart from the class.
Major purchasers of affected services or products often learn they have
been victims of conspiracies only long after such class actions have been
filed. If no class is certified, however,
affected "class members" may never receive any formal notice.
the Clayton Act’s four-year statute of limitations is suspended or “tolled” by
virtue of the filing of a class action (also if there is a pending criminal
proceeding), there is generally no immediate urgency for a company to file an individual opt-out action. Nevertheless,
a company that learns it may have a claim should promptly collect its
information sufficient to assess the scope of its claim. This will allow it to decide whether it wants
to remain a passive class member (and provide the information necessary for it to
submit a class settlement claim form) or pursue its claim outside of the class.
- Factors affecting the Decision to
Participate in or to Opt Out of Proposed Class Actions
a large customer (defined by the size of its purchases of the affected product
or service relative to the overall market) must decide whether to stay in the
class action or pursue an independent path, there are a number of factors it
- The “Pros” of Staying in a Class Action
principal benefit of remaining as a passive member in a class action will be
that the company generally needs to do nothing in the case and it will pay no
out-of-pocket fees or costs. The company will not need to select counsel,
respond to discovery (generally), or otherwise participate in the litigation, except
to its collect data/information for purposes of filing its claim in the event
the class recovers money by way of settlement or judgment. The flip side
of being a passive class member is that the company is represented by class
counsel that it did not select, does not know, and with whom it will likely never
communicate during the case.
perceived benefit of remaining in a class is that customers stay “below the
radar” and do not “antagonize” their supplier(s). We have found in our practice, however, that suppliers
who have violated the antitrust laws are themselves very concerned about how
their customers will react once the conspiracy is public. In most cartel
cases in the United States, the companies involved will replace their former
management (in whole or in part) and take affirmative steps to remedy their
past misconduct. Likewise, as major customers increasingly are
filing individual actions in large cartel cases, they provide a certain “safety
- The “Pros” of Opting Out of a Class
a company that seeks to pursue an independent action will have to retain
counsel and face discovery in its case (in the event the claim is not settled
prior to suit), there is little discovery that legitimately can be demanded
from victims of a conspiracy (usually just their transaction documents and
data) as the evidence of the conspiracy lies in the hands of the defendants.
Because some law firms will take such cases on a contingent fee basis, the
company can also avoid out-of-pocket fees and costs.
benefits of retaining independent counsel are, among others, that such counsel
- Work with economic consultants
from the outset to develop a liability and overcharge economic analysis
specific to the company;
- Analyze the claims and damages specific to the company;
- Work to maximize the amount,
form, and timing of the company’s net recovery. Our experience has been that
opt-outs may recover significantly more money (and often sooner) than absent
members of a class. Unlike individual settlements, class settlements must
be approved by the Court, often are delayed by objections filed by class
members, and can take years before the funds are distributed to class
- Maximize the company’s control over the timing and substance of
the prosecution and settlement of its claims;
- Provide flexibility in settlement
negotiations with defendants to address potential business deal terms if
desired (e.g., rebates, credits,
etc.) along with or in lieu of cash payments;
- Focus exclusively on representing the company’s specific claims
and best interests as opposed to the interests of the class as a whole;
- Act to monitor all aspects of the case of particular relevance and
importance to the company;
- Identify and pursue claims against all appropriate defendants, including
in many instances, targets that have not been sued by the class; and,
- Demonstrate to the company’s vendors that it
monitors their conduct and is proactive in seeking remediation for wrongdoing.
final—and significant—incentive for large customers to hire independent counsel
is to ensure that their claims are preserved and advanced in a timely
manner. A class action can be a valuable procedural device that allows
the claims of hundreds or thousands of small claimants to be handled by common
counsel in one massive case. Class actions make sense for companies that
have small claims that do not merit individual attention. In recent
years, however, the U.S. Supreme Court and several appellate courts have
imposed increasingly tough standards on the certification of class actions in
antitrust cases and have found that many proposed classes fail to meet those
This is important for companies
to consider because if a class is not certified, affected companies may
discover several years down the road that no one is representing their
interests or pursuing their claims.
large potential antitrust claimant may, therefore, be best served by moving
quickly to retain independent antitrust counsel to evaluate the company’s claim
and pursue (if merited) an opt-out strategy.
 The DOJ’s Antitrust
Division obtained more than $7 billion in fines between 2012-2016.
 Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262 (1972).
 The Federal Trade
Commission also initiates investigations/proceedings into unfair methods of competition
that occasionally give rise to civil class actions.
 For example, in reversing class
certification in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), the U.S.
Supreme Court emphasized that trial courts must undertake a “rigorous analysis”
of whether a putative class should be certified, emphasizing, among other
things, that differences in the nature and type of damages suffered by putative
class members may bar class certification. Indeed, as exemplified in In
re Rail Freight Fuel Surcharge Antitrust Litigation, case filed in
2007 in MDL No. 1869 in the District of Columbia, questions over common impact/damages
and “uninjured” class members can significantly prolong the issue of class
certification: initially granted in 2012, class certification was reversed
in 2013 in light of Comcast, was reheard again in the Fall
of 2016, and has yet to be decided.
David Eddy, Marguerite Willis, Dennis Lynch,
and Travis Wheeler are principal members of the Antitrust Team at Nexsen Pruet,
LLC and are located in its Columbia, SC office.
provides a full service antitrust practice that includes defense litigation,
transaction counseling, compliance seminars, and pursuing antitrust recoveries for
clients of all sizes located in the U.S. and elsewhere.