RENDERED: JULY 9, 2021; 10:00 A.M. TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2020-CA-0781-MR
CURTIS GREEN AND CLAY GREEN, INC., d/b/a GREEN’S TOYOTA OF LEXINGTON; AND JOHN HICKS APPELLANTS
APPEAL FROM POWELL CIRCUIT COURT v. HONORABLE KENNETH R. PROFITT, JUDGE ACTION NO. 19-CI-00246
PHILLIP FRAZIER APPELLEE
OPINION AFFIRMING
** ** ** ** **
BEFORE: JONES, MAZE, AND TAYLOR, JUDGES.
JONES, JUDGE: Curtis Green and Clay Green, Inc., d/b/a Green’s Toyota of
Lexington and its sales agent, John Hicks, (collectively referred to herein as
“Green’s Toyota”) bring this interlocutory appeal pursuant to KRS1 417.220(1)(a)
1 Kentucky Revised Statutes. seeking review of the Powell Circuit Court’s denial of their motion to compel
arbitration of claims filed against them by the Appellee, Phillip Frazier. Having
reviewed the record and being otherwise sufficiently advised, we affirm the Powell
Circuit Court as set forth below.
I. BACKGROUND
On or about June 6, 2018, Frazier, who resides in Powell County,
visited Green’s Toyota in Lexington, Kentucky, where he purchased a 2018 Toyota
Tundra pickup truck. John Hicks was the sales agent who sold the truck to Frazier.
Frazier alleges that Hicks represented that the truck was a “new” vehicle with no
prior damage. The truck’s odometer showed it had been driven only 276 miles at
the time of sale. Frazier agreed to purchase the truck for $46,205.38 plus fees and
taxes for a total cash delivered price of $49,310.62. As part of the purchase,
Frazier signed a one-page, motor vehicle purchase contract (“Purchase Contract”);
a two-page “Applicable Contingency and Arbitration Agreement” (“Addendum”);
and an acknowledgement of terms of sale form (“Acknowledgement”).
The first paragraph of the Purchase Contract provides:
The undersigned purchaser(s) . . . agrees to purchase the following described vehicle (the “Vehicle”) from Green’s Toyota of Lexington (the “Dealer”) on the following terms and conditions and on the additional terms and conditions set forth on the reverse side of this contract, (the “Contract”) which by this reference are incorporated herein.
-2- Record (“R.”) at 25. The next section of the Purchase Contract described the
vehicle by condition (new); year (2018); make (Toyota Truck); Model (Tundra);
body style (Tundra Crew Max); color (super white); serial number
(5TFDW5F16JX732459); stock number (181873); and mileage (276). The next
section of the Purchase Contract contained a breakdown of the total cash delivered
price; in this section, the vehicle price and the different fees and taxes were
itemized separately and then totaled. R. at 25.
The following paragraph is contained on the first page of the Purchase
Contract, two paragraphs above the signature line:
Purchaser has read and agreed to the terms on the reverse side, including the ARBITRATION AGREEMENT provided for in Paragraph 17. Purchaser represents and warrants to Dealer that Purchaser is 18 years of age or older and has full authority to make and enter into this contract; and hereby acknowledges receipt of a copy of this contract.
R. at 25 (emphasis in original).
The backside of the Purchase Contract contains separate numbered
paragraphs. Paragraph 17 states:2
Any claim or dispute by Purchaser with Dealer arising out of or in any way relating to this Contract, any installment sale contract for the Vehicle, and any other agreements related to or provided herein, the Vehicle, the
2 The reverse side of the Purchase Contract is extraordinarily difficult to read. The typeface is so blurry and small that we had to use a magnifying glass to read its terms. Despite our best efforts, however, there are a few instances where we were unable to decipher the printed text.
-3- negotiation and financing, and the sale by Dealer to Purchaser of the Vehicle, including, without limitation any claims involving fraud or misrepresentation, personal injuries, products liability, state or federal laws or regulations, affecting or establishing the rights of consumers (without limitation truth in lending laws or regulations or consumer protection laws acts and regulations) shall be resolved by binding arbitration administered by Better Business Bureau Serving Eastern and Central Kentucky, Inc., in accordance with its rules. Dealer and/or its assignee and Purchaser shall [illegible] and deliver all agreements reasonably necessary in connection with said arbitration. All arbitration proceedings shall be held in Lexington, Fayette County, Kentucky. The decision of the arbitrator(s) shall be final, conclusive, and binding on the parties to the arbitration, and neither shall institute any suit with regard to any such claim or dispute except to compel arbitration or enforce the arbitration or enforce the arbitration decision. Venue for any action to enforce this arbitration agreement or any arbitration decision shall be in Fayette County, Lexington, Kentucky, provided Dealer or its assignee may at its option bring or institute litigation in any state or federal court, against Purchaser and the Purchaser hereby consents to the jurisdictions of any such courts and by entry of a judgment of any such court against Purchaser in favor of Dealer seeking specific performance of Purchaser’s obligations hereunder, for any violation of the Purchaser’s representations and warranties provided for in paragraphs 3, 10, and 11 herein and/or any [illegible] sale contract for the vehicle between Dealer and its assignee and Purchaser.3
R. at 26.
3 Paragraphs 3, 10, and 11 relate to terms and warranties for any vehicle(s) the Purchaser agreed to trade in as part of the sale.
-4- As part of the sale, Frazier also signed the Addendum. The first
paragraph of the Addendum states:
This Addendum is made a part of the Purchase Order dated this date between Green’s Toyota of Lexington as Seller, and Phillip Frazier as Buyer/Lessor.
1. The Sales agreement of the parties for the Buyer’s purchase/lease of the motor vehicle described herein is expressly contingent and conditional upon the occurrence of the following:
...
The Seller’s successful arrangement of financing for the Buyer’s/Lessor’s acceptance of all the terms and conditions of the financing so arranged. The Seller’s agreement of the Retail Installment Contract and acceptance by a lender making supervised consumer loans/leases.
R. at 14.
The next section of the Addendum states as follows:
II. Arbitration Agreement
Any claims or dispute arising out of or in any way relating to this Agreement, the negotiations, the financing, sale or lease of the vehicle which is the subject of the Agreement, including any claim involving fraud or misrepresentation, must be resolved by binding arbitration administered by the Better Business Bureau of Central and Eastern Kentucky, Inc., in accordance with its rules. All arbitration proceedings shall be held in Lexington, Kentucky. The decision of the arbitrator(s) will be final, conclusive and binding on the parties to the arbitration and no party shall institute any suit with regard to the claim or dispute except to enforce the
-5- award. Each party shall advance its pro rata share of the costs and expenses of said arbitration proceedings and each shall separately pay its own attorney’s fees and expenses. No party to this Agreement shall have the right to recover in any proceeding nor shall the arbitrators have the authority to award any party consequential or punitive damages.
Lastly, Frazier signed a one-page, untitled document wherein he
confirmed the terms and conditions of the sale. We refer to this document as the
“Acknowledgement.” The Acknowledgement’s opening paragraph states:
IT IS OUR SINCERE DESIRE TO GIVE OUR CUSTOMERS THE FINEST POSSIBLE SERVICE. IT IS ALSO OUR DESIRE TO HAVE NO MISUNDERSTANDING REGARDING ANY PART OF THIS TRANSACTION. WE THEREFORE REQUEST THAT YOU THE CUSTOMER FILL OUT THE FOLLOWING QUESTIONS BEFORE TAKING DELIVERY OF THIS AUTOMOBILE.
R. at 15 (emphasis in original).
A series of statements, numbered one through twelve, follows this
introductory paragraph. The last statement, number twelve, states:
12. ARBITRATION. Any claim or dispute arising out of or in any way relating to this contract, the negotiations, financing, sale or lease of the vehicle which is the subject of this contract, including any clam involving fraud or misrepresentation, must be resolved by binding arbitration administered by the Better Business Bureau of Central or [sic] Eastern Kentucky, Inc., in accordance with its rules. All arbitration proceedings shall be held in Lexington, Kentucky. The
-6- decision of the arbitrator(s) will be final, conclusive and binding on the parties to the arbitration and no party shall institute any suit with regards to any claim or dispute except to enforce the arbitration decision. Venue for any action to enforce this arbitration decision shall be in Fayette County Court, Lexington, Kentucky.
R. at 15.
After the parties completed the sales process, Frazier took delivery of
the 2018 Tundra truck. On or about September 24, 2019, Frazier took the truck to
Green’s Toyota for routine maintenance. While there, Frazier saw another vehicle
on the lot that piqued his interest. A salesman on the lot asked Frazier if he was
interested in purchasing the new vehicle. Frazier indicated that he might be
interested in it, and the two discussed the possibility that Frazier could trade in the
2018 Tundra truck for part of the purchase price of the other vehicle. The
salesman proceeded to evaluate the 2018 Tundra truck for the purpose of
determining its trade-in value.
Green’s Toyota reported to Frazier that it could only offer him
$31,000.00 for the trade-in despite the fact that Frazier had purchased it “new” the
year prior for $49,310.62. The sales representative then told Frazier that the
CARFAX report he ran revealed the 2018 Tundra truck had been wrecked prior to
it being sold to Frazier, which depreciated its value. After further investigation,
Frazier learned from Green’s Toyota’s general manager that employees at Green’s
Toyota had wrecked the 2018 Tundra truck on the lot before it was sold to Frazier.
-7- Green’s Toyota repaired the damage but failed to disclose this fact to Frazier
instead warranting to him that the vehicle was “new.”
On December 15, 2019, Frazier filed a civil complaint against Green’s
Toyota and Hicks in Powell Circuit Court where Frazier resides. In his complaint,
Frazier alleged: (1) Green’s Toyota breached its contract with Frazier by selling
him a vehicle represented as “new” when in fact the vehicle was not in new
condition as it had previously been wrecked by Green’s Toyota; (2) Green’s
Toyota’s actions constitute a breach of express and implied warranties as it was
warranted to Frazier that he was purchasing a new vehicle with no prior damage;
(3) Green’s Toyota engaged in unfair, false, misleading and/or deceptive acts or
practices in violation of Kentucky’s Consumer Protection Act, KRS 367.170; and
(4) Green’s Toyota intentionally and fraudulently misrepresented that the 2018
Tundra truck was a new vehicle. Frazier sought an award of compensatory and
punitive damages against Green’s Toyota.
On December 24, 2019, Green’s Toyota filed a motion to dismiss for
lack of jurisdiction, improper venue, or in the alternative motion to dismiss and to
compel and/or direct arbitration. Frazier responded to Green’s Toyota’s motion on
or about February 18, 2020. As it relates to the arbitration provision, Frazier
asserted that the purchase agreement containing the arbitration agreement was
procured by fraud thereby invalidating the entire contract, including the arbitration
-8- provision; the arbitration agreement is procedurally and substantively
unconscionable; and that Frazier’s Consumer Protection Act claim falls outside of
the scope of the arbitration agreement. Green’s Toyota filed a reply on February
24, 2020.
The circuit court denied Green’s Toyota’s motion by order entered
May 13, 2020. As related to the enforceability of the arbitration provision, the
circuit court reasoned as follows:
[Green’s Toyota] argue[s] that [Frazier’s] claims herein are subject to a valid arbitration clause in the purchase agreement he signed with [Green’s Toyota]. [Frazier] responds that the arbitration clause at issue is invalid and unenforceable because it was procured by fraud, that it is unconscionable, and that the Consumer Protection Act and KRS 190.071 claims are outside the scope of the arbitration agreement at issue. The issue of unconscionability of an arbitration provision in a Consumer Protection Act claim was directly addressed in Mortgage Electronic Registration Systems, Inc., v. Abner, [260 S.W.3d 351, 352 (Ky. App. 2008)]. In Abner, the Court found an arbitration clause that precluded the arbitrator from awarding consequential, punitive, or exemplary damages to be unconscionable and unenforceable on a Consumer Protection Act claim as it clearly prevents Plaintiff from meaningfully pursuing this statutory claim and remedy for punitive damages. [Id. at 355.] In the case at hand, the arbitration clause at issue prevents a plaintiff from recovering and prevents the arbitrator from awarding any consequential or punitive damages. Therefore, pursuant to the holding in Abner this Court holds the arbitration provision between the parties in this case to be unconscionable and unenforceable. Thus, [Green’s Toyota’s] Motion to Compel Arbitration is OVERRULED.
-9- R. at 46-47.
This appeal followed.
II. SCOPE OF REVIEW
Typically, only final judgments are appealable. Under CR4 54.01,
“[a] final or appealable judgment is a final order adjudicating all the rights of all
the parties in an action or proceeding[.]” However, pursuant to CR 54.02(1),
“[w]hen more than one claim for relief is presented in an action, whether as a
claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are
involved, the court may grant a final judgment upon one or more but less than all
of the claims or parties only upon a determination that there is no just reason for
delay.” The circuit court’s May 13, 2020 order did not fully resolve any of
Frazier’s claims, and it does not contain a CR 54.02 recitation.
Rather, Green’s Toyota’s appeal is premised on KRS 417.220(1)(a).
This section allows an immediate appeal from “[a]n order denying an application
to compel arbitration made under KRS 417.060[.]” Id. “[T]he General Assembly
has, by the foregoing enactment, created a statutory interlocutory right of appeal
where no such right would otherwise exist.” Cavalier Homes of Alabama v.
Coleman, 181 S.W.3d 558, 559 (Ky. 2005). Therefore, we have jurisdiction to
review the circuit court’s denial of Green’s Toyota’s motion to compel arbitration.
4 Kentucky Rules of Civil Procedure.
-10- See Diversicare Healthcare Services, Inc. v. Estate of Hopkins ex rel. Prince, 434
S.W.3d 70, 72 (Ky. App. 2014).
In addition to the arbitration issue, however, Green’s Toyota’s brief
also challenges the circuit court’s refusal to dismiss Frazier’s action for improper
venue. There is no finality exception for orders regarding venue. Lebus v. Lebus,
382 S.W.2d 873, 874 (Ky. 1964) (“The decision of a court that it has jurisdiction of
a cause and that the venue is proper does not determine the ultimate rights of the
parties, and is well recognized as an interlocutory order.”). The fact that the circuit
court addressed the venue issue in the same order as the arbitration issue is not
sufficient to provide us with jurisdiction to review the venue issue. See Baker v.
Fields, 543 S.W.3d 575, 578 (Ky. 2018). Our jurisdiction is confined to the circuit
court’s denial of Green’s Toyota’s motion to compel arbitration. As such, we
decline to consider the venue issue as part of this appeal.5
III. STANDARD OF REVIEW
“[O]ur review of a trial court’s ruling in a KRS 417.060 proceeding is
according to usual appellate standards.” Conseco Finance Servicing Corp. v.
Wilder, 47 S.W.3d 335, 340 (Ky. App. 2001). An appellate court reviews de novo
the circuit court’s application of rules governing the validity of an arbitration
5 We recognize that Frazier did not argue that the venue issue is not properly before us. However, this fact is of no consequence. We have an independent duty to assess jurisdiction for ourselves. See Wilson v. Russell, 162 S.W.3d 911, 913 (Ky. 2005).
-11- contract, but the court’s factual findings, if any, will be disturbed only if clearly
erroneous. Frankfort Medical Inv’rs, LLC v. Thomas by and Through Thomas,
577 S.W.3d 484, 487 (Ky. App. 2019).
III. ANALYSIS
“[A] party seeking to compel arbitration has the initial burden of
establishing the existence of a valid agreement to arbitrate.” Kentucky
Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d 691, 694 (Ky. 2016) (citation
omitted). “Questions concerning the formation of an arbitration agreement are
resolved in accordance with the applicable state law governing contract
formation.” Id. (citation omitted). Because arbitration is fundamentally a matter
of contract, Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 130 S. Ct. 2772,
2776, 177 L. Ed. 2d 403 (2010), an arbitration agreement is treated as all other
contracts and if the agreement is valid, it will be enforced.
As he did before the circuit court, Frazier asserts that the arbitration
agreement is not enforceable because it was procured by fraud. He explains that
the Purchase Agreement and related documents were signed by him based on
Green’s Toyota’s representations that he was purchasing a “new” vehicle, which
was not the case. The fraud claim Frazier makes relates to the contract as a whole
and not the arbitration clauses in particular. This is an issue for the arbitrator and
-12- not for the Court to determine as a part of a motion to compel arbitration. See
Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850, 856 (Ky. 2004).
[U]nder the holding in Louisville Peterbilt, fraudulent acts inducing someone to enter into the underlying contract is not a basis for avoiding the arbitration clause; rather, to avoid the clause upon the basis of fraud, the fraudulent inducement must relate specifically to the arbitration clause. The underlying notion is that the Arbitrator himself is capable of evaluating and issuing a ruling upon allegations relating to fraud in the inducement vis-à-vis the underlying contract.
Dutschke v. Jim Russell Realtors, Inc., 281 S.W.3d 817, 822 (Ky. App. 2008).
We now turn to the issue of unconscionability. “A fundamental rule
of contract law holds that, absent fraud in the inducement, a written agreement
duly executed by the party to be held, who had an opportunity to read it, will be
enforced according to its terms.” Schnuerle v. Insight Communications Co., L.P.,
376 S.W.3d 561, 575 (Ky. 2012) (quoting Conseco, 47 S.W.3d at 341). “The
doctrine of unconscionability has developed as a narrow exception to this
fundamental rule.” Id. “An unconscionable contract has been characterized as one
which no man in his senses, not under delusion, would make, on the one hand, and
which no fair and honest man would accept, on the other.” Conseco, 47 S.W.3d at
342 (internal quotation marks and citations omitted). The doctrine “is directed
against one-sided, oppressive and unfairly surprising contracts, and not against the
consequences per se of uneven bargaining power or even a simple old-fashioned
-13- bad bargain.” Schnuerle, 376 S.W.3d at 575. “Whether a contract provision is
unconscionable is ‘highly fact specific.’” Grimes v. GHSW Enterprises, LLC, 556
S.W.3d 576, 583 (Ky. 2018) (quoting Kegel v. Tillotson, 297 S.W.3d 908, 913 (Ky.
App. 2009)).
There are two types of unconscionability: procedural and substantive.
“Procedural, or ‘unfair surprise,’ unconscionability ‘pertains to the process by
which an agreement is reached and the form of an agreement[.]’” Schnuerle, 376
S.W.3d at 576 (quoting Conseco, 47 S.W.3d at 343 n.22). “It includes, for
example, the use of fine or inconspicuous print and convoluted or unclear language
that may conceal or obscure a contractual term.” Energy Home, Div. of Southern
Energy Homes, Inc. v. Peay, 406 S.W.3d 828, 835 (Ky. 2013). “Substantive
unconscionability ‘refers to contractual terms that are unreasonably or grossly
favorable to one side and to which the disfavored party does not assent.’” Valued
Services of Kentucky, LLC v. Watkins, 309 S.W.3d 256, 263 (Ky. App. 2009)
(quoting Conseco, 47 S.W.3d at 343 n.22). Substantive unconscionability is
determined by examination of “the commercial reasonableness of the contract
terms, the purpose and effect of the terms, the allocation of the risks between the
parties, and similar public policy concerns.” Schnuerle, 376 S.W.3d at 577
(quoting Jenkins v. First American Cash Advance of Georgia, LLC, 400 F.3d 868,
876 (11th Cir. 2005)).
-14- Relying on Mortgage Electronic Registration Systems, Inc. v. Abner,
260 S.W.3d 351 (Ky. App. 2008), the circuit court determined that the arbitration
provision was substantively unconscionable because it limited the parties’ rights to
recover consequential and punitive damages. In Abner, we held that an arbitration
provision which prevented the parties from recovering “consequential, punitive,
exemplary, or treble damages” as part of the arbitration was unconscionable
because it deprived the appellees of substantive remedies. Id. at 354-55. In so
concluding, we relied on Arnold v. United Companies Lending Corporation, 511
S.E.2d 854, 858 (W. Va. 1998), a case involving a similar arbitration provision. In
Abner, we interpreted Arnold as holding that “an arbitration clause that contains a
substantial waiver of a parties’ rights[] is unenforceable.” Abner, 260 S.W.3d at
354 (emphasis added) (citing Arnold, 511 S.E.2d at 862).
In 2012, the West Virginia Supreme Court overruled the exact portion
of Arnold we relied on in Abner. Dan Ryan Builders, Inc. v. Nelson, 291, 737
S.E.2d 550, 560 (W. Va. 2012). The court explained that Arnold violated the
Federal Arbitration Act (“FAA”) insomuch as the Arnold court’s rule was directed
solely at arbitration agreements. “Under the Federal Arbitration Act, a common-
law ruling that targets arbitration provisions for disfavored treatment not applied to
other contractual terms generally is preempted.” Dan Ryan Builders, 737 S.E.2d at
560.
-15- Our holding in Abner was predicated on our conclusion that an
arbitration provision which purports to waive certain categories of damages such
that it limits the parties’ substantive remedies is unconscionable. As illustrated by
Dan Ryan Builders, supra, since we decided Abner, the United States Supreme
Court has subsequently clarified that the FAA requires courts to place arbitration
agreements “on equal footing with all other contracts.” DIRECTV, Inc. v.
Imburgia, 577 U.S. 47, 54, 136 S. Ct. 463, 468, 193 L. Ed. 2d 365 (2015) (citation
omitted). A rule that “singles out arbitration agreements for disfavored treatment”
violates the FAA. Kindred Nursing Centers Ltd. Partnership v. Clark, __ U.S. __,
__, 137 S. Ct. 1421, 1425, 197 L. Ed. 2d 806 (2017). A court may invalidate an
arbitration agreement based on “generally applicable contract defenses” like fraud
or unconscionability, but not on legal rules that “apply only to arbitration or that
derive their meaning from the fact that an agreement to arbitrate is at issue.”
AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 131 S. Ct. 1740, 1746, 179
L. Ed. 2d 742 (2011) (citations omitted). To the extent that Abner created a rule
that applied only to arbitration agreements, it has been superseded by recent
precedent from the United States Supreme Court as well as the Supreme Court of
Kentucky. Northern Kentucky Area Development District v. Snyder, 570 S.W.3d
531, 535 (Ky. 2018) (quoting Kindred Nursing, 137 S. Ct. at 1426) (recognizing
and citing United States Supreme Court cases holding that FAA “displaces any
-16- rule that covertly accomplishes the same objective by disfavoring contracts that (oh
so coincidentally) have the defining features of arbitration agreements.”).
Therefore, instead of focusing on the fact that the limitation of
damages provision appears in the arbitration clause, we must determine whether a
limitation on damages provision in a consumer contract for the sale of goods, like
the present, renders the contract unenforceable on the ground of unconscionability.
We begin with Kentucky’s Uniform Commercial Code (“UCC”),
which “applies to transactions in goods[.]” KRS 355.2-102. It provides that a
buyer injured by a seller’s breach of warranty may recover both incidental and
consequential damages. KRS 355.2-715. However, “[c]onsequential damages
may be limited or excluded unless the limitation or exclusion is unconscionable.
Limitation of consequential damages for injury to the person in the case of
consumer goods is prima facie unconscionable but limitation of damages where the
loss is commercial is not.” KRS 355.2-719(3). This section of the UCC provides
that while consequential damages for breach of warranty may be limited or
excluded unless “unconscionable,” such a limitation with respect to damages for
personal injuries is “prima facie unconscionable.” While we deal in this case only
with a claim for property damages, we note that the provision at issue disclaimed
liability from all consequential and punitive damages whether arising from
personal injury or property damage. Additionally, even if the provision is not
-17- prima facie unconscionable, it does not automatically follow that it is fair in these
circumstances. See Ford Motor Co. v. Mayes, 575 S.W.2d 480, 485 (Ky. App.
1978) (“Although the limitation of the buyer’s remedies was not unconscionable
on its face, Ford’s warranty policy was unconscionable as applied to Mr. and Mrs.
Mayes.”).
This Court has previously upheld contracts containing limitation on
damages provisions when negotiated between two commercial businesses.6
However, we do not have two sophisticated, commercial businesses in this case.
Here, we have a commercial business that used pre-printed contractual documents
which were offered to Frazier, an ordinary consumer, on a take it or leave it basis.
Limitation of damages provisions in consumer contracts of adhesion are not per se
unconscionable. However, a consumer contract which seeks to exclude damages
that would otherwise be available to the buyer such as those falling within
Kentucky’s Consumer Protection Act, must do so clearly, concisely, and
noticeably such that there can be no doubt that the consumer understands the rights
he is giving up by signing the contract.
6 See Carboline Co. v. Oxmoor Center, No. 84-C-48-MR, 1985 WL 185466 (Ky. App. Apr. 5, 1985) (“Moreover, we agree with Carboline that in the sophisticated commercial setting of this transaction the provision of the parties’ agreement excluding liability for consequential damages was not unconscionable.”). We recognize this is an unpublished opinion. We cite to it for illustrative purposes only. See CR 76.28(4)(c).
-18- The documents signed by Frazier are anything but clear regarding the
limitation on damages. The documents contain three different arbitration clauses.
While the clauses are similar, they are not identical. Paragraph 17 of the Purchase
Contract, which is written in extraordinarily small typeface making it almost
impossible to read even with the use of a magnifying glass, purports to give
Green’s Toyota the right to file suit in a court of law in certain instances but does
not contain a clause restricting or limiting consequential or punitive damages;
Section II of the Addendum, which Green’s Toyota maintains embodies the
parties’ agreement to arbitrate, requires both parties to arbitrate their disputes and
restricts the arbitrator from awarding either party consequential or punitive
damages; Paragraph 12 of the Acknowledgement purports to rephrase the parties’
prior agreement(s) to arbitrate but omits any reference to the limitations on
damages provision contained in the Addendum as well as many of the terms set
forth in Paragraph 17 of the Purchase Contract.
Taken in their totality, an examination of Green’s Toyota’s documents
in this case leads to the conclusion that they are seriously lacking in clarity such
that it is impossible for us to see how there was a clear meeting of minds with
respect to the arbitration provision, and certainly not the limitations on damages
provision. While arbitration was referred to throughout the documents, the
provisions within the three documents are inconsistent, and in some cases almost
-19- impossible to read. Moreover, the provision on the limitation of damages, a matter
of grave importance to an ordinary consumer, is completely omitted from the
summary of arbitration in the Acknowledgement checklist. When a business
includes a provision limiting or excluding broad categories of damages in a
contract of adhesion, like the present one, it should at least do so conspicuously
and clearly.
Having concluded that the limitation of damages provision contained
within the Addendum is unconscionable, we now turn to Green’s Toyota’s
argument that we should sever the damages clause from the arbitration provision
and compel the parties to arbitrate. Whether to do so is discretionary.
“If the court as a matter of law finds the contract or any clause of the contract to
have been unconscionable at the time it was made the court may refuse to enforce
the contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result.” KRS 355.2-302(1).
While we recognize that some courts have simply severed the
unconscionable provision from the arbitration clause, we do not believe fairness
sanctions such a result in this case. The provision as contained in Green’s
Toyota’s documents is both substantively and procedurally unconscionable. As
noted above, the arbitration provision is referred to inconsistently throughout the
-20- documents. It is impossible for us to conclude that there was a true meeting of the
minds with respect to the exact terms of the arbitration. And, the
Acknowledgement form completely omitted any reference to the limitation on
liability, perhaps the single most important provision to a consumer.
Additionally, as observed by other courts, we do not find the
limitation of damages clause to be as distinct as Green’s Toyota suggests,
especially where the contract does not contain a severability clause.
The limitation of liability language is not independent of the agreement to arbitrate. These provisions are not distinct. The same contractual provision that directs arbitration limits the authority of the individual conducting that arbitration. We find the entire arbitration clause, as a whole, must fail.
Carll v. Terminix International Co., L.P., 793 A.2d 921, 926 (Pa. Super. 2002).
See also Nino v. Jewelry Exchange, Inc., 609 F.3d 191, 208 (3d Cir. 2010) (“We
conclude, in sum, that the arbitration agreement is procedurally and substantively
unconscionable, and that the pervasively one-sided nature of the agreement
forecloses any possibility of severing the unfair provisions from the remainder of
the agreement.”); Dillon v. BMO Harris Bank, N.A., 856 F.3d 330, 337 (4th Cir.
2017) (“[W]hen a party uses its superior bargaining power to extract a promise that
offends public policy, courts generally opt not to redraft an agreement to enforce
another promise in that contract.”).
-21- V. CONCLUSION
For the reasons set forth above, we affirm the Powell Circuit Court.
TAYLOR, JUDGE, CONCURS.
MAZE, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
MAZE, JUDGE, DISSENTING: While I agree with much of the
reasoning of the majority opinion, I must respectfully dissent from the result in this
case. As an initial matter, I agree with the majority that the controlling issue
concerns the enforceability of the various arbitration provisions in the Purchase
Contract and other documents which Frazier signed. I also agree with the majority
that the trial court erred in relying on Mortgage Electronic Registration Systems,
Inc. v. Abner, 260 S.W.3d 351 (Ky. App. 2008), because the rule in that case may
not be limited solely to arbitration agreements. Rather, as the majority points out,
a court may invalidate an arbitration agreement based on “generally applicable
contract defenses,” but not on rules that apply only to arbitration agreements.
AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 131 S. Ct. 1740, 1746, 179
L. Ed. 2d 742 (2011) (citation omitted).
The majority does not address Green Toyota’s argument as to the
enforceability of the venue clause in the various arbitration agreements.
Nevertheless, those clauses stipulate to venue in Fayette County only to enforce the
arbitration agreement or any arbitration determination. In this case, Frazier
-22- challenges the enforceability of the arbitration agreements as a whole. As a result,
the venue clauses do not affect this appeal, but they certainly have an effect on the
available remedies.
I also agree with the majority that a contract provision disclaiming
liability for all consequential and punitive damages is not per se unconscionable
but may be unenforceable based on the facts of the case. But as discussed in
Genesis Healthcare, LLC v. Stevens, 544 S.W.3d 645 (Ky. App. 2017):
Under § 2 of the FAA, there are two types of challenges to the validity of an arbitration agreement. One challenges the validity of the agreement to arbitrate, while the other challenges the contract as a whole, either on a ground that directly affects the entire agreement, or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid. Rent-A- Center, West, Inc. v. Jackson, 561 U.S. 63, 70, 130 S. Ct. 2772, 2778, 177 L. Ed. 2d 403 (2010), citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 444, 126 S. Ct. 1204, 1208, 163 L. Ed. 2d 1038 (2006). Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement at issue is enforceable. The second class of challenge is within the purview of the arbitrator. Id. See also Dixon v. Daymar Colleges Grp., LLC, 483 S.W.3d 332, 340 (Ky. 2015).
Id. at 649.
The majority concludes that the contract’s limitation on consequential
and punitive damages is unconscionable and renders the entire arbitration
agreement unenforceable. I believe that this type of challenge falls directly within
-23- the second class of issues referenced in Genesis Healthcare. As such, it is for the
arbitrator to determine whether the provision is unconscionable and, if so, whether
the provision is severable or renders the entire arbitration agreement invalid. For
this reason, I must dissent from the majority’s result in holding the arbitration
agreement unenforceable. While this is not my favored conclusion, this conclusion
is compelled by the applicable authority.
Under these circumstances, I must conclude that the circuit court erred
in denying Green Toyota’s motion to compel arbitration. Furthermore, the venue
clause in the contract would ordinarily compel that this action must have been
brought in Fayette County. But in the interest of judicial economy and in light of
the dispute concerning the enforceability of the arbitration agreement, I do not
believe that dismissal is required in this case. Rather, I would direct the Powell
Circuit Court to enter the order compelling arbitration in this case. That court has
the discretion to hold this matter in abeyance pending the arbitrator’s determination
on the enforceability of the arbitration agreement. If the agreement is found to be
enforceable, then any additional proceedings must occur in Fayette Circuit Court.
Otherwise, the Powell Circuit Court would retain venue over the action.
-24- BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Carroll M. Redford L. Dustin Riddle Elizabeth Woodford Teddy L. Flynt Lexington, Kentucky Salyersville, Kentucky
-25-