VELESSA HATHAWAY V. AUDRA J. ECKERLE (JUDGE, JEFFERSON CIRCUIT COURT) AND COMMONWEALTH DODGE, LLC
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RENDERED : MARCH 24, 2011
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VELESSA HATHAWAY
V.
APPELLANT
ON APPEAL FROM COURT OF APPEALS
CASE NO . 2009-CA-002266-MR
JEFFERSON CIRCUIT COURT NO . 09-CI-006007
AUDRA J. ECKERLE (JUDGE, JEFFERSON
CIRCUIT COURT)
APPELLEE
AND
COMMONWEALTH DODGE, LLC
REAL PARTY IN INTEREST
OPINION OF THE COURT BY JUSTICE VENTERS
AFFIRMING
Appellant, Velessa Hathaway, appeals as a matter of right from a Court
of Appeals order denying her petition for intermediate relief against an opinion
and order by Appellee, Judge Audra J. Eckerle of the Jefferson Circuit Court.
Appellee's order directed that Appellant must arbitrate her dispute with Real
Party in Interest, Commonwealth Dodge, LLC, pursuant to an arbitration
clause included in a vehicle purchase agreement signed by Appellant.
Appellant petitioned the Court of Appeals for a writ of prohibition, arguing that
the circuit court was acting outside of its jurisdiction because the arbitration
clause did not satisfy the requirements of KRS 417.050 or KRS 417 .200, that
she had no adequate remedy by appeal, and that she would suffer great
injustice and irreparable injury if forced to arbitrate . The Court of Appeals
denied Appellant's petition .
Appellant now argues that we should reverse the Court of Appeals and
grant a writ of prohibition against Appellee . For the reasons set forth herein,
we affirm the Court of Appeals .
I. FACTUAL BACKGROUND
In 2009, Appellant purchased a used 2007 Dodge Charger from
Commonwealth Dodge . Before completing the purchase, Appellant alleges that
one of Commonwealth Dodge's agents represented to her that the Charger had
no history of repairs, and that she relied on that representation . Appellant
then executed a retail sales installment contract, traded in her vehicle as a
down-payment, and applied for financing. Among the documents Appellant
signed to complete the transaction was a vehicle purchase agreement which
included the following arbitration clause, situated directly above the signature
line, in all capital letters :
BUYER AND SELLER AGREE THAT INSTEAD OF LITIGATION IN
COURT, ANY DISPUTE, CONTROVERSY, OR CLAIM RELATING IN
ANY WAY TO THE SALE, LEASE, FINANCINIG, SERVICING, OR
PERFORMANCE OF THIS VEHICLE, TO THIS AGREEMENT (OR
BREACH
THEREOF),
OR
TO
THE
NEGOTIATIONS
AND
AGREEMENTS LEADING TO THIS TRANSACTION, OR TO ANY
OTHER
DOCUMENTS
RELATING
TO
THIS
TRANSACTION
(INCLUDING THE RETAIL INSTALLMENT CONTRACT OR LEASE
AGREEMENT)
SHALL BE
SETTLED
BY
FINAL
BINDING
ARBITRATION ACCORDING TO THE FEDERAL ARBITRATION ACT
AND
BY
THE
AMERICAN
ARBITRATION
ADMINISTERED
ASSOCIATION UNDER ITS COMMERCIAL ARBITRATION RULES .
SUCH ARBITRATION SHALL BE CONDUCTED IN THE COUNTY IN
WHICH THE DEALERSHIP IS LOCATED . EACH PARTY SHALL PAY
ITS OWN COSTS . JUDGMENTS AWARDED BY THE ARBITRATOR
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION
THEREOF.
ONLY IF AGREEABLE TO BOTH PARTIES, AN
ALTERNATIVE FORM OF ARBITRATION MAY BE CHOSEN .
Shortly after the purchase, Appellant discovered that the Charger had
been repaired several times by Commonwealth Dodge . When she attempted to
rescind the contract, Commonwealth Dodge refused to rescind the deal or
return Appellant's original vehicle to her .
Appellant then filed suit in the Jefferson Circuit Court against
Commonwealth Dodge alleging fraud, conversion of her vehicle, violations of
Kentucky's Motor Vehicle Installment Sales Contract Act, violations of the
federal Truth in Lending Statute, violations of Kentucky's usury and small loan
statutes, breach of warranty and breach of Kentucky's Consumer Protection
Act. Commonwealth Dodge moved to compel arbitration based on the
arbitration clause in the vehicle purchase agreement. Appellee granted
Commonwealth Dodge's motion and ordered the parties to arbitration.
Appellant next filed a petition for a writ of prohibition with the Court of
Appeals to prevent arbitration, arguing that the circuit court did not have
jurisdiction because the arbitration clause did not specifically designate
Kentucky as the location for the arbitration. See KRS 417 .200; Ally Cat, LLC v.
Chauvin, 274 S .W.3d 451 (Ky. 2009) . The Court of Appeals denied her petition,
finding that the statement in the . arbitration clause, "SUCH ARBITRATION
SHALL BE CONDUCTED IN THE COUNTY IN WHICH THE DEALERSHIP IS
LOCATED," coupled with the reference in the sales documents plainly
indicating that Commonwealth Dodge was located in Kentucky, fully complied
with KRS 417 .200's requirement that the agreement "provid[e] for arbitration in
this state ." She now appeals to this Court.
As an initial matter, we note that a writ of prohibition is only warranted
when:
1) the lower court is proceeding or is about to proceed outside its
jurisdiction and there is no remedy through an application to an
intermediate court; or 2) the lower court is acting or is about to act
erroneously, although within its jurisdiction, and there exists no
adequate remedy by appeal or otherwise a great injustice and
irreparable injury will result if the petition is not granted .
Hoskins v. Maricle, 150 S.W .3d 1, 10 (Ky. 2004) .
11. THE ARBITRATION CLAUSE IS GOVERNED BY THE FEDERAL
ARBITRATION ACT AND THUS APPELLEE DID NOT ACT OUTSIDE OF HER
JURISDICTION BY ORDERING THE PARTIES TO ARBITRATE
Appellant first argues that the arbitration clause in question does not
satisfy the Kentucky Arbitration Act's jurisdiction statute, KRS 417.200, and
thus Appellee had no subject matter jurisdiction to order the parties to
arbitration. KRS 417.200 states :
The term 'court' means any court of competent jurisdiction of this
state. The making of an agreement described in KRS 417 .050
providing for arbitration in this state confers jurisdiction on the
court to enforce the agreement under this chapter and to enter
judgment on an award thereafter .
Based on this statutory language, we held in Ally Cat, 274 S .W .3d at 455, that
under the Kentucky Arbitration Act:
[s]ubject matter to enforce an agreement to arbitrate is conferred
upon a Kentucky court only if the agreement provides for
arbitration in this state . Thus, an agreement to arbitrate which
fails to include the required provision for arbitration within this
state is unenforceable in Kentucky courts .
In Ally Cat, the arbitration clause was governed by the Kentucky Arbitration
Act and failed to provide that the arbitration was to occur in Kentucky .
Accordingly, we held that the statute failed to confer jurisdiction on the court
to enforce the agreement to arbitrate . Id.
However, unlike the arbitration clause in Ally Cat, the agreement now
before this Court includes a "choice of law" provision selecting the Federal
Arbitration Act as the law governing any dispute between the parties.
Therefore, since choice of law provisions are generally valid in arbitration
clauses, the Federal Arbitration Act governs the arbitration clause in this
matter . Conseco Finance Servicing Corp. v. Wilder, 47 S .W .3d 335, 341 (Ky.
App . 2001) (citing Volt Infonnation Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior University, 489 U.S. 468'(1989)) (stating that choice of law
provisions in arbitration agreements are to be generally upheld) ; see also Stout
v. J.D. Byrider, 228 F.3d 709 (6th Cir. 2000) (applying the Federal Arbitration
Act to an arbitration clause in an agreement between an Ohio car dealership
and an Ohio citizen) .
As we noted in Ernst & Young, LLP v. Clark, 323 S .W.3d 682, 687 (Ky.
2010), when arbitration "agreements explicitly require that disputes be
governed by the Federal Arbitration Act, 9 U.S.C . § l, et. seq., we need not
consider Kentucky's Uniform Arbitration Act . . . ." Therefore, "Ally Cat has no
applicability to an arbitration agreement governed exclusively by the Federal
Arbitration Act." Id., n. 8. Applying that same logic to the current matter, we
conclude that Ally Cat has no applicability to the arbitration clause between
Appellant and Commonwealth Dodge and that the Federal Arbitration Act gives
the circuit court subject matter jurisdiction to enforce the arbitration clause .
Despite our conclusion that the agreement is subject to the Federal
Arbitration Act rather than the Kentucky statute, we agree with the Court of
Appeals's analysis regarding the adequacy of the language designating
Kentucky as the site of the arbitration. By designating the "COUNTY IN
WHICH [COMMONWEALTH DODGE] IS LOCATED" as the venue for the
arbitration, and where it is not doubted that the dealership is located in
Kentucky, the agreement "provides for arbitration in this state." The language
would satisfy the jurisdictional prerequisite imposed by KRS 417 .200 in cases
where the Kentucky law was applicable .
III . NO GROUNDS EXIST AT LAW TO REVOKE
THE VEHICLE PURCHASE AGREEMENT
Appellant next argues that the vehicle purchase agreement fails to satisfy
KRS 417 .050 because "grounds exist at law for [the] revocation of [the vehicle
purchase agreement] contract." However, as explained in the prior section, the
arbitration agreement is governed by the Federal Arbitration Act and not the
Kentucky Arbitration Act . We therefore review this argument under the
corresponding section of the Federal Arbitration Act, 9 U.S .C . § 2, to determine
whether "grounds exist at law for revocation" of the arbitration clause .
Under the Federal Arbitration Act, general contract principles apply in
determining the enforceability an arbitration clause . Buckeye Check Cashing,
Inc. v. Cardegna, 546 U .S. 440, 443-444 (2006) . Along these lines, Appellant
argues that the arbitration clause is unconscionable because : 1) the arbitration
clause prevents her from recovering "costs" ; 2) the arbitration clause is onesided and is one of adhesion ; and 3) she was not told by Commonwealth Dodge
the implications of signing the vehicle purchase agreement or the arbitration
clause . i
The doctrine of unconscionability is:
used by the courts to police the excesses of certain parties who
abuse their right to contract freely. It is directed against one-side,
oppressive and unfairly surprising contracts, and not against the
consequences per se of uneven bargaining power or even a simple
old-fashioned bad bargain . 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, 77 S.W.3d at 342 (internal citations omitted) . Upon a review of
Appellant's arguments, it is clear that the arbitration clause does not rise to
the standard of unconscionability as defined by Conseco .
First, Appellant argues that the arbitration clause prevents her from
recovering her litigation "costs," because it states, "EACH PARTY SHALL PAY
1 Appellant briefly states that the arbitration clause is void because she rejected or
revoked the vehicle purchase agreement by returning the Charger to
Commonwealth Dodge. However, "`challenges seeking to avoid or rescind a
contract' containing an arbitration provision are subject to arbitration." Celtic
Life Ins. Co v. Lindsey, 765 So .2d 640, 642 (Ala. 2000)(quoting Three Valleys
Municipal Water District v. E.F. Hutton & Co., 925 F.2d. 1136, 1140 (9th Cir.
1991)) .
ITS OWN COSTS ." We read this provison as simply a reference to the general
principle that a party must front its own costs for litigation . The American
Arbitration Association's Commercial Arbitration Rules give the arbitrator
broad discretion to "grant any remedy or relief that the arbitrator deems just
and equitable and within the scope of the agreement of the parties . . . the
arbitrator may assess and apportion the fees, expenses, and compensation
related to such award as the arbitrator determines is appropriate . . . in the
final award, the arbitrator shall assess the fees, expenses, and compensation
provided in Sections R-49, R-50, and R-51 . . . the award of the arbitrator(s)
may include . . . an award of attorneys' fees if all parties have requested such
an award or it is authorized by law or their arbitration agreement." American
Arbitration Association Rule R-43 . Thus, the arbitration clause does not
preclude Appellant from receiving reimbursement for her costs .
Second, Appellant argues that the arbitration clause is one-sided
because the language "SUCH ARBITRATION SHALL BE CONDUCTED IN THE
COUNTY IN WHICH THE DEALERSHIP IS LOCATED" allows Commonwealth
Dodge to choose the forum for arbitration by moving the dealership to a
different state, while she has no control over where the arbitration will occur .
However, there is nothing in the record that Commonwealth Dodge has moved
or is attempting to move. Nor is it reasonable to assume that Commonwealth
Dodge would consider moving its dealership to another state simply to control
the site of where arbitration would occur, either in 'this, or any other case.
Finally, a reasonable interpretation of the clause fixes the venue for arbitration
as the county in which the dealership was located at the time the contract was
made . This argument is without merit.
Appellant also argues that the arbitration clause lacks mutuality because
under the "Retail Installment Contract and Security Agreement,"
Commonwealth Dodge can sue Appellant in a court of law, but she is denied
the reciprocal right . However, as stated in Conseco, "there is no inherent
reason to require that the parties have equal arbitration rights." Conseco, 47
S.W.3d at 343 (holding that Conseco could seek court remedies for
enforcement of its security interest in a mobile home without rendering the
arbitration clause unenforceable) . The potential for uneven remedies does not
render the arbitration clause unconscionable .
Third, Appellant argues that the arbitration clause is one of adhesion
and since she alleges violations of the Kentucky Consumer Protection Act, KRS
Chapter 367, enforcing the clause would violate her jural rights . We noted in
Conseco that alleged violations of the Kentucky Consumer Protection Act did
not preclude arbitration. Conseco, 47 S .W.3d at 341 (stating plaintiffs "have
advanced no reason to conclude that arbitration is inherently incompatible
with the [Kentucky Consumer Protection Act's] purposes") . We agree with the
conclusion drawn in Conseco.
Finally, Appellant argues that the arbitration clause is unconscionable
because Commonwealth Dodge never told her that signing the vehicle
purchasing agreement would result in a waiver of her right to trial by jury and
appeal. But, "[i]t is the settled law in Kentucky that one who signs a contract
is presumed to know its contents, and that if he has an opportunity to read the
contract which he signs he is bound by its provisions, unless he is misled as to
the nature of the writing which he signs or his signature has been obtained by
fraud ." Clark v. Brewer, 329 S .W.2d 384, 387 (Ky. 1959) . Since Appellant
presents no evidence that Commonwealth Dodge attempted to conceal the
arbitration clause, deceive her, or fraudulently induced her to sign the
agreement, we find her argument meritless.
Thus, we conclude that the arbitration clause is not unconscionable and
may be enforced by the Jefferson Circuit Court.
IV. THE ARBITRATION CLAUSE COVERS ALL OF THE CLAIMS
WHICH APPELLANT ASSERTS IN HER COMPLAINT
Appellant finally argues that even if the circuit court had subject matter
jurisdiction to enforce the arbitration clause, she is entitled to intermediate
relief because the arbitration clause does not cover all of the claims asserted in
her complaint. However, the scope of the arbitration clause between Appellant
and Commonwealth Dodge is extremely broad covering,
. . . ANY DISPUTE, CONTROVERSY, OR CLAIM RELATING IN ANY
WAY TO THE SALE, LEASE, FINANCING, SERVICING, OR
PERFORMANCE OF THIS VEHICLE, TO THIS AGREEMENT (OR
BREACH THEREOF), OR TO THE NEGOTIATIONS AND
AGREEMENTS LEADING TO THIS TRANSACTION, OR TO ANY
OTHER DOCUMENTS RELATING TO THIS TRANSACTION
(INCLUDING THE RETAIL INSTALLMENT CONTRACT OR LEASE
AGREEMENT) . . . .
We find that all of the claims Appellant raises against Commonwealth Dodge
stem from the sale of the vehicle or the associated negotiations leading to the
sale, and thus are covered by the arbitration clause . Appellant is not entitled
to intermediate relief.
CONCLUSION
For the above-stated reasons, the order of the Court of Appeals denying
the petition for a writ of prohibition is affirmed.
All sitting. All concur.
COUNSEL FOR APPELLANT:
David Bradley Mour
Zachary LeRoy Taylor
Borowitz 8s Goldsmith, PLC
401 West Main Street, Suite 1100
Louisville, Kentucky 40202
COUNSEL FOR REAL PARTY IN INTEREST:
M. Thurman Senn
Morgan 8v Pottinger, P.S.C.
601 West Main Street
Louisville, Kentucky 40202
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