Pitts v. Watkins
| Docket Number: | 2004-CA-00062-SCT | |
| Oral Argument: | 11-23-2004 | |
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| Supreme Court: | Opinion Link Opinion Date: 04-14-2005 Opinion Author: Randolph, J. Holding: Reversed and Remanded |
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| Additional Case Information: |
Topic: Contract - Arbitration - Substantive unconscionability Judge(s) Concurring: Waller, P.J., Easley, Carlson and Graves, JJ. Non Participating Judge(s): Diaz, J. Dissenting Author : Dickinson, J. Dissent Joined By : Smith, C.J., and Cobb, Procedural History: Summary Judgment Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 12-11-2003 Appealed from: Lowndes County Circuit Court Judge: Lee J. Howard Disposition: Granted summary judgment. Case Number: 2002-0184-CV1 |
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| Party Name: | Attorney Name: | |||
| Appellant: | Michael L. Pitts and Stephanie A. Pitts |
LOGAN SHANE TOMPKINS,
JOSEPH N. STUDDARD |
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| Appellee: | Charles D. Watkins | TODD BRITTON MURRAH |
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| Topic: | Contract - Arbitration - Substantive unconscionability |
| Summary of the Facts: | Michael and Stephanie Pitts filed a complaint against Charles Watkins alleging breach of duty, misrepresentation, breach of contract, gross negligence and negligence, all stemming from a home inspection performed by Watkins. Watkins filed a motion for summary judgment and argued that all claims arising out of the Home Inspection Agreement should be resolved through arbitration and that the limits of liability clause prohibited any recovery for damages beyond the fee paid for the inspection. The court granted the summary judgment motion, and the Pittses appeal. |
| Summary of Opinion Analysis: | There is a strong federal policy favoring arbitration, but applicable contract defenses available under state contract law such a fraud, duress, and unconscionability may be asserted to invalidate an arbitration agreement. The arbitration clause present in this agreement is substantively unconscionable. The arbitration clause in effect allows Watkins to pursue his claims in a court of law, while requiring the Pittses to arbitrate. By signing the home inspection agreement, the Pittses agreed to pay $265 for the performance of the inspection service. If they were to breach by failing to pay the fee to Watkins, Watkins would be able to pursue his claim in a court of law while the Pittses are required to pursue any claim they may have against Watkins in arbitration. This arbitration clause is clearly one-sided, and therefore, substantively unconscionable. Substantive unconscionability also exists with respect to the limitation of liability clause. The limitation clause limits Watkins’ liability for any wrongdoing at $265, the amount paid for the inspection. This clause precludes the plaintiff’s ability to collect punitive damages, if otherwise warranted, but more importantly places an unreasonable restriction to collect compensatory damages in excess of $265. Clauses that limit liability are given strict scrutiny and are not enforced unless the limitation is fairly and honestly negotiated and understood by both parties. The Pittses filed affidavits that the inspection failed to discern $30,000 to $40,000 in damages. The limitation of liability clause which limits recovery to $265, in conjunction with an undisclosed arbitration provision which would require an initial filing fee of at least $500, effectively deny the plaintiffs any redress. The deprivation of an adequate remedy makes both clauses substantially unconscionable. Further evidence of unconscionability is the one-year limitations period set forth in the document. The statute of limitations period for this cause of action is three years. This period of limitation cannot be changed by contract, and any such change in the limitations period is null and void. All three clauses present in the contract are unenforceable. |
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