Arbitration; Provision in contract prohibiting class action was void as unconscionable and a contract of adhesion

Michael Schnuerle, Amy Gilbert, Lance Gilbert and Robin Wolff v. Insight Communications Company, L.P. And Insight Communications Midwest, LLC 2008-SC-000789-DG December 16, 2010
December 16, 2010

Opinion of the Court by Justice Venters.  All sitting. Customers of broadband Internet service provider filed class action in circuit court for damages caused by temporary interruption of Internet service, despite language in service agreement banning class actions and requiring resolution of disputes by either arbitration or small claims court.  The Supreme Court held that the provision in Internet Service Agreement barring class action litigation is void as an exculpatory and unconscionable contract provision in a consumer adhesion contract.  Neither the small claims court provision, nor the incorporation of the American Arbitration Association’s rules and procedures rendered the class action ban procedurally and substantively conscionable.  A contractual provision imposing a confidentiality requirement upon the litigants to arbitration proceedings was held unenforceable. The service agreement’s general arbitration provision was held not unconscionable and was enforceable in class-action litigation upon remand.  The Supreme Court also held the service agreement’s choice of law provision was not enforceable. Justice Schroder concurred in part and dissented in part, stating that he would invalidate the arbitration clause as procedurally unconscionable.




Std. of Review: By appellate court of arbitration award

An appeal of an order confirming or denying confirmation of an
arbitration award is specifically provided for in KRS 417.220. The circuit court’s judgment confirming the respective arbitration awards made in favor of both Dr. Jacob and Bluegrass in this case did not include any fact finding by the circuit court. The judgment states the following:
1.    That both parties[’] motion to confirm the Arbitrator’s Award is granted;
2.    That this Court further reaffirms its previous finding that the dispute between the parties arose from a contractual agreement which the parties had agreed to arbitrate;
3.    That all other issues involving the scope of arbitration, the issues to be arbitrated and the parties bound by the arbitration were properly addressed by the Arbitrator;
4.    That the Arbitrator’s opinion was supported by substantial evidence;
5.    That this Court hereby confirms the Arbitrator’s Clarified Award and pursuant to KRS 417.170 issues a Judgment in accordance with the Arbitrator’s Award and Clarified Award;
6.    That this Judgment is final and appealable and there is no just cause for delay;
7.    That this Judgment shall bear interest at the rate of 12% per annum until paid;
8.    That [Dr.] Jacob’s objection to confirmation is overruled; and
9.    That [Dr.] Jacob’s counterclaim is dismissed.
Thus, our review on appeal for errors below is limited to questions of law which are reviewed de novo. Fischer v. MBNA America Bank, N.A., 248 S.W.3d 567 (Ky.App. 2007). Accordingly, we are not bound to defer to the circuit court’s application of legal principles or law, including applicable contract law, in determining whether an arbitration agreement existed in this case. Conseco Fin. Serv. Corp. v. Wilder, 47 S.W.3d 335 (Ky.App. 2001).

COA 1/21/2011

ARBITRATION: FIA Card Services, N.A. v. Callahan (COA 11/13/2009)

FIA Card Services, N.A. v. Callahan
2008-CA-000732 11/13/09 2009 WL 3786143

Opinion by Judge Acree; Judges Taylor and Thompson concurred. The Court reversed and remanded an order of the circuit court denying appellant’s petition and application to confirm and enforce an arbitration award against appellee. The Court held that the trial court erred in requiring appellant to provide independent proof of an agreement to arbitrate before confirming the arbitration award. The Court distinguished the holding in Fischer v. MBNA America Bank, N.A., 248 S.W.3d 567 (Ky. App. 2007), on its facts. By the time appellant filed its petition, appellee’s opportunity to challenge the award under KRS 417.160 or KRS 417.170 had passed. Under the circumstances, the circuit court lacked the discretion to do anything other than confirm the award.

CIVIL PROCEDURE – ‘Savings statute’ KRS 413.270(1), mediated settlement: Fields v. Womack (COA 9/11/2009)

Fields v. Womack

2007-CA-001255    9/11/09    2009 WL 2901196    Released for pub. Opinion by Senior Judge Lambert; Judges Clayton and Thompson concurred.

The court affirmed a judgment of the trial court approving a mediated settlement in a medical negligence action. The court first held that the trial court did not err in denying a motion to dismiss the underlying claim for untimeliness. After the claim was dismissed for improper venue and re-filed in the proper venue, the action was protected by the saving statute, KRS 413.270(1), when it was filed within the additional ninety-day period. The Court next held that the trial court did not err in approving the mediated settlement. The insurer had the authority to settle the claim under the terms of the insurance contract after it notified the insureds that their medical malpractice policy would not be renewed and the insureds failed to preserve their right to require the insurance company to refrain from any settlement they did not approve by purchasing ongoing insurance coverage. The court finally held that the trial court did not abuse its discretion by failing to award attorney fees to the complainants when it followed the general rule that parties in litigation are responsible for their own attorney fees.

Arbitration – employment agreement, jurisdiction re earlier employment agreements: Jacob v. Dripchak (COA 8/12/2009)

Jacob v. Dripchak
2008-CA-001157 8/21/09 2009 WL 2569128

Opinion by Judge Taylor; Chief Judge Combs and Judge Nickell concurred.

The Court affirmed in part, and reversed and remanded in part, a judgment of the circuit court confirming an arbitration award in favor of appellee on claims related to an employment contract. The Court first held that the trial court did not err in failing to set aside the arbitration award as a result of improper demand or notice by appellee. While the demand did not set forth a detailed claim for damages, it put appellant on notice that appellee intended to arbitrate claims arising under a 2003 employment agreement. The Court then held that the trial court erred in confirming the award based upon a 1997 employment agreement and the renewals thereof. The arbitrator lacked jurisdiction to consider the claims as they related to the earlier agreements when the 2003 agreement clearly and plainly superseded and terminated the earlier agreements, which did not contain an arbitration clause.

Arbitration – Provision unconscionable: Valued Services of Kentucky, LLC v. Watkins (COA 6/19/2009)

Valued Services of Kentucky, LLC v. Watkins
2008-CA-001204 06/19/2009 2009 WL 1705696 DR Pending

Opinion by Senior Judge Buckingham; Judges Caperton and Stumbo concurred.

The Court affirmed an order of the circuit court denying a motion to compel arbitration made by a check-cashing company and two of its employees on a false imprisonment action filed by appellee after an employee locked him in the business for over an hour when he told the employee he was unable to repay the loan on that day. The Court held that the arbitration provision was unconscionable because it encompassed an intentional tort with so little connection to the underlying agreement that it could not have been foreseen by appellee when he signed the agreement.

Arbitration Award, Finality and appealability: Medcom Contracting Services, Inc. v. Shepherdsville Christian Church Disciples of Christ, Inc. (COA 6/26/2009)

Medcom Contracting Services, Inc. v. Shepherdsville Christian Church Disciples of Christ, Inc.
2006-CA-002536 06/26/2009 2009 WL 1811080

Opinion by Judge Taylor; Judges Caperton and Nickell concurred.

The Court affirmed an order of the circuit court denying appellants’ motions for summary judgment on counterclaims seeking confirmation of an arbitration award. The Court first held that the order was final and appealable because it did not merely deny the motions for summary judgment but also dismissed the counterclaims and thus, constituted adjudication on the merits of the counterclaims. The Court then held that the termination of the arbitration for nonpayment of fees did not constitute an arbitration award under KRS 417.120. Because no award was made by the arbitrator, appellee was not obligated to challenge the termination of the proceedings under KRS 417.160. Further, because appellee attempted to get reconsideration of the termination, it accrued no prejudice or res judicata effect legally sufficient to preclude it from filing the action seeking a judicial legal remedy.

Torts – Causes of action, private schools (breach of contract, libel, slander, invasion of privacy): Bentley v. Trinity Christian Academy (COA 5/29/2009)

Bentley v. Trinity Christian Academy
2008-CA-000574 05/29/2009 2009 WL 1491351

Opinion by Judge Dixon; Judge Moore and Senior Judge Knopf concurred.

The Court affirmed an order of the circuit court granting summary judgment in favor of the appellee private school on appellant’s claims for denial of due process, breach of contract, libel and slander, and invasion of privacy related to the expulsion of a student from the school.

The Court first held that the school’s student handbook did not guarantee the same due process protections as provided in public schools and even if it did, because the student was informed of the allegations against her and was given the opportunity to respond and defend her actions, her due process protections were not violated.

The Court then held that the school did not breach the contract by failing to follow the five-step disciplinary process or failing to document prior discipline issues in writing as the school retained the discretion to expel or suspend a student who committed a major offense, even if it was a first offense. Further, the student failed to avail herself of the required remedy of following the proper grievance procedure for appeal to the school board.

The Court next held that appellant failed to present sufficient evidence of libel and slander. The headmaster’s interviews with students to question them as to the details of what they had heard or observed of the alleged incidents was not slander when there was no allegation that he divulged information or opinions to the students. Further, emails from the headmaster to the school board following the student’s dismissal were properly characterized as internal reporting memos and fell under the purview of a qualified privileged communication.

The Court finally held that appellant failed to present sufficient evidence to support a claim for invasion of privacy. A letter sent to parents requesting permission to discuss with students their knowledge of the dismissed student did not contain any details of the dismissal and parents were specifically informed that students were not obligated to discuss the matter. The Court rejected appellant’s claim that the letter gave unreasonable publicity to the student’s private life and that it placed her in a false light. The complaint, which was public record, contained more detailed information than that included in the letter, the student published information on her MySpace page and the mother discussed the dismissal with a number of other parents. Therefore, neither had an expectation of privacy.

Arbitration Clauses for claims against nursing home and authority: Beverly Health and Rehabilitation Services, Inc. v. Smith (COA 4/10/2009)

Beverly Health and Rehabilitation Services, Inc. v. Smith
2009 WL 961056
Opinion by Judge Wine; Judges Dixon and Keller concurred.

The Court affirmed an order of the circuit court denying a motion to compel arbitration on an estates’ claim that treatment the deceased received in a nursing facility hastened his death. The Court first held that the law of third party beneficiaries was inapplicable because neither the deceased nor his power of attorney were strangers to the contract. The Court then held that there was no evidence indicating that the deceased’s daughter had the authority to sign and therefore, there was no binding, written contract with regard to the arbitration agreement.

ABRITRATION – Jurisdiction lost in contract action: Pavkovich v. Shenouda (COA 3/27/2009)

Pavkovich v. Shenouda
2009 WL 792488

Opinion by Judge Acree; Chief Judge Combs and Judge Taylor concurred.

The Court dismissed for lack of jurisdiction appellants’ appeals from an order of the circuit court dismissing and referring to arbitration their breach of contract and fraudulent misrepresentation claims related to the purchase of real property and an order of the circuit court affirming an arbitrator’s decision that the demand for arbitration was not timely.

The Court held that the circuit court lost jurisdiction of the subject matter 10 days after its original order dismissing the claims with prejudice. Because appellants did not timely appeal, the Court could not address that dismissal.

The Court then held that once the circuit court lost subject matter jurisdiction, appellants were required to comply with KRS 417.160 in order to invoke the circuit court’s jurisdiction to review the arbitrator’s decision. The trial court did not have subject matter jurisdiction to consider appellants’ motion filed in the case that had long since become final.