765 F. Supp. 2d 937
W.D. Ky.2011Background
- Plaintiffs Brett and Linda Davis sued GHS Solutions, LLC, Global Client Solutions, LLC, and Rocky Mountain Bank & Trust in the Western District of Kentucky over participation in a debt settlement program.
- GHS is a Florida debt-settlement provider not licensed in Kentucky; Global is an Oklahoma LLC; Rocky Mountain is a Colorado bank.
- The parties allegedly entered into a Client Service Agreement and a Special Purpose Account Application; there is dispute over whether the Davis signed the Client Service Agreement.
- Global directed transfers from the Davises’ account into a Rocky Mountain account, with Global distributing funds to creditors and collecting fees from the Davises.
- From April 2009 to March 2010, fees totaling $3,523.32 were paid to GHS; no payments to creditors were made.
- The Davises sued in May 2010; the Defendants moved to compel arbitration under FAA provisions; the court addressed whether the arbitration agreements were unconscionable under Kentucky law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration agreements are unconscionable under Kentucky law. | Davis argues agreements are substantively or procedurally unconscionable. | Defendants contend agreements are valid and enforceable under FAA and Kentucky law. | Arbitration agreements found unconscionable; not enforceable. |
| Whether the Client Service Agreement ban on class actions is enforceable. | Clauses banning class actions are unenforceable as exculpatory and against public policy. | Arbitration clause stands as a standard contractual term. | Substantively unconscionable; unenforceable. |
| Whether the Special Purpose Account Agreement’s damages limitation makes arbitration unenforceable. | Damages limitation prevents pursuit of all remedies under statutory and common law claims. | Limitation is a permissible contract term. | Damages limitation found substantively unconscionable; unenforceable. |
Key Cases Cited
- Mort. Elec. Registration Sys. v. Abner, 260 S.W.3d 351 (Ky. Ct. App. 2008) (arbitration clauses with substantial waiver of rights are unconscionable)
- Arnold v. United Companies Lending Corp., 511 S.E.2d 854 (W. Va. 1998) (substantial rights waiver in arbitration agreements is unconscionable)
- Conseco Fin. Servicing Corp. v. Wilder, 47 S.W.3d 335 (Ky. Ct. App. 2001) (substantive unconscionability factors in arbitration)
- Louisville P–trbilt, Inc. v. Cox, 132 S.W.3d 850 (Ky. 2004) (procedural and substantive unconscionability considerations in Kentucky)
- Jenkins v. First American Cash Advance of Georgia, LLC, 400 F.3d 868 (11th Cir. 2005) (considerations of arbitration term fairness and public policy)
- Mort. Elec. Registration Sys. v. Abner, 260 S.W.3d 351 (Ky. Ct. App. 2008) (arbitration clauses that substantially limit remedies are unconscionable)
- Javitch v. First Union Sec., Inc., 315 F.3d 619 (6th Cir. 2003) (FAA applicability and contract-law review of arbitration)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. Supreme Court 1985) (federal policy favoring arbitration agreements)