3:15-cv-00335
W.D. Ky.Sep 11, 2015Background
- Plaintiffs are several consumers who purchased inground pools from Blue World Pools and allege the company misrepresented financing terms and added large costs at installation, including high interest rates and liens.
- Plaintiffs claim initial contracts omitted finance charges and the final installer-presented contracts significantly increased purchase prices (e.g., Roberts: ~$24.6k to ~$55.3k).
- Blue World moved to compel arbitration based on signed arbitration clauses that include a class-action waiver and a broad limitation of remedies.
- Plaintiffs oppose enforcement, arguing the arbitration clause is procedurally and substantively unconscionable and seek limited discovery on arbitration costs and alleged fraud in inducement.
- The court denied the motion to compel arbitration, found the clause not procedurally unconscionable, raised substantive unconscionability concerns (limitation of remedies, potential prohibitive costs), and allowed limited discovery on costs and related issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Procedural unconscionability of arbitration clause | Clause and class waiver were hidden/poorly presented (all caps, inadequate disclosure) | Clause was separate, clear, and initialed; not hidden | Not procedurally unconscionable; clause sufficiently conspicuous |
| Substantive unconscionability: limitation of remedies | Limitation to repair and exclusion of consequential damages prevents vindication of statutory/common-law rights | Arbitration allows recovery of attorney’s fees where authorized; severability clause preserves arbitration | Limitation likely overbroad; severability clause means arbitrator could strike remedy limitation rather than void entire arbitration clause |
| Substantive unconscionability: arbitration costs | Potentially prohibitive arbitration fees could deter plaintiffs from vindicating rights | Plaintiffs must prove likelihood of prohibitive costs; comparison to litigation costs required | Court permits limited discovery for plaintiffs to show costs could be prohibitive; parties to estimate costs and choice of arbitrator |
| Fraud in inducement and scope of court review | Allege broad fraudulent scheme inducing the whole contract, including arbitration clause | If fraud concerns entire contract, arbitrator decides; only fraud specifically targeting the arbitration clause is for the court | Court limited to evaluating whether fraud directly targeted arbitration clause; allowed discovery to develop the claim |
Key Cases Cited
- Preston v. Ferrer, 552 U.S. 346 (recognizes national policy favoring arbitration)
- EEOC v. Waffle House, 534 U.S. 279 (arbitration agreements put on same footing as other contracts)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (FAA applies to statutory claims in arbitration context)
- Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624 (limited court review to determine arbitrability)
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (allocation of gateway arbitrability questions may be for arbitrator when parties delegate)
- Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967 (state contract law governs enforceability of arbitration agreements)
- Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (party challenging arbitration on cost grounds bears burden to show prohibitively expensive)
- Morrison v. Circuit City Stores, 317 F.3d 646 (assessing whether arbitration costs deter vindication of statutory rights)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (fraud-in-the-inducement of entire contract generally for arbitrator; fraud targeting arbitration clause is for court)
- Mortg. Elec. Registration Sys. v. Abner, 260 S.W.3d 351 (Ky. Ct. App.) (arbitration clauses that eliminate remedies can be unconscionable)