Glassford v. Brickkicker

• Citation: 35 A.3d 1044,2011 VT 118
• Decision Date: 04 November 2011
• Docket Number: No. 09–362.,09–362.
• Parties: James GLASSFORD and Heidi Glassford v. The BRICKKICKER and GDM Home Services, Inc.
• Court: United States State Supreme Court of Vermont

2011 VT 118

35 A.3d 1044

James GLASSFORD and Heidi Glassford

v.The BRICKKICKER and GDM Home Services, Inc.

No. 09–362.

Supreme Court of Vermont.

Nov. 4, 2011.

Kimberly B. Cheney and Zachary K. Griefen of Cheney, Brock & Saudek, P.C., Montpelier, for Plaintiffs–Appellants.

Margaret Marion Strouse, Burlington, for Defendants–Appellees.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

SKOGLUND, J.

¶ 1. Plaintiffs James and Heidi Glassford, who brought suit to obtain compensation for an allegedly negligent home inspection, appeal the superior court's order granting summary judgment in favor of the home inspector based on the terms of a binding arbitration agreement in the parties' contract. In this appeal, we consider whether the superior court erred in rejecting plaintiffs' contention that the terms of the home inspection contract are unconscionable under the common law and unfair and deceptive under Vermont's Consumer Fraud Act (CFA). We find unconscionable the contractual provisions limiting liability to the cost of the inspection and yet requiring arbitration that would necessarily cost more than the amount of the liability limit. Accordingly, we reverse the superior court's decision and remand the matter for further proceedings consistent with this opinion.

¶ 2. In 2005, plaintiffs contracted to buy a house in Barre Town, contingent upon a satisfactory home inspection. After being given a list of home inspection companies, plaintiffs contacted the first name on the list, defendant GDM Home Services, Inc., a local franchisee of a national home inspection company called The BrickKicker (hereinafter collectively referred to as BrickKicker). On December 22, 2005, the date of the scheduled inspection, only Mrs. Glassford was present. Before beginning the inspection, the home inspector presented a contract for Mrs. Glassford to sign. She signed the contract and paid the $285 inspection fee.

¶ 3. The two-page contract was on a preprinted form drafted by BrickKicker. The back page of the contract contains ten numbered paragraphs in small print without headers. Paragraphs 5 and 6 in the middle of the back page state as follows:

Client understands and agrees that it would be extremely difficult to determine the actual damages that may result from an inspector's failure to properly perform duties under this contract. As such, it is agreed that the liability of the Inspection Company arising out of this inspection and subsequent Property Inspection Report shall be limited to actual damages, or equal to the inspection fee charged, whichever is less. IT IS AGREED THAT THIS IS AN ADEQUATE LIQUIDATED DAMAGE AND IS IN NO WAY INTENDED AS A PENALTY, ADMISSION OF NEGLIGENCE OR DEFAULT SETTLEMENT. THE CLIENT UNDERSTANDS AND AGREES THAT ACTUAL DAMAGES, OR EQUAL TO THE INSPECTION FEE PAID, WHICHEVER IS LESS, IS THE CLIENT'S SOLE AND EXCLUSIVE REMEDY NO MATTER THE THEORY OF LIABILITY UPON WHICH THE CLIENT SEEKS RECOVERY ....

Any dispute, controversy, interpretation or claim for, but not limited to, breach of contract, any form of negligence, fraud or misrepresentation or any other theory of liability arising out of, from or related to this contract, the inspection or inspection report shall be submitted to final and binding arbitration under Rules and Procedures of the Expedited Arbitration of Home Inspection Disputes of Construction Arbitration Services, Inc.

¶ 4. Thus, the contract limited BrickKicker's liability to no more than the $285 charged for its inspection. This limitation effectively foreclosed arbitration because the “Rules and Procedures of the Expedited Arbitration of Home Inspection Disputes,” which were not set forth in the contract presented for Mrs. Glassford to sign, required the party seeking arbitration to pay, among other things, an initial arbitration fee of $1350, $450 each day after the first day's hearing, and travel expenses for an arbitrator residing more than fifty miles from the arbitration site. In short, a homebuyer disputing BrickKicker's performance would have to pay, at minimum, a $1350 arbitration fee to recover no more than the $285 inspection fee.

¶ 5. The contract also required plaintiffs to pay BrickKicker's costs, attorney's fees, and insurance policy deductibles in any arbitration in which BrickKicker prevailed, but imposed no such reciprocal obligation on BrickKicker. Further, the contract provided that plaintiffs waived any and all claims against BrickKicker unless they gave BrickKicker notice of the claim “within 90 days from the date of the inspection or 30 days after taking possession of the property, whichever is later” and allowed BrickKicker to reinspect the property.

¶ 6. Following his inspection of plaintiffs' prospective home, BrickKicker's inspector produced a detailed report declaring the house to be “[a] nice new home in need of routine maintenance and observation.” Plaintiffs bought the house for $230,500. According to their complaint, after moving in they found numerous defects which should have been discovered and reported by the inspector, and which, they claim, would have caused them to break the sales contract. Nearly three years later, in December 2008, plaintiffs brought suit against BrickKicker, alleging negligence in the home inspection.

¶ 7. BrickKicker moved to dismiss the suit, arguing that the complaint was barred by the contract's time-limit waiver and binding arbitration clause. Treating BrickKicker's motion as one for summary judgment, the court invited the parties to submit statements of undisputed fact and competing memoranda. Plaintiffs opposed BrickKicker's motion and attached a copy of the arbitration rules that the contract indicated would govern any arbitration proceedings. Plaintiffs argued that the arbitration fees required by the rules, combined with the contract's provision limiting liability, effectively insulated BrickKicker against any liability based on its services and assured that no arbitration proceeding would take place.

¶ 8. In January 2009, plaintiffs amended their complaint to allege that the contract violated the CFA because, among other things, while purporting to permit arbitration to resolve complaints concerning BrickKicker's services, the contract in fact shifted all risk of loss to plaintiffs, absolved BrickKicker of any responsibility to perform its services in a satisfactory manner, and effectively precluded plaintiffs from obtaining any possible remedy if they incurred damages because of a negligent inspection. BrickKicker responded in opposition. On March 3, 2009, plaintiffs amended their undisputed statement of facts to assert that the rules previously attached to their opposition to BrickKicker's earlier motion to dismiss were the same as the rules governing the arbitration agreement. Nothing in the record indicates that BrickKicker opposed this amendment or disputed that the rules submitted by plaintiffs were the arbitration rules referred to in the contract.

¶ 9. On July 2, 2009, the superior court dismissed the complaint, ruling that arbitration was the sole forum for plaintiffs to seek redress because the contract's arbitration clause was “utterly clear on its face.” See 12 V.S.A. § 5652(a) (stating that arbitration agreements are “valid, enforceable and irrevocable” unless otherwise void as contracts). Although there was no separate written acknowledgement of arbitration signed by the parties, as required by § 5652(a), the court determined that preemptive federal law required only that that the arbitration agreement be in writing. 9 U.S.C. § 2; cf. Bradley v. Harris Research, Inc., 275 F.3d 884, 889 (9th Cir.2001) (holding that special arbitration conditions imposed by state law, such as bold notice provisions, are preempted by federal law). The court did not address plaintiffs' CFA claims or their claims of unconscionability except to note that plaintiffs made “no claim that the arbitration clause itself is unconscionable” but instead directed “their ‘unconscionability’ arguments to other substantive terms of the contract such as the limitations on liability.” Finally, the court rejected BrickKicker's argument that plaintiffs had failed to timely seek arbitration, noting the lack of prejudice in the delay.

¶ 10. Plaintiffs moved for reconsideration, arguing, among other things, that the court ignored their claims that certain contract provisions were unconscionable under the common law and deceptive under the CFA, and that the arbitration clause was unenforceable due to the practical impossibility of arbitration, given that the arbitration fee exceeded any potential recovery under the liability cap in the contract. The court rejected these arguments, concluding that the unconscionability claim failed because (1) plaintiffs made “no allegation of any procedural unconscionability” concerning the formation of the contract, such as unequal bargaining power or use of fine print in the contract; and (2) the arbitration fee complained about was “nowhere specified in any of their multiple complaints, ... and no statement of material facts presents it either.” The court also stated, with respect to the limited liability provision, that plaintiffs had failed to support the proposition that limitations of liability are unenforceable or unconscionable per se. As for plaintiffs' claims that the arbitration clause was unconscionable, the court stated that the only references to the arbitration rules and fees were through counsel's oral arguments and an unauthenticated attachment to an earlier filing, rather than in the pleadings.

¶ 11. In short, according to the court, plaintiffs failed to allege procedural unconscionability, which it deemed to be a necessary predicate to their unconscionability claim, and further failed to produce a record or legal authority to support their claim that the challenged contractual provisions were substantively unconscionable. The court also determined that the...