Green v. Frazier

• Court: Supreme Court of Kentucky
• Writing for the Court: OPINION OF THE COURT BY JUSTICE VANMETER
• Citation: Green v. Frazier, 655 S.W.3d 340 (Ky. 2022)
• Decision Date: 22 September 2022
• Docket Number: 2021-SC-0293-DG
• Parties: Curtis GREEN and Clay Green, Inc. d/b/a Green's Toyota of Lexington and John Hicks, Appellants v. Phillip FRAZIER, Appellee

655 S.W.3d 340

Curtis GREEN and Clay Green, Inc. d/b/a Green's Toyota of Lexington and John Hicks, Appellants

v.Phillip FRAZIER, Appellee

2021-SC-0293-DG

Supreme Court of Kentucky.

September 22, 2022

COUNSEL FOR APPELLANTS: Carroll Morris Redford, III, Miller, Griffin & Marks PSC, Lexington.

COUNSEL FOR APPELLEE: Teddy Lowell Flynt, Salyersville, Larry Dustin Riddle, Lexington, Flynt Law Offices.

OPINION OF THE COURT BY JUSTICE VANMETER

Parties who enter enforceable arbitration agreements are required to submit their disputes to binding arbitration, subject to limited exceptions, under both federal and Kentucky statutes. In this case, Phillip Frazier signed or initialed three documents agreeing to arbitrate any dispute with Curtis Green and Clay Green, Inc. d/b/a Green's Toyota of Lexington,¹ with respect to the purchase of a 2018 Toyota Tundra pickup truck (the "Truck"). The issue we address in this case is whether the Court of Appeals erred in affirming the Powell Circuit Court's order denying Green's motion to compel arbitration. We hold that the Court of Appeals did err. We therefore reverse its opinion and remand this matter to the trial court with directions to enter an order compelling arbitration.

I. Facts and Procedural Background.

In 2018, Frazier, a Powell County resident, purchased the Truck from Green's. Frazier alleges that his salesman, John Hicks, represented that the truck was a "new" vehicle with no prior damage.

The controversy giving rise to this case arose when Frazier, in September 2019, returned the Truck to Green's for routine maintenance. While there, Frazier became interested in another vehicle on the lot. When discussing a possible trade-in, Frazier learned that the CARFAX for the Truck indicated that it had been damaged prior to his purchase. Frazier alleged that Green's general manager informed him employees at Green's had wrecked the Truck on the lot prior to its original sale to Frazier and repaired the damage, but that Green's had failed to disclose this information to Frazier.

In December 2019, Frazier filed a civil complaint against Green's in Powell Circuit Court. Frazier alleged (1) Green's breached its contract with him by selling him a vehicle represented as "new" when in fact the vehicle was not in new condition as it had previously been wrecked; (2) Green's actions constitute a breach of express and implied warranties as it was warranted to Frazier that he was purchasing a new vehicle with no prior damage; (3) Green's Toyota engaged in unfair, false, misleading and/or deceptive acts or practices in violation of Kentucky's Consumer Protection Act, KRS 367.170 ; and (4) Green's intentionally and fraudulently misrepresented that the Truck was a new vehicle. Frazier sought an award of compensatory and punitive damages.

Green's responded to the complaint by filing a motion to dismiss for lack of jurisdiction, improper venue, or in the alternative motion to dismiss to compel and/or direct arbitration. The motion to compel arbitration was based on provisions contained in three documents signed or initialed by Frazier when he purchased the Truck in June 2018. First, the Purchase Contract for the Truck included incorporation language above the signature lines, that "Purchaser has read and agreed to the terms on the reverse side hereof, including the ARBITRATION AGREEMENT, provided for in paragraph 17...." The referenced paragraph stated, in full:

17. Any claim or dispute by Purchaser with Dealer arising out of or in any way relating to this Contract, any installment sale contract for the Vehicle, and any other agreements related to or provided herein, the Vehicle, the negotiations and financing, and the sale by Dealer to Purchaser, of the Vehicle, including, without limitation, any claims involving fraud or misrepresentation, personal injuries, products liability, state or federal laws or regulations affecting or establishing the rights of consumers (without limitation truth in lending laws and regulations or consumer protection laws acts and regulations) shall be resolved by binding arbitration administered by Better Business Bureau Serving Eastern and Central Kentucky, Inc., in accordance with its rules. Dealer and/or its assignee and Purchaser shall execute and deliver all agreements reasonably necessary in connection with such arbitration. All arbitration proceedings shall be held in Lexington Fayette County, Kentucky. The decision of the arbitrator(s) shall be final, conclusive and binding on the parties to the arbitration and no party shall institute any suit with regard to any such claim or dispute, except to compel arbitration or to enforce the arbitration decision. Venue for any action to enforce this Arbitration Agreement or any arbitration decision shall be in Fayette County, Lexington, Kentucky. Provided however, Dealer and/or its assigns may at its option bring or institute litigation in any state or federal court, against Purchaser and the Purchaser hereby consents to the jurisdiction of such courts and agrees to the entry of a judgment by any such court against Purchaser in favor of Dealer, seeking specific performance by Purchaser of Purchaser's obligations hereunder, for any violation or breach of the Purchaser's representations and warranties provided for in paragraphs 3, 10 and 11 hereof^{[2 ]} and/or on any installment sale contract for the Vehicle between Dealer and/or its assignee and Purchaser.

The second document that appears in the limited record is entitled Green's Toyota of Lexington Applicable Contingency and Arbitration Agreement ("Financing Contingency Agreement"). Specifically, this document, in Section I, purported to make the purchase and sale of the Truck contingent upon Green's arranging financing for the transaction subject to Frazier's acceptance, as shown by Frazier's initials adjacent to the applicable contingency, with a number of additional terms and conditions related to the financing contingency. Section II provided the following:

II. Arbitration Agreement

Any claims or dispute arising out of or in any way relating to this Agreement, the negotiations, the financing, sale or lease of the vehicle which is the subject of the Agreement, including any claim involving fraud or misrepresentation, must be resolved by binding arbitration administered by the Better Business Bureau of Central and Eastern Kentucky, Inc., in accordance with its rules. All arbitration proceedings shall be held in Lexington, Kentucky. The decision of the arbitrator(s) will be final, conclusive and binding on the parties to the arbitration and no party shall institute any suit with regard to the claim or dispute except to enforce the award. Each party shall advance its pro rata share of the costs and expenses of said arbitration proceedings and each shall separately pay its own attorney's fees and expenses. No party to this Agreement shall have the right to recover in any proceeding nor shall the arbitrator(s) have the authority to award any party consequential or punitive damages.

The Financing Contingency Agreement appears to be subscribed by Green's but only initialed by Frazier.

Finally, the third document is in the form of a questionnaire related to twelve items involved in the transaction, e.g. , the identification of the vehicle; identification of any applicable trade-in; acknowledgement of receipt of the Purchase/Lease Agreement; acknowledgement of the monthly payment for a financed purchase; acknowledgement that the transaction could not be rescinded or voided. The final item was the following:

12. Any claim or dispute arising out of or in any way relating to this contract, the negotiations [sic] financing, sale or lease of the vehicle which is the subject of this contract, including any claim involving fraud or misrepresentation, must be resolved by binding arbitration administered by the Better Business Bureau or [sic] Central or Eastern Kentucky Inc. in accordance with its rules. All arbitration proceedings shall be held in Lexington, Kentucky. The decision of the arbitrator(s) will be final [sic] conclusive and binding on the parties to the arbitration and no party shall institute any suit with regards to any claim or dispute except to enforce the arbitration decision. Venue for any action to enforce this arbitration decision shall be in Fayette County Court, Lexington, Kentucky.

In addition to the places in which Frazier initialed items numbers 2, 3, 4, 5 and 6, he also initialed the bottom of this document.

The trial court denied Green's motion(s). With respect to Green's venue argument, the trial court agreed with Frazier that his Consumer Protection claim was permitted to be brought in the county of his residence. KRS 367.220. As to the motion to compel arbitration, the trial court agreed with Frazier that because the arbitration clause in the Financing Contingency Agreement precluded consequential or punitive damages, the arbitration agreement was unconscionable and unenforceable. Mortg. Elec. Registration Sys., Inc. v. Abner , 260 S.W.3d 351, 352 (Ky. App. 2008).

As permitted by KRS 417.220(1)(a), Green's filed an interlocutory appeal with the Court of Appeals as to the denial of the motion to compel arbitration. In a 2-1 decision, the Court of Appeals affirmed the trial court. The majority opinion agreed that the arbitration agreement was both procedurally and substantively unconscionable and was incapable of being severed from the remainder of the contract. The Court of Appeals dissent opined that the challenge to the terms of the arbitration agreement was within the purview of the arbitrator, and would have ordered arbitration. Curtis Green and Clay Green, Inc. v. Frazier , No. 2020-CA-781-MR, 2021 WL 2878360, at *8-*9 (Ky. App. July 9, 2021) (Maze, J., dissenting). Green's moved for discretionary review, which we granted.

II. Standard of Review.

Under KRS 417.220(1)(a), an appeal may be taken from an order denying an application to compel arbitration. The standard...