Total Home Prot. v. Scheumann

• Decision Date: 01 July 2022
• Docket Number: 2021-CA-0532-MR
• Parties: TOTAL HOME PROTECTION APPELLANT v. ANDREW J. SCHEUMANN AND CHAPIN E. SCHEUMANN APPELLEES
• Court: Kentucky Court of Appeals

TOTAL HOME PROTECTION APPELLANT v. ANDREW J. SCHEUMANN AND CHAPIN E. SCHEUMANN APPELLEES

No. 2021-CA-0532-MR

Court of Appeals of Kentucky

July 1, 2022

NOT TO BE PUBLISHED

APPEAL FROM JEFFERSON CIRCUIT COURT HONORABLE MARY M. SHAW, JUDGE ACTION NO. 19-CI-001489

BRIEFS FOR APPELLANT: SCOTT P. ZOPPOTH LOUISVILLE, KENTUCKY

BRIEF FOR APPELLEES: ANDREW J. SCHEUMANN, PRO SE CHAPIN ELIZABETH SCHEUMANN, PRO SE LOUISVILLE, KENTUCKY

BEFORE: CETRULO, DIXON, AND LAMBERT, JUDGES.

OPINION

CETRULO, JUDGE

Appellant Total Home Protection ("THP") appeals the Jefferson Circuit Court order denying its motion to dismiss and to compel arbitration. Upon review of the record and relevant caselaw, we reverse and remand for findings of fact and conclusions of law.

BACKGROUND AND PROCEDURAL HISTORY

In June 2018, Appellees Andrew and Chapin Scheumann (together, the "Scheumanns") purchased their home in Louisville and entered into a Platinum Home Warranty Agreement ("Agreement") with THP. The Agreement stated that THP would cover the costs to repair or replace covered systems outlined in the plan (e.g., the water heater, heating system, refrigerator, etc.). Section IX of the Agreement provided that the parties would resolve all disputes arising under the contract through mandatory arbitration; the Scheumanns would waive certain types of damages; limit their recovery to $1,500; waive their right to a jury trial; and waive their right to litigate any disputes arising under the contract in the courts. In pertinent part the Agreement stated:

IX. MEDIATION

A. Any and all disputes, claims and causes of action arising out of or connected with this Agreement shall be resolved individually, without resort to any form of class action, and exclusively by the American Arbitration Association under its Commercial Mediation Rules. Controversies or claims shall be submitted to arbitration regardless of the theory under which they arise, including without limitation contract, tort common law, statutory, or regulatory duties or liability.

B. Any and all claims, judgments and awards shall be limited to actual out of pocket costs incurred to a maximum of $1500 per claim, but in no event attorneys' fees.

C. Under no circumstances will you be permitted to obtain awards for, and you hereby waive all rights to claims, indirect, punitive, incidental and consequential damages and any other damages, other than for actual out-of-pocket expenses, and any and all rights to have damages multiplied or otherwise increased. . . .

D. . . . THE PARTIES UNDERSTAND THAT THEY WOULD HAVE HAD A RIGHT TO LITIGATE THROUGH A COURT, TO HAVE A JUDGE OR JURY DECIDE THEIR CASE AND TO BE PARTY TO A CLASS OR REPRESENTATIVE ACTION, HOWEVER, THEY UNDERSTAND AND CHOOSE TO HAVE ANY CLAIMS DECIDED INDIVIDUALLY, THROUGH ARBITRATION.

In January 2019, the Scheumanns' heating system stopped working properly, so they alerted THP of the issues and requested that THP repair it under the Agreement. In accordance with the Agreement, THP assigned a contractor to address the Scheumanns' request. After some apparent poor communication and incompetent work on the part of the contractor, the contractor failed to resolve the issues. As a result, the Scheumanns were without a functioning furnace for a week and bought a space heater to keep their residence warm.

After two months of disagreements and miscommunication between the parties, on March 8, 2019, the Scheumanns filed a complaint against THP and the contractor^[1] in Jefferson Circuit Court, despite the arbitration agreement. The first amended complaint,^[2] amended on March 21, 2019, alleged THP transacted business without authority; violated the Consumer Protection Act; breached the Agreement; committed two counts of fraudulent misrepresentation; negligently hired or retained the contractor; committed negligence; committed gross negligence; and that Section IX of the Agreement, including the arbitration clause, was unconstitutional.

After alleged difficulties serving process to THP - in which THP later filed affidavits arguing it was never properly served - the Scheumanns filed an affidavit claiming THP was properly served on March 26, 2019. Therefore, the Scheumanns claimed a responsive pleading was due no later than April 15, 2019. When they did not receive as much, they moved for default judgment on April 17, 2019. The circuit court then granted default judgment on April 19, 2019.

In pertinent part, the tendered order said, "Default Judgment is entered in favor of [the Scheumanns] and against [THP] on Count XVI of [the Scheumanns'] First Amended Complaint, Constitutionality of Section IX of [Agreement]." It further detailed that it would issue a subsequent order concerning a hearing on damages. After the damages hearing, the circuit court issued an order in October 2019 that awarded the Scheumanns a total of $108,901.12, detailed as follows: $665.17 in actual damages (the maximum allotted); $25,000 for mental and physical pain and suffering of Andrew Scheumann; $25,000 for mental and physical pain and suffering of Chapin Scheumann; $50,000 in punitive damages; $998 for violating KRS^[3] 14A.9-010^[4] (the maximum allotted); and $7,237.95 for legal fees and expenses.^[5]

At some point thereafter, with that damages award in hand, the Scheumanns filed the judgment in THP's home state to recover the listed damages. At that point, THP claimed it first became aware of the Scheumanns' case against it. As such, THP filed a motion to set aside and vacate the default judgment in April 2020. In that motion, THP argued, in pertinent part, that it was not properly served and that the circuit court did not have proper jurisdiction because the Scheumanns agreed to mandatory arbitration. Further, THP argued that the judgment awarding damages should be vacated because the court made no findings of fact and conclusions of law to support the award and the vast majority of the award - aside from $665.17 in actual damages - was specifically prohibited by the Agreement.

The next month, in May 2020, the circuit court entered an order setting aside and vacating the default judgment, in part ("Order Vacating in Part"). It ordered "that the 4/19/19 Order Granting Default Judgment stands, however, the Order of Judgment entered in this proceeding on October 18, 2019, as to damages, in favor of the [Scheumanns] is set aside, and vacated and declared null and void. IT IS FURTHER ORDERED that [THP] is hereby granted a new hearing on damages." The Order Vacating in Part did not contain "final and appealable" language.

THP then filed a motion to dismiss and to compel arbitration in February 2021.^[6] THP asked the circuit court to dismiss the case and compel the parties to arbitrate as required under KRS 417.060(1). In April 2021, the circuit court denied THP's motion, stating it had previously held in its default judgment that the arbitration provision in the Agreement was unconstitutional. In so concluding, the circuit court determined the "procedural posture of this action compels denial of THP's motion."

THP now appeals the denial of its motion to compel arbitration, arguing that the circuit court erred when it (1) failed to enforce a valid arbitration agreement; (2) found the arbitration provision was unconstitutional; and (3) failed to provide appropriate findings of fact and conclusions of law.

STANDARD OF REVIEW

[A]n order denying a motion to compel arbitration is immediately appealable. KRS 417.220(1). See also Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 340 (Ky. App. 2001). The enforcement and effect of an arbitration agreement is governed by the Kentucky Uniform Arbitration Act (KUAA), KRS 417.045 et seq., and the Federal Arbitration Act, (FAA) 9 U.S.C.^[7] §§ 1 et seq. "Both Acts evince a legislative policy favoring arbitration agreements, or at least shielding them from disfavor." Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581, 588 (Ky. 2012).

But under both Acts, a party seeking to compel arbitration has the initial burden of establishing the existence of a valid agreement to arbitrate. Id. at 589. That question is controlled by state law rules of contract formation. Id. at 590. The FAA does not preempt state law contract principles, including matters concerning the authority of an agent to enter into a contract and which parties may be bound by that contract. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630-31, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009). Since this matter is entirely an issue of law, our standard of review is de novo. Conseco, 47 S.W.3d at 340.

New Meadowview Health and Rehab. Ctr., LLC v. Booker, 550 S.W.3d 56, 58 (Ky. App. 2018) (footnote omitted).

ANALYSIS

As an initial matter, the Scheumanns argue that this Court does not have the requisite jurisdiction to review this claim under Pavkovich v. Shenouda, 280 S.W.3d 584 (Ky. App. 2009). We do not agree. Alternatively, THP argues this appeal is properly before this Court and that the circuit court's denial of its motion to compel arbitration did not comply with Kentucky law. We agree.

A. Jurisdiction

Before we analyze THP's claims regarding the circuit court's denial of it motion to compel arbitration, we will address the Scheumanns' argument that this Court does not have proper authority to review such claims. Citing to this Court's decision in Pavkovich, the Scheumanns claim THP forfeited its opportunity to challenge the circuit court's findings regarding the arbitration clause when it failed to appeal the Order Vacating in Part. Therefore, the Scheumanns argue that the arbitration issue is not properly before this Court. We find the Scheumanns' argument to be unconvincing under Pavkovich.

In Pavkovich, the plaintiffs filed a motion to...