Case Name: Michael L. PITTS and Stephanie A. Pitts v. Charles D. WATKINS
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 2005-04-14
Citations: 905 So. 2d 553
Docket Number: No. 2004-CA-00062-SCT
Parties: Michael L. PITTS and Stephanie A. Pitts v. Charles D. WATKINS.
Judges: WALLER, P.J., EASLEY, CARLSON AND GRAVES, JJ., CONCUR. DICKINSON, J., DISSENTS WITH SEPARATE WRITTEN OPINION JOINED BY SMITH, C.J. AND COBB, P.J. DIAZ, J., NOT PARTICIPATING.
Reporter: Southern Reporter, Second Series
Volume: 905
Pages: 553–564

Head Matter:
Michael L. PITTS and Stephanie A. Pitts v. Charles D. WATKINS.
No. 2004-CA-00062-SCT.
Supreme Court of Mississippi.
April 14, 2005.
Logan Shane Tompkins, Joseph N. Studdard, Columbus, Attorneys for Appellants.
Todd Britton Murrah, Memphis, TN, Attorney for Appellee.

Opinion:
RANDOLPH, Justice,
for the Court:
¶ 1. Michael L. and Stephanie A. Pitts filed a Complaint on November 21, 2002, against Charles D. Watkins alleging breach of duty, misrepresentation, breach of contract, gross negligence and negligence, all stemming from a home inspection performed by Watkins. In response, Watkins filed a motion for summary judgment and argued that all claims arising out of the Home Inspection Agreement should be resolved through arbitration and that the limits of liability clause prohibited any recovery for damages beyond the fee paid for the inspection. The Circuit Court of Lowndes County, Mississippi, granted the summary judgment motion in its entirety.
FACTS
¶ 2. In the spring of 2000, Michael and Stephanie Pitts became interested in purchasing a home located at 14 Shadow Ridge, Columbus, MS 39702. In March, 2000, they employed Charles D. Watkins to perform a home inspection to determine the condition of the property and needed repairs. The Pittses, Watkins and the realtor performed a "walk through" of the home, during which the Pittses requested Watkins's opinion after noting areas of concern, including the kitchen and laundry room floors.
¶ 3. Immediately following the completion of his inspection, but before providing the Pittses with his report, Watkins presented Mr. Pitts with an agreement to be signed concerning the inspection. Mr. Pitts signed the agreement, and the Pitts-es subsequently received a copy of Watkins's written inspection report. Thereafter, they purchased the home.
¶ 4. The Pittses claim that, after about six months, they began to notice various problems with the house, including tiles in the kitchen and laundry area separating and lifting off the floor; problems with the dryer vent; and water accumulation under the center of the house. The Pittses allege that all these problems should have been identified in Watkins's home inspection report.
¶ 5. The Pittses now appeal the trial court's grant of Watkins's motion for summary judgment.
ANALYSIS
¶ 6. The standard for review we apply to summary judgment is familiar and has been recited by this Court in numerous cases:
The standard for reviewing the granting or the denying of summary judgment is the same standard as is employed by the trial court under Rule 56(c). This Court conducts de novo review of orders granting or denying summary judgment and looks at all the evidentiary matters before it — admissions in pleadings, answers to interrogatories, depositions, affidavits, etc. The evidence must be viewed in the light most favorable to the party against whom the motion has been made. If, in this view, the moving party is entitled to judgment as a matter of law, summary judgment should forthwith be entered in his favor. Otherwise, the motion should be denied. Issues of fact sufficient to require denial of a motion for summary judgment obviously are present where one party swears to one version of the matter in issue and another says the opposite. In addition, the burden of demonstrating that no genuine issue of fact exists is on the moving party. That is, the non-movant would be given the benefit' of the doubt.
Aetna Cas. & Sur. Co. v. Berry, 669 So.2d 56, 70 (Miss.1996) (citing Mantachie Nat. Gas Dist. v. Miss. Valley Gas Co., 594 So.2d 1170, 1172 (Miss.1992)).
¶ 7. "[TJhere can be no doubt that when addressing arbitration issues, we have readily acknowledged that there is a strong federal policy favoring arbitration." Pre-Paid Legal Servs., Inc. v. Battle, 873 So.2d 79, 84 (Miss.2004). '"This Court 'will respect the right of an individual or ah entity to agree in advance of a dispute to arbitration or other alternative dispute resolution.' " Id. at 82 (quoting Russell v. Performance Toyota, Inc., 826 So.2d 719, 721-22 (Miss.2002)). However, "applicable contract defenses available under state contract law such as fraud, duress, and unconscionability may be asserted to invalidate the arbitration agreement without offending the Federal Arbitration Act." East Ford, Inc. v. Taylor, 826 So.2d 709, 711 (Miss.2002) (citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)).
¶ 8. Because this Court finds that the arbitration clause and the limitation of liability clause are substantively unconscionable, these issues are dispositive of the case and other issues raised by the Pittses are not discussed.
¶ 9. "Substantively unconscionable clauses have been held to include waiver of choice of forum and waiver of certain remedies." East Ford, 826 So.2d at 714. "Substantive unconscionability may be proven by showing the terms of the arbitration agreement to be oppressive." Id. See also Russell v. Performance Toyota, Inc., 826 So.2d 719 (Miss.2002).
¶ 10. The arbitration clause in the case sub judice is substantively unconscionable. The arbitration clause provides an avenue for Watkins to pursue his claims in a court of law, while requiring the Pitts-es to arbitrate. The arbitration clause in the Inspection Agreement reads as fol lows: "Any dispute concerning the interpretation of this Agreement or arising from the Inspection and Report (unless based on payment of fee) shall be resolved by . arbitration." (emphasis added.) By signing the agreement, Pitts agreed to pay $265 for the performance of the Inspection services. If Pitts were to breach the contract by failing to pay the inspection fee to Watkins, Watkins would be able to pursue his claim in a court of law. The contract states the following with respect to failing to pay the inspection fee: "Should you fail to timely pay the agreed upon fee(s), you shall be responsible for paying any and all fees associated, with collection, including but not limited to administration costs, attorney's fees, and cost of litigation." These terms unreasonably favor Watkins. The language included in the clause, "(unless based on payment of fee)," maintains Watkins's ability to pursue a breach by Pitts in a court of law, while Pitts is required to arbitrate any alleged breach by Watkins. This arbitration clause is clearly one-sided, oppressive, and therefore, substantively unconscionable.
¶ 11. Substantive unconscionability also exists with respect to the limitation of liability clause. After an inspection, the purchaser makes a decision involving thousands of dollars — whether to buy the house or not — and that decision is largely based upon a satisfactory inspection report. At that point, many decisions including the aesthetics, the amenities and the price of the house have been made, and quite often the only issue left is the integrity of the house. If a home inspector is negligent in his or her inspection, the law demands that he or she should be held liable to the extent of his negligence. If the Pittses can establish duty, breach, causation, and damages, then they should be entitled to full legal redress. To do otherwise would allow home inspectors to walk through the house in five minutes, fabricate a report, and escape liability, without any consideration of the consequences of their conduct.
¶ 12. According to Pitts's affidavit, when Watkins performed the inspection, Pitts pointed out raised areas in the kitchen and laundry room floors, and asked Watkins to provide them with an opinion concerning the condition of the floor. Watkins then informed the Pittses that he found no problems with the floor. The report only stated that the floor was made of vinyl and did not indicate any problems with the floor. If in fact the Pittses are able to prove duty, breach, causation and damages, they should not be limited to $265 in damages when it is alleged that Watkins's negligence caused them to incur $30,000 to $40,000 in damages. This would be an unconscionable result.
¶ 13. The limitation of liability clause limits Watkins's liability for any wrongdoing at $265 (the amount paid for the inspection), and also states that "you release us from any and all additional liability. There will be no recovery for consequential damages." Again, like in East Ford, this clause precludes the plaintiffs ability to collect punitive damages, if otherwise warranted, but more importantly places an unreasonable restriction to collect compensatory damages in excess of $265. This Court has held that, "[e]lauses that limit liability are given strict scrutiny by this Court and are not to be enforced unless the limitation is fairly and honestly negotiated and understood by both parties." Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So.2d 748, 754 (Miss.2003).
¶ 14. In Lucier v. Williams, 366 N.J.Super. 485, 841 A.2d 907 (2004), a limitation of liability provision in a home inspection contract was found unconscionable for the following reasons:
(1) the contract, prepared by the home inspector, is one of adhesion; (2) the parties, one a consumer and the other a professional expert, have grossly unequal bargaining status; and (3) the substance of the provision eviscerates the contract and its fundamental purpose because the potential damage level is so nominal that it has the practical effect of avoiding almost all responsibility for the professional's negligence.
Id. at 912. The limitation of liability clause in Lucier limited damages at $500 or 50% of the fee paid by the client, whichever was smaller. Id. at 909. Limiting homeowners to a recovery of the inspection fee and not allowing the recovery of reasonably foreseeable compensatory damages is clearly unconscionable, does not provide a meaningful choice to homeowners, and is unreasonably favorable to the home inspector. If the home inspector's only consequence is to refund the fee, "there is no meaningful incentive to act diligently in the performance of home inspection contracts," and the inspector will be immunized from the consequences of his own negligence. Id. at 912-13.
¶ 15. The limitation of liability clause, when paired with the arbitration clause, effectively denies the plaintiff of an adequate remedy and is further evidence of substantive unconscionability. The Court of Appeals of Ohio, in a case analogous to this one, held that the interaction between an arbitration provision and a limitation of liability clause rendered a home inspection contract unenforceable. O'Donoghue v. Smythe, Cramer Co., 2002 WL 1454074 (Ohio Ct.App.2002). See also McDonough v. Thompson, 2004 WL 2847818 (Ohio Ct.App.2004). In O'Donoghue, the home inspection contract limited the inspector's liability at $265, where the cost of arbitration according to the American Arbitration Association was at least $500. The rules of the American Arbitration Association provide that, if the amount of a claim is between $0~$10,000, there is an initial filing fee of $500. If the claim is between $10,000-$75,000, the initial filing fee is $750. However, the American Arbitration Association may discretionarily apply its Supplementary Procedures for Consumer-Related Disputes, in which case a consumer may pay up to $375. Although the filing fee is not' contained within the record, the arbitration clause in dispute, by reference, incorporates the rules of the American Arbitration Association.
¶ 16. The Pittses filed affidavits that the inspection failed to discern $30,000 to $40,000 in damages. The limitation of liability clause which limits the Pittses' recovery to $265, in conjunction with an undis closed arbitration provision of the AAA which would require an initial filing fee of at least $500, would effectively deny the plaintiffs any redress. The deprivation of an adequate remedy resulting from the interaction of these two clauses renders both clauses substantially unconscionable.
¶ 17. Providing further evidence of substantive unconscionability is the limitations period set forth in the document. Although the specific term was not specifically raised by the Pittses, they raised substantive unconscionability of the entire contract, which may be found when the terms of the contract are oppressive. Russell, 826 So.2d 719. After reviewing the contract in its entirety, including all terms, the document purports to establish its own one-year statute of limitations, in contradiction to the three-year statute of limitations set forth in Miss.Code Ann. § 15-1-49 (Rev.2003).
¶ 18. The document contains the following provision: "Any legal action arising from this Agreement or from the Inspection and Report, including (but not limited to) the arbitration proceeding more specifically described above, must be commenced within one (1) year from the date of the Inspection." This is in direct contradiction of Miss.Code Ann. § 15-1-49 which provides for a three-year statute of limitations. This period of limitation cannot be changed by contract, and any such change in the limitations period shall be null and void. Miss.Code Ann. § 15-1-5 (Rev. 2003). The attempt to create a private statute of limitations is further evidence of overreaching by Watkins, is oppressive, violates statutory law and is likewise unconscionable.
¶ 19. Unconscionability has been defined as "an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party." Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202, 1207 (Miss.1998). A breach by the Pittses of nonpayment would result in Watkins's ability to pursue an action within the courts. However, a breach by Watkins, would limit the Pittses to a recovery of $265, the arbitration of which would require fees in excess of their possible recovery.
CONCLUSION
¶20. The limitation of liability clause and the arbitration clause are substantively unconscionable. The arbitration clause unreasonably favors Watkins because it reserves Watkins's ability to pursue claims in a court of law but requires the Pittses to arbitrate their disputes, and as such should be declared substantively unconscionable. Additionally, the attempt to shorten the statute of limitations is oppressive and in violation of statutory law. It is also substantively unconscionable to limit the Pittses' recovery to $265 when the alleged negligence of Watkins caused them to incur thousands of dollars in damages. Furthermore, the interaction of the limitation of liability clause with the arbitration clause renders the Pittses without a meaningful remedy. All three clauses are therefore unenforceable. Therefore, this Court reverses the judgment of the Lowndes County Circuit Court and remands this case to that court for further proceedings consistent with this opinion.
¶ 21. REVERSED AND REMANDED.
WALLER, P.J., EASLEY, CARLSON AND GRAVES, JJ., CONCUR. DICKINSON, J., DISSENTS WITH SEPARATE WRITTEN OPINION JOINED BY SMITH, C.J. AND COBB, P.J. DIAZ, J., NOT PARTICIPATING.
. Indeed the record reflects substantial damage, as Watkins made an offer to settle for $10,000 which was refused, and then solicited a counter offer in excess thereof.
. The AAA applies the Supplementary Procedures for Consumer-Related Disputes to arbitration clauses in agreements between individual consumers and businesses where the business has a standardized, systematic application of arbitration clauses with customers and where the terms and conditions of the purchase of standardized, consumable goods or services are non-negotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices. The product or service must be for personal or household use. The AAA will have the discretion to apply or not to apply the Supplementary Procedures and the parties will be able to bring any disputes concerning the application or non-application to the attention of the arbitrator. Consumers are not prohibited from seeking relief in a small claims court for disputes or claims within the scope of its jurisdiction, even in consumer arbitration cases filed by the business.