Michael L. Pitts v. Charles D. Watkins ( 2003 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2004-CA-00062-SCT
MICHAEL L. PITTS AND STEPHANIE A. PITTS
v.
CHARLES D. WATKINS
DATE OF JUDGMENT: 12/11/2003
TRIAL JUDGE: HON. LEE J. HOWARD
COURT FROM WHICH APPEALED: LOWNDES COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS: LOGAN SHANE TOMPKINS
JOSEPH N. STUDDARD
ATTORNEY FOR APPELLEE: TODD BRITTON MURRAH
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: REVERSED AND REMANDED - 04/14/2005
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
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 Pittses 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:
2
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. “[T]here 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 an 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.
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¶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 Toyot a, 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 Pittses to arbitrate. The arbitration clause in the Inspection Agreement reads as
follows: “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
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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.1 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 plaintiff’s ability to collect punitive damages, if otherwise
warranted, but more importantly places an unreasonable restriction to collect compensatory
1
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.
5
damages in excess of $265. This Court has held that, “[c]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, 841 A.2d 907 (N.J. Super. Ct. App. Div. 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
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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 $375.2 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 undisclosed arbitration provision of the AAA which would require an
2
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.
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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
8
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.
DICKINSON, JUSTICE, DISSENTING:
“A cent or a pepper corn, in legal estimation, would
constitute a valuable consideration.”
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Whitney v. Stearns, 16 Me. 394, 397 (1839).
¶22. The majority today tinkers with the freedom to contract. Because I believe today’s
decision lacks fidelity to the law of contracts, I respectfully dissent.
¶23. Refusing (as he should have) to inquire into the adequacy of consideration provided to
Mr. and Mrs. Pitts under the inspection contract, the trial judge granted Watkins’s Motion for
Summary Judgment, holding:
The Court finds that the Home Inspection Agreement signed by the home owner
contains an Arbitration Clause which states that all disputes arising from the
house inspection and/or report shall be resolved by arbitration conducted in
accordance with the rules of the American Arbitration Association. The
Compliant in this cause alleges that the Plaintiffs suffered monetary damages
due to the Defendant’s failure to properly inspect and report problems with the
residence’s floors and roof. The Court feels that this said failure to properly
inspect and report any existing problems should be considered as a dispute
arising from the house inspection and as such be handled by an arbitrator
pursuant to the contract’s arbitration clause. The Court further finds that all
pending motions that have been filed before this Court should also be heard by
the arbitrator.
¶24. Based almost completely on the conclusion that the contract was not fair to the Pittses,
the majority reverses the trial court and declares that the subject contract was substantively
unconscionable and, therefore, unenforceable.
Substantive unconscionability
¶25. This Court recognizes two types of contractual unconscionability: procedural and
substantive. East Ford, Inc. v. Taylor, 826 So. 2d 709, 714 (Miss. 2002), citing Pridgen v.
Green Tree Fin. Servicing Corp., 88 F. Supp. 2d 655 (S.D. Miss. 2000) (other citations
omitted). In discussing the distinguishing features of the two, the East Ford Court stated:
Procedural unconscionability may be proved by showing “a lack of knowledge,
lack of voluntariness, inconspicuous print, the use of complex legalistic
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language, disparity in sophistication or bargaining power of the parties and/or
a lack of opportunity to study the contract and inquire about the contract terms”.
826 So. 2d at 714. This Court went on to say that “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, 725 (Miss. 2002) (“Substantive
unconscionability may be found when the terms of the contract are of such an oppressive
character as to be unconscionable.”).
¶26. The majority holds that both the arbitration and limitation of liability clauses are
substantively unconscionable and thus oppressive. In a display of admirable discipline, the
majority refrains from finding procedural unconscionability. Thus, we are left to search the
challenged provisions for substantive unconscionability, that is, oppression.
The arbitration provision.
¶27. The specific arbitration clause the majority finds substantively unconscionable
provides:
Arbitration - Any dispute concerning the interpretation of this Agreement or
arising from the inspection and Report (unless based on payment fee) shall be
resolved by binding, non-appealable arbitration conducted in accordance with the
rules of the American Arbitration Association except that the parties shall
mutually agree upon an Arbitrator who is familiar with the home inspection
industry.
The title of the section of the agreement which includes this provision is written in bold, all
capital letters, and reads:
DISPUTE RESOLUTION AND REMEDY LIMITATION.
¶28. The language of the arbitration provision is unremarkable, except that it carves out an
exception for disputes based on the payment of the fee. The majority finds great inequity in
11
this exception because the majority perceives it as an advantage to Watkins. Specifically, the
majority states that the “arbitration clause provides an avenue for Watkins to pursue his claims
in a court of law, while requiring Pitts to arbitrate.” This is, I believe, an inaccurate paraphrase
of the arbitration clause language, which clearly excludes from arbitration any dispute over the
fee, whether Watkins brings an action to collect it, or the Pittses bring an action to avoid
payment of it. Thus, the assumption that only Watkins may pursue his claim in a court of law
is not grounded in the language of the arbitration clause but instead represents a conclusion
reached by the majority of how things might turn out. Furthermore, the contract does not
require “Pitts to arbitrate,” as asserted by the majority. With respect to all other claims under
the contract, both parties must arbitrate. The majority strays from the record to conjure up
scenarios where this might prove to be unfair. But arbitration is not unfair or less desirable
in the eyes of the law just because the Pittses do not want to arbitrate in this particular case.
The next customer might prefer arbitration and would, thus, enjoy an advantage. The majority,
however, announces that when a party is required under the terms of a contract to arbitrate a
claim, that party (in Mississippi) has been oppressed. This begs the question of whether the
majority would find “oppressive” a provision which required the parties to arbitrate disputes
over the fee, but allowed all other claims to be presented in a court.
¶29. The majority’s analysis demonstrates the preconceived notions that settling a dispute
over the fee (regardless of who brings it) in court is an advantage to Watkins and that settling
all other disputes (regardless of who brings them) in arbitration is also an advantage to
Watkins. These conclusions have no foundation whatsoever in the law or the record.
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¶30. I must concede the unfortunate truth that certain words (such as “unconscionability and
“oppression”) seem to lose the limited and narrow applicability for which they were originally
intended. It requires discipline to uphold as valid a contract which contains terms one believes
are unfair, but not quite oppressive. The path which seems pleasing and less fraught with
resistence allows a relaxing of the definition to include more this year that the last. Personal
opinion might lead one to conclude that the Pittses have an unfair contract. But it is, in my
view, certainly not oppressive.
Absence of meaningful choice
¶31. Almost thirty years ago, this Court’s view of an unconscionable contract was that it was
“one such as no man in his senses and not under a delusion would make on the one hand, and
as no honest and fair man would accept on the other.” In re Will of Johnson, 351 So. 2d 1339,
1341 (Miss. 1977).
¶32. Then, approximately seven years ago, this Court cited with approval a federal district
court case which required for unconscionability only that contract terms be “unreasonably
favorable” to one party to show unconscionability, but carefully limited its holding by requiring
“an absence of meaningful choice on the part of one of the parties.” Entergy Miss., Inc. v.
Burdette Gin Co., 726 So. 2d 1202, 1207 (Miss. 1998), citing Bank of Ind. Nat’l Ass’n v.
Holyfield, 476 F. Supp. 104, 109 (S.D. Miss. 1979).
¶33. The majority completely misreads the “absence of meaningful choice” requirement
imposed by Entergy Miss., Inc. Instead of inquiring whether the Pittses had a “meaningful
choice” in entering into the contract in the first instance, the majority inquires whether the
Pittses had a “meaningful choice” of remedies in the event of breach. The majority states:
13
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.” 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.
¶19 (citation omitted). This newly discovered application of “meaningful choice” is novel and
without precedent.
¶34. Clearly, the “absence of meaningful choice” requirement of Entergy Miss., Inc. refers
to whether the party had a meaningful choice in agreeing to the contract. This point is easily
understood by simple review of the facts and holding in that case.
¶35. Entergy’s contract with its customer required the customer to indemnify and hold
harmless the power company for certain injuries related to the power lines. When workers
sued the power company to recover damages for injuries they sustained while working on the
lines, the power company brought a third-party claim against its customer to enforce the
indemnity provision. To find the indemnity provision unconscionable, this Court required a
showing of absence of meaningful choice. In finding the requirement was met, this Court
observed that the customer “was unable to contract with another party since Entergy was the
sole supplier of electricity in the area.” 726 So. 2d at 1208 (emphasis added). The Court
essentially required that the contract be one of adhesion. Id.
¶36. Today, the majority quietly and artfully abandons the “absence of meaningful choice”
requirement and merely says that the “terms unreasonably favor Watkins.” Although the
majority correctly cites Entergy Miss., Inc., and recognizes that an “absence of meaningful
choice” was required in that case, we are provided not a single fact which demonstrates that the
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Pittses signed the contract with Watkins because they had no meaningful choice. In fact, the
record clearly demonstrates that the Pittses were free to reject the contract and Watkins’s
services if they desired, and employ another inspection service. The Pittses purchased the
home on May 31, 2000, more than two months after the inspection. It is not even suggested
that Watkins was the only home inspection service available. There is simply no credible
evidence or argument that the Pittses were without a meaningful choice in contracting for a
home inspection.
¶37. The majority, in finding the contract unfair, relies heavily on its view of the cost of
arbitration. Specifically, the majority concludes at ¶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 undisclosed 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
substantively unconscionable.
¶38. The majority’s claim of an “undisclosed” $500 filing fee to arbitrate is not supported
by the record or pleadings. There is no indication whatsoever in this case that either party
would be required to pay a $500 filing fee to arbitrate. The Pittses do not even mention it in
their briefing to this Court. It seems to me that grounding a decision of this Court on evidence
not found in the record would be, well, unfair. It also seems to me that opinions are
particularly questionable which require for their justification facts not in the record.
¶39. The primary authority cited by the majority is East Ford. But in that case there was no
finding of substantive unconscionability. The East Ford Court found the subject contract
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procedurally unconscionable, and then stated, “we find it unnecessary to address Taylor’s . . .
arguments regarding substantive unconscionability.” East Ford, 826 So. 2d at 717.
¶40. In any case, today’s decision leaves the clear impression that the terms of contracts in
Mississippi may not be enforceable if they are found (subjectively) to unreasonably favor one
party or the other. In other words, this Court now seems to be in the business of (i) deciding
what is an “adequate remedy” for each of the parties under a contract; (ii) making sure each
party has what this Court considers an “adequate remedy;” (iii) evaluating and deciding whether
each contract term “unreasonably favors” one of the parties; and (iv) making sure each party
has a “meaningful incentive to act diligently in the performance” of a contract.
¶41. Thus, our courts must now evaluate consideration and assure that each party to a
contract gets what this Court considers a fair deal. I fear that now, citing this case as authority,
persons who are perceived to have paid too much for a cap or a chicken may be able to avoid
their agreement based on nothing more.3
The limitation of liability clause
¶42. Because I believe the arbitration provision is enforceable, all disputed matters
(including the limitation of liability clause) should be submitted to the arbitrator. However,
the same analysis applies. Since the Pittses cannot say they had no meaningful choice, that is,
they cannot claim they were forced to do business with Watkins, they should not be allowed
to escape the consequences and requirements of their contractual agreement. This is so, in my
3
It is doubtful, however, this would apply to unhappy clients who pay too much to
their attorneys.
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view, notwithstanding that the provisions of the contract seem unfair to five distinguished
Justices on this Court, for each of whom I have immense respect.
¶43. The agreement in dispute is titled: INSPECTION AGREEMENT. Although I have
learned of no legal requirement for its inclusion, the following notice is posted immediately
under the title of the document in large, all capital letter print:
THIS AGREEMENT LIMITS OUR LIABILITY-PLEASE READ IT
CAREFULLY.
¶44. The Limitation of Liability clause provides in pertinent part:
Limit of Liability - Due to the nature of the services we are providing, it is
difficult to foresee or determine . . . potential damages in the event of
negligence or breach of this Agreement by us. Thus, if we fail to perform the
inspection as provided here or are careless or negligent in the performance of
the inspection and/or preparing the Report, our liability for any and all claims
related thereto is limited to the fee4 paid for the inspection (unless contrary to
state law) and you release us from any and all additional liability. There will be
no recovery for consequential damages.
¶45. The majority holds that this limit of liability clause is oppressive, substantively
unconscionable and unreasonably favorable to Watkins because enforcement of the clause
limits Watkins’s liability to $265, while the Pittses are left at risk for substantial damages.5
The majority mixes apples and oranges and misses the salient point. The majority sees the
contract as unfair because it compares Watkins’s liability with the Pittses’ potential damages,
rather than comparing Watkins’s liability with the Pittses’ liability. The majority somehow
4
The fee for the home inspection was $265.
5
The Pittses have not provided any evidence of the amount of their damages other
than their own affidavits stating: “It will cost approximately $40,000 to make the repairs to
the defects Mr. Watkins did not include in his written report.”
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sees no unfairness in the proposition that Watkins might be held liable for $40,000, when the
only damage he could collect from the Pittses is $265.
¶46. Watkins apparently appreciated this potential “unfairness” from his own point of view,
because he included in the contract – in very specific, express terms – a limitation of liability
provision which was agreed to by the Pittses. But Watkins did not leave it at that; he undertook
to explain it. The majority fails to point out that by its express and very specific terms, the
Agreement provided that the inspection was a limited visual examination and did not claim
to be technically exhaustive. The majority also fails to note that the agreement specifically
points out that Watkins “is a generalist and is not a licensed engineer or expert in any specific
craft or trade,” or that the agreement specifically provided, “The fee charged for this inspection
is substantially less than that of a technically exhaustive inspection.”
¶47. In my view, if anything is inherently unfair in this case, it is the majority’s conclusion
that the Pittses should be allowed to escape the high cost of a “technically exhaustive
inspection,” and pay only $265 for “a limited visual examination,” and then seek a remedy
which assumes Watkins should have performed services far beyond “a limited visual
examination.” It brings to mind the old saw, “you get what you pay for.” Under a different fact
situation, were a lawyer to be hired for $50 to read a deed and comment on the validity of its
form, and were the lawyer to say, in a writing agreed by the client, that his or her review is a
limited review of the document without researching the public records, I would find nothing
unreasonable (certainly nothing oppressive) in the lawyer’s limiting his or her liability.
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¶48. In this case, Watkins argues that the fee he charged was directly proportional to the
limited inspection and, thus, it was not unreasonable or unfair – and certainly not
unconscionable – for liability to be limited. I agree.
¶49. As stated supra, the Pittses have not suggested they had no meaningful choice, that is,
that absent agreeing to this provision and Watkins’s contract, they could not have obtained a
home inspection. Consequently, it is my view that this Court should adhere to the teaching in
Entergy Miss., Inc., and decline to find the contract unconscionable.
¶50. Given that the Pittses were not forced to do business with Watkins, our law heretofore
counsels the courts to refrain from inquiring into the adequacy of consideration flowing to
the parties. This proposition is supported by much authority. In the past, Mississippi has
adhered to the rule that, where parties enter into an agreement, consideration need not be
adequate to be sufficient in law. York v. Georgia-Pacific Corp., 585 F. Supp. 1265, 1978
(N.D. Miss. 1984). By declaring the Pittses’ contract substantively unconscionable
(oppressive), the majority has clearly inquired into the adequacy of consideration and has
found the consideration flowing to the Pittses to be inadequate, that is, unfair.
The limitations period
¶51. The majority gratuitously finds the limitations period set forth in the contract to be
unconscionable. To me, the inclusion of this point in the majority opinion without it having
been raised or briefed by either party, is improper. We do not allow parties to argue issues
they did not raise. We should certainly not base our decisions on the same.
¶52. In my view, the Pittses have wholly failed to establish the elements necessary to
demonstrate that the contract is substantively unconscionable. The record provides no
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evidence that the Pittses were without a meaningful choice in obtaining a home inspection.
Nor is there evidence that the terms of the agreement were oppressively unfavorable to the
Pittses. I would affirm the trial court’s judgment that the arbitration provision is enforceable
and this matter should be submitted to arbitration according to the terms of the contract.
SMITH, C.J., AND COBB, P.J., JOIN THIS OPINION.
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