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finding that, where consumers understood an adhesion contract's "clearly set forth and comprehensible" terms and were not coerced into signing—despite knowing that "if they had not signed it, they would have been subject to further litigation or would have lost their home"—the "predicament did not rise to the level of [procedural] unconscionability as contemplated by the law"
Summary of this case from CK Franchising, Inc. v. SAS Servs. Inc.Opinion
NO. 2014-CA-000110-MR
05-01-2015
JOSEPHINE B. HORTON, HARRY HORTON LOUISVILLE/JEFFERSON COUNTY METRO GOVERNMENT APPELLANTS v. WELLS FARGO BANK, N.A. APPELLEE
BRIEF FOR APPELLANTS: Gwendolyn Horton Louisville, Kentucky BRIEF FOR APPELLEE: Edmund S. Sauer Nashville, Tennessee
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE MITCHELL PERRY, JUDGE
ACTION NO. 06-CI-003748
OPINION
AFFIRMING
BEFORE: COMBS, J. LAMBERT AND STUMBO, JUDGES. COMBS, JUDGE: Harry and Josephine Horton appeal the order of the Jefferson Circuit Court which denied their objections to a master commissioner's report. We have reviewed the record and the law, and we affirm.
On April 27, 2006, Wells Fargo Bank filed a complaint for foreclosure of a mortgage on the Hortons' residence. Other than requests for discovery filed by the Hortons, litigation stagnated for several years. On July 19, 2012, the trial court granted the Hortons' motion for conciliation. On December 29, 2012, Wells Fargo and the Hortons entered into a loan modification agreement. The new amount due included attorney's and litigation fees in excess of $11,000.
Throughout the record and in their brief, the Hortons recite the total amount as $11,367.10. However, the agreement itemizes $3,840.00 for attorney fees and $7887.10 for litigation fees. The sum of those figures is $11,727.10. Wells Fargo has not referred to a precise amount in its pleadings or brief.
On January 29, 2013, the Hortons filed a motion raising exceptions to the inclusion of the attorney and litigation fees. The motion also demanded an accounting of the fees. The motion was referred to the master commissioner for a recommendation. The master commissioner's report was entered on June 26, 2013, recommending denial of the Hortons' motion. On July 9, 2013, the Hortons filed a motion for exceptions to the report. The trial court denied the motion on December 20, 2013. This appeal followed.
On appeal, the Hortons' single issue is that the inclusion of the fees in the loan modification agreement was unconscionable and should not be enforced. The trial court is afforded great deference in its assessment of conscionability, and we may not disturb its finding "unless there is some evidence of fraud, undue influence, overreaching, or evidence of a change of circumstances since the execution of the original agreement." Peterson v. Peterson, 583 S.W2d 707, 712 (Ky. App. 1979). Whether a contract is unconscionable is fact-sensitive; therefore, courts make determinations on a case-by-case basis. Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 342 (Ky. App. 2001).
An unconscionable contract is unenforceable. Schnuerle v. Insight Communications Co., 376 S.W.3d 561, 575 (Ky. 2012); AT&T Mobility LLC v. Concepcion, ---US --- , 131 S.Ct. 1740, 1747, 179 L.Ed. 742 (2011). The unconscionability doctrine is meant to prevent "one-sided, oppressive and unfairly surprising contracts. . . ." Conseco, 47 S.W.3d at 341. An unconscionable contract is "one which no man in his sense, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other." Louisville Bear Safety Service, Inc. v. South Central Bell Telephone Co., 571 S.W.2d 438, 439 (Ky. App. 1978) (quoting Black's Law Dictionary, 1694 (4th ed. 1976)).
Our courts have recognized two categories of unconscionability. Procedural unconscionability relates to the formation of a contract. Substantive unconscionability "refers to contractual terms that are unreasonably or grossly favorable to one side and to which the disfavored party does not assent." Id. at 577 (quoting Conseco, 47 S.W.3d at 343 n.22).
Although the Hortons have not used that terminology, in essence they allege both procedural and substantive unconscionability. They contend that their loan modification agreement was the result of an oppressive bargaining environment. Additionally, they claim that the inclusion of the legal fees is an unjust result.
We are not persuaded that the loan modification agreement is procedurally unconscionable. Procedural unconscionability must be determined by scrutinizing various factors: "the bargaining power of the parties, the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of a meaningless choice." Schnuerle, 376 S.W.3d at 576 (internal citations omitted). The Hortons only cite to one of Schnuerle factors - unequal bargaining power which allegedly created an oppressive bargaining environment.
However, the Hortons do not point to any evidence in the record which supports their assertion of an oppressive bargaining environment. They do not offer any proof that they were forced to sign the agreement. In fact, they acknowledge that they understood all the terms in the contract prior to signing and that they were represented by counsel during bargaining. However, the Hortons contend that circumstances forced them into signing the agreement; i.e., if they had not signed it, they would have been subject to further litigation or would have lost their home.
Although the Hortons found themselves in a difficult position, their predicament did not rise to the level of unconscionability as contemplated by the law. On that very point, this Court has held that "consequences per se of uneven bargaining power or even a simple old-fashioned bad bargain" do not create unconscionable contracts. Conseco, supra.
Even though the Hortons felt pressured to sign the agreement, they had the opportunity and the right to object to paying the fees in the course of the bargaining negotiations. They had filed a motion to compel discovery, which the court denied. They contend that the denial of that motion prevented them from rejecting the inclusion of fees. Regardless, they elected to enter into the agreement. They had their choice - although admittedly a difficult one.
As Wells Fargo points out, without the opportunity to enter into the agreement, the Hortons would have not had any choice; they would have lost their home. It is noteworthy that in Schnuerle, our Supreme Court held that a situation of "take it or leave it" in contracts of adhesion is not unconscionable when terms are not hidden and are easily understandable. Schnuerle, 376 S.W.3d at 576. There is no dispute that in this case, the terms were clearly set forth and easily comprehensible. Therefore, we are unable to conclude that the contract is one into which no reasonable man would have entered; thus, it was not procedurally unconscionable.
Nor is the loan modification agreement substantively unconscionable. Substantive unconscionability is determined by examination of "the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns." Schnuerle, 376 S.W.3d at 577 (quoting Jenkins v. First American Cash Advance of Georgia, LLC, 400 F.3d. 868, 876 (11th Cir. 2005)).
We cannot conclude that the inclusion of legal and attorney's fees in the loan modification agreement is commercially unreasonable. As pointed out earlier, the agreement was a mechanism for the Hortons to remain in their home in spite of their defaulting on the mortgage. Wells Fargo incurred expenses in its measures to recover the money owed to them by the Hortons and by cooperating with them by engaging in negotiations. Therefore, it was commercially feasible to require the Hortons to absorb those expenses in their new contract with Wells Fargo.
Additionally, the Hortons have not set forth any violation of public policy. They suggest that Wells Fargo should have pursued litigation and attorney's fees in a separate action in court. They cite to Kentucky Revised Statute[s] (KRS) 355-2.302(2). However, that statute is part of the Uniform Commercial Code, which relates solely to transactions involving goods -- not real estate. On the contrary, attorney's fees are accepted as a term of a contract involving real estate. Kentucky State Bank v. AG Services, Inc., 663 S.W.2d 754, 755 (Ky. App. 1984). Thus, the Hortons have not presented any authority to persuade us that the contract satisfied any of the criteria to support their argument of substantive unconscionability.
We affirm the Jefferson Circuit Court.
ALL CONCUR. BRIEF FOR APPELLANTS: Gwendolyn Horton
Louisville, Kentucky
BRIEF FOR APPELLEE: Edmund S. Sauer
Nashville, Tennessee