Schoenbaechler v. GHSW Enterprises, LLC et al

Filing 29

MEMORANDUM OPINION & ORDER: 1. Defendant GHSW Enterprises, LLC's Motion to Compel Arbitration and Stay [Record No. 15 ] is GRANTED. 2. Plaintiff Joseph Schoenbaechler's Motion to Dismiss the Counterclaim [Record No. 14 ] is DENIED as MOOT. 3. The remaining claims involving the University of Kentucky Federal Credit Union are STAYED pending arbitration. 4. The parties are directed to file a status report with the Court regarding the progress of arbitration commencing in sixty days and submit additional reports each sixty days thereafter until arbitration proceedings are complete. Signed by Judge Danny C. Reeves on 11/25/24.(JLM)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
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JOSEPH T. SCHOENBAECHLER,
Plaintiff,
V.
GHSW ENTERPRISES, LLC, doing
business as Strong Auto, et al.,
Defendants.
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Civil Action No. 5: 24-159-DCR

MEMORANDUM OPINION
AND ORDER

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Plaintiff Joseph Schoenbaechler purchased a used truck from Strong Auto in June 2023,
but its transmission failed within a month. He filed this suit alleging the defendants violated
both state and federal law. [Record No. 1] Defendant GHSW Enterprises, LLC (“Strong
Auto”) argues in response that the plaintiff’s claims are subject to the arbitration clause in the
vehicle agreement contract. [Record No. 7] Defendant University of Kentucky Federal Credit
Union (“UKFCU”) asserted a Cross Claim against Strong Auto, arguing that their dealer
agreement indemnifies UKFCU. [Record No. 6] Strong Auto filed a Motion to Compel
Arbitration and Stay the proceedings between it and UKFCU pending the arbitration
resolution. [Record No. 15] Defendant UKFCU does not oppose Strong Auto’s motion.
[Record No. 22] Strong Auto has also filed a counterclaim against the plaintiff for an unpaid
deposit owed on the truck. [Record No. 7] And Schoenbaechler has submitted a Motion to
Dismiss that counterclaim. [Record No. 14]
Because the contract contained a valid arbitration agreement, the Court will grant the
Motion to Compel Arbitration and Stay. The plaintiff’s Motion to Dismiss the Counterclaim
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will be denied as moot because the unpaid truck deposit is within the scope of the arbitration
clause.
I. Background
Joseph Schoenbaechler and his wife drove two hours from Brandenburg, Kentucky to
Strong Auto in Lexington to purchase a 2017 Nissan Titan XD to tow a trailer. [Record Nos.
1, 23-1] The couple found the vehicle on the internet and contacted salesperson Jackie Allen.
[Record No. 1] Responding to their inquiry by email, Allen stated, “[t]he truck is in excellent
condition no rust. And we do not have any service records. I can give you a copy of the auto
history where the vehicles begin. And we’ve totally serviced the truck and inspected it when
we traded for it last week.” Id. Satisfied with Allen’s representation regarding the condition
of the truck, the couple along with their children arrived early on the morning of June 24, 2023,
to test drive the vehicle. [Record Nos. 1, 23-1]

Finding no apparent issues, the parties

negotiated a purchase for $26,988, which included the trade-in value of the family’s 2015 Jeep
Wrangler. [Record No. 1] Ultimately the amount the Schoenbaechlers financed through the
UKFCU was $32,578.87. Id.
As part of the purchase, the plaintiff signed a vehicle agreement which contained this
arbitration clause above the signature line:
BUYER AND SELLER AGREE THAT INSTEAD OF LITIGATION IN
COURT, ANY DISPUTE, CONTROVERSY, OR CLAIM RELATING IN
ANY WAY TO THE SALE, LEASE, FINANCING, SERVICING, OR
PERFORMANCE OF THIS VEHICLE, TO THIS AGREEMENT (OR
BREACH THEREOF), OR TO THE NEGOTIATIONS AND AGREEMENTS
LEADING TO THIS TRANSACTION, OR TO ANY DOCUMENTS
RELATING TO THIS TRANSACTION (INCLUDING THE RETAIL
INSTALLMENT CONTRACT OR LEASE AGREEMENT) SHALL BE
SETTLED BY FINAL BINDING ARBITRATION ACCORDING TO THE
FEDERAL ARBITRATION ACT AND ADMINISTERED BY THE
AMERICAN ARBITRATION ASSOCIATION UNDER ITS COMMERCIAL
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ARBITRATION RULES, SUCH ARBITRATION SHALL BE CONDUCTED
IN THE COUNTY IN WHICH THE DEALERSHIP IS LOCATED, EACH
PARTY SHALL PAY ITS OWN COSTS, JUDGMENTS AWARDED BY
THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION THEREOF ONLY IF AGREEABLE TO BOTH PARTIES,
AND ALTERNATIVE FORM OF ARBITRATION MAY BE CHOSEN.
[Record No. 15-1] By the time the plaintiff signed this agreement, his family had been at
Strong Auto for hours. [Record No. 23-1] He was directed to “sign there, sign here” repeatedly
as sales associate Allen flipped through the documents. [Record No. 23] All told, the family
was at the dealership for roughly five to six hours. [Record No. 23-1] Plaintiff was never
provided a copy of the vehicle agreement and only received it after his attorney contacted
counsel for Strong Auto. [Record No. 28-1]
The family drove the truck back to Brandenburg that same evening with no issues.
However, the next day, the warning lights appeared on the dash. [Record No. 1] The plaintiff
contacted Allen at Strong Auto asking to bring the truck back to be inspected. Id. He was
informed that there was nothing that Strong Auto could do to remedy the situation. Id. The
following day, he took the truck to Auto Zone to scan for codes which revealed ones related
to the transmission. Id.
The truck was purchased, in part, to haul a trailer the Schoenbaechlers planned to pick
up in Jeffersonville, Indiana. Id. When the plaintiff started the truck three days after the codes
appeared, the engine light was not on. Id. Despite the prior error codes, the plaintiff left to
retrieve the trailer. Id. Roughly four miles down the road, the lights reappeared, but because
the truck was performing normally, Schoenbaechler continued with the trip. Id. Things
changed on the way home while towing the trailer as the truck began to shift gears erratically.
Id.
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The following day, Schoenbaechler brought the truck back to Auto Zone, and a scan
revealed the same codes.

Id.

He then made an appointment for July 12, 2023, with

Brandenburg Auto Clinic, but continued to drive the vehicle during that time. Id. After
inspecting the truck, Brandenburg Auto Clinic informed the plaintiff that the transmission had
been “deleted and tuned,” which caused “irreparable damage” to the transmission. Id. The
plaintiff immediately stopped driving the truck. Id.
After returning the vehicle several months later to obtain a quote for repairs, the
Brandenburg Auto Clinic informed the plaintiff that the truck’s exhaust system had been
removed and replaced with a straight pipe; therefore, the transmission could not be replaced
because it had been deleted and if reprogrammed it would not work because of the missing
emission components. [Record No. 1-3] Before the transmission could be replaced, all the
exhaust components would need to be restored with original equipment manufacturer parts.
Id. The Auto Clinic informed plaintiff that the truck’s removed emission components violated
federal law. Id. Therefore, the plaintiff stopped using the truck because it was illegal to operate.
[Record No. 23-1] Schoenbaechler continues to pay his monthly obligation to the UKFCU
despite his inability to use the truck. Id.
II. Legal Standard
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., “manifests a liberal policy
favoring arbitration agreements.” Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 626 (6th
Cir. 2004) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983)). When a party is aggrieved by another party’s failure to arbitrate in accordance with
a written agreement to do so, that party “may petition a federal court for an order directing that
such arbitration proceed in the manner provided for” by the contract. Rent-A-Center, W., Inc.
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v. Jackson, 561 U.S. 63, 68 (2010) (quoting 9 U.S.C. § 4). The FAA “places arbitration
agreements on an equal footing with other contracts and requires courts to enforce them
according to their terms.” Id. at 67.
When considering a motion to compel arbitration under the FAA, a court has four tasks.
It must: (1) determine whether the parties agreed to arbitrate; (2) determine the scope of the
agreement; (3) if federal statutory claims are asserted, consider whether Congress intended
those claims to be non-arbitrable; and (4) if the court concludes that some, but not all, of the
claims are subject to arbitration, determine whether to stay the remainder of the proceedings
pending arbitration. Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
In determining whether the parties agreed to arbitrate, the court examines arbitration
language in a contract considering the strong federal policy in favor of arbitration and resolves
any doubts about the parties’ intentions in favor of arbitration. Albert M. Higley Co. v. N/S
Corp., 445 F.3d 861, 863 (6th Cir. 2006). Despite the strong policy in its favor, arbitration
under the FAA is “a matter of consent, not coercion.” Volt Info. Scis., Inc.. v. Bd. of Trs. Of
Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). Although ambiguities in the language
of the agreement will be resolved in favor of arbitration, the clear intent of the parties will not
be overridden simply because the policy favoring arbitration is implicated. E.E.O.C. v. Waffle
House, Inc., 534 U.S. 279, 294 (2002).
“Federal courts analyze motions to compel arbitration under different procedural
standards, including Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction, Fed. R.
Civ. P. 12(b)(6) for failure to state a claim, and Fed. R. Civ. P. 56 for summary judgment,
depending upon the facts and posture of the case.” BLC Lexington, LLC v. Craig, 2020 WL
4721240, at *4 (E.D. Ky. Aug. 13, 2020) (citing Powers v. Charles River Labs., Inc., 2017
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WL 4324942, at *4 (E.D. Mich. Sept. 29, 2017).

When resolving motions to compel

arbitration, courts apply the summary judgment standard under Rule 56 of the Federal Rules
of Civil Procedure particularly when the parties submit matters beyond the pleadings. See
Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002); FCCI Ins. Co. v. Nicholas
Cnty. Libr., No. 5:18-CV-038-JMH, 2019 WL 1234319, at *4 (E.D. Ky. Mar. 15, 2019).
III. Analysis
In the present case, the parties do not dispute that the FAA and Kentucky law govern
the validity of the arbitration clause. However, they disagree regarding whether they had an
agreement to arbitrate, and if they did, whether any defenses apply. Strong Auto argues that
there was an agreement because: (1) the plaintiff knowingly and voluntarily signed the vehicle
agreement containing the arbitration clause; (2) the clause is clear, conspicuous, and in all caps
right above the signature line; and (3) under Kentucky and federal law, any doubts must be
resolved in favor of arbitration. [Record No. 15] Conversely, Schoenbaechler contends that
(1) he had no meaningful opportunity to read or review the vehicle agreement containing the
arbitration clause; (2) the arbitration clause is unconscionable; (3) the absence of any reference
to “jury” in the arbitration clause means the plaintiff did not knowingly waive his constitutional
right to a jury trial; (4) the agreement between the parties was a contract of adhesion; and (5)
Strong Auto assigned all its rights under the contract to UKFCU. [Record No. 23] As noted
above, because the parties have submitted matters beyond the pleadings, the summary
judgment standard applies.
Whether the Parties Agreed to Arbitrate
In determining whether parties have agreed to arbitrate a certain matter, courts apply
ordinary state-law principles that govern the formation of contracts. First Options of Chicago,
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Inc. v. Kaplan, 514 U.S. 938, 944 (1995). “It is the settled law in Kentucky that one who signs
a contract is presumed to know its contents, and that if he has an opportunity to read the
contract which he signs he is bound by its provisions.” Hathaway v. Eckerle, 336 S.W.3d 83,
89–90 (Ky. 2011) (quoting Clark v. Brewer, 329 S.W.2d 384, 387 (Ky. 1959)). This is
“applied even to contracts of illiterate persons on the ground that if such persons are unable to
read” or understand the contract, they a duty to have it read and explained to them before it is
signed. Clark, 329 S.W.2d at 386–87.
To be enforceable, a contract “must contain definite and certain terms setting forth
promises of performance to be rendered by each party.” Ky. Indus. Hemp, LLC v. Teterboro
Partners, LLC, 2021 WL 4993481, at *3 (E.D. Ky. Oct. 27, 2021). For arbitration agreements,
essential terms include “the arbitration process, the scope of the agreement, and responsibility
for costs.” Id. In considering the validity of an arbitration clause that is part of a larger
contract, the court examines the arbitration provision itself rather than the parties’ entire
agreement. See Moran v. Svete, 366 F. App’x 624, 630 (6th Cir. 2010) (citing Preston v.
Ferrer, 552 U.S. 346, 353 (2008)). Both the FAA and Kentucky law require arbitration
agreements to be written, but they need not be signed. See 9 U.S.C. § 2; Seawright v. Am. Gen.
Fin. Servs., 507 F.3d 967, 978 (6th Cir. 2007); Dixon v. Daymar Colleges Grp., LLC, 483
S.W.3d 332, 343 (Ky. 2015).
The party seeking to compel arbitration has the initial burden to show a valid arbitration
agreement exists. Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 590 (Ky. 2012). And once
this is accomplished, the burden shifts to the party attempting to avoid the agreement. Id.
Ordinary state law defenses to contract formation such as fraud, duress, and unconscionability
apply to contested arbitration clauses. Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir.
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2002) (citing Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). If the district
court is satisfied that the agreement to arbitrate is not “in issue,” it must compel arbitration.
See Great Earth Cos., 288 F.3d at 889. If the court finds that the validity of the arbitration
agreement is “ in issue,” the matter must proceed to trial to resolve the question. Id.
As Strong Auto notes, the text of the arbitration clause is in all caps and directly above
the signature line that plaintiff signed. [Record No. 15-1] The clause covers the essential
terms for a valid arbitration agreement including the process, scope, and cost allocation. Id.;
Ky. Indus. Hemp, LLC v. Teterboro Partners, LLC, 2021 WL 4993481, at *3 (E.D. Ky. Oct.
27, 2021). The defendant has met its burden, which evidences that a valid arbitration
agreement existed.
Unconscionability Defense
Courts allow an unconscionability defense as a way to “police the excess[] of certain
parties who abuse their right to contract freely.” Schnuerle v. Insight Commc’ns Co., L.P., 376
S.W.3d 561, 575 (Ky. 2012) (citations omitted). It aims to challenge “one-sided, oppressive
and unfairly surprising contracts,” and not the “consequences per se of uneven bargaining
power or even a simple old-fashioned bad bargain.” Id. (citations omitted). Unconscionable
contracts are ones that “no man in his senses, not under delusion, would make, on the one
hand, and which no fair and honest man would accept, on the other.” Id. (citations omitted).
Under Kentucky law, there are two forms of unconscionability: substantive and
procedural. Substantive unconscionability pertains to the contract terms being “unreasonably
or grossly favorable to one side and to which the disfavored party does not assent.” Id. at 348
(citations omitted)

To make this determination, courts consider “the commercial

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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.” Id.
Procedural unconscionability, also referred to as “unfair surprise,” involves the
“‘process by which an agreement is reached and the form of an agreement’ including fine print,
convoluted or unclear language, boilerplate, terms which might not normally be expected.”
Green v. Frazier, 655 S.W.3d 340, 346 (Ky. 2022) (quoting Schnuerle v. Insight Commc’ns
Co., L.P., 376 S.W.3d 561, 576 (Ky. 2012)). For this analysis, courts consider 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 meaningful choice.” Id.
Substantive Unconscionability
The plaintiff argues that the arbitration clause is substantively unconscionable, but that
argument is foreclosed under Hathaway v. Eckerle, 336 S.W.3d 83 (Ky. 2011). Unfortunately
for Schoenbaechler, the arbitration clause in Hathaway is identical (except for a typo) 1 to the
one Strong Auto used in its vehicle agreement. In Hathaway the plaintiff argued that the clause
was unconscionable because “(1) the arbitration clause prevents her from recovering ‘costs’;
(2) the arbitration clause is one-sided and is one of adhesion; and (3) she was not told by
Commonwealth Dodge the implications of signing the vehicle purchase agreement or the

While punctuation matters, this typo does not change the outcome for plaintiff. The clause
in Hathaway provides: “JUDGMENTS AWARDED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. ONLY IF
AGREEABLE TO BOTH PARTIES, AN ALTERNATIVE FORM OF ARBITRATION
MAY BE CHOSEN.” The clause in the vehicle agreement states: “JUDGMENTS
AWARDED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION THEREOF ONLY IF AGREEABLE TO BOTH PARTIES, AND
ALTERNATIVE FORM OF ARBITRATION MAY BE CHOSEN.”
1

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arbitration clause.” Id. at 88. The Supreme Court of Kentucky ruled in favor of the car
dealership finding that the arbitration clause was not unconscionable. Id. at 90.
The plaintiff in Hathaway had an argument that mirrored Schoenbaechler’s regarding
the clause’s cost allocation. The court read the provision “EACH PARTY SHALL PAY ITS
OWN COSTS” as merely a reference to the general rule that each party pay its own litigation
costs. Id. at 88–89. It further referenced the American Arbitration Association’s Commercial
Arbitration Rules, 2 which authorize broad discretion for the arbitrator to grant any remedy and
to consider the costs, expenses, and fees paid by the parties. Id. Because the arbitrator
maintained the authority to allocate the award, the court did not find the clause unconscionable.
Id. The same goes for Schoenbaechler’s argument that the expenses he faces to arbitrate
renders the arbitration clause unconscionable. As of now, there is no precedent under
Kentucky law finding an arbitration agreement unconscionable because of the expense to one
party.
Much like Schoenbaechler, the plaintiff in Hathaway argued the arbitration clause was
unconscionable because she was never told it would result in her waiving her right to a jury
trial. Id. at 89. The court reiterated that a person who signs a contract is presumed to know its
contents and determined her invalid waiver argument lacked merit.

Id. at 89–90.

Schoenbaechler also argues that the clause is “unreasonably or grossly favorable” to Strong
Auto, but the clause requires both parties’ disputes to be arbitrated. This is true for Strong
Auto’s counterclaim for the deposit it alleges Schoenbaechler owes, as well as plaintiff’s

The rules in effect currently are identical to those cited in Hathaway. See American
Arbitration Association, Commercial Arbitration Rules and Mediation Procedures (Sept. 1,
2022), R-49 Scope of Award, CommercialRules_Web_1.pdf (last visited Nov. 23, 2024).
2

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claims. Further, there is “no inherent reason to require that the parties have equal arbitration
rights.” Id. at 89 (quoting Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 343
(Ky.App.2001)); see also Grimes v. GHSW Enterprises, LLC, 556 S.W.3d 576, 582 (Ky.
2018).
Procedural Unconscionability
The plaintiff alleges that he lacked an opportunity to read the vehicle agreement
because it was merely handed to him with instructions to “sign there, sign here,” and “by the
time he was presented with . . . any documents to execute, he was so mentally and physically
exhausted and, due to the intentional delay caused by Strong, was under so much duress that
human nature took hold where he signed them all and just wanted to get out of there and go
home.” [Record No. 23] This allegation is somewhat supported by the vehicle agreement,
which contains a blank signature line in the box titled “Disclaimer of Warranties.” It is
possible that Allen intentionally skipped this signature line that directly above it says, “I have
read and received a copy of this Vehicle Agreement and (if applicable) the Buyer’s Guide,
and I understand their content fully.” [Record No. 15-1] But it could also be that, as
Schoenbaechler says, he was presented with the documents and hurriedly told where to sign.
However, even if it were true that Schoenbaechler was rushed through the process and
told where to sign, Kentucky law is unequivocal that a person who signs a contract is presumed
to have read its content if given an opportunity to read it. Hathaway v. Eckerle, 336 S.W.3d
83, 89–90 (Ky. 2011) (quoting Clark v. Brewer, 329 S.W.2d 384, 387 (Ky. 1959)).
Schoenbaechler does not allege that Strong Auto prevented him from reading the vehicle
agreement before he signed it. He only recites the hours he was made to wait and the
voluminous paperwork he was given to sign. But being tired and worn down by used car
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dealership sales tactics does not negate the fact that he had an opportunity to read the vehicle
agreement. While it is concerning to the undersigned that the signature line under the
“Disclaimer of Warranties” section was left blank, the effect, if any, of that omission is
properly within the arbitrator’s scope to resolve.
Schoenbaechler next argues that the vehicle agreement was a contract of adhesion and
therefore unconscionable. However, even if it were a contract of adhesion, Kentucky law does
not recognize such “contracts containing arbitration agreements as per se procedurally
unconscionable.” Triple Crown Holdings, LLC v. Lowe’s Home Centers, LLC, No. 5:19-CV00057-JMH, 2019 WL 3321725, at *4 (E.D. Ky. July 24, 2019) (citing Schnuerle v. Insight
Commc’ns Co., L.P., 376 S.W.3d 561, 576 (Ky. 2012)).
The Court does not find merit in the plaintiff’s argument that Strong Auto assigned all
its rights under the vehicle agreement to UKFCU. Therefore, it has no remaining right to
compel arbitration. The vehicle agreement notified Schoenbaechler that he had the right to
arrange his own financing for the truck purchase. [Record No. 15 -1] Strong Auto’s assistance
in arranging financing does not constitute an assignment of all its rights under the vehicle
agreement.
Remaining Considerations
The parties do not contest that the scope of the arbitration clause does not cover the
claims between them. The Court finds that the language defining the scope, “ANY DISPUTE,
CONTROVERSY, OR CLAIM RELATING IN ANY WAY TO THE SALE, LEASE,
FINANCING, SERVICING, OR PERFORMANCE OF THIS VEHICLE,” is sufficiently
broad to cover Schoenbaechler’s claims against Strong Auto under state and federal law.
[Record No. 15-1] Similarly, Strong Auto’s counterclaim for the $1,800 deposit it says the
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plaintiff never paid is also within the scope of the agreement. [Record No. 7] The plaintiff
does not allege and the Court does not find that Congress intended the federal claims asserted
to be non-arbitrable. Instead, the undersigned concludes that the claims between
Schoenbaechler and Strong Auto are subject to arbitration, but the claims between UKFCU
and Strong Auto and UKFCU and Schoenbaechler are not. As a result, those additional claims
will be stayed pending resolution of the arbitration proceedings.
IV. Conclusion
Based on the foregoing analysis and discussion, it is hereby
ORDERED
1.

Defendant GHSW Enterprises, LLC’s Motion to Compel Arbitration and Stay

[Record No. 15] is GRANTED.
2.

Plaintiff Joseph Schoenbaechler’s Motion to Dismiss the Counterclaim [Record

No. 14] is DENIED as MOOT.
3.

The remaining claims involving the University of Kentucky Federal Credit

Union are STAYED pending arbitration.
4.

The parties are directed to file a status report with the Court regarding the

progress of arbitration commencing in sixty days and submit additional reports each sixty days
thereafter until arbitration proceedings are complete.
Dated: November 25, 2024.

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