Court also holds that the arbitration agreement is not unconscionable.
Energy Home, Division of Southern Energy Homes, Inc. v. Peay, Case No. 2011-SC-000462-DG (Ky. Aug. 29, 2013) [click for opinion]
Brian and Lori Peay bought a manufactured home from a local retailer, American Dream Housing Inc. Brian (but not Lori) signed the purchase agreement, which contained an integration clause stating that the written contract constitutes the parties' complete agreement. The agreement did not have an arbitration clause.
Several months later, the parties closed on the deal and American Dream delivered the home to the Peays. At closing, the manufacturer of the home, Southern Energy Homes, Inc., offered the Peays express warranties in exchange for an agreement to arbitrate any dispute related to the home. Brian (but again not Lori) signed the agreement.
Problems related to the construction and basement of the home developed shortly after the closing, and the Peays sued Southern Homes in a Kentucky state court. Southern Homes asked the court to compel arbitration, but the request was denied. Southern Homes appealed, and the decision was affirmed by the Kentucky Court of Appeals, which held that the arbitration agreement violated the integration clause in the purchase agreement, could not be enforced against Lori since she never signed it, and was unconscionable.
The Supreme Court of Kentucky reversed. On the effect of the integration clause, the court explained that an integration (or merger) clause prohibits only prior agreements from varying the terms of a contract—the purpose of an integration clause is, after all, to merge the parties' prior agreements into one document. This meant that Brian and American Dream were not bound to any agreements or understandings made before the purchase agreement. But they were free to make future agreements modifying the original contract, as they did by signing the warranty agreement.
The court further held that the arbitration agreement may be enforced against Lori. Even though she never signed the agreement, she had joined Brian as a plaintiff in the lawsuit, made requests to Southern Energy for warranty-related services, and signed acknowledgements that repairs had been performed to her satisfaction. By these actions Lori implicitly accepted the warranties-for-arbitration agreement.
The court also ruled that the arbitration agreement was not unconscionable. Southern Energy's offer was not a condition of the home-purchase agreement, and the Peays were free to reject the warranties and to rely solely on the implied warranties provided under Kentucky law while also preserving their right to sue in court.