Opinion ID: 1907167
Heading Depth: 2
Heading Rank: 4

Heading: whether the limited liability and punitive damages clauses in the admissions agreement are substantively unconscionable.

Text: We now turn our attention to the limitation of liability and punitive damages provisions to determine whether they, by their very language, are substantively unconscionable and therefore unenforceable. Our concerns with the arbitration clause in the second admissions agreement is with language that, in its practical effect, creates a windfall for one party by curtailing another. Specifically, such language can be found starting with the last sentence of that clause which states that [c]onsistent with the terms and conditions of this Agreement, the Parties agree that the Arbitrator(s) may not award punitive damages and actual damages awarded, if any, shall be awarded pursuant to Paragraph E.7. [6] Paragraph E.7 of the contract provides: Should any claim, dispute or controversy arise between the Parties or be asserted against any of the Facility's owner's (sic), officers, directors or employees, the settlement thereof shall be for actual damages not to exceed the lesser of a) $50,000 or b) the number of days the Resident was in the Facility multiplied times the daily rate applicable to said Resident. This limitation of liability shall be binding on the Resident, Responsible Party and the Resident's heirs, estate and assigns. [7] (Emphasis added). However, we must also read Section F and paragraph E.7 in conjunction with paragraph E.8, which states that [t]he parties hereto agree to waive punitive damages against each other and agree not to seek punitive damages under any circumstances. In reading this language, we find that Vicksburg Partners has effectively limited Stephens to recovery of actual damages not to exceed $50,000 while Vicksburg Partners is not so limited, and that they have precluded damages which could only be recovered against Vicksburg Partners. ¶ 40. As stated, the doctrine of substantive unconscionability invalidates oppressive terms which by their very nature render a contract oppressive, such as terms which violate the reasonable expectations of parties or which involve gross disparities in price. Thus, it is beneficial and appropriate to support an argument against a suspect term by demonstrating that the term was contained in a contract in which one party has minimal bargaining power  a contract of adhesion. East Ford, 826 So.2d at 716. Therefore, laying a foundation that a contract was one of adhesion makes an argument targeting a provision for a substantive unconscionability review easier to prove. As noted earlier, while a contract of adhesion does not demonstrate per se procedural unconscionability, it does provide a strong basis from which to attack the voluntary and knowledgeable formation of the entire contract. In much the same way, demonstrating a contract to be one of adhesion can make a facially oppressive term presumptively invalid. ¶ 41. In East Ford, we noted this effect and held that a contractual term which essentially allows a party to contract away or escape liability is presumptively unconscionable. Id. It follows that contractual terms which by their very nature greatly affect the legal rights of a party to litigate or recover appropriate damages, when not freely bargained for and openly discussed, must be stricken under the doctrine of unconscionability. In Burdette Gin, we applied this very reasoning and concluded that an indemnification clause significantly altered the legal rights of the weaker party and rendered the parties' contract unconscionably oppressive. Specifically, we held that [s]ince it is possible that both the employer and the utility could be jointly liable in an accident such as the one at issue in this case, it is not reasonable to allow Entergy, with significantly greater bargaining power, to essentially unilaterally impose the indemnity clause upon its customers such as Burdette Gin. Burdette Gin, 726 So.2d at 1208. In so holding, we determined that the clause at issue in Burdette Gin allowed Entergy to shield itself from liability by protecting it from its own potential negligence. Id. ¶ 42. In our case today, the limitation of liability clause contained in section E.7 places a unilateral ceiling on Vicksburg Partners' potential liability. To this end, they have issued a contract of adhesion containing a contractual provision which is one-sided on its face and unilaterally oppressive in its effect. Moreover, in applying a substantive review to this provision, we can not help but take notice of the fact that Stephens's ability to fairly adjudicate her claim has been severely hamstrung and limited to a maximum recovery of $50,000, or less, while Vicksburg Partners has access to an unlimited damage award. Clearly, this provision by its very nature evidences garden variety substantive unconscionability inasmuch as it is encapsulated in a contract of adhesion. Accordingly, the limitation on liability clause is unenforceable and is stricken from the parties' contractual agreement. ¶ 43. Additionally, while the waiver of punitive damages in paragraph E.8 applies to all parties to the contract, we find that based on the facts and circumstances of today's case, the practical effect of paragraph E.8 likewise causes it to be substantively unconscionable. While we can think of numerous factual scenarios which would justify Stephens seeking punitive damages against Vicksburg Partners, we are conversely for the most part unable to develop factual scenarios which would justify Vicksburg Partners seeking punitive damages against Stephens. In other words, Vicksburg Partners suffers little, if any, but gains a lot by waiving its rights to recover punitive damages, while the same is not true for Stephens. In consideration of the effect of the clause itself and the initial determination that today's contract is one of adhesion, we find that this waiver of punitive damages clause is also unenforceable. ¶ 44. In analyzing the effect of substantive oppression one treatise recognized that courts have the broad authority to discover substantive abuse in the form of harshness in a specific unreasonable provision which was included in an agreement without the employment of any procedural abuse in its formation. 8 Richard A. Lord, Williston on Contracts § 18:14, at 89 (4th ed.1998). It likewise notes that [s]uch a contractual provision may be invalidated on unconscionability grounds as a form of oppression reached under the Code's `principle' ... of the prevention of oppression. Id. ¶ 45. This Court has readily recognized this remedial power of courts and has recognized a court's ability to invalidate provisions which are unconscionable and oppressive. In Norwest Financial Mississippi, Inc. v. McDonald, 905 So.2d 1187, 1194 (Miss.2005) we held that, courts have the ability to restrict enforcement of specific terms of a contract that are viewed as unconscionable. To this end, courts have the ability to strike terms which render an otherwise valid contractual arrangement unconscionable. In Russell v. Performance Toyota, Inc., 826 So.2d 719, 724-25 (Miss.2002), we noted this remedial authority provided to the courts of our state: Russell contends that the following two sentences within the arbitration agreement violate Miss.Code Ann. § 15-1-5 (1995): [Arbitration] must be initiated within 180 days after the claim or controversy first arises. Failure to timely initiate arbitration shall constitute a waiver of the claim or controversy. Russell states that the sentences attempt to shorten the statute of limitations designated in § 15-1-5, and therefore the arbitration agreement is void. Mississippi case law, however, holds that if a court strikes a portion of an agreement as being void, the remainder of the contract is binding. See, e.g., Lawler v. Government Employees Ins. Co., 569 So.2d 1151, 1153 (Miss.1990); Plaza Amusement Co. v. Rothenberg, 159 Miss. 800, 131 So. 350, 357 (1930) (If an illegal condition is annexed to a contract, it will not void the whole contract, but the illegal part will be treated as void.) (citing Adams v. Standard Oil Co., 97 Miss. 879, 53 So. 692 (1910)). Also, the Fifth Circuit has held that a limitation in an insurance policy was void under Mississippi law, but that the remainder of the policy was not affected by the void provision. Richards v. Allstate Ins. Co., 693 F.2d 502, 505 (5th Cir.1982). Finally, the United States District Court for the Southern District of Mississippi, applying Mississippi law, specifically struck a time limitation period contained in a contract and declared that the remainder of the contract was binding. Smith v. Orkin Exterminating Co., 791 F.Supp. 1137, 1142 (S.D.Miss.1990). We find that, even if the limitation time period contained in the arbitration agreement were void, the arbitration agreement is still binding. Performance Toyota, 826 So.2d at 724-25. ¶ 46. Of particular note, the parties' contract recognizes this contractual saving device and explicitly acknowledges the preferred remedy of striking unenforceable provisions as opposed to the draconian remedy of striking the entire agreed upon and otherwise valid contractual arrangements. To this end, both admissions agreements contain an identical paragraph which states: In the event any provision of this Agreement is held to be unenforceable for any reason, the unenforceability thereof shall not affect the remainder of this Agreement, which shall remain in full force and effect and enforceable in accordance with its terms. This language is delineated as paragraph E.1 under Miscellaneous Provisions in the first admissions agreement and as paragraph E.1 under Other Important Provisions in the second admissions agreement. ¶ 47. In today's case, we have referred to our prior decisions in East Ford and Burdette Gin, both which cited Bank of Indiana decided by the United States District Court for the Southern District of Mississippi. In Bank of Indiana, the district court stated: The law of Mississippi imposes an obligation of good faith and fundamental fairness in the performance of every contract governed thereby; in fact, this requirement is so pronounced that courts have the power to refuse to enforce any contract or limit the application of any clause therein in order to avoid an unconscionable result. Miss.Code Ann. § 75-2-302 (1972) states: (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. 476 F.Supp. at 109. Thus, our action today in finding a portion of the arbitration clause to be unconscionable, but yet enforcing the remainder of the arbitration clause which we find to be conscionable and otherwise enforceable, is consistent with our case law, statute, and basic principles of contract law. ¶ 48. We have considered our recent decision in Pitts v. Watkins, 905 So.2d 553 (Miss.2005), and find that this case is clearly distinguishable. In Pitts, we were confronted with a contract which, inter alia, (1) allowed one party to the contract to go to court to recover damages, while the other party was limited to arbitration, (2) attempted to shorten the statute of limitations, and (3) limited the amount of damages one of the parties could otherwise recover as a matter of law. Id. at 558. The language in the arbitration clause in today's case pales in comparison to the oppressive language contained in the arbitration clause in Pitts.