Opinion ID: 1589494
Heading Depth: 2
Heading Rank: 1

Heading: Whether the trial court erred in denying the Motion to Compel Arbitration because the 2002 admissions agreement as a whole is substantively unconscionable.

Text: ¶ 19. This Court twice before has found the admissions agreement at issue in this case to be a contract of adhesion. [4] See Brown, 949 So.2d at 746; Stephens, 911 So.2d at 520. Contracts of adhesion are those that are `drafted unilaterally by the dominant party and then presented on a take-it-or-leave-it basis to the weaker party who has no real opportunity to bargain about its terms. Such contracts are usually prepared in printed form....' East Ford, Inc. v. Taylor, 826 So.2d 709, 716 (Miss.2002) (quoting Restatement (Second) of Conflicts § 203 cmt. b (1971)). This Court stated in Stephens that finding a contract to be one of adhesion does not automatically mean that the contract or any provision thereof is substantively unconscionable. Stephens, 911 So.2d at 523. However, such a finding makes an argument targeting a provision for a substantive unconscionability review easier to prove.... [Thus, it] can make a facially oppressive term presumptively invalid. Id. ¶ 20. Further, each time this contract has come before this Court, the litigants have urged additional terms to be declared unconscionable and unenforceable. In Stephens, clauses E7 and E8 [5] were invalidated by this Court. Id. at 523-24. In Brown, in addition to E7 and E8, this Court reformed the contract to invalidate clauses C5, C8, E5, E6, E12, E16, and the last sentence of the arbitration agreement. [6] Brown, 949 So.2d at 741-42. Covenant Health concedes that all these provisions are unenforceable in this case. In a previous case before the Court of Appeals, Covenant Health conceded the unenforceability of all these provisions, as well as two additional clauses, D4 and E13. [7] Covenant Health & Rehab. of Picayune, LP v. Estate of Lambert, 984 So.2d 283, 287 (Miss.Ct.App.2006). In another case before the Court of Appeals, the Court of Appeals found several provisions unenforceable, including E14 [8] , which was held to be in violation of a statute. Barber, 988 So.2d at 923. ¶ 21. In addition to the plethora of provisions previously adjudicated unconscionable and/or violative of statute, the admissions agreement contains several other questionable provisions. Clause A5 [9] is similar to clause C5 in that it would allow Covenant Health to go to court to litigate a dispute. Clause E9 requires the patient to submit any damage recovery to any third-party payor (including Medicare and Medicaid) to reimburse the payor's expenses. Clause E15 requires that any dispute resolution or legal proceedings be brought in the county where the facility is located. ¶ 22. This Court in Pitts v. Watkins, 905 So.2d 553 (Miss.2005), reversed a grant of summary judgment in favor of a defendant home inspector. Id. at 554. An arbitration clause and a limitation-of-liability clause were found to be unconscionable and unenforceable. Id. at 558. The arbitration clause unreasonably favored the home inspector, allowing him to pursue litigation in court, while the customer was limited to arbitration. Id. The attempt to shorten the statute of limitations was unconscionable, because it was oppressive and in violation of a statute. Id. The limit on liability also was unconscionable because it left the customer without an effective remedy. Id. As noted above, this Court in Stephens found two provisions of the admissions agreement to be unconscionable, but allowed enforcement of the remainder of the contract. Stephens, 911 So.2d at 523. Referring to Pitts, the Stephens Court said: We have considered our recent decision in [ Pitts ] 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. The language in the arbitration clause in today's case pales in comparison to the oppressive language contained in the arbitration clause in Pitts. Id. at 525 (internal citation omitted). ¶ 23. In Brown, this Court found nine provisions of the same contract used in Stephens to be unconscionable, and cited Pitts multiple times in its analysis of the unconscionable terms. Brown, 949 So.2d at 739-41. The Brown Court enforced the remainder of the contract, but not without dissent. See id. at 741-48. ¶ 24. The contract at issue contains unconscionable provisions that mirror those found in Pitts, and several more. The application of basic contract principles leads this Court to the same conclusion as that of the learned trial judge, consistent with the serious misgivings of the Court of Appeals. We reach the inescapable conclusion that the contract is unconscionable, thus unenforceable. ¶ 25. The arbitration clause, which leads to court examination of the contract of adhesion, is not the only unconscionable provision. The arbitration clause itself includes, by its own terms and by reference to other provisions, several unconscionable, nonforum terms. Arbitration is about choice of forum  period. Stephens, 911 So.2d at 525. However, this contract has woven unconscionable, nonforum terms into the clause ostensibly designed to establish forum. The drafters of arbitration clauses, who truly seek the benefits of arbitration, including reduction of dispute costs, would be wise to heed the prior pronouncements of this Court, such as: Neither is it wise to allow companies to draft arbitration clauses with unconscionable provisions and then let them try them out in the marketplace, secure in the knowledge that the courts will at worst sever the offending [provisions] after plaintiffs have been forced to jump through hoops in order to invalidate those agreements. Sanderson Farms, 848 So.2d at 852 (Cobb, J., dissenting; Smith, P.J., and Carlson, J., joining) (dissent would have held the arbitration agreement unconscionable; plurality did not address unconscionability, as it held that Sanderson Farms had waived its right to compel arbitration) (quoting Cooper v. MRM Inv. Co., 199 F.Supp.2d 771 (M.D.Tenn.2002), rev'd in part, vacated in part on other issues, 367 F.3d 493 (6th Cir.2004)). Thus, we adopt the circuit court's rationale that the arbitration clause sub judice, coupled with a multitude of unconscionable provisions, makes this an unconscionable contract as a whole. ¶ 26. Courts of other states have refused to enforce similar contracts which were found to be substantively unconscionable. A Florida district court of appeals, in Romano v. Manor Care, Inc., 861 So.2d 59 (Fla.Dist.Ct.App.2003), refused to enforce an arbitration agreement which required a waiver of punitive damages, limited noneconomic damages to $250,000, and disallowed awards of attorney fees. Id. at 61. The court found that these three provisions made the agreement substantively unconscionable to a great degree.... [10] Id. at 62. ¶ 27. The Romano analysis has found favor in other cases. See Woebse v. Health Care & Ret. Corp. of Am., 977 So.2d 630 (Fla.Dist.Ct.App.2008); Prieto v. Healthcare & Ret. Corp. of Am., 919 So.2d 531 (Fla.Dist.Ct.App.2005); Lacey v. Healthcare & Ret. Corp. of Am., 918 So.2d 333 (Fla.Dist.Ct.App.2005). In Lacey, the court noted that [t]he presence of an unlawful provision in an arbitration agreement may serve to taint the entire arbitration agreement, rendering the agreement completely unenforceable. Lacey, 918 So.2d at 335 (quoting Presidential Leasing, Inc. v. Krout, 896 So.2d 938, 942 (Fla.Dist.Ct.App.2005)). That court also found that the absence of a severance clause distinguished Lacey from previous cases in which the court severed unlawful provisions, but the court was more persuaded by the fact that the agreement was titled an `arbitration and limitation of liability agreement.' Lacey, 918 So.2d at 335. This suggest[ed] that the offensive limitations of liability [went] to the `essence' of the contract. Id. The agreement in this case is simply titled Arbitration, but weaves in unconscionable waivers and award limits. Another similarity between the Florida cases and this case is the fact that the courts repeatedly have been required to deal with the same or very similar arbitration agreements. See Woebse, 977 So.2d at 634; Prieto, 919 So.2d at 533; Lacey, 918 So.2d at 334. ¶ 28. Tennessee also has found similar agreements unconscionable. Hill v. NHC Healthcare/Nashville, LLC, 2008 WL 1901198, at  (Tenn.Ct.App. Apr.30, 2008) (requirement of party bringing the action to pay up-front fees of approximately $18,000 prevents vindication of a statutory right). Tennessee rightly recognizes, as do we, that the purpose of arbitration is to provide a forum for dispute resolution. In Hill, the court stated the following: With regard to substantive unconscionability, our Supreme Court has determined that an agreement to arbitrate, including one made in the context of the provision of medical services, is not generally unconscionable when its provisions do not alter legal duties or limit liabilities and simply provide an alternative forum for the resolution of disputes. However, inequality in the provisions of such an agreement, where the agreement is an adhesion contract, may result in a finding of unconscionability. Hill, 2008 WL 1901198, at  (citing Taylor v. Butler, 142 S.W.3d 277, 286 (Tenn. 2004); Buraczynski v. Eyring, 919 S.W.2d 314, 321 (Tenn.1996)). ¶ 29. Other state courts have invalidated arbitration agreements in various types of contracts. The Supreme Court of Alabama found an arbitration agreement included in a loan contract to be unconscionable in American General Finance, Incorporated v. Branch, 793 So.2d 738 (Ala.2000). The court applied the factors from its precedent case, Layne v. Garner, 612 So.2d 404 (Ala.1992). The Layne factors are: (1) whether there was an absence of meaningful choice on one party's part, (2) whether the contractual terms are unreasonably favorable to one party, (3) whether there was unequal bargaining power among the parties, and (4) whether there were oppressive, one-sided, or patently unfair terms in the contract. Id. at 408. The court held that the contract was unconscionable for one of the plaintiffs, Branch, but not the other, Reaves. Branch, 793 So.2d at 751-52. The distinguishing factor was that at the time Branch signed the contract, it would have been much more difficult to obtain a loan without having to agree to arbitration; thus Branch had no meaningful choice. Id. ¶ 30. A California court found an arbitration agreement and other provisions of an employment contract to be unconscionable. Stirlen v. Supercuts, 51 Cal.App.4th 1519, 1552, 60 Cal.Rptr.2d 138 (Cal.Ct.App. 1997). The court explained its analysis as follows: an adhesive contract `would remain fully enforceable unless (1) all or part of the contract fell outside the reasonable expectations of the weaker party or (2) it was unduly oppressive or unconscionable under applicable principles of equity.' Id. at 1530, 60 Cal.Rptr.2d 138 (quoting Izzi v. Mesquite Country Club, 186 Cal. App.3d 1309, 1317, 231 Cal.Rptr. 315 (Cal. Ct.App.1986) (emphasis in original)). The court found the contract in Stirlen to be excessively one-sided in that it allowed the employer to use the court system, but restricted the employee to arbitration and a shortened statute of limitations, not subject to tolling. Id. at 1542, 60 Cal.Rptr.2d 138. The employee gave up statutorily-protected rights that would have allowed punitive damages, while the employer was protected from liability for all fraud, willful injury, and violation of laws. Id. In finding that the FAA would not be offended by nullifying this agreement, the court stated, The FAA was clearly not designed to save an arbitration agreement as egregiously one-sided as the one before us, which would not survive scrutiny under legal or equitable principles applicable in almost every American jurisdiction. Id. at 1546, 60 Cal.Rptr.2d 138. ¶ 31. Other state courts have held arbitration agreements to be unconscionable. See Bolter v. Superior Court, 87 Cal. App.4th 900, 902, 909, 104 Cal.Rptr.2d 888 (Cal.Ct.App.2001) (in carpet-cleaning franchise agreement, excessive costs and limitation on damages prevented a remedy); Discover Bank v. Shea, 362 N.J.Super. 200, 827 A.2d 358, 366 (Law Div.2001) (credit-card agreement was contract of adhesion with unconscionable provisions); In re Turner Bros. Trucking Co., 8 S.W.3d 370, 372 (Tex.App.1999) (employment contract); Wilder v. Whittaker Corp., 169 Cal. App.3d 969, 975, 215 Cal.Rptr. 536 (1985) (employment contract at issue had been determined to be adhesory by a prior opinion of the court). ¶ 32. Like the courts listed above, this Court also has refused to enforce unconscionable arbitration agreements outside the nursing home arena. See Pitts, 905 So.2d at 558 (home-inspection contract); East Ford, 826 So.2d at 717 (sale of a used car). As noted above, FAA section two prevents a court from singling out arbitration agreements for special or unique analysis. See 9 U.S.C. § 2; Casarotto, 517 U.S. at 687, 116 S.Ct. 1652. We also have found contracts to be unconscionable for clauses other than arbitration agreements. See Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202, 1208 (Miss.1998); In re Will of Johnson, 351 So.2d 1339, 1341 (Miss.1977) (wife prohibited from renouncing or contesting husband's will). ¶ 33. Our law imposes an obligation of good faith and fundamental fairness in the performance of every contract governed thereby.... Holyfield, 476 F.Supp. at 109. Caselaw and legislative enactments address refusal to enforce a contract in its entirety, or any portion thereof, if it is found to be unconscionable. See Miss. Code Ann. § 75-2-302(1) (Rev.2002); East Ford, 826 So.2d at 717; Burdette Gin, 726 So.2d at 1208; Johnson, 351 So.2d at 1341; Terre Haute Cooperage v. Branscome, 203 Miss. 493, 503, 35 So.2d 537, 541 (1948). Mississippi and U.S. Supreme Court precedent provide for the invalidation of arbitration agreements for unconscionability without offending the FAA. East Ford, 826 So.2d at 711 (citing Casarotto, 517 U.S. at 686, 116 S.Ct. 1652). Accordingly, we hold that the contract in its entirety, and this arbitration agreement specifically, are unconscionable and unenforceable. To do otherwise would result[] in this Court rewriting a contract which favors a goal of the nullifying party; an undeserved reward for unconscionable conduct. Brown, 949 So.2d at 748 (5-4 decision) (Randolph, J., dissenting). ¶ 34. This decision does not prevent nursing homes, or for that matter, any legal entity or person from entering contracts that include arbitration agreements. Our courts will enforce arbitration agreements when they do not seek to impose terms deemed unconscionable by this Court. See Bedford Health Props., LLC v. Estate of Davis, ___ So.3d ___, ___, 2008 WL 5220594, at  (Miss.Ct.App. Dec.16, 2008); Forest Hill Nursing Ctr., Inc. v. McFarlan, 995 So.2d 775, 785 (Miss.Ct. App.2008). ¶ 35. As Brown and Stephens dealt with nearly identical contracts, to the extent that those rulings are inconsistent with today's opinion, they are overruled.