Court Opinion

ID: 4766335
Source: CourtListenerOpinion
Date Created: 2021-08-17 17:04:11.281736+00
Date Added: 2024-06-11T08:09:16.991362
License: Public Domain

IN THE

    SUPREME COURT OF THE STATE OF ARIZONA

                          CONCETTA RIZZIO,
                           Plaintiff/Appellee,

                                   v.

                 SURPASS SENIOR LIVING LLC, ET AL.,
                       Defendants/Appellants.

                          No. CV-20-0058-PR
                         Filed August 17, 2021

          Appeal from the Superior Court in Maricopa County
              The Honorable Sherry K. Stephens, Judge
                        No. CV2018-090357
             REVERSED IN PART AND REMANDED

             Opinion of the Court of Appeals, Division One
                       248 Ariz. 266 (App. 2020)
             AFFIRMED IN PART; VACATED IN PART

COUNSEL:

H. Micheal Wright (argued), Lincoln M. Wright, Udall Shumway PLC,
Mesa, Attorneys for Concetta Rizzio

Kevin C. Nicholas, Bruce C. Smith (argued), Sarah A. Schade, Lewis
Brisbois Bisgaard & Smith LLP, Phoenix, Attorneys for Surpass Senior
Living, LLC, Gilbert AL Partners, LP, Gilbert AL GP, LLC, and Brianne
Schmitz

David L. Abney, Ahwatukee Legal Office, P.C., Phoenix; and Stanley G.
Feldman, Miller, Pitt, Feldman & McAnally, P.C., Tucson, Attorneys for
Amici Curiae Arizona Association for Justice and Arizona Trial Lawyers
Association
     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

JUSTICE MONTGOMERY authored the opinion of the Court, in which
CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and
JUSTICES BOLICK, LOPEZ, and BEENE joined. *

JUSTICE MONTGOMERY, opinion of the Court:

¶1            Arbitration agreements are widely utilized for resolving a
variety of disputes and are generally enforceable.            Nonetheless, an
arbitration agreement may be unenforceable due to either procedural or
substantive unconscionability. Substantive unconscionability looks to
whether the terms of an agreement are one-sided or unduly harsh,
including whether the costs to arbitrate a dispute prevent a plaintiff from
effectively vindicating her rights. In this case, we are asked to determine
whether a plaintiff’s fee agreement with her attorney can be considered in
assessing her ability to financially bear the costs of arbitration.

¶2              We hold that a fee agreement between a client and her
attorney, especially where the attorney agrees to advance the costs of
arbitration, is relevant to determining her ability to arbitrate her claims and,
on the record before us, the arbitration agreement in question is not
substantively unconscionable.
                  I.   Factual and Procedural Background
¶3            In April 2017, Deborah Georgianni arranged for her mother,
Concetta Rizzio, to live at Mariposa Point (“Mariposa”), a nursing care
facility managed by Surpass Senior Living (“Surpass”). Georgianni,
acting on behalf of Rizzio pursuant to a power of attorney, signed two
contracts with Mariposa. Each contract included an arbitration clause
with a cost-shifting provision (the “Agreement”) that stated Rizzio would
be responsible for all “[c]osts of arbitration, including [defense]’s legal costs
and attorney’s fees, arbitration fees and similar costs,” if she made a claim
against Surpass. The Agreement also included a severability provision:
“If any provision of this Arbitration Agreement is held to be invalid or
unenforceable, the remainder of the agreement shall remain in full force
and effect.”

∗ Although Justice Andrew W. Gould (Ret.) participated in the oral
argument in this case, he retired before issuance of this opinion and did not
take part in its drafting.
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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

¶4           In February 2018, a fellow Mariposa resident attacked Rizzio.
Georgianni filed a lawsuit on behalf of her mother against Surpass, the
attacker, and others involved. She alleged negligence and abuse of a
vulnerable adult and sought compensatory and punitive damages.
Surpass filed a motion to compel arbitration under the Agreement. In
response, Georgianni argued that the Agreement was procedurally and
substantively unconscionable and, thus, unenforceable. The trial court
held an evidentiary hearing and heard testimony from Georgianni,
Mariposa’s marketing director, and an arbitration expert.

¶5            After the hearing, the trial court denied the motion to compel
arbitration. The court found the entire Agreement “unduly oppressive,
unenforceable, and unconscionable.” The court also concluded that
Rizzio would be unable to effectively vindicate her claim due to high
arbitration costs, that the contract unfairly allocated all costs of arbitration
to Rizzio, and that it violated her reasonable expectations.

¶6            The court of appeals reversed the trial court on the issue of
procedural unconscionability but agreed with the court’s conclusion that
the cost-shifting provision was substantively unconscionable because it
allocated all costs to Rizzio, even if she prevailed. Specifically, the court
noted that the provision was “unusual, one-sided, and operates as a
prospective penalty for any resident seeking to bring a meritorious claim.”
Nonetheless, because the severability clause in the Agreement permitted
severance of the oppressive cost-shifting provision, the court went on to
consider whether the remainder of the Agreement could still be enforced.
Relying on the retainer agreement Rizzio had with her attorney wherein he
agreed to advance all costs, the court concluded that “[t]he presence of such
an arrangement here negates any argument of substantive
unconscionability based on arbitration costs: Rizzio is not responsible for
up-front costs and such costs cannot, therefore, be held an impediment to
arbitration.”

¶7              We granted review to determine whether the fee agreement
between a plaintiff and her attorney is relevant when considering a
plaintiff’s ability to bear the costs of arbitration. This is an issue of first
impression and statewide importance. We have jurisdiction pursuant to
article 6, section 5(3) of the Arizona Constitution.

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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

                               II.   Discussion
¶8             We review a denial of a motion to compel arbitration de novo.
Allstate Prop. & Cas. Ins. Co. v. Watts Water Tech., Inc., 244 Ariz. 253, 256 ¶ 9
(App. 2018). We likewise review a determination of unconscionability de
novo. Harrington v. Pulte Home Corp., 211 Ariz. 241, 252 ¶ 40 (App. 2005).
                                       A.
¶9             The court of appeals concluded that the Federal Arbitration
Act (“FAA”) applies to the Agreement between Rizzio and Surpass. Rizzio
v. Surpass Senior Living LLC, 248 Ariz. 266, 270 ¶ 14 (App. 2020). Neither
party argues otherwise, as the Agreement specifically provides that it “shall
be governed by and interpreted under the [FAA].” As noted by the
Supreme Court, “[g]enerally applicable contract defenses, such as . . .
unconscionability, may be applied to invalidate arbitration agreements
without contravening § 2” of the FAA. Dr.’s Assocs., Inc. v. Casarotto, 517
U.S. 681, 687 (1996); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339
(2011) (same); see also A.R.S. § 12–3006(A) (“An agreement . . . to arbitrat[e]
any existing or subsequent controversy arising between the parties to the
agreement is valid, enforceable and irrevocable except on a ground that
exists at law or in equity for the revocation of a contract.”). Under Arizona
law, either substantive or procedural unconscionability may be raised as a
defense to enforcement. Gullett ex rel. Estate of Gullett v. Kindred Nursing
Ctrs. W., L.L.C., 241 Ariz. 532, 535 ¶ 6 (App. 2017).

¶10           Substantive unconscionability concerns the actual terms of
the contract and whether they are “overly oppressive or unduly harsh to
one of the parties.” Clark v. Renaissance W., LLC, 232 Ariz. 510, 512 ¶ 8
(App. 2013). Accordingly, an arbitration agreement may be unenforceable
when a party cannot effectively vindicate her rights in the arbitral forum
due to the prohibitive costs of arbitration. Green Tree Fin. Corp.-Ala. v.
Randolph, 531 U.S. 79, 90 (2000). Arizona courts have thus held that
“arbitration costs are directly related to a litigant’s ability to pursue . . . a
claim.” See, e.g., Harrington, 211 Ariz. at 252 ¶ 42.
                                       B.
¶11            We adopt Clark’s framework for evaluating whether the
financial costs of arbitration prohibit a plaintiff from vindicating her rights.
Clark, 232 Ariz. at 513 ¶¶ 10–12. Under that framework, a party seeking to
invalidate an arbitration agreement must establish arbitration costs with
reasonable certainty; costs cannot be speculative. Id. at 513 ¶ 10. Next,

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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

the party must make a specific, individualized showing that she would be
financially unable to bear the costs of arbitration. Id. at 513 ¶ 11. Lastly,
the court considers whether the agreement permits a party to waive or
reduce arbitration costs because of financial hardship. 1 Id. at 513 ¶ 2.
Ultimately, the determination of substantive unconscionability “is a
question of fact that depends on the unique circumstances of each case.”
Id. at 513 ¶ 9. Absent a showing that arbitration costs would deny the
plaintiff meaningful access to a forum in which she could vindicate her
rights, a court will not find an arbitration agreement substantively
unconscionable.
                                     C.
¶12            We next consider the relevance of a fee agreement in
determining a plaintiff’s ability to meet the costs of arbitration. Rizzio
argues that the focus in making this determination is on the plaintiff’s
ability to pay, not her attorney’s. Surpass contends that all relevant facts
and circumstances must be considered, which includes a fee agreement
between an attorney and client, because the plaintiff is not denied access to
the arbitral forum if all costs associated with access are advanced by the
attorney.
                                      1.
¶13           Rizzio asserts that her argument reflects a “majority”
approach that does not consider fee agreements. We disagree with her
characterization. Rather than presenting any situation where a court
noted the existence of a fee agreement and then explicitly disregarded it to
focus solely on the plaintiff’s financial situation, the cases cited by Rizzio
simply do not address fee agreements at all.

¶14            No published Arizona decision has considered what
relevance, if any, a fee agreement has in this context. In Harrington, the
court of appeals referenced a contingency agreement and the possibility of
an attorney advancing costs in the context of comparing litigation and
arbitration costs. 211 Ariz. at 253 ¶ 48. The court initially observed that
the plaintiffs, who avowed that they could not afford even $1,000 to
arbitrate claims of $500,000 to $1,000,000, failed to explain how they would

1 As the Agreement now stands, there is no provision for waiving or
reducing costs, so we do not address this factor in our analysis. Infra
¶¶ 23–26.
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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

be able to litigate such claims for less than $1,000. Id. The court then
offered that “[o]ne obvious possibility is that an attorney would take the
case on a contingency basis and advance costs.” Id. Likewise, the Court
concluded “[t]hat same possibility would apply to arbitration.” Id.

¶15              Courts in other jurisdictions have also mentioned fee
agreements when discussing arbitration and litigation costs. For example,
the court in Morrison v. Circuit City Stores, Inc. observed that, when
considering the costs of litigation, “[i]n many . . . cases, employees . . . will
be represented by attorneys on a contingency-fee basis. Thus, many
litigants will face minimal costs in the judicial forum, as the attorney will
cover most of the fees of litigation and advance the expenses incurred in
discovery.” 317 F.3d 646, 664 (6th Cir. 2003); see also Lillard v. Tech USA,
Inc., No. ADC-20-308, 2020 WL 4925661, at *5 (D. Md. Aug. 21, 2020) (“[T]he
Court will not assume, that the contingency fee agreement does not apply
to arbitration proceedings. Accordingly, Plaintiff seems to be in the same
position regarding her out-of-pocket expenses for arbitration in which she
would otherwise be for litigation.”); Koridze v. Fannie Mae Corp., 593 F. Supp.
2d 863, 872 (E.D. Va. 2009) (“Even assuming that plaintiff has retained
attorneys willing to advance costs and to represent her on a contingency
basis in her litigation here[,] . . . she has failed to show that she could not
secure a similar arrangement with these attorneys in pursuing
arbitration.”). Needels v. First Franklin Financial Corp. further stated that
“[l]itigation expenses and any pertinent attorney fee arrangements, that is,
plaintiff-attorney contingency fee arrangements may also be considered”
when assessing the costs of arbitration. No. 1:05CV268, 2005 WL 8161857,
at *4 (S.D. Ohio Dec. 15, 2005). Needels went so far as to conclude that the
“[c]ourt cannot compare potential arbitration and litigation costs because
Plaintiff fails to inform the Court whether she and her attorney entered into
a contingency fee arrangement.” Id.
                                       2.
¶16            At oral argument before the court of appeals, Rizzio
acknowledged that a hypothetical wealthy relative’s willingness to front
the costs of arbitration, just as her attorneys were willing to do, was relevant
to determining a plaintiff’s ability to pay. This acknowledgement fairly
recognizes the need to account for each case’s unique circumstances when
assessing the plaintiff’s access to arbitration. Thus, a plaintiff’s access to
funds, regardless of the source, falls within the specific, individualized
inquiry regarding the ability to bear costs. The issue is not necessarily who

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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

pays the costs associated with arbitrating a claim; rather, it is whether the
costs can be met such that the plaintiff can effectively vindicate her rights.

¶17            Arizona Rule of Evidence 401 guides our determination.
Therein, evidence is relevant “if it has any tendency to make a fact more or
less probable than it would be without the evidence and . . . the fact is of
consequence in determining the action.” Ariz. R. Evid. 401. Here,
Rizzio’s agreement with her attorney to advance the costs of arbitration
makes it more probable that she can afford to arbitrate her claims. See
Clark, 232 Ariz. at 513 ¶ 9. We therefore hold that Rizzio’s fee agreement
is relevant to determining her ability to bear the costs of arbitration.

¶18           Other factors may also bear on the degree to which such an
agreement can be considered, or the weight given it, in determining
whether the plaintiff can vindicate her rights. For example, if the
agreement with the attorney limits repayment to any recovery, 2 then that
agreement and the likely amount of any recovery may certainly be relevant
and may be dispositive, especially if any likely recovery is barely enough
to cover costs and the plaintiff is left in no better position than if she had
not litigated at all. Likewise, there may be a case where no attorney is
willing to advance the costs to arbitrate because the amount of the claim in
question is too small to cover costs. See Tillman v. Com. Credit Loans, Inc.,
655 S.E.2d 362, 373 (N.C. 2008) (holding an arbitration clause
unconscionable, in part, because it “deters potential plaintiffs from bringing
and attorneys from taking cases with low damage amounts in the face of
large costs”). Regardless, our conclusion does not establish a per se rule
that the mere existence of a fee agreement advancing costs precludes a
determination that an arbitration agreement is substantively
unconscionable.
                                      D.
¶19           Rizzio argues that allowing a court to consider a fee
arrangement might have a “chilling effect” on prospective litigants who
cannot afford to advance costs. Attorneys may be hesitant to advance
costs if that agreement might later provide the basis for compelling
arbitration. Then, the plaintiff who cannot afford to advance the costs may

2 Arizona Rule of Supreme Court 42, Ethical Rule 1.8(e)(1), permits a
lawyer to advance costs and condition repayment on any recovered
amounts.
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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

not be able to bring her claim at all. As discussed above, the mere
existence of such an agreement does not permit a court to summarily hold
that the plaintiff can effectively vindicate her rights. Rather, a court must
still engage in the fact-intensive analysis set forth in Clark and give a fee
agreement the weight it deserves given its relevance within the context of
the unique facts and circumstances of the case.

¶20            Amici Arizona Association for Justice and Arizona Trial
Lawyers Association assert that it is improper to consider a fee agreement
because it would violate the collateral-source rule, which precludes
consideration of benefits received by a plaintiff to reduce the amount of a
defendant’s liability in personal injury actions. John Munic Enters., Inc. v.
Laos, 235 Ariz. 12, 17 ¶ 14 (App. 2014) (rejecting application of the rule in
“ordinary contract cases”). 3       Applying that rule when assessing a
plaintiff’s ability to meet the costs of arbitration is misplaced, though,
regardless of the nature of the action. The amount of damages a defendant
may be liable for is determined without reference to any costs advanced by
a plaintiff’s attorney. The collateral-source rule does not apply to this
inquiry.
                              III. Application
¶21           Applying the Clark framework to this case and considering
the fee agreement, we conclude that the record before us does not support
a finding of substantive unconscionability.

¶22            With respect to the cost to arbitrate her claims, which her
attorneys have agreed to advance, Rizzio’s expert only addressed the
potential fees charged by an arbitrator. At the evidentiary hearing, he
testified that the fees could range from $16,000 to $22,400. He did not
estimate expert fees, filing fees, or court reporter fees. And, because the
only provision in the Agreement addressing costs and fees has been
severed, the arbitrator may only award what is permitted by law. See RS
Indus., Inc. v. Candrian, 240 Ariz. 132, 136 ¶ 14 (App. 2016); A.R.S.
§ 12-3021(B) (permitting an arbitrator to award reasonable expenses “only
if that award is authorized by law in a civil action involving the same
claim.”). Thus, Arizona law would allow a prevailing party to recover “all

3  Application of the collateral source rule has also been rejected in actions
for medical malpractice against a licensed healthcare provider. A.R.S.
§ 12-565; Eastin v. Broomfield, 116 Ariz. 576 (1977).
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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

costs expended or incurred therein unless otherwise provided by law.”
A.R.S. § 12-341. Additionally, because she brought her claim under the
Adult Services Protective Act (“APSA”), Rizzio could be awarded actual,
consequential, and punitive damages, plus costs. A.R.S. § 46-455(H)(4);
See Mathews ex rel. Mathews v. Life Care Cntrs of Am., Inc., 217 Ariz. 606, 610
¶ 19 (App. 2008) (holding that “a victim of elder abuse pursuant to APSA
would not be deprived of the remedies specified by the legislature simply
because that case is resolved using arbitration”). Regardless, this record is
bereft of any indication as to what the total cost to arbitrate may be and
what fees, whether she prevails or not, Rizzio might incur.

¶23           Next, we consider Rizzio’s specific, individualized showing
of her financial circumstances regarding her inability to cover the costs of
arbitration. For this inquiry, she must present evidence of her income and
assets and may not simply assert that she cannot pay. Surprisingly, the
evidence of Rizzio’s financial position presented at the hearing offered the
barest summary, and her representative testified that she was unaware
Rizzio’s assets would be addressed. The record reflects expenses for care
averaging $11,000 each month, assets consisting of a trust with $80,000 in
remaining proceeds from the 2010 sale of a home, two annuities of
unknown value, a distribution in an unknown amount from her husband’s
retirement, and a long-term care policy that pays $170 a day for her care.
The closest we have to any total of her available assets is the estimate that
she has less than two years left to cover her personal care. Cf. Clark, 232
Ariz. at 514 ¶ 18 n.4 (“Plaintiff’s total monthly income was $4,630, which
consisted of the following: $1,717 in social security; $1,200 from a pension;
and $1,703 in ‘veteran’s assistance.’ Plaintiff testified that apart from his
monthly income, he had no other financial resources.”).

¶24            A finding that the Agreement is substantively unconscionable
on such a speculative record of arbitration costs and the plaintiff’s finances
is inconsistent with policies favoring arbitration agreements. See Green
Tree, 531 U.S. at 91; Harrington, 211 Ariz. at 253 ¶ 44. Based on this record,
Rizzio has failed to establish substantive unconscionability.             The
Agreement as it now stands is enforceable.
                              IV.   Conclusion
¶25           We affirm the court of appeals opinion but vacate paragraphs
25–29. Because the trial court’s order denying the motion to compel
arbitration is unsupported by the record, we reverse and remand with

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     CONCETTA RIZZIO V. SURPASS SENIOR LIVING LLC, ET AL.
                    Opinion of the Court

directions to enter an order compelling arbitration. Given our resolution
of the issue presented, we decline to award attorney fees.

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