Vicksburg Partners, L.P., et al. v. Stephens


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Docket Number: 2004-CA-01345-SCT

Supreme Court: Opinion Link
Opinion Date: 09-22-2005
Opinion Author: CARLSON, J.
Holding: Reversed and Remanded

Additional Case Information: Topic: Contract - Arbitration - Applicability of Federal Arbitration Act - Procedural unconscionability - Substantive unconscionability
Judge(s) Concurring: Smith, C.J., Waller and Cobb, P.JJ., Easley, Dickinson and Randolph, JJ.,
Non Participating Judge(s): Diaz, J.,
Dissenting Author : Graves, J.
Procedural History: Bench Trial
Nature of the Case: CIVIL - CONTRACT

Trial Court: Date of Trial Judgment: 05-04-2004
Appealed from: WARREN COUNTY CIRCUIT COURT
Judge: Isadore Patrick
Disposition: Circuit court order denying a motion to stay proceedings and enforce an arbitration clause contained within the relevant nursing home admissions agreement.
Case Number: 02-0212-CI-P

  Party Name: Attorney Name:  
Appellant: VICKSBURG PARTNERS, L.P., BOND, JOHNSON AND BOND, INC., MAGNOLIA MANAGEMENT CORPORATION, MAGNOLIA MANAGEMENT SERVICES OF MISSISSIPPI, INC., JOE BANNON, GEORGE T. JOHNSON AND PEGGY MINGEE




BENJAMIN CONNELL HEINZ, WILLIAM R. LANCASTER, LOUIS HUNTER COMPTON, JR.



 

Appellee: ANGELA STEPHENS, INDIVIDUALLY AND AS ADMINISTRATRIX OF THE ESTATE OF LEROY TAYLOR PRO SE  

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Topic: Contract - Arbitration - Applicability of Federal Arbitration Act - Procedural unconscionability - Substantive unconscionability

Summary of the Facts: Angela Stephens admitted her father, Leroy Taylor, to the Vicksburg Trace Haven Nursing Home. Stephens and Taylor underwent normal check-in procedures, and each was asked to read and sign an admissions agreement. Their signatures, along with the signature of a representative from the Nursing Home, were required to complete the admissions agreement. Contained within the admissions agreement was an arbitration clause. Taylor and Stephens signed a second admissions agreement which also contained an arbitration clause. When Taylor passed away due to alleged failures in the care provided by the Nursing Home during his residency, Stephens filed suit individually and on behalf of the estate and the wrongful death beneficiaries of Taylor against Vicksburg Partners, L.P.; Vicksburg Associates Corp.; Bond, Johnson & Bond, Inc.; Magnolia Management Corporation; George T. Johnson; Peggy Mingee; Eva H. Williams; John Does 1 through 10; and unidentified entities 1 through 10. Stephens later filed an amended complaint containing claims of negligence as to specified defendants; negligence as to other specified defendants; medical malpractice; malice and/or gross negligence; fraud; and breach of fiduciary duty; as well as a statutory survival claim; and a statutory wrongful death claim. Vicksburg Partners filed a motion to stay proceedings and enforce dispute resolution/arbitration. The court denied the motion. Vicksburg Partners filed a motion for reconsideration or for an order granting certification for interlocutory appeal. The circuit court denied this motion without addressing Vicksburg Partners’ request for certification for interlocutory appeal. Vicksburg Partners thereafter filed its Petition for Interlocutory Appeal by Permission and Request for Stay. The Supreme Court accepted this petition for filing as a notice of appeal.

Summary of Opinion Analysis: Issue 1: Applicability of Federal Arbitration Act A threshold determination which must be considered is whether the parties’ admission agreement falls within the provisions of § 2 of the Federal Arbitration Act, i.e., whether the agreement is sufficiently a part of interstate commerce so as to trigger FAA applicability. Only the general practice need bear on interstate commerce in a substantial way. Nursing homes through general practice, which includes basic daily activities like receiving supplies from out-of-state vendors and payments from out-of-state insurance companies or the federal Medicare program, affect interstate commerce. Moreover, the defendants in this case include a Georgia corporation, a Tennessee corporation and a Louisiana corporation, who collectively contribute to the operation of Vicksburg Partners nursing home, which receives services and goods from out-of-state vendors, takes in out-of-state residents, and receives payments from out-of-state insurance carriers, including federally-accredited Medicare/Medicaid programs. Therefore, the Federal Arbitration Act is applicable. Issue 2: Unconscionability The circuit court found that the arbitration clause created an unenforceable contract of adhesion, because the conditions of the agreement were on a `take it or leave it’ basis leaving the plaintiff with no bargaining power. The doctrine of unconscionability has been defined as an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party. The dispositive issue in today’s case is whether the arbitration provision rendered the subject admissions agreement unenforceable. The circuit court focused on the lack of voluntariness and specifically determined that the standard form contract signed by both Stephens and Taylor was a contract of adhesion. The fact that an arbitration agreement is included in a contract of adhesion renders the agreement procedurally unconscionable only where the stronger party's terms are unnegotiable and the weaker party is prevented by market factors, timing or other pressures from being able to contract with another party on more favorable terms or to refrain from contracting at all. While the circumstances surrounding the execution of the admission agreement in today’s case demonstrate that the agreement is a contract of adhesion, these facts and circumstances do not support a finding of procedural unconscionability. The contract at issue was drafted unilaterally by the dominant party and then presented on a “take it or leave it” basis to the weaker party who had no real opportunity to bargain about its terms. However, this finding does not necessarily substantiate the general contractual defense of procedural unconscionability concerning the overall contract (admissions agreement) or the arbitration clause contained within the overall contract. To this end, procedural unconscionability must be substantiated by evidence of a lack of knowledge or voluntariness by the weaker party. Stephens and Taylor together executed the admission agreements; there were no circumstances of exigency; the arbitration agreement appeared on the last page of a six-page agreement and was easily identifiable as it followed a clearly marked heading printed in all caps and bold-faced type clearly indicating that section “F” was about “Arbitration;” the provision itself was printed in bold-faced type of equal size or greater than the print contained in the rest of the document; and, appearing between the arbitration clause and the signature lines was an all caps bold-faced consent paragraph drawing special attention to the parties’ voluntary consent to the arbitration provision contained in the admissions agreement. Under these facts, it cannot be said that there was either a lack of knowledge that the arbitration provision was an important part of the contract or a lack of voluntariness in that Stephens and Taylor somehow had no choice but to sign. Additionally, there were two separately executed admissions agreements with arbitration clauses. Substantive unconscionability is present when there is a one-sided agreement whereby one party is deprived of all the benefits of the agreement or left without a remedy for another party’s nonperformance or breach. The arbitration clause in today’s case is not oppressive. It provides Stephens with a fair process in which to pursue her claims. Moreover, it is typical of arbitration clauses endorsed by the FAA and is conscionable because it bears some reasonable relationship to the risks and needs of the business. With regard to whether the limitation of liability and punitive damages provisions are, by their very language, substantively unconscionable and therefore unenforceable, Vicksburg Partners has effectively limited Stephens to recovery of actual damages not to exceed $50,000 while Vicksburg Partners is not so limited, and they have precluded damages which could only be recovered against Vicksburg Partners. 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. Because this provision by its very nature evidences garden variety substantive unconscionability inasmuch as it is encapsulated in a contract of adhesion, the limitation on liability clause is unenforceable and is stricken from the parties’ contractual agreement. While the waiver of punitive damages applies to all parties to the contract, the practical effect causes it to be substantively unconscionable. 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.


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