Covenant Health of Picayune v. Moulds

• Decision Date: 06 August 2009
• Docket Number: No. 2007-CT-01250-SCT.,2007-CT-01250-SCT.
• Citation: 14 So.3d 695
• Parties: COVENANT HEALTH & REHABILITATION OF PICAYUNE, LP and Covenant Dove, Inc. v. ESTATE OF Mittie M. MOULDS, By and Through James BRADDOCK, Administrator for the Use and Benefit of the Estate and Wrongful Death Beneficiaries of Mittie M. Moulds.
• Court: Mississippi Supreme Court

14 So.3d 695

COVENANT HEALTH & REHABILITATION OF PICAYUNE, LP and Covenant Dove, Inc. v. ESTATE OF Mittie M. MOULDS, By and Through James BRADDOCK, Administrator for the Use and Benefit of the Estate and Wrongful Death Beneficiaries of Mittie M. Moulds.

No. 2007-CT-01250-SCT.

Supreme Court of Mississippi.

August 6, 2009.

John L. Maxey, II, Heather Marie Aby, Paul Hobart Kimble, Jackson, attorneys for appellant.

F.M. Turner, Hattiesburg, attorney for appellee.

EN BANC.

ON WRIT OF CERTIORARI

RANDOLPH, Justice, for the Court.

¶ 1. The issue presented is the enforcement vel non of an arbitration clause made part of a contract. James Braddock asserts that the contract is one of adhesion and contains multiple unconscionable provisions. Alternatively, Braddock urges that if the arbitration clause is enforceable, the forum putatively agreed to is unavailable. We have considered more than one case involving this same arbitration agreement, and in other cases, very similar clauses. Almost unanimously, we have declared several of these contested provisions to be unconscionable. Previously, a majority of this Court determined that the contract, as amended by the Court, including the arbitration provision, should be enforced,¹ but not without dissent.²

¶ 2. Despite this Court's admonitions to the drafters of such contracts to eliminate unconscionable clauses and the reluctance of courts to reform and rewrite contracts, a veritable deluge of contests over arbitration issues continues in the courts of our state.

¶ 3. Based on the issues considered and the application of basic contract-law principles, we conclude that this contract is unconscionable, as it contains numerous unconscionable provisions. The contract weaves unconscionable nonforum terms into the arbitration provision. Arbitration is limited to choice of forum. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444, 456 (1985); Stephens, 911 So.2d at 525. This conclusion is consistent with our body of law regarding the enforcement of contracts, and conforms to the national body of law addressing similar issues. The course we follow exceeds the excision of numerous unconscionable provisions, and voids the contract. Furthermore, since arbitration is about forum choice, were we to assume arguendo the validity of the contract, the contested agreement to arbitrate still would be unenforceable, as the forum putatively agreed upon is unavailable. The learned trial judge rightly denied arbitration as the forum for this dispute.

¶ 4. Braddock (the administrator of the plaintiff estate) filed a wrongful-death action against Covenant Health and Rehabilitation of Picayune, LP ("Covenant Health"), and its general partner, Covenant Dove, Inc., in the Circuit Court of Pearl River County. The circuit court denied Covenant Health's motion to compel arbitration, finding inter alia that the admissions agreement, as a whole, was unconscionable. The Court of Appeals reversed and remanded. Covenant Health and Rehab. of Picayune, LP v. Moulds, 14 So.3d 736, 742-43, 2008 WL 3843820, at *5 (Miss.Ct.App. Aug. 19, 2008). Braddock's motion for rehearing was denied. This Court granted Braddock's petition for certiorari. Covenant Health & Rehab. of Picayune, LP v. Braddock, 999 So.2d 1280 (Miss.2009).

THE COURT OF APPEALS OPINION

¶ 5. The Court of Appeals has expressed its "serious misgivings about the language included in the admissions agreement," but that court concluded that it was "compelled to confirm the substantive conscionability of the admissions agreement and the arbitration clause." Moulds, ___ So.3d at ___, 2008 WL 3843820, at *5. The Court of Appeals noted that this Court has dealt with the same contract language along with very similar facts. Id.

¶ 6. Separately, on the issue of the nonavailability of the arbitral forum, the Court of Appeals found that the arbitration agreement would allow the circuit court to choose an arbitrator if the forum chosen by the parties was unavailable. Moulds, ___ So.3d at ___ _ ___, 2008 WL 3843820, at **5-6; See also Scott, ___ So.3d at ___, 2008 WL 73682, at *6.

BACKGROUND ON APPLICABLE LAW

¶ 7. We recognize that the use of arbitration to resolve disputes finds favor under federal and state law. In IP Timberlands Operating Co. v. Denmiss Corp., 726 So.2d 96 (Miss.1998), this Court discussed two conflicting lines of cases. Id. at 103-04. One favored arbitration, while the other would allow a contracting party to revoke an arbitration agreement if it did so while the agreement was still executory (before an award was made). Id. The Court settled the conflict as follows:

This Court hereby overturns the former line of case law that jealously guarded the court's jurisdiction. Again, we expressly state that this Court will respect the right of an individual or an entity to agree in advance of a dispute to arbitration or other alternative dispute resolution.

Id. at 104. The IP Timberlands Court also recognized that Congress, by enacting section two of the Federal Arbitration Act ("FAA"), "`declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.'" Id. at 107 (quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1, 12 (1984)). IP Timberlands cites U.S. Supreme Court precedent for the proposition that "[d]oubts as to the availability of arbitration must be resolved in favor of arbitration." IP Timberlands, 726 So.2d at 107 (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983)). However, the Moses H. Cone Court separately held that the FAA explicitly makes an exception where "grounds [] exist at law or in equity for the revocation of any contract." Moses H. Cone, 460 U.S. at 24 (quoting Federal Arbitration Act, 9 U.S.C. § 2 (2006)).

¶ 8. Arbitration agreements and other contract terms should be on equal footing, in that state courts may not invalidate arbitration agreements under laws that affect only arbitration agreements. Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902, 909 (1996). That is, arbitration clauses shall not receive especial treatment not otherwise available under basic state contract principles. This principle comports with the pronouncement of the U.S. Supreme Court in Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2523, 96 L.Ed.2d 426 (1987), which held the only exceptions to the federal policy lie in contracts not evidencing interstate commerce or that are revocable "upon such grounds as exist at law or in equity for the revocation of any contract." Id. at 489, 107 S.Ct. 2520 (quoting FAA, 9 U.S.C. § 2).

¶ 9. Applying FAA language and U.S. Supreme Court decisions, we have held that "applicable contract defenses available under state contract law such as fraud, duress, and unconscionability may be asserted to invalidate the arbitration agreement without offending the Federal Arbitration Act." East Ford, Inc. v. Taylor, 826 So.2d 709, 713 (Miss.2002) (citing Casarotto, 517 U.S. at 686, 116 S.Ct. 1652).

¶ 10. "[E]quity has a long history of concern with the substantive conscionability of the exercise of rights given by agreement." 7-29 Corbin on Contracts § 29.2 (2009). One court explained its rationale for denying specific performance of an unconscionable contract as follows:

a party who has offered and succeeded in getting an agreement as tough as this one is, should not come to a chancellor and ask court help in the enforcement of its terms. That equity does not enforce unconscionable bargains is too well established to require elaborate citation.

Campbell Soup Co. v. Wentz, 172 F.2d 80, 83 (3d Cir.1948).

¶ 11. Corbin expounds on the meaning of "unconscionable" as follows:

"Unconscionable" is a word that defies lawyer-like definition. It is a term borrowed from moral philosophy and ethics. As close to a definition as we are likely to get is "that which `affronts the sense of decency.'" A much-quoted judicial definition is "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."

7-29 Corbin on Contracts § 29.4 (2009) (quoting Gimbel Bros. Inc. v. Swift, 62 Misc.2d 156, 307 N.Y.S.2d 952, 954 (1970); Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965)).

¶ 12. Our precedent follows the Williams ("absence of meaningful choice") language as quoted above from Corbin. See Entergy Miss., Inc. v. Burdette Gin Co., 726 So.2d 1202, 1207 (Miss.1998) (quoting Bank of Indiana, Nat'l Ass'n. v. Holyfield, 476 F.Supp. 104, 109 (S.D.Miss. 1979)). Unconscionability can be procedural or substantive. East Ford, 826 So.2d at 714. Under "substantive unconscionability, we look within the four corners of an agreement in order to discover any abuses relating to the specific terms which violate the expectations of, or cause gross disparity between, the contracting parties." Stephens, 911 So.2d at 521. Substantive unconscionability is proven by oppressive contract terms such that "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...." Holyfield, 476 F.Supp. at 110. One example of a one-sided agreement is one that allows one party to go to court, but restricts the other to arbitration. See Pridgen v. Green Tree Fin. Servicing Corp., 88 F.Supp.2d 655, 658 (S.D.Miss. 2000).

¶ 13. Our courts may remedy unconscionable agreements as follows:

"The law of Mississippi imposes an obligation of good faith and fundamental fairness in the performance of every contract ... this requirement is so pronounced that courts have the power to refuse to enforce any contract ... in...