Rizzio v. Surpass Senior Living LLC

• Decision Date: 30 January 2020
• Docket Number: No. 1-CA CV 19-0221,1-CA CV 19-0221
• Citation: 459 P.3d 1201,248 Ariz. 266
• Parties: Concetta RIZZIO, Plaintiff/Appellee, v. SURPASS SENIOR LIVING LLC, et al., Defendants/Appellants.
• Court: Arizona Court of Appeals

248 Ariz. 266

459 P.3d 1201

Concetta RIZZIO, Plaintiff/Appellee,

v.SURPASS SENIOR LIVING LLC, et al., Defendants/Appellants.

No. 1-CA CV 19-0221

Court of Appeals of Arizona, Division 1.

FILED January 30, 2020

Udall Shumway PLC, Mesa, By H. Micheal Wright, Lincoln M. Wright, Counsel for Plaintiff/Appellee

Lewis Brisbois Bisgaard & Smith LLP, Phoenix, By Kevin C. Nicholas, Bruce C. Smith, Rae Richardson, Counsel for Defendants/Appellants

Judge Jennifer M. Perkins delivered the opinion of the Court, in which Presiding Judge Samuel A. Thumma and Judge Paul J. McMurdie joined.

PERKINS, Judge:

¶1 This appeal addresses whether an agreement to arbitrate a claim is substantively unconscionable based on arbitration costs when counsel for the party seeking to avoid arbitration has agreed to advance all costs.

¶2 Surpass Senior Living ("Surpass") appeals from a superior court ruling denying its motion to compel arbitration. The court found the arbitration agreement both substantively and procedurally unconscionable, and that the agreement violated plaintiff’s reasonable expectations. For the following reasons, we reverse the court’s finding that the costs of arbitration rendered the agreement as a whole unconscionable, but affirm as to the agreement’s cost-shifting provision and sever it from the agreement.

FACTUAL AND PROCEDURAL HISTORY

¶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. Georgianni, as Rizzio’s power of attorney, entered a contract on Rizzio’s behalf with Mariposa. Later that year, Georgianni signed a similar contract when moving Rizzio to a higher care level at Mariposa.

¶4 Both contracts included identical agreements to arbitrate all claims arising from the contract ("Agreement"). The Agreement contained a cost-shifting provision stating that Rizzio would be responsible for all "[c]osts of arbitration, including [defense]’s legal costs and attorney’s fees, arbitration fees and similar costs," should she make a claim against Surpass. The Agreement also contained the following portions in boldface type:

Because this arbitration agreement addresses important legal rights, The Community encourages and recommends that you obtain the advice of legal counsel to review this agreement prior to signing this arbitration agreement.

* * *

Admission to the Community is not contingent upon signing this Agreement.

¶5 In February 2018, another resident allegedly attacked Rizzio, causing her to be hospitalized. Georgianni then filed a lawsuit on Rizzio’s behalf alleging various claims against Surpass, the other resident, and others. Surpass moved to compel arbitration based on the Agreement. Georgianni countered that the arbitration requirement was both procedurally and substantively unconscionable.

¶6 The superior court held an evidentiary hearing, and three witnesses testified: Georgianni, Mariposa representative Rebecca Dice, and arbitrator Winn Sammons.

¶7 Georgianni testified that her initial meeting with Mariposa, resulting in the first contract, was with Mariposa representative Leslie Davis. The two discussed the first contract, which included the Agreement, for only "10, 15 minutes," before Georgianni signed. Georgianni testified that the conversation focused on Rizzio’s care and her "apartment, because that was what [Georgianni] was hyper-focused on." She further testified that she told Davis to: "[t]ell me what I need to sign" and that Davis immediately complied, Georgianni signed, and they discussed other things.

¶8 Georgianni testified that a similar process occurred with Dice when Rizzio moved to the higher care level of the property. Dice explained to her that the paperwork differences were only as to the level of care and apartment number. Georgianni testified that on neither occasion was she aware the Agreement was in the packet, neither Davis nor Dice mentioned the Agreement, and she did not receive the documents in advance.

¶9 Dice testified that her standard practice was to send documents to individuals before meeting them in person, to read the appendix titles aloud at the signing, and to block out an hour-and-a-half to go over the documents. She stated that her practice was to point out the Agreement. But, concerning the later contract signing, she stated if a resident was merely moving from one apartment to another, she would only discuss relevant changes unless the resident had any questions. Further, she could not state affirmatively that she had discussed the Agreement at that signing.

¶10 Sammons testified that he had spent most of his litigation career in medical negligence cases, and been serving as an arbitrator since 2013. He testified that, under the Agreement, "every scenario contemplated involves the plaintiff bearing the defense fees and costs, but no scenario contemplate[d] the defense bearing the plaintiff’s" fees and costs. He noted that Rizzio’s contractual obligation to bear the defense costs and fees in arbitration regardless of who won was not common practice in eldercare.

¶11 The superior court found that: "(1) [the contract] was drafted by Defendants; (2) Plaintiff’s daughter had little opportunity to review the contract; (3) the arbitration terms were not verbally explained to her; and (4) Plaintiff’s daughter had no opportunity to bargain with Defendants." The court also found that not only would Rizzio be unable to effectively vindicate her claim given the costs of arbitration, but that the contract unfairly allocated all the costs of arbitration to Rizzio, even if she prevailed at arbitration. Accordingly, the court found that, under the totality of the circumstances, the Agreement was procedurally and substantively unconscionable and that it violated Rizzio’s reasonable expectations.

¶12 Defendants timely appealed.

DISCUSSION

¶13 We review the denial of a motion to compel arbitration de novo . Sec. Alarm Fin. Enters., L.P. v. Fuller , 242 Ariz. 512, 515, ¶ 9, 398 P.3d 578, 581 (App. 2017). "[W]e defer, absent clear error, to the factual findings upon which the trial court’s conclusions are based." Harrington v. Pulte Home Corp. , 211 Ariz. 241, 246–47, ¶ 16, 119 P.3d 1044, 1049–50 (App. 2005).

I. The FAA Applies to the Agreement.

¶14 The Federal Arbitration Act ("FAA") states that arbitration provisions in a "contract evidencing a transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. " 9 U.S.C. § 2 (emphasis added). The words "involving commerce" in Section 2 of the FAA indicate Congress’s intent to exercise its Commerce Clause powers to their fullest extent in the FAA. See Allied-Bruce Terminix Cos., Inc. v. Dobson , 513 U.S. 265, 273–74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Here, the contract is between an Arizona resident (Rizzio) and an assisted living facility owned and operated by a Texas LLC (Surpass). The construction, hiring, and operation of the facility by a foreign LLC is interstate commerce for the purposes of the FAA. See United States v. Lopez , 514 U.S. 549, 558–59, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995) (defining the three categories of activity that Congress may regulate under the Commerce Clause). The FAA applies.

¶15 When the FAA applies to an arbitration agreement, a court "must place [the] agreement[ ] on an equal footing with other contracts ...." AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). That said, "generally applicable contract defenses, such as ... unconscionability, may be applied to invalidate arbitration agreements without contravening § 2." Doctor’s Assocs., Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

II. The Agreement Is Not Procedurally Unconscionable.

¶16 Surpass argues the arbitration agreement is not procedurally unconscionable. State law, not federal law, provides the standard for unconscionability. See Sec. Alarm , 242 Ariz. at 516, ¶ 11, 398 P.3d at 582 ("Whether an arbitration agreement [under the FAA] is valid, irrevocable, and enforceable is governed by state law."); see also Maxwell v. Fid. Fin. Servs., Inc. , 184 Ariz. 82, 90, 907 P.2d 51, 59 (1995) ; Casarotto , 517 U.S. at 686–87, 116 S.Ct. 1652. Either procedural or substantive unconscionability may be an independent defense against enforcement of an agreement.

Duenas v. Life Care Ctrs. of Am., Inc. , 236 Ariz. 130, 135, ¶ 7, 336 P.3d 763, 768 (App. 2014) (rejecting argument that individual challenging the agreement must prove both procedural and substantive unconscionability because "[e]ither doctrine can provide an independent defense to enforceability"); 9 U.S.C. § 2. Under Arizona law, a contract is procedurally unconscionable when "unfair surprise, fine print clauses, mistakes or ignorance of important facts or other things [meant that] bargaining did not proceed as it should." Duenas , 236 Ariz. at 135, ¶ 8, 336 P.3d at 768 (App. 2014) (quoting Clark v. Renaissance W., L.L.C. , 232 Ariz. 510, 512, ¶ 8, 307 P.3d 77, 79 (App. 2013) ).

¶17 Arizona courts consider numerous factors when determining whether a contract is procedurally unconscionable, including:

[A]ge, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, whether alterations in the printed terms were possible, [and] whether there were alternative sources of supply for the goods in question.

Maxwell , 184 Ariz. at 89, 907 P.2d at 58 (quoting Johnson v. Mobil Oil Corp. , 415 F. Supp. 264, 268 (E.D. Mich. 1976) ). Further, courts may also consider "whether the contract was separate from other paperwork, whether the contract used conspicuous typeface ... and whether the contract was signed hurriedly and without explanation in emergency circumstances[.]" Duenas , 236 Ariz. at 135, ¶ 8, 336 P.3d at 768 (internal...