Sosa v. Paulos, 940590

• Decision Date: 20 September 1996
• Docket Number: No. 940590,940590
• Parties: Doncene SOSA, Plaintiff and Appellee, v. Lonnie E. PAULOS, M.D., Defendant and Appellant.
• Court: Utah Supreme Court

Page 357

924 P.2d 357

65 USLW 2216

Doncene SOSA, Plaintiff and Appellee, v. Lonnie E. PAULOS, M.D., Defendant and Appellant.

No. 940590.

Supreme Court of Utah.

Sept. 20, 1996.

James R. Hasenyager, Ogden, for plaintiff and appellee.

Elliott J. Williams, Salt Lake City, for defendant and appellant.

DURHAM, Justice:

Plaintiff Doncene Sosa signed a document entitled "Physician-patient Arbitration Agreement" shortly before undergoing knee surgery performed by defendant Lonnie Paulos, an orthopedic surgeon. After she filed a civil suit for medical malpractice related to the surgery, Dr. Paulos moved to stay the proceedings and compel arbitration under the agreement. The trial court denied the motion on the ground that the agreement was procedurally and substantively unconscionable. Dr. Paulos appeals.

This case is extremely close on its facts. We emphasize preliminarily that arbitration agreements are favored in Utah and that no public policy requires such agreements to be subjected to a different analysis when they are between physicians and patients. They are enforceable if they meet the standards applicable to all contracts. Indeed, the Utah Arbitration Act so provides:

A written agreement to submit any existing or future controversy to arbitration is valid, enforceable, and irrevocable, except upon grounds existing at law or equity to set aside the agreement....

Utah Code Ann. § 78-31a-3 (1992). Of course, under Utah law, an unconscionable agreement is not enforceable. Bekins Bar V Ranch v. Huth, 664 P.2d 455, 459-62 (Utah 1983).

The relevant facts are as follows: On November 6, 1991, Dr. Paulos performed a posterior cruciate ligament reconstruction on Ms. Sosa's left knee. According to the record, less than one hour prior to the surgery, after Ms. Sosa was undressed and in her surgical clothing, "someone from Dr. Paulos' office" gave her three documents and asked her to sign them. They were a "Patient Informed Consent and Release of Claims," a "Consent for Use of Freeze Dried or Flesh Donor Tissue," and the arbitration agreement in question here. Ms. Sosa stated in her affidavit that she signed all three documents without reading them. She specifically recalled that neither Dr. Paulos nor any member of his staff discussed the arbitration agreement with her at any time, either when she signed it or during any of her prior office visits. Immediately upon awaking from the anesthesia, Ms. Sosa became aware of a surgical complication. On July 15, 1994, Ms. Sosa filed a complaint for medical malpractice.

The arbitration agreement that Ms. Sosa signed discusses the following subjects:

1. Article 1, entitled "Agreement to Arbitrate," provides that disputes "as to medical malpractice ... will be determined by submission to arbitration." Article 1 also states that both parties waive their constitutional right to a jury trial.

2. Article 2, entitled "All Claims Must Be Arbitrated," provides that all conceivable claims between the parties are subject to arbitration.

3. Article 3, entitled "Procedure and Applicable Law," establishes the manner in which the arbitration panel is selected and also contains a cost-shifting provision. First, the contract provides that each party may choose one arbitrator, both of whom will pick the third arbitrator. Second, the contract requires, "Each arbitrator shall be a board-certified orthopedic surgeon." Third,

if the arbitrators award patient less than one-half ( 1/2) of the amount sought by patient in arbitration, then the patient shall be responsible for ... payment of all expenses, costs, arbitrators' fees, and reasonable attorneys' fees incurred by physician in connection with the arbitration, including payment to physician at the rate of $150.00 per hour for time spent by physician defending himself in connection with the arbitration.

4. Article 4, entitled "General Provisions," generally states that Utah's statute of limitations applies to its arbitration proceedings.

5. Article 5, entitled "Revocation," allows the agreement to be revoked "by written notice delivered to the physician or mailed ... within 14 days after signature."

6. Article 6, entitled "Read and Understood," is a declaration that the patient has read and understands the agreement and that the "[p]hysician or his assistant has explained the above agreement to me and to my satisfaction and I do not have any unanswered questions." It also states that the patient "has executed this agreement of [her] own free will and not under any duress."

7. Article 7, entitled "Received Copy," declares that the patient has received a copy of the agreement.

8. The final two clauses of the agreement provide as follows:

If any provision of this Arbitration Agreement is held invalid or unenforceable, the remaining provisions shall remain in full force and shall not be affected by the invalidity of the other provisions.

NOTICE: BY SIGNING THIS CONTRACT YOU ARE AGREEING TO HAVE ANY ISSUE OF MEDICAL MALPRACTICE DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL. SEE ARTICLE 1 OF THIS CONTRACT.

Ms. Sosa argues that the facts surrounding her signing of the agreement, together with the substance of the agreement itself, demonstrate that it was procedurally and substantively unconscionable, as the trial court determined, and therefore unenforceable. Dr. Paulos, on the other hand, argues that the agreement is fair and even-handed and that Ms. Sosa had plenty of time to read the agreement and ask questions concerning its content. Because arbitration agreements are favored in Utah, Dr. Paulos argues, the trial court improperly failed to compel arbitration pursuant to the parties' agreement.

A trial court's denial of a motion to compel arbitration presents a question of law which we review for correctness. See Docutel Olivetti Corp. v. Dick Brady Sys., Inc., 731 P.2d 475, 479 (Utah 1986) (review of trial court's interpretation that contract did not require arbitration presents question of law). The determination of whether a contract is unconscionable is also a question of law for the court. See Resource Management Co. v. Weston Ranch, 706 P.2d 1028, 1041 (Utah 1985); see also Maxwell v. Fidelity Fin. Servs., Inc., 184 Ariz. 82, 907 P.2d 51, 56 (1995) ("[T]he law in every other jurisdiction that has ruled on this issue, clearly provides that the determination of unconscionability is to be made by the court as a matter of law.").

Close examination of the standard this court articulated in Resource Management reveals our acknowledgment that "unconscionable is a term that defies precise definition." 706 P.2d at 1041. To simplify the analysis, a majority of courts divide unconscionability doctrine into two branches: procedural unconscionability, which focuses on the formation of the agreement, and substantive unconscionability, which focuses on the agreement's contents. Maxwell, 907 P.2d at 57. In adopting this division, we stated in Resource Management that unconscionability includes " '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.' " 706 P.2d at 1043 (quoting Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965)). While this suggests that a party must show elements of both procedural and substantive unconscionability to establish a claim, we went on to state the following:

Gross disparity in terms, absent evidence of procedural unconscionability, can support a finding of unconscionability. While it is conceivable that a contract might be unconscionable on the theory of [procedural unconscionability] without any substantive imbalance in the obligations of the parties to the contract, that would be rare.

Id. (citations omitted). ¹

In the instant case, the trial court found that the arbitration agreement was both substantively and procedurally unconscionable. We examine the two branches of the doctrine separately.

Substantive Unconscionability

The trial court pointed to two provisions in the agreement which it said rendered the agreement substantively unconscionable: (1) the requirement that all arbitrators be orthopedic surgeons, and (2) the clause requiring the patient to pay the doctor's arbitration fees (personal as well as for attorneys and costs) if the arbitration award is not more than half of the amount claimed.

On appeal, Dr. Paulos responds that the agreement clearly specifies that each party is giving up the right to a jury trial of potential claims and that there is no unfairness in requiring a panel of neutrally selected experts in orthopedic medicine to conduct the arbitration. It appears from comments in the brief and at oral argument that Dr. Paulos' counsel does not now defend the fairness of the provisions requiring payment of costs by a patient who wins less than half of the amount sought in arbitration. Instead, Dr. Paulos posits that the trial court should merely have severed the offensive provision pursuant to the severance clause in the agreement and upheld the remainder of the contract.

The arguments for and against substantive unconscionability focus on the contents of the agreement, examining the "relative fairness of the obligations assumed." Resource Management, 706 P.2d at 1041. When determining whether a contract is substantively unconscionable, we have considered whether its " 'terms [are] so one-sided as to oppress or unfairly surprise an innocent party' " or whether there exists " 'an overall imbalance in the obligations and rights imposed by the bargain.' " Id. (quoting Bekins Bar V Ranch, 664 P.2d at 462). The terms of the contract should be considered " 'according to the mores and business practices of the time and place.' " Id. at 1042 (quoting 1 Corbin on Contracts § 128, at 551 (1963)).

Applying this standard, we are unpersuaded that the requirement that the arbitration panel consist of neutrally selected orthopedic...