Westmoreland v. High Point HealthCare Inc.

• Decision Date: 17 January 2012
• Docket Number: No. COA10–1103.,COA10–1103.
• Parties: Nancy Jo Chapman WESTMORELAND, Executor of the Estate of James Robert Chapman, Deceased, Plaintiff, v. HIGH POINT HEALTHCARE INC. and Heritage Healthcare of High Point, LLC, Defendants.
• Court: North Carolina Court of Appeals

721 S.E.2d 712

Nancy Jo Chapman WESTMORELAND, Executor of the Estate of James Robert Chapman, Deceased, Plaintiff,

v.HIGH POINT HEALTHCARE INC. and Heritage Healthcare of High Point, LLC, Defendants.

No. COA10–1103.

Court of Appeals of North Carolina.

Jan. 17, 2012.

Appeal by defendant from denial of motion to compel arbitration entered 12 April 2010 by Judge John O. Craig III in Guilford County Superior Court. Heard in the Court of Appeals 23 March 2011.

Alexander Ralston, Speckhard & Speckhard, L.L.P., Greensboro, by Stanley E. Speckhard, for plaintiff-appellee.

Arnall, Golden, Gregory, L.L.P., Atlanta, by W. Jerad Rissler, and Harris, Creech, Ward & Blackerby, P.A., New Bern, by Bonnie J. Refinski–Knight, Esq., for defendant-appellants.

STEELMAN, Judge.

Decedent's power of attorney executed an arbitration agreement after decedent was admitted to defendant's nursing facility. The agreement provided that its execution was not a prerequisite to decedent being admitted or remaining in the facility. Plaintiff failed to meet her burden of proof to show that the agreement was procedurally and substantively unconscionable. The order of the trial court denying defendant's motion to compel arbitration is reversed.

I. Factual and Procedural Background

On 17 July 2006, Nancy Jo Chapman Westmoreland, as attorney in fact for her father, James Robert Chapman (“Chapman”), placed him in a nursing facility owned by High Point Healthcare, Inc. (“defendant”).

On 18 July 2006, Westmoreland as her father's power of attorney was presented with several documents for her signature, one of which was an arbitration agreement (the “Arbitration Agreement”). The Arbitration Agreement was a separate agreement, labeled as such in bold lettering.¹ It provided that any claims between the parties would be resolved by binding arbitration and that the parties waived their right to trial before a jury or judge. The agreement explicitly stated that execution of the Arbitration Agreement was not a condition to Chapman being admitted to or remaining in the facility. Westmoreland as power of attorney executed this document, and Chapman remained at the facility until his death on 12 September 2007.

On 15 September 2009, Westmoreland, acting as executor of her father's estate (hereinafter referred to as “plaintiff” when acting in this capacity) filed a complaint in the Superior Court of Guilford County seeking monetary damages based upon allegations that Chapman's death was proximately caused by the negligence of defendant. On 16 October 2009, defendant moved to dismiss the complaint or stay the proceedings and compel arbitration.

The motion to compel arbitration was heard on 9 December 2009. On 14 April 2010, the trial court entered a written order denying defendant's motion to dismiss or to compel arbitration, ruling that the Arbitration Agreement was both procedurally and substantively unconscionable.

Defendant appeals.

II. Interlocutory Appeal

The trial court's order is not a final disposition of this case and is an interlocutory order. See Veazey v. City of Durham, 231 N.C. 357, 362, 57 S.E.2d 377, 381 (1950). However, our courts have held that an order denying a motion to stay proceedings so that the dispute can be arbitrated affects a substantial right and is immediately appealable pursuant to N.C. Gen.Stat. § 7A–27(d)(1) (2009). See Barnhouse v. Am. Express Fin. Advisors, Inc., 151 N.C.App. 507, 508, 566 S.E.2d 130, 131 (2002).

III. Arbitration Agreement

In its first argument, defendant contends that the trial court erred in concluding that the Arbitration Agreement was unconscionable. We agree. This issue is dispositive; therefore, we do not address defendant's remaining arguments on appeal.

A. Standard of Review

Unconscionability is a question of law that is reviewed de novo on appeal. Tillman v. Commercial Credit Loans, 362 N.C. 93, 101, 655 S.E.2d 362, 369 (2008) (plurality opinion). Under de novo review, we consider the matter anew and are free to substitute our judgment for that of the trial court. Blow v. DSM Pharm., Inc., 197 N.C.App. 586, 588, 678 S.E.2d 245, 248 (2009). The trial court's findings of fact that are supported by competent evidence are binding on appeal even if there is evidence to support findings to the contrary. Tillman, 362 N.C. at 100–01, 655 S.E.2d at 369. The labels “findings of fact” and “conclusions of law” employed by the trial court in a written order do not determine the nature of our review. See Peters v. Pennington, ––– N.C.App. ––––, ––––, 707 S.E.2d 724, 735 (2011) (reviewing what was labeled as a “conclusion of law” as a finding of fact). If the trial court labels as a finding of fact what is in substance a conclusion of law, we review that “finding” de novo. See id.

B. Analysis

There is no issue as to whether the parties entered into the Arbitration Agreement. The trial court found as a fact that Westmoreland executed the Arbitration Agreement in her capacity as attorney in fact for her father. The trial court specifically rejected plaintiff's argument that as power of attorney, she had no authority to bind the estate to arbitrate a wrongful death claim. On appeal, plaintiff does not argue this as an alternative basis for upholding the ruling of the trial court pursuant to Rule 28(c) of the Rules of Appellate Procedure. Thus, this issue is not before us.

“North Carolina has a strong public policy favoring arbitration.” Raper v. Oliver House, LLC, 180 N.C.App. 414, 419, 637 S.E.2d 551, 554 (2006) (quoting Red Springs Presbyterian Church v. Terminix Co., 119 N.C.App. 299, 303, 458 S.E.2d 270, 273 (1995)); cf. Tillman, 362 N.C. at 101, 655 S.E.2d at 369 (“Arbitration is favored in North Carolina.”). As the Supreme Court of Alabama explained, “[t]here is nothing inherently unfair or oppressive about arbitration clauses, and arbitration agreements are not in themselves unconscionable.” Blue Cross Blue Shield of Ala. v. Rigas, 923 So.2d 1077, 1086 (Ala.2005) (citation omitted).

A contract is unconscionable, and therefore unenforceable under equitable principles,

only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.

Brenner v. Little Red Sch. House Ltd., 302 N.C. 207, 213, 274 S.E.2d 206, 210 (1981), quoted with approval in Tillman, 362 N.C. at 101–02, 655 S.E.2d at 369. “An inquiry into unconscionability requires that a court ‘consider all the facts and circumstances of a particular case,’ and ‘[i]f the provisions are then viewed as so one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract should be found unconscionable.’ ” Tillman, 362 N.C. at 102, 655 S.E.2d at 369 (alteration in original) (quoting Brenner, 302 N.C. at 213, 274 S.E.2d at 210).

The leading case in North Carolina on the unconscionability of arbitration agreements is Tillman v. Commercial Credit Loans, Inc. In that case, a plurality of three justices concurred in the decision of the Court, two justices concurred in the result only, and two justices dissented. See Kucan v. Advance Am., 190 N.C.App. 396, 404 n. 1, 660 S.E.2d 98, 103 n. 1 (2008) (explaining that the analysis of the three-justice Tillman opinion was “of a plurality, not a majority”). The plurality opinion stated that unconscionability was an affirmative defense and that the party asserting that defense has the burden of establishing that the agreement was unconscionable. Tillman, 362 N.C. at 102, 655 S.E.2d at 369. The plurality further stated that to establish unconscionability, a party must demonstrate both procedural unconscionability and substantive unconscionability. Id. at 102, 655 S.E.2d at 370 (citing Martin v. Sheffer, 102 N.C.App. 802, 805, 403 S.E.2d 555, 557 (1991); 1 James J. White & Robert S. Summers, Uniform Commercial Code § 4–7, at 315 (5th ed.2006)). Under the plurality's rationale, both elements must be present, but a court may rule a contract is unconscionable “when [the] contract presents pronounced substantive unfairness and a minimal degree of procedural unfairness, or vice versa.” Id. at 103, 655 S.E.2d at 370.

A majority of the Court held that the arbitration agreement was unconscionable and therefore unenforceable. Id. at 108, 655 S.E.2d at 373. The concurring opinion agreed that the contract was unconscionable, but opined that the determination of unconscionability should be based upon a totality of the circumstances test, as set forth in Brenner v. Little Red School House, Ltd., Tillman, 362 N.C. at 109, 655 S.E.2d at 374 (Edmunds, J., concurring). Notably, Tillman was the first case where a North Carolina appellate court found a contract to be unconscionable. Id. at 111–12, 655 S.E.2d at 375 (Newby, J., dissenting) (making this observation).

Both the plurality and the concurring opinions focused upon the same factors in reaching their decision that the arbitration agreement in Tillman was unconscionable. In order to cover all possible modes of analysis in this case, we will first analyze this case under the two-part test posited by the plurality. We will then consider the trial court's order under the totality of the circumstances test posited by the concurring opinion.

1. Procedural Unconscionability

“[P]rocedural unconscionability involves ‘bargaining naughtiness' in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power.” Id. at 102–03, 655 S.E.2d at 370 (plurality opinion) (citing Rite Color Chem. Co. v. Velvet Textile Co., 105 N.C.App. 14, 20, 411 S.E.2d 645, 648 (1992)). In Tillman, the Supreme Court plurality found procedural unconscionability based on five factors; (1) the plaintiffs were rushed through the loan closing: (2) the closing officer indicated where to sign; (3) there was no mention of the offending terms at the closing; ...