King v. Bryant ( 2014 )

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in
accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of
A p p e l l a t e P r o c e d u r e .
NO. COA13-1003
NORTH CAROLINA COURT OF APPEALS
Filed: 15 July 2014
ROBERT E. KING and wife,
JO ANN O’NEAL,
Plaintiffs,
v. Cumberland County
No. 11 CVS 8280
MICHAEL S. BRYANT, M.D., and
VILLAGE SURGICAL ASSOCIATES, P.A.,
Defendants.
Appeal by Defendants from Order entered 10 May 2013 by
Judge Lucy N. Inman in Cumberland County Superior Court. Heard
in the Court of Appeals 22 January 2014.
Beaver, Holt, Sternlicht & Courie, P.A., by Mark A.
Sternlicht, for Plaintiffs.
Walker, Allen, Grice, Ammons & Foy, L.L.P., by O. Drew
Grice, Jr., for Defendants.
STEPHENS, Judge.
I. Factual Context and Procedural Posture
This case arises from a medical malpractice action filed by
Plaintiffs Robert E. King and Jo Ann O’Neal on 28 September 2011
in Cumberland County Superior Court. Therein, Plaintiffs allege
-2-
that Defendant Michael S. Bryant negligently performed a
laparoscopic bilateral inguinal hernia repair on King on 14 May
2009. On 4 November 2011, Defendants submitted a motion to stay
proceedings in superior court and to enforce an agreement to
alternative dispute resolution (“the arbitration agreement”)
between the parties. Plaintiffs moved the court to deny that
motion on 16 November 2011, asserting that the arbitration
agreement is not enforceable.
In pertinent part, the arbitration agreement provides as
follows:
Village Surgical Associates, PA
Agreement to Alternative Dispute Resolution
In accordance with the terms of the Federal
Arbitration Act, 9 USC 1-16, I agree that
any dispute arising out of or related to the
provision of healthcare services by me, by
Village Surgical Associates, PA, or its
employees, physician members and agents,
shall be subject to final and binding
resolution through private arbitration.
The parties to this Agreement shall agree
upon three Arbitrators and at least one
arbitrator of the three shall be a physician
licensed to practice medicine and shall be
board certified in the same specialty as the
physician party. The remaining Arbitrators
either shall be licensed to practice law in
NC or licensed to practice medicine in NC.
The parties shall agree upon all rules that
shall govern the arbitration, but may be
guided by the Health Care Claim Settlement
-3-
Procedures of the American Arbitration
Association, a copy of which is available to
me upon request. I understand that this
agreement includes all health care services
which previously have been or will in the
future be provided to me, and that this
agreement is not restricted to those health
care services rendered in connection with
any particular treatment, office or hospital
admission. I understand that this agreement
is also binding on any individual or entity
and not a precondition to receiving health
care services.
. . . .
(Emphasis in original). The arbitration agreement was signed on
29 April 2009, approximately two weeks before King’s surgery.
A hearing on Defendants’ motion was held on 12 March 2012.
The trial court issued an order that same day, denying
Defendants’ motion on the grounds that the arbitration
agreement: (1) “leaves material portions open to future
agreements by providing, inter alia, that the parties shall
agree upon three arbitrators and . . . agree upon all rules that
shall govern the arbitration”; (2) is an “agreement to agree”;
and (3) is not a binding contract. Defendants appealed the order
to this Court on 10 April 2012 in King v. Bryant, __ N.C. App.
__, __, 737 S.E.2d 802, 805 (2013) [hereinafter King I]. In an
opinion filed 5 February 2013, this Court concluded that the
arbitration agreement was not invalid for indefiniteness
-4-
regarding the identity of the arbitrators or the procedures to
be followed during arbitration. Id. at __, 737 S.E.2d at 807–08.
We declined, however, to address Plaintiffs’ arguments that the
arbitration agreement was unconscionable and inapplicable to
O’Neal and remanded the case to the trial court with
instructions to address those arguments. Id. at __, 737 S.E.2d
at 808.
A new hearing was held on 21 March 2013. On 10 May 2013,
the trial court entered an order again denying Defendants’
motion to compel arbitration. The court concluded that the
agreement was unenforceable as to King because it was a product
of constructive fraud and unconscionability. As to O’Neal, the
court concluded that the agreement was not enforceable because
she did not sign the agreement and because she neither
benefitted nor sought to benefit from the agreement. Defendants
appeal.
II. Appellate Jurisdiction & Standard of Review
As we noted in King I,
North Carolina law generally permits a party
to appeal only from a final judgment of the
superior court. A final judgment is defined
as one which disposes of the cause as to all
the parties, leaving nothing to be
judicially determined between them in the
trial court. However, the [legislature]
additionally permit[s] an aggrieved party in
-5-
a civil proceeding to appeal from any
interlocutory order or judgment of a
superior or district court which affects a
substantial right.
Here, the trial court’s order is not a final
disposition of this case; thus, it is
interlocutory. However, our courts have held
that the denial of a motion to compel
arbitration, although interlocutory, is
nevertheless immediately appealable, as it
affects a substantial right. Therefore, we
have jurisdiction to hear Defendants’
appeal.
A trial court’s determination that an action
is subject to arbitration is a conclusion of
law which we review de novo. Under a de novo
review, the court considers the matter anew
and freely substitutes its own judgment for
that of the lower tribunal.
Id. at __, 737 S.E.2d at 805–06 (citations, internal quotation
marks, brackets, and ellipses omitted; emphasis in original). In
addition, the trial court’s findings of fact are conclusive on
appeal when supported by competent evidence, even where the
evidence might have supported findings to the contrary. See
Evangelistic Outreach Ctr. v. Gen. Steel Corp., 181 N.C. App.
723, 726, 640 S.E.2d 840, 843 (2007) (affirming the trial
court’s denial of the defendant’s motion to compel arbitration).
“Conclusions of law drawn by the trial court from its findings
of fact are reviewable de novo on appeal.” Carolina Power &
-6-
Light Co. v. City of Asheville, 358 N.C. 512, 517, 597 S.E.2d
717, 721 (2004) (citation omitted).
III. Discussion
On appeal, Defendants argue that the trial court erred by
denying their motion to compel arbitration because the
arbitration agreement is not a product of constructive fraud and
not unconscionable. Defendants also contend that O’Neal is bound
by the arbitration agreement despite being a non-signatory. We
affirm the trial court’s opinion on the grounds that the
arbitration agreement is unconscionable. We do not address
Defendants’ argument as it relates to the applicability of the
arbitration agreement to O’Neal.
1. Background
In King I, we declined to address the unconscionability and
non-signatory issues raised by Plaintiffs because the trial
court did not reach those issues in its original order. Id. at
__, 737 S.E.2d at 808–09. Observing that “the trial court is the
appropriate body to determine whether the [arbitration]
agreement is unconscionable,” we remanded the case with
instructions for the court to undertake “any unconscionability
analysis . . . with an understanding of the unique nature of the
physician/patient relationship.” Id. at __, 737 S.E.2d at 808.
-7-
We also directed the trial court to “apply North Carolina’s law
of unconscionability” and commented on the following
“particularly important” considerations as relevant to the
fiduciary nature of the parties’ physician/patient relationship:
While nearly every court to consider the
issue has concluded that medical malpractice
claims can properly be submitted to
arbitration, issues have been raised as to
patients’ understanding of arbitration
contracts and the potentially coercive
circumstances under which the agreements are
made. The use of arbitration clauses in
contracts for healthcare services is
distinct from their use in settling labor or
commercial disputes because the legal
relationship between provider and patient is
determined by both private contract law and
public tort law. There is tension between
contract law, the principles of which have
been applied to binding arbitration clauses
in labor[] and commercial agreements for
years[,] and the application of tort law to
enforce conformity with standards of care
desired by society, particularly standards
of professional care.
Id. (citation omitted). In addition, we pointed out that
[the] fiduciary relationship [carries] an
[inherent] affirmative duty to disclose all
facts material to a transaction.
Under North Carolina law, fiduciary
relationships create a rebuttable
presumption that the plaintiff put his trust
and confidence in the defendant as a matter
of law. Once [the] presumptive fiduciary
relationship is alleged, it is the defendant
who bears the burden of showing he or she
acted openly, fairly[,] and honestly in
-8-
bringing about the transaction. This means
that the defendant must prove, by the
greater weight of the evidence, that, with
regard to the transaction, the defendant
made a full, open disclosure of material
facts, that he dealt with the plaintiff
fairly, without oppression, imposition or
fraud, and that he acted honestly.
Id. at __, 737 S.E.2d at 809 (citations, internal quotation
marks, and brackets omitted; emphasis in original). Lastly, we
observed that the “North Carolina Constitution provides a
‘sacred and inviolable’ right to a jury trial in all
controversies at law respecting property” and any agreement
waiving that right “must be examined cautiously, especially in
situations in which a fiduciary relationship is present, as
. . . here.” Id. at __, 737 S.E.2d at 809 (brackets and certain
quotation marks omitted).
“[H]eeding the guidance of the Court of Appeals,” the trial
court made the following relevant findings of fact and
conclusions of law on remand:
FINDINGS OF FACT
. . . .
2. . . . King, now 68, has no educational
degree beyond high school and his job
requires little reading. He has minimal
experience reading legal documents.
3. Defendant[s] . . . [have] experience in
managing patient complaints, responding to
-9-
claims of medical negligence made by
patients, and resolving disputes through
arbitration.
4. On April 29, 2009[] Plaintiffs visited
Defendants’ office for the first time to
consult with . . . Bryant about performing
laparoscopic surgery on . . . King to repair
a hernia. . . . King had been referred to
Defendants by his primary care physician.
5. While Plaintiffs were waiting to meet
. . . Bryant and consult with him about
performing the surgery, Defendants’
receptionist provided . . . King with
several intake forms to complete and sign.
. . . King considered the forms to be a
formality.
6. Neither the receptionist, nor . . .
Bryant, nor any agent of Defendants called
to . . . King’s attention the fact that
. . . [the arbitration agreement] differed
from all of the other forms because it did
not concern medical information, insurance
information, or payment for the surgery, all
routine for a new patient. Nor did anyone
disclose to . . . King that the [arbitration
a]greement sought to foreclose his access to
the judicial process in the event that any
dispute arose out of or related to the
surgery to be performed by . . . Bryant.
. . . .
8. The [arbitration a]greement does not
provide that by signing it, the patient
waives his or her right to a trial. The
[arbitration a]greement does not include the
word “jury” or “judge” or “trial.” The
[arbitration a]greement does not provide
that the patient can consult an attorney
before signing it.
-10-
9. There is no evidence that [Bryant] or any
agent of Defendants discussed with . . .
King[] any provision of the [arbitration
a]greement.
10. . . . King . . . signed the signature
lines on all the forms, including the
[arbitration a]greement, without reading
them, believing they were all routine forms
necessary for his medical care.
11. At the time . . . King signed the
[arbitration a]greement and provided his
medical information on intake forms, even
though he had not yet met . . . Bryant, he
was already placing his confidence and trust
in Defendants, as demonstrated by his
willingness to share his confidential
medical information.
12. . . . King was not provided with a copy
of the signed [arbitration a]greement, so he
had no opportunity to review [it] during the
two weeks after he signed it and before his
scheduled surgery.
13. Defendants or their agents drafted the
[arbitration a]greement, which was identical
to form arbitration agreements presented to
each new patient at Village Surgical for two
years or more prior to . . . King’s first
office visit.
14. The first, bold-faced paragraph of the
[arbitration a]greement is poorly drafted,
confusing, and nonsensical. For example, it
refers to “the provision of healthcare
services by me,” suggesting that “me” refers
to the physician rather than the patient.
15. The [arbitration a]greement repeatedly
refers to arbitration without defining that
term. [It] includes no mention whatsoever of
the judicial process, a trial, or a jury.
-11-
The [arbitration a]greement does not
disclose Defendants’ intent for . . . King
to waive his rights to the judicial process
. . . in the event of any claim arising from
. . . the surgery. A person of . . . King’s
education and experience should not
reasonably have been expected to know from
the language of the [arbitration a]greement,
or from any information provided to him by
Defendants, that he had a right to a jury
trial to resolve any potential dispute with
his surgeon. Nor should he have been
expected to understand from the language of
the [arbitration a]greement or other
information provided to him by Defendants
that by signing the [arbitration a]greement,
he would waive his right to a jury trial.
16. The last sentence of the second
paragraph in the [arbitration a]greement
starts with complex but complete clauses —
“I understand that this agreement is also
binding on any individual or entity” — and
ends with an incomplete clause — “and not a
precondition to receiving health care
services” — which contains no verb and
assumes the reader infers that the
antecedent subject to this clause is the
[arbitration a]greement. A person of . . .
King’s education and experience should not
reasonably be expected to understand the
last, tacked on, incomplete clause to mean
that he did not need to sign the
[arbitration a]greement in order for . . .
Bryant to perform the surgery.
17. Plaintiff . . . read the [arbitration
a]greement after a copy of it was provided
to him by his attorney, and he still did not
understand its contents or the intended
consequence of signing it.
18. Unlike arbitration agreements which have
been upheld and enforced in medical
-12-
negligence cases, the [arbitration
a]greement includes no provision allowing or
recommending that the patient consult with
an attorney regarding the [arbitration
a]greement prior to signing it.
. . . .
20. The [arbitration a]greement’s provision
requiring at least one physician arbitrator,
and its provision allowing all three
arbitration panelists to be physicians,
confer a benefit to Defendants and a
detriment to Plaintiffs. Although physicians
are not, based solely on their occupations,
excused by courts from serving as jurors in
medical negligence cases, the [c]ourt takes
judicial notice that counsel for physicians
in medical negligence trials generally seek
to excuse potential jurors who have
previously been party to a negligence case,
while counsel for patients in medical
negligence trials generally seek to excuse
physicians and other medical providers.
. . . .
23. . . . [A] receptionist at Defendant
Village Surgical[] stated in a sworn
affidavit that the form arbitration
agreement is included in “registration
paperwork” presented to each new patient
when he or she visits the practice for an
initial appointment, prior to meeting with a
physician. [The receptionist’s] affidavit
further stated that each new patient is
given ample time while waiting in the lobby
to ask any questions about any of the
documents provided for completion and
signature. . . . [She] did not state that
she, . . . Bryant, or any agent of Defendant
Village Surgical routinely makes any effort
to call a new patient’s attention to the
form arbitration agreement or to explain
-13-
that the form seeks to preclude the patient
from pursuing a claim against Defendants in
the judicial process. It is reasonable to
infer from [her] statement that . . . it is
the practice of Defendants to obscure the
. . . agreement by presenting it among a
pile of other documents without pointing it
out or explaining its contents.
. . . .
CONCLUSIONS OF LAW
. . . .
3. Defendants were fiduciaries of . . . King
as a result of the physician-patient
relationship.
4. Defendant[s] . . . breached their
fiduciary duties to . . . King by failing to
disclose to him all material terms of the
[arbitration a]greement and failing to deal
with him openly, fairly, honestly, and
without imposition, oppression, or fraud in
procuring his signature on the [arbitration
a]greement.
5. The fact that . . . King did not read the
[arbitration a]greement before signing it
does not preclude his objection to its terms
because the provisions of the [arbitration
a]greement are far from clear and
unequivocal.
6. The [arbitration a]greement is a product
of constructive fraud and is therefore
unenforceable.
7. The [arbitration a]greement is
unconscionable and is therefore
unenforceable.
2. The Validity of the Arbitration Agreement as to King
-14-
Defendants do not argue that the trial court’s findings of
fact are not based on competent evidence.1 Rather, they assert
that a fiduciary relationship did not exist between the parties
at the time King signed the arbitration agreement, which
“indicates that the events surrounding the execution of the
arbitration agreement did not involve constructive fraud,” and
argue that the arbitration agreement did not suffer from
procedural or substantive unconscionability as a matter of law.
We disagree.
A. Fiduciary Relationship and Constructive Fraud
Defendants assert that a fiduciary relationship did not
exist at the time King signed the arbitration agreement because
Bryant had not yet accepted King as a patient. Therefore,
Defendants argue, the execution of the agreement did not involve
constructive fraud. We lack authority to address this issue on
its merits.
In King I, we stated that a fiduciary relationship existed
between the parties and directed the trial court to consider
that fact on remand. __ N.C. App. at __, 737 S.E.2d at 809
(observing that “considerations [of unconscionability] are
1
Therefore, the trial court’s findings are presumed to be
supported by competent evidence and are binding on appeal. See
Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991).
-15-
particularly important given the fact that the physician/patient
relationship is a fiduciary one” and directing the trial court
to “be mindful of [the] burden shifting framework [applicable
when the parties have a fiduciary relationship] in evaluating
Plaintiffs’ argument that the [arbitration a]greement is
unconscionable”). That conclusion constitutes the law of the
case and cannot be disturbed by a subsequent panel of this
Court. See N.C. Nat’l Bank v. Va. Carolina Builders, 307 N.C.
563, 567, 299 S.E.2d 629, 631–32 (1983) (“[O]nce a panel of the
Court of Appeals has decided a question in a given case that
decision becomes the law of the case and governs other panels
which may thereafter consider the case. Further, since the power
of one panel of the Court of Appeals is equal to and coordinate
with that of another, a succeeding panel of that [C]ourt has no
power to review the decision of another panel on the same
question in the same case.”). As a result, we are bound for
purposes of this opinion by the prior panel’s determination that
a fiduciary relationship existed between the parties.2 Thus,
2
Defendants limit their argument regarding constructive fraud to
an assertion that the lack of a fiduciary relationship between
King and Bryant “indicates the events surrounding the execution
of the arbitration agreement did not involve constructive
fraud.” Because we are bound by the previous panel’s
determination that a fiduciary relationship did exist between
-16-
pursuant to our opinion in King I, a rebuttable presumption
exists that King “put his trust and confidence in [Bryant] as a
matter of law,” and Defendants bear the burden of showing that
they acted openly, fairly, and honestly in bringing about the
transaction in this case. See King, __ N.C. App. at __, 737
S.E.2d at 809.
B. Unconscionability
Six years ago, in Tillman v. Commercial Credit Loans, Inc.,
our Supreme Court described the general unconscionability
defense to contract formation in the context of an arbitration
agreement as follows:
Arbitration is favored in North Carolina. As
with any contract, however, equity may
require invalidation of an arbitration
agreement that is unconscionable. A court
will find a contract to be unconscionable
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.
An inquiry into unconscionability requires
that a court consider all the facts and
circumstances of a particular case, and if
the provisions are then viewed as so one-
sided that the contracting party is denied
the parties at the time King signed the agreement, Defendants’
argument as it pertains to constructive fraud is overruled.
-17-
any opportunity for a meaningful choice, the
contract should be found unconscionable.
. . . .
[To be considered unconscionable, a contract
must be the result of] both procedural and
substantive unconscionability. . . .
. . . [P]rocedural unconscionability
involves “bargaining naughtiness” in the
form of unfair surprise, lack of meaningful
choice, and an inequality of bargaining
power. Substantive unconscionability, on the
other hand, refers to harsh, one-sided, and
oppressive contract terms. Of course,
unconscionability is ultimately a
determination made in light of a variety of
factors not unifiable into a formula.
Therefore, . . . while the presence of both
procedural and substantive problems is
necessary for an ultimate finding of
unconscionability, such a finding may be
appropriate when a contract presents
pronounced substantive unfairness and a
minimal degree of procedural unfairness, or
vice versa.
362 N.C. 93, 101–03, 655 S.E.2d 362, 369–70 (2008) (citations,
certain brackets, and certain internal quotation marks omitted;
emphasis added). The plaintiffs in Tillman were residents of
North Carolina with “limited financial resources” who had
applied for and received private, commercial loans from the
defendants. Id. at 94, 655 S.E.2d at 365. During the process of
contracting with the defendant loan companies, the plaintiffs
were sold loan insurance plans and agreed to resolve all
-18-
disputes through binding arbitration under the Federal
Arbitration Act (“FAA”). Id. at 94–95, 655 S.E.2d at 365. The
plaintiffs later brought suit against the defendants on grounds
that they were improperly induced to purchase the insurance. Id.at 96–97, 655 S.E.2d at 366. The defendants moved to compel
arbitration, and the case was eventually appealed to the Supreme
Court. Id.On appeal, our Supreme Court held that the arbitration
clauses in the parties’ agreements was substantively
unconscionable because (1) the costs borrowers could face under
the clauses were prohibitively high; (2) the clauses were
drafted solely by the defendants and, thus, lacked mutuality;
and (3) the clauses prohibited the joinder of claims and class
actions. Id. at 104, 655 S.E.2d at 370–71. The “collective
effect” of these characteristics, the Court concluded, was “that
[the] plaintiffs [were] precluded from effectively vindicating
their rights in the arbitral forum.” Id. (citation, internal
quotation marks, brackets, and ellipsis omitted).
Since Tillman, the United States Supreme Court has issued
two important opinions on the use of state law to set aside an
arbitration agreement when that agreement is governed by the
FAA: AT&T Mobility v. Concepcion, __ U.S. __, 179 L. Ed. 2d 742-19-
(2011) (determining that the FAA preempted California’s judicial
rule prohibiting class waivers in consumer arbitration
agreements contained within contracts of adhesion) and American
Express Co. v. Italian Colors Rest., __ U.S. __, 186 L. Ed. 2d
417 (2013) (holding that the FAA does not permit courts to
invalidate an arbitration agreement on the grounds that it does
not permit class arbitration). This Court recently addressed
those opinions and their impact on Tillman in Torrence v.
Nationwide Budget Fin., __ N.C. App. __, 753 S.E.2d 802, disc.
review denied, __ N.C. __, __ S.E.2d __ (2014).
In Torrence, the plaintiffs applied for and received a
number of loans, each of which contained an arbitration clause.
Id. at __, 753 S.E.2d at 803. The clauses were drafted entirely
by the defendants; stipulated that arbitration would be governed
by the FAA; included an agreement not to bring, join, or
participate in a class action against the defendants; and
provided notice in bold, capital letters that the parties:
WOULD HAVE HAD A RIGHT OR OPPORTUNITY TO
LITIGATE DISPUTES THROUGH A COURT AND HAVE A
JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE
AGREED INSTEAD TO RESOLVE DISPUTES THROUGH
BINDING ARBITRATION.
Id. at __, 753 S.E.2d at 804 (emphasis in original).
-20-
Addressing the Supreme Court’s opinion in Concepcion, the
Torrence Court observed the following:
The Supreme Court held that [section 2 of
the FAA]3 permits arbitration agreements to
be declared unenforceable upon such grounds
as exist at law or in equity for the
revocation of any contract. This saving
clause permits agreements to arbitrate to be
invalidated by generally applicable contract
defenses, such as fraud, duress, and
unconscionability, but not by defenses that
apply only to arbitration or that derive
their meaning from the fact that an
agreement to arbitrate is at issue.
. . . [A]lthough [section] 2’s saving clause
preserves generally applicable contract
defenses, nothing in it suggests an intent
to preserve state-law rules that stand as an
obstacle to the accomplishment of the FAA’s
objectives. . . . [T]he FAA supersedes any
state law that sets aside arbitration
agreements or holds them to be
unconscionable upon grounds that are
exclusive to arbitration agreements.
3
Section 2 of the FAA provides that:
A written provision in any . . . contract
evidencing a transaction involving commerce
to settle by arbitration a controversy
thereafter arising out of such contract or
transaction . . . 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 (2012).
-21-
Id. at __, 753 S.E.2d at 809 (citations and internal quotation
marks omitted; emphasis added).
With regard to the impact of the Supreme Court’s opinions
in Concepcion and Italian Colors on Tillman, we stated that
“[w]hile both Concepcion and Italian Colors dealt with class
action waivers, underlying those decisions was a broader theme
that unconscionability attacks that are directed at the
arbitration process itself will no longer be tolerated.” Id. at
__, 753 S.E.2d at 811 (citation omitted; emphasis added).
Accordingly, we concluded that “the legal theories upon which
Tillman’s substantive unconscionability analysis is based have
been undermined by subsequent decisions of the United States
Supreme Court in the context of cases under the FAA.” Id. at __,
753 S.E.2d at 812. Specifically, we held that (1) the
“prohibitively high” cost factor is no longer applicable to an
unconscionability analysis; (2) an agreement’s lack of
mutuality, alone, is not sufficient to justify a finding of
substantive unconscionability; and (3) the prohibition of
joinder of claims and class actions does not render an
arbitration agreement unconscionable. Id. at __, 753 S.E.2d at
811–12.
-22-
In this case, the FAA governs the parties’ arbitration
agreement. King I, __ N.C. App. at __, 737 S.E.2d at 806.
Therefore, to support the trial court’s determination that the
agreement is unconscionable, that determination must comport
with our Supreme Court’s general description of the elements of
unconscionability as laid out in Tillman, the objectives of the
FAA as addressed by the United States Supreme Court in
Concepcion and Italian Colors, and our application of those
cases to the unconscionability analysis as explained in
Torrence. After careful review, we conclude the trial court
correctly determined that the arbitration agreement here is
unconscionable.
i. Procedural Unconscionability
Defendants argue that the arbitration agreement did not
suffer from procedural unconscionability because evidence at the
hearing suggests that King was not “rushed to complete the
paperwork,” the agreement was prominently displayed as a
separate document, the language in the agreement was clear that
it was “not a precondition to receiving health care services,”
and King had more than a week to sign the agreement before
surgery. We are unpersuaded.
-23-
First, we note that Defendants do not argue that they took
any active steps, in accordance with their fiduciary duty, to
make a “full, open disclosure of material facts” to King before
he signed the arbitration agreement. At most, they assert that
they did not hinder King’s ability to complete the paperwork and
that the agreement, on its own, was not so obfuscatory as to
render its presentation procedurally unconscionable. This is not
sufficient to meet their burden of showing that they acted
openly, fairly, and honestly in bringing about the transaction.
As such, the mere fact that King was not rushed to complete the
“pile” of documents he was asked to sign is not, in this case,
sufficient to show a lack of procedural unconscionability.
In addition, the fact that the agreement was displayed as a
separate document, with bold lettering at the top, and included
the language “not a precondition to receive medical services”
does not establish that the agreement was valid and enforceable.
As the trial court observed in its order,
[g]iven the fiduciary relationship between
the parties here, the complete absence of
any mention of waiver, of the judicial
process, of a trial, or of a jury in the
[arbitration a]greement, the failure of the
physician or any of his agents to explain
the waiver intended to be procured by the
[arbitration a]greement, and the
[arbitration a]greement’s convoluted
sentence structure and undefined legalistic
-24-
terms, this case involves evidence of
pronounced procedural unfairness.
In the waiting room on his first visit to Bryant, King was
presented with a “pile” of documents to sign, the majority of
which required him to include the usual and necessary medical,
insurance, and payment information. The arbitration agreement
was a part of that pile. The agreement itself lacked any
reference to the judicial process or King’s constitutional right
to a jury trial, omitting the words “jury,” “judge,” or “trial.”
The agreement did not define the term “arbitration” and included
a “convoluted” sentence at the end, which — among other things —
omitted the verb necessary to understand the meaning of the “not
a precondition to receive medical services” language. Given
Defendants’ fiduciary duty as well as the defects in the
presentation and language of the agreement, even accepting
arguendo that the agreement was “prominently displayed,”
Defendants have failed to establish that the agreement was not
procedurally unconscionable. Cf. Westmoreland v. High Point
Healthcare Inc., __ N.C. App. __, __, 721 S.E.2d 712, 718 (2012)
(concluding that an arbitration agreement was not procedurally
unconscionable when it advised the plaintiff of her right to
consult with an attorney, advised her of her right to receive an
explanation or clarification from staff, and provided that she
-25-
was not required to sign it in order for her father to be
admitted to the facility).
Lastly, the fact that King had “more than a week” before
surgery to review and sign the agreement does not save
Defendants’ argument. The trial court’s unchallenged findings of
fact state clearly that King was not given a copy of the
arbitration agreement to take with him when he went home. Thus,
even assuming this extra time would have affected the validity
of the agreement, King was not able to take advantage of it.
Given (1) the fact that we analyze the agreement here in
the context of the fiduciary duty Defendants owed King, (2) the
disparate levels of sophistication between the parties, (3) the
nature of the delivery of the agreement, and (4) Defendants’
burden because of their fiduciary duty to King to provide full
and open disclosure of the material facts surrounding the
transaction between the parties, we hold that the arbitration
agreement suffered from significant procedural
unconscionability. King did not have a meaningful choice between
whether to sign the agreement or not. Accordingly, Defendants’
argument is overruled.
ii. Substantive Unconscionability
-26-
Defendants argue that the arbitration agreement was not a
product of substantive unconscionability because the requirement
of at least one physician arbitrator is irrelevant to the issue
of unconscionability, citing a number of cases from other
jurisdictions. Defendants also assert that the agreement is not
unconscionable because arbitration is not prohibitively
expensive for Plaintiffs. Pursuant to our opinion in Torrence,
surpa, we agree with Defendants that the cost of arbitration and
the selection of a particular arbitrator is not relevant to the
issue of substantive unconscionability. Nonetheless, we conclude
that the particular terms of this contract evidence a lack of
substantive fairness which, when coupled with Defendants’
fiduciary duty, constitutes some evidence of substantive
unconscionability.
Here, unlike Torrence, the arbitration agreement includes
no reference to King’s right to litigate any future dispute in a
court of law. The agreement does not mention that King is
forfeiting his right to a jury or a judge. Moreover, the only
element of the agreement that attempts to communicate to the
would-be signor — here, King — that he is not required to accept
the agreement in order to see his physician is incomprehensible.
These failures result in a harsh, one-sided, and oppressive
-27-
instrument that is, at least in part, substantively
unconscionable. As a result, an order compelling arbitration
would preclude King from fully and effectively vindicating his
rights. Accordingly, we hold that the trial court did not err by
denying Defendants’ motion to compel arbitration on grounds that
the agreement is substantively unconscionable.
IV. Conclusion
As our Supreme Court stated in Tillman and this Court
reiterated in Torrence, an ultimate finding of unconscionability
may be made when the contract presents a pronounced measure of
procedural unfairness and only a minimal degree of substantive
unfairness or vice versa. Tillman, 362 N.C. at 103, 655 S.E.2d
at 370; Torrence, __ N.C. App. at __, 753 S.E.2d at 807.
Numerically speaking, a contract may be considered
unconscionable when it suffers from even 99% procedural
unconscionability and only 1% substantive unconscionability or
vice versa. See Tillman, 362 N.C. at 103, 655 S.E.2d at 370;
Torrence, __ N.C. App. at __, 753 S.E.2d at 807. Here, King
signed the agreement pursuant to a pronounced measure of
procedural unconscionability and an adequate measure of
substantive unconscionability. This is sufficient to support an
ultimate finding of unconscionability.
-28-
We also point out that, unlike the arbitration agreements
in Tillman, Concepcion, Italian Colors, and Torrence, this
agreement is unconscionable because of Defendants’ failure to
properly prepare and present the arbitration agreement to King
in the context of their confidential, physician-patient,
fiduciary relationship. If the agreement had included suitable
notice provisions and Defendants had satisfied their duty to
affirmatively disclose all facts material to the transaction,
the arbitration agreement would have been enforceable. Thus, our
application of the unconscionability defense in this case is not
a broad condemnation of arbitration agreements in general, the
arbitration process itself, or arbitration agreements employed
in the physician-patient context. Indeed, we acknowledge the
strong public policy in favor of arbitration under North
Carolina law and the FAA. Nonetheless, we must conclude that in
the limited factual circumstances presented here, Defendants
submitted an agreement to King that was unconscionable by its
terms — or lack thereof — and the manner of its presentation,
eliminating any meaningful choice on the part of King.
Therefore, under section 2 of the FAA and our State’s general
contract formation defense of unconscionability, we hold that
-29-
the arbitration agreement is invalid. Accordingly, the trial
court’s order is affirmed.4
AFFIRMED.
Judges HUNTER, ROBERT C., and STEELMAN concur.
Report per Rule 30(e).
4
Because we affirm the trial court’s order denying Defendants’
motion to compel arbitration, we need not determine whether the
arbitration agreement is applicable to O’Neal.