Rizzio v. Surpass Senior

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
CONCETTA RIZZIO, Plaintiff/Appellee,
v.
SURPASS SENIOR LIVING LLC, et al., Defendants/Appellants.
No. 1-CA CV 19-0221
FILED 1-30-2020
Appeal from the Superior Court in Maricopa County
No. CV2018-090357
The Honorable Sherry K. Stephens, Judge
AFFIRMED IN PART, REVERSED IN PART, REMANDED
COUNSEL
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
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
OPINION
Judge Jennifer M. Perkins delivered the opinion of the Court, in which
Presiding Judge Samuel A. Thumma and Judge Paul J. McMurdie joined.
P E R K I N S, 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.
2
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
***
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
3
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
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 (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 (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 (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 (1995) (defining the three categories of activity
that Congress may regulate under the Commerce Clause). The FAA applies.
4
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
¶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 (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 (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 (“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 (1995); Casarotto, 517 U.S. at 686–87. 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 (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 (App.
2014) (quoting Clark v. Renaissance W., L.L.C., 232 Ariz. 510, 512, ¶ 8 (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 (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 (internal citations omitted). The Duenas court rejected a
5
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
procedural unconscionability claim where the plaintiff had “an opportunity
to review [the] agreement and exercise independent judgment,” there was
no “inconspicuous bundl[ing] with other contractual terms,” and the
agreement did not serve “as a precondition to care.” 236 Ariz. at 136, ¶ 11.
¶18 The superior court’s factual findings here do not establish
procedural unconscionability. Instead, at most they demonstrate that the
Agreement was akin to a standardized adhesion contract. An adhesion
contract is offered “on essentially a ‘take it or leave it’ basis without
affording the consumer a realistic opportunity to bargain and under such
conditions that the consumer cannot obtain the desired . . . services except
by acquiescing in the form contract.” Id. at 137–38, ¶ 20 (quoting Broemmer
v. Abortion Servs. of Phoenix, Ltd., 173 Ariz. 148, 150 (1992)). Such contracts
are not per se unconscionable and, instead, are typically enforceable. Id. at
137, ¶ 20 n.2.
¶19 Nothing in applicable Arizona law requires a drafter to
explain the provisions of standardized contracts, nor does the post-hoc
regret of a party to such a contract suffice to demonstrate unconscionability.
See id. at 135–36, ¶¶ 10–11; see also Casarotto, 517 U.S. at 687–88 (holding that
special notice provisions applying only to arbitration agreements were
preempted by the FAA). Nor can Rizzio find refuge in Georgianni’s claim
that she “neglected to read” the Agreement. Rocz v. Drexel Burnham Lambert,
Inc., 154 Ariz. 462, 466 (App. 1987). This is particularly true given
Georgianni’s acknowledgement that she pressed Davis to just “[t]ell [her]
what [she] need[ed] to sign.”
¶20 The record establishes that Georgianni herself limited the
amount of time she took to review the Agreement. It also demonstrates that
Surpass included in the Agreement express language, in bold typeface,
recommending consultation with legal counsel and that Rizzio’s admission
to Mariposa was not contingent on signing the Agreement. Nothing in the
record suggests the presence of “emergency circumstances” or Surpass-
imposed time pressure. See Duenas, 236 Ariz. at 135, ¶ 8. This record does
not support a finding of procedural unconscionability and we therefore
reverse that finding.
III. The Superior Court Correctly Found the Cost-Shifting Provision
of the Agreement Substantively Unconscionable.
¶21 Surpass also contests the superior court’s finding of
substantive unconscionability. Substantive unconscionability occurs where
a contract has “terms so one-sided as to oppress or unfairly surprise an
6
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
innocent party, an overall imbalance in the obligations and rights imposed
by the bargain, and significant cost-price disparity.” Maxwell, 184 Ariz. at
89; see also Clark, 232 Ariz. at 512, ¶ 8. Substantive unconscionability
examines the relative fairness of the obligations undertaken. Gullett ex rel.
Estate of Gullett v. Kindred Nursing Ctrs. W., L.L.C., 241 Ariz. 539, ¶ 25 (App.
2017). Arbitration agreements may be substantively unconscionable “if the
fees and costs to arbitrate are so excessive as to ‘deny a potential litigant the
opportunity to vindicate his or her rights.’” Clark, 232 Ariz. at 512, ¶ 8
(quoting Harrington, 211 Ariz. at 252, ¶ 39).
¶22 Here, the superior court correctly found that the cost-shifting
provision in the Agreement was substantively unconscionable. The
agreements in Clark and Harrington left the allocation of arbitration costs
and expenses unstated. In contrast, the Agreement specifically allocated the
payment of all costs, fees, and expenses to plaintiff, even if she prevails. This
is unusual, one-sided, and operates as a prospective penalty for any
resident seeking to bring a meritorious claim. We agree with the superior
court that this provision is oppressive and may not be enforced.
¶23 That finding, however, is not dispositive. The Agreement
contains an express severability clause under which the cost-shifting
provision may be severed while the remainder of the Agreement remains
in effect. Rizzio contends that we cannot sever the cost-shifting provision
because that would leave the Agreement with no direction on allocation of
costs and, even absent the provision here, Rizzio cannot afford to pay
arbitration costs.
¶24 Mere silence as to the allocation of arbitration costs does not
support invalidating an agreement. Green Tree Fin. Corp.-Ala. v. Randolph,
531 U.S. 79, 91 (“[T]he arbitration agreement’s silence on [the allocation of
costs] is plainly insufficient to render it unenforceable.”). Moreover, our
legislature provided for arbitration agreements without cost allocation
provisions. A.R.S. § 12-3021(D) (providing that, absent a provision directing
otherwise, the arbitrator may direct the payment of costs in the arbitration
award); see also 9 U.S.C. § 9 (generally presuming discretionary authority of
arbitrator to enter award under FAA). Thus, a lack of guidance as to cost
allocation in the Agreement resulting from severance is not a concern.
Rizzio’s argument that she cannot afford arbitration goes to whether the
Agreement is substantively unconscionable even without the cost-shifting
provision. Thus, we turn to whether the the Agreement, without the cost-
shifting provision, is substantively unconscionable.
7
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
IV. The Agreement Without the Cost-Shifting Provision is not
Substantively Unconscionable.
¶25 An arbitration agreement is not substantively
unconscionable if “‘the prospective litigant effectively may vindicate’ his
or her rights in the arbitral forum.” Harrington, 211 Ariz. at 252, ¶ 42
(quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991)).
Effective vindication may be thwarted by “filing and administrative fees
attached to arbitration that are so high as to make access to the forum
impractical.” Amer. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 236 (2013).
The doctrine does not permit courts to invalidate arbitration agreements on
the grounds that they merely make “it [] not worth the expense involved in
proving a statutory remedy . . . .” Id. The issue presents a case-by-case
inquiry, relying on “individualized evidence to establish that the costs of
arbitration are prohibitive.” Harrington, 211 Ariz. at 252, ¶¶ 43–44 (citing
Green Tree, 531 U.S. at 91–92). Our invalidation of the cost-shifting provision
leaves the Agreement silent as to who bears the costs of arbitration here;
this silence on its own cannot warrant a finding of substantive
unconscionability where the FAA applies. Green Tree, 531 U.S. at 90–91.
¶26 In Harrington, evidence showing approximately $12,000 in
arbitration costs plus additional arbitrators’ fees accompanied by the mere
assertion that the costs were prohibitive was insufficient to establish
substantive unconscionability. See 211 Ariz. at 253, ¶¶ 45–49. By contrast, in
Clark, the court held that an arbitration agreement was substantively
unconscionable due to an estimated $22,800 in arbitrators’ fees plus costs,
established on the record, and the lack of opportunity for cost reduction or
deferral for hardship. 232 Ariz. at 514–15, ¶¶ 18–21; see also A.R.S. § 12-
302(C)–(D).
¶27 Neither Clark nor Harrington contemplated a retainer
agreement that provided for counsel to advance arbitration costs. But
Georgianni signed just such a retainer agreement with her attorney here,
under which her counsel assumed responsibility for advancing all costs.
And her counsel represented to this court and the superior court that the
repayment of such costs only occurs out of the proceeds of a recovery. In
other words, Rizzio will only incur costs if (1) she prevails and thus receives
a recovery award, and (2) despite her position as prevailing party the
arbitrator declines to allocate all costs to Surpass. The presence of such an
arrangement here negates any argument of substantive unconscionability
based on arbitration costs: Rizzio is not responsible for up-front costs and
such costs cannot, therefore, be held an impediment to arbitration.
8
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
¶28 One potential outcome of the arbitration is that Surpass
prevails and receives an award of fees and costs against Rizzio. But that is
not enough to render the Agreement unconscionable under the FAA—
litigants in any forum must weigh the costs of losing. See Italian Colors, 570
U.S. at 236. To hold that mere potential costs can invalidate an arbitration
agreement, when this would not be true of any other contract, would violate
federal law. See Casarotto, 517 U.S. at 687–89. Unconscionability due to costs
is a question of whether the costs effectively close the forum to the
prospective litigant—whether costs “preclude” the litigant from effective
vindication of her rights in the arbitral forum. Green Tree, 531 U.S. at 90; see
also Italian Colors, 570 U.S. at 236 (holding that arbitration agreement may
be invalid if “filing and administrative fees attached to arbitration [] are so
high as to make access to the forum impracticable”).
¶29 Accordingly, the finding that the Agreement is
unconscionable based on arbitration costs cannot stand. Having stricken
the unconscionable cost-shifting provision, given the severance provision,
we discern no basis for finding the remainder of the Agreement
unconscionable, either procedurally or substantively.
V. The Superior Court Erred by Finding the Agreement Violated
Rizzio’s Reasonable Expectations.
¶30 The superior court held, and Rizzio argues here, that the
Agreement violated her reasonable expectations. “[R]easonable
expectations claims may present questions of both fact and law,” which we
review de novo. Harrington, 211 Ariz. at 246, ¶ 16. Invalidation of a contract
for violating the reasonable expectations of a party is a ground distinct from
unconscionability. Id. at 252, ¶ 39. The rule precludes the enforcement of a
contract provision if one party has reason to believe that the other party
would not have entered the contract had he known that it contained the
provision. Darner Motor Sales, Inc. v. Univ. Underwriters Ins. Co., 140 Ariz.
383, 391 (1984) (adopting Restatement (Second) of Contracts § 211, which
sets forth the reasonable expectations rule).
¶31 Rizzio advanced no argument, and the record contains no
evidence, that Surpass had reason to believe Georgianni would have
declined to sign the contract if she had known more about relevant portions
of the Agreement. At best, the record could be said to support an argument
that Georgianni would not have signed the Agreement had she known
about the cost-shifting provision. We have already severed that provision
as unconscionable.
9
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
¶32 Rizzio relies on Broemmer v. Abortion Services of Phoenix Ltd. in
arguing that the Agreement violates her reasonable expectations. 173 Ariz.
148 (1992). The Broemmer court held that, in the medical context, it violates
a patient’s reasonable expectations to require her to sign an arbitration
agreement without a “conspicuous or explicit waiver of the fundamental
right to a jury trial.” Id. at 152. The United States Supreme Court has since
expressed clear disapproval for such an arbitration-specific holding. See,
e.g., Casarotto, 517 U.S. at 688–89 (invalidating a facially arbitration-specific
Montana notice requirement); Concepcion, 563 U.S. at 346–52 (invalidating
California rule based in unconscionability that undermined policy goals
surrounding arbitration); Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct.
1421, 1426–27 (2017) (invalidating Kentucky rule that “oh so coincidentally”
applied only to arbitration agreements without naming them specifically).
¶33 Broemmer also is distinguishable. Melinda Broemmer, at the
time a 21-year old high school graduate in Iowa earning less than $100 per
week, entered an arbitration agreement when she sought abortion services
in Arizona. She was “not experienced in commercial matters,” and, after
some litigation, “[was] still not sure ‘what arbitration is.’” 173 Ariz. at 152.
And the agreement in Broemmer was an adhesion contract, offered on a take
it or leave it basis, such that staff “presented [it] to [Broemmer] as a
condition of treatment.” Id. at 151. The court invalidated the arbitration
agreement but explicitly declined to “write a sweeping, legislative rule
concerning all agreements to arbitrate,” opting instead to “decide this case.”
Id. at 153.
¶34 Georgianni’s signature on the Agreement was explicitly not a
condition of treatment for Rizzio. Further, Georgianni has handled matters
relating to Rizzio’s health care since 2010 and testified that in her capacity
as Rizzio’s power of attorney she had previously executed other
agreements. This is enough to place us outside Broemmer’s narrow scope.
We, therefore, reverse the superior court’s determination that the
Agreement violated Georgianni’s reasonable expectations.
VI. Attorney’s Fees
¶35 Both parties request attorney’s fees under A.R.S. § 12-341.01.
In our discretion, we decline to award attorney’s fees. Surpass, as the
prevailing party, is entitled to its costs on appeal.
CONCLUSION
¶36 We affirm the court’s finding of unconscionability (and by
extension unenforceability) as to the cost-shifting provision of the
10
RIZZIO v. SURPASS SENIOR, et al.
Opinion of the Court
Agreement alone. Having severed that unenforceable provision, on all
other grounds and concerning all other provisions of the Agreement, we
reverse and remand for further proceedings consistent with this opinion.
AMY M. WOOD • Clerk of the Court
FILED: AA
11