Covenant Health Rehab of Picayune, L.P. v. Barbara N. Brown

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2005-CA-02220-SCT
COVENANT HEALTH REHAB OF PICAYUNE,
L.P., ITS SUCCESSOR AND INTEREST OF
PICAYUNE PARTNERS, L.P., d/b/a PICAYUNE
CONVALESCENT CENTER; COVENANT DOVE,
INC.; AND KERI LADNER
v.
BARBARA N. BROWN, MARGARET GRACE AND
SHARON GOSS ON BEHALF OF THE
WRONGFUL DEATH BENEFICIARIES OF
BERNICE BROWN
DATE OF JUDGMENT: 10/24/2005
TRIAL JUDGE: HON. R. I. PRICHARD, III
COURT FROM WHICH APPEALED: PEARL RIVER COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS: PAUL HOBART KIMBLE
JOHN L. MAXEY, II
ATTORNEY FOR APPELLEES: WOODROW W. PRINGLE, III
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: AFFIRMED IN PART; REVERSED AND
REMANDED IN PART- 02/22/2007
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
SMITH, CHIEF JUSTICE, FOR THE COURT:
¶1. Plaintiffs, on behalf of the decedent, Bernice Brown, filed a wrongful death suit
against the convalescent center in which the decedent resided immediately prior to her
admission to the hospital, where she died. Defendants filed a Motion to Compel Arbitration,
seeking to enforce the arbitration provision in the admissions agreement, and Plaintiffs
sought to have the agreement voided with their Motion to Declare Contract Unconscionable
and Void. The trial court struck several clauses in the admissions agreement, including the
arbitration provision, finding them substantively unconscionable, prompting this appeal.
¶2. We affirm the trial court’s finding that the admissions agreement was not procedurally
unconscionable. We further affirm the trial court’s striking as unconscionable C5, C8 and
E7, limiting liability; E8, waiving punitive damages; E5 and E6, providing different judicial
remedies to the parties; E12, requiring all resolution costs from one party; and E16, limiting
the statute of limitations.
¶3. However, we find that the trial court erred in striking the remaining three provisions
in the admissions contract as unconscionable and in denying Defendants’ motion to compel
arbitration. Thus, we continue our precedent of striking unconscionable terms and leaving
the remainder of the agreement intact, adhering to our decision in Russell v. Performance
Toyota, Inc., 826 So. 2d 719, 724-29 (Miss. 2002). We reverse and remand with instructions
to require the parties to submit to arbitration.
FACTS AND PROCEDURAL HISTORY
¶4. On April 8, 2005, Barbara Brown, Sharon Goss, and Margaret Grace, as
administrators of the estate of their mother Bernice Brown, filed a complaint in Pearl River
County Circuit Court. The complaint alleged that the decedent had been grossly neglected
while a resident at Picayune Convalescent Center, from March 19, 2004, until June 2, 2004,
and that the center’s negligence was the direct and proximate cause of Brown’s death on July
5, 2004.
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¶5. On June 17, 2005, Defendants filed a motion to compel arbitration, pursuant to the
arbitration provision in the admissions agreement signed by the decedent. The motion
requested, in the alternative, to stay the proceedings until the issue of arbitration might be
decided. The trial court, granted the motion on July 6, 2005, ordering a continuance of the
trial for resolution of the arbitration-related issues. Plaintiffs filed a motion to declare the
admissions agreement unconscionable and void on July 11, 2005, alleging (1) that the
agreement was procedurally and substantively unconscionable; (2) that the deceased was
incompetent and incapable of understanding the agreement and the terms of the same; (3) that
Sharon Goss, signing as a responsible party, had no authority to sign on behalf of Bernice
Brown; and (4) that Sharon Goss lacked the capacity to understand the agreement and did
not understand the same when she signed it. On October 26, 2005, the court entered an
Order granting Plaintiffs’ motion, finding the arbitration provision substantively
unconscionable and striking all provisions related to arbitration or the limitation of remedies,
namely sections C5, C8, D4, E5, E6, E7, E8, E12, E13, E16, and F of the admissions
agreement.
¶6. Defendants filed a notice of appeal on November 14, 2005, appealing three issues: 1)
whether the admissions contract is enforceable when the resident and her responsible party
signed the agreement; 2) whether the trial court erred in finding the contract substantively
unconscionable; and 3) whether the trial court erred in denying Defendant’s motion to
compel.
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DISCUSSION
¶7. The issues raised essentially inquire whether the trial court properly denied
Defendants’ motion to compel. Thus, the issues will be consolidated to answer that one
question.
¶8. This Court applies a de novo standard of review to denials of motions to compel.
Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507, 513 (Miss. 2005). We divide the
question into two lines of inquiry.
I. Whether the Trial Court Erred in Not Finding That the
Admissions Agreement Was Procedurally Unconscionable Even
Though the Resident and Her Responsible Party Signed the
Agreement.
¶9. Plaintiffs assert that the admissions agreement is procedurally unconscionable because
Brown was incompetent and incapable of entering into a contract, and Goss had no authority
to bind Brown.
¶10. With regard to Goss’s authority to bind Brown, Defendants cite Miss. Code Ann. §
41-41-211 (Rev. 2005) which says in pertinent part:
(1) A surrogate may make a health-care decision for a patient who is an adult
or emancipated minor if the patient has been determined by the primary
physician to lack capacity and no agent or guardian has been appointed or the
agent or guardian is not reasonably available.
(2) An adult or emancipated minor may designate any individual to act as
surrogate by personally informing the supervising health-care provider. In the
absence of a designation, or if the designee is not reasonably available, any
member of the following classes of the patient's family who is reasonably
available, in descending order of priority, may act as surrogate:
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(a) The spouse, unless legally separated; (b) An adult child; (c) A parent; or (d)
An adult brother or sister.
(7) A health-care decision made by a surrogate for a patient is effective
without judicial approval.
Plaintiffs submit in their motion that Brown was incapable of managing her affairs at the time
she entered the hospital. Neither party presents a declaration by Brown’s primary physician
stating that she was incapable of managing her affairs prior to the signing of the admission
agreement, but Plaintiffs state in their motion that Brown’s admitting physician at the
hospital found that she did not have the mental capacity to manage her affairs. Seeing that
Brown was incapacitated by virtue of admission by her representatives and corroboration by
her admitting physician, she was capable legally of having her decisions made by a surrogate.
Her adult daughter, Goss, was an appropriate member of the classes from which a surrogate
could be drawn, and thus, Goss could contractually bind Brown in matters of health care.
¶11. Having confirmed Goss’ authority to sign the agreement, the remaining inquiry is
whether Goss signed the agreement in a voluntary and knowledgeable manner. In Vicksburg
Partners, this court considered an assertion of procedural unconscionability where the
daughter, serving as the responsible party, admitted her father to a nursing home. Vicksburg
Partners, 911 So. 2d at 510, 516-20. There are two considerations for procedural
unconscionability: (1) lack of voluntariness and (2) lack of knowledge. Id. at 517-518
(citing Entergy Miss., Inc. v. Burdette Gin Co., 726 So. 2d 1202, 1207 (Miss. 1998)).
¶12. Goss contends that she signed the agreement in a manner that was not voluntary and
not knowing, since the admissions agreement was one of adhesion, the print was
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inconspicuous, and she did not understand the legal terms. This Court has stated that
“[c]ontracts in which one party has minimal bargaining power, also referred to as contracts
of adhesion, are not automatically void. Instead, the party seeking to avoid the contract
generally must show that it is unconscionable. There is nothing per se unconscionable about
arbitration agreements.” Vicksburg Partners, 911 So. 2d. at 518 (internal quotes and
citations omitted).
¶13. In Vicksburg Partners, the court found that there was no procedural
unconscionability, in that:
there were no circumstances of exigency; the arbitration agreement appeared
on the last page of a six-page agreement and was easily identifiable as it
followed a clearly marked heading printed in all caps and bold-faced type
clearly indicating that section "F" was about "Arbitration;" the provision itself
was printed in bold-faced type of equal size or greater than the print contained
in the rest of the document; and, appearing between the arbitration clause and
the signature lines was an all caps bold-faced consent paragraph drawing
special attention to the parties' voluntary consent to the arbitration provision
contained in the admissions agreement. Under these facts, it can not be said
that there was either a lack of knowledge that the arbitration provision was an
important part of the contract or a lack of voluntariness in that [the resident
and his responsible party] somehow had no choice but to sign.
This description of the facts, including the location and format of the arbitration provision
in the agreement in Vicksburg Partners is identical to the provision in this case, thus
controlling in the case at bar. Therefore, we find that in accordance with Stephens, there is
no procedural unconscionability in this admissions agreement. The trial court correctly
found no procedural unconscionability.
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II. Whether the Trial Court Erred in Finding the Stricken Provisions
of the Contract Substantively Unconscionable.
¶14. When determining whether a contract is substantively unconscionable, we look within
the four corners of an agreement. Vicksburg Partners, 911 So. 2d at 521. Contracts
comprised of terms oppressive in character may be found unconscionable. Id. (citing East
Ford, 826 So. 2d at 714). For a per se finding of unconscionability, the Court must find the
contract at issue “by its very language significantly alters the legal rights of the parties
involved and severely abridges the damages which they may obtain.” Vicksburg Partners,
911 So. 2d at 521. Further, as mentioned before, while the type of contract at issue was
found to be one of adhesion, that fact does not automatically necessitate a finding of
procedural or substantive unconscionability. Id. at 518, 521-22. A party seeking to avoid the
contract must show that such contract is unconscionable. Id. at 518.
¶15. Section D4 1 enforces the contract entered into by the decedent against her heirs
beyond her death. The United States Supreme Court has held that "[i]t is a presumption of
law that the parties to a contract bind not only themselves but their personal representatives.
Executors, therefore, are held to be liable on all contracts of the testator which are broken in
his lifetime, and, with the exception of contracts in which personal skill or taste is required,
1
Section D4 reads verbatim in bold print: Notwithstanding any other provision set
forth herein, Sections C5, E5, E6, E7, E8, E9, E12, E13, E14, E15 and F as set forth in this
Agreement shall survive the termination for any reason of this Agreement and shall survive
and shall not be revoked by the death of any Party hereto including the Resident. Said
provisions shall be binding on the estate of the Resident in the event the Resident is
deceased.
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on all contracts broken after his death." United States ex rel. Wilhelm v. Chain, 300 U.S. 31,
35, 57 S. Ct. 394, 396, 81 L. Ed. 487, 490 (1937). This Court has held that arbitration
agreements, specifically, are not invalidated by the death of the signatory and may be binding
on successors and heirs if provided in the agreement. Cleveland v. Mann, 942 So. 2d 108,
118 (Miss. 2006). Therefore, all of the provisions in D4 that remain upon this Court’s ruling
are enforceable by and against both the decedent’s administrators and the nursing home. We
find that the trial court clearly erred in striking this provision.
¶16. The trial court also struck the clauses concerning limited liability and punitive
damages. Section E7 limits the amount of damages awardable in a dispute between the
nursing home and the resident. Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507, 523
(Miss. 2005) (quoting East Ford, Inc. v. Taylor, 826 So. 2d 709, 716 (Miss. 2002)). The
exact language in E7 of the contract at issue was found unconscionable in Vicksburg
Partners.2 Id. at 522-23. Similarly, sections C8 3 , waiving liability for criminal acts of
2
Section E7 in both Vicksburg Partners and the case sub judice read verbatim in bold
print: “Should any claim, dispute or controversy arise between the Parties or be asserted
against any of the Facility’s owners, officers, directors, or employees, the settlement thereof
shall be for actual damages not to exceed the lesser of a) $50,000 or b) the number of days
that Resident was in the Facility multiplied times the daily rate applicable for said Resident.
This limitation of liability shall be binding on the Resident, Responsible Party, and the
Resident’s heirs, estate and assigns.”
3
Section C8 reads verbatim: “The Parties hereto agree to waive punitive damages
against each other and agree not to seek punitive damages under any circumstances.”
8
individuals, and C5 4 , requiring forfeiture by the resident of all claims except those for willful
acts, are also unconscionable under Vicksburg Partners. See id. at 523. The sections
creating a limitation on liability – C5, C8, and E7 – are unenforceable and were properly
stricken by the trial court from the admissions agreement.
¶17. Also, in Vicksburg Partners this Court found a waiver of punitive damages applying
to both parties (one very similar to section E8 5 in the contract at issue) unconscionable due
to its potentially significant effect of substantial deprivation to the resident and benefit to the
nursing home. Vicksburg Partners, 911 So. 2d at 523. Consistent with Vicksburg Partners,
the trial court properly struck section E8.
¶18. The “grievance resolution process” as laid out in sections E5 6 and E6 is
unconscionable pursuant to Pitts where a very similar clause allowing the care facility to
bring suit in court on issues of payment and prohibiting the resident from bringing to bring
suit in court on any grounds was one-sided, oppressive, and unconscionable. Pitts v.
4
The pertinent portion of section C5 reads verbatim in bold print: “The Resident and
Responsible Party further agree to indemnify and hold harmless the Facility from and against
claims, loss, costs and expenses incurred as a result of claims against the Facility for any
reason by the Responsible Party, family members and friends of the Resident unless such
claim, loss, cost and expense if the result of the Facility’s willful conduct.”
5
Section E8 reads verbatim: “The Parties hereto agree to waive punitive damages
against each other and agree not to seek punitive damages under any circumstances.”
6
The pertinent portion of section E5 reads verbatim: “In the event a claim, dispute
and/or controversy shall arise between the Parties other than regarding matters concerning
the payment for services rendered or refunds due, the Parties agree to participate in a
grievance resolution process.”
9
Watkins, 905 So. 2d 553, 555-56 (Miss. 2005). These provisions were properly stricken by
the trial court in accordance with Pitts.
¶19. As for section E12 7, which requires the resident to pay all costs for enforcement of the
agreement if the resident avoids or challenges either the grievance resolution process or an
award therefrom, it is akin to a clause analyzed in Pitts which stated that if the plaintiff failed
to comply with a particular term in the contract the plaintiff must pay “any and all fees
associated with collection, including but not limited to administration costs, attorney’s fees,
and cost of litigation.” Pitts, 905 So. 2d at 556. This Court found that those terms
unreasonably favored the defendant, and, thus, that the arbitration clause containing these
terms was “one-sided, oppressive and therefore, substantively unconscionable.” Id. Based
on this analysis, the trial court properly struck this section from the contract at issue.
¶20. Section E16 of the contract prohibits legal action by a resident “more than one year
following the happening of the event giving rise to [the] complaint, claim, or grievance.” 8
This Court will not enforce a contractually created time limitation on suits. Modifications to
7
Section E12 reads verbatim: “In the event a Party fails to proceed with mediation
and/or arbitration, challenges the arbitrator’s award, or fails to comply with the arbitrator’s
award, the other Party is entitled to all costs of suit or action including reasonable attorney
fees for having to defend or enforce the arbitration award or having to defend or enforce the
mediation or arbitration provision set forth herein.”
8
Section E16 reads verbatim in bold print: “Other than the mediation requirement set
forth in Section E6, no legal action shall be initiated against the Facility by the Resident or
any other Party hereto prior to sixty days following the filing of a written grievance setting
forth a description of the acts or omissions complained of, nor in any event more than one
year following the happening of the event giving rise to such complaint, claim or grievance.”
10
the statute of limitations cannot be accomplished by contract, and any attempt to do so will
be void. Pitts, 905 So. 2d at 558 (citing Miss. Code Ann. §15-1-5 (Rev. 2003)).
Accordingly, this Court has refused to enforce an admissions contract, such as in this case,
which attempts to modify the statute of limitations. In Pitts, the admissions agreement
limited the legal action to within one year, in contradiction to the three-year statute of
limitations, and we held that the attempt to create a private statute of limitations was
oppressive and unconscionable. Id. at 558. Consistent with Pitts, this section was properly
struck as unconscionable by the trial court.
¶21. Section E13 9 waives the right of all parties to a jury trial. The provision waives the
right of a jury trial for both the nursing home and the resident. Thus it is not one-sided. The
provision has the same effect as signing an arbitration agreement. It is well established that
this Court respects the ability of parties to agree to the means of dispute resolution prior to
a dispute and enforces the plain meaning of a contract as it represents the intent of the parties.
Russell v. Performance Toyota, Inc. 826 So. 2d 719, 722 (Miss. 2002); I. P. Timberlands
Operating Co. v. Denmiss Corp., 726 So. 2d 96, 108 (Miss. 1998). Therefore, the trial court
improperly struck E13.
¶22. With regard to Section F, the arbitration provision, the very heart of the dispute,
Vicksburg Partners is the controlling case. As in this case, the dispositive issue was whether
the arbitration provision rendered the subject admissions agreement unenforceable.
9
Section E13 reads verbatim: All Parties hereto are hereby waiving all rights to a jury
trial.
11
Vicksburg Partners, 911 So. 2d at 517. The admissions agreement contained numerous
other provisions, some of which were found unconscionable. Id. at 526. Two such provisions
were used to justify striking similar provisions in this case. Id. at 523-24. Moreover, the
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arbitration provision was identical to the one in this case. Id. at 510-11. The provision
even included the last sentence of the provision in this case, referencing section E7, which
was found unconscionable and stricken as in this case. Id. at 523. This Court concluded that
the arbitration provision was not unconscionable.
¶23. Seeing that “[q]uestions of arbitrability must be addressed with a healthy regard for
the federal policy favoring arbitration,”Vicksburg Partners, 911 So. 2d at 513, one factor
negating an assertion of unconscionability was that the provision was typical of those
10
Section F in both Vicksburg Partners and in this case read verbatim in bold print:
“The Resident and Responsible Party agree that any and all claims, disputes and/or
controversies between them, and the Facility or its Owners, officers, directors, or employees
shall be resolved by binding arbitration administered by the American Arbitration
Association and its rules and procedures. The Arbitration shall be heard and decided by one
qualified Arbitrator selected by mutual agreement of the Parties. Failing such agreement
each Party shall select one qualified Arbitrator and the two selected shall select a third. The
Parties agree that the decision of the Arbitrator(s) shall be final. The Parties further agree that
the Arbitrators shall have all authority necessary to render a final, binding decision of all
claims and/or controversies and shall have all requisite powers and obligations. If the agreed
method of selecting an Arbitrator(s) fails for any reason or the Arbitrator(s) appointed fails
or is unable to act or the successor(s) has not been duly appointed, the appropriate circuit
court, on application of a party, shall appoint one Arbitrator to arbitrate the issue. An
Arbitrator so appointed shall have all the powers of the one named in this Agreement. All
Parties hereto agree to arbitration for their individual respective anticipated benefit of
reduced costs of pursuing a timely resolution of a claim, dispute or controversy, should one
arise. The Parties agree to share equally the costs of such arbitration regardless of the
outcome. Consistent with the terms and conditions of this Agreement, the Parties agree that
the Arbitrator(s) may not award punitive damages and actual damages awarded, if any, shall
be awarded pursuant to Section E.7.”
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endorsed by the Federal Arbitration Act, Id. at 521. The provision contained another
characteristic of a conscionable provision in that it was found to bear “some reasonable
relationship to the risks and needs of the business.” Id. at 517 (citing Entergy Miss., Inc. v.
Burdette Gin, 726 So. 2d 1202, 1207 (Miss. 1998). This Court found the provision language
not to be oppressive but, rather, to provide the plaintiffs with a fair process through which
to pursue their claims. Vicksburg Partners, 911 So. 2d at 521. Vicksburg Partners deemed
the exact language that composed the entirety of Section F to be substantively conscionable.
Id. Accordingly, we reach the same result in this case.
¶24. In light of recent precedent, this Court must reverse the trial court’s findings as to the
enforcement of the arbitration provision and the resultant denial of Defendants’ motion to
compel arbitration. However, consistent with the analysis above, the last sentence of the
arbitration provision, which limits liability pursuant to sections E7 and waives punitive
damages, must be stricken from Section F.
¶25. We choose to enforce the remainder of the contract without the unconscionable clause.
Miss. Code Ann. § 75-2-302(1) (1972). Parties may agree on the means of dispute
resolution, including arbitration, in any way they desire. B. C. Rogers Poultry, Inc. v.
Wedgeworth, 911 So. 2d 483, 491 (Miss. 2005). Contracts are solemn obligations, and the
court must give them effect as written. Id. at 487. In light of this duty, it is well-established
that when interpreting arbitration agreements, or any contract, “if a court strikes a portion of
13
an agreement as being void, the remainder of the contract is binding.” 11 Russell, 826 So. 2d
at 724-25 (citing Lawler v. Government Employees Ins. Co., 569 So. 2d 1151, 1153 (Miss.
1990); Plaza Amusement Co. v. Rothenberg, 159 Miss. 800, 131 So. 350, 357 (1930) ("If
an illegal condition is annexed to a contract, it will not void the whole contract, but the illegal
part will be treated as void"). Accordingly, we strike the unconscionable terms and leave the
remainder of the agreement intact.
CONCLUSION
¶26. We affirm the trial court’s finding that the admissions agreement was not procedurally
unconscionable.
¶27. Further, we affirm the trial court in striking the sections found to be unconscionable:
C5, C8, and E7, limiting the facility’s liability; E8, waiving punitive damages; E5 and E6,
providing availability of judicial remedies for one party and eliminating it for the other; E12,
placing the burden of all costs of non-compliance with or challenges to the grievance
resolution process on the resident; and E16, limiting the statute of limitations.
¶28. However, the remainder of the admissions agreement is enforceable. Accordingly, we
reverse the trial court in its judgment as to the striking of the remaining three provisions as
unconscionable. Section D4, which binds the decedent’s heirs to comply with the admissions
11
In Vicksburg Partners the Court relied on Russell to enforce section E1 of the
contract at issue in Vicksburg Partners, which is identical to the section E1 in the contract
at dispute in this case, calling for severance of unenforceable terms and enforcement of the
remainder of the agreement. Vicksburg Partners, 911 So. 2d at 524-45. See Russell, 826 So.
2d at 724-25.
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agreement, is supported by recent precedent, and precedent necessitates that we reverse the
trial court’s judgment striking as unconscionable the jury trial waiver in section E13 and the
arbitration agreement in section F.
¶29. Further, regarding section F, the arbitration provision, the trial court erred in denying
the nursing home’s motion to compel, and that judgment is reversed and the case remanded
to the Circuit Court of Pearl River County with directions to compel the parties to submit to
arbitration.
¶30. AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
COBB, P.J., EASLEY, CARLSON AND DICKINSON, JJ., CONCUR.
WALLER, P.J., CONCURS IN PART. DIAZ, J., DISSENTS WITH SEPARATE
WRITTEN OPINION JOINED BY GRAVES, J. RANDOLPH, J., CONCURS IN
PART AND DISSENTS IN PART WITH SEPARATE WRITTEN OPINION JOINED
BY WALLER, P.J., AND IN PART BY DIAZ, J.
DIAZ, JUSTICE, DISSENTING:
¶31. We are faced today with a contract for illegal services. While I agree with the
majority that portions of the contract are void due to unconscionability, I must respectfully
dissent because the document is wholly void as a matter of law.
¶32. It is bedrock law that a contract for illegal services is void. It is now a centuries-old
concept that “ex dolo malo non oritur actio,” which means that “[n]o Court will lend its aid
to a man who founds his cause of action upon an immoral or an illegal act.” Morrissey v.
Bologna, 240 Miss. 284, 300-01, 123 So. 2d 537, 545 (1960). “This rule in Mississippi
applies to contracts cases as well, preventing relief on a claim based on a contract that is
15
illegal or against our state’s public policy.” Price v. Purdue Pharma Co., 920 So. 2d 479,
484-85 (Miss. 2006).
¶33. “There is no doubt that the courts have the duty and the power to declare void and
unenforceable contracts made in violation of law or in contravention of the public policy of
the state.” Smith v. Simon, 224 So. 2d 565, 566 (Miss. 1969). There are three general
situations where we will not permit a contract to stand. First, “when the principal purpose
of the contract directly furnishes aid and protection to an illegal enterprise;” second, “when
in order to enforce the contract a party must base his cause of action on his own illegal act;”
and third, “where the contract itself is unlawful.” Id. at 566 (citing Smith v. Maryland
Casualty Co., 252 Miss. 81, 172 So. 2d 574 (1965) (involving fidelity bond covering
employees who misappropriated illegal liquor); Capps v. Postal Telegraph-Cable Co., 197
Miss. 118, 19 So. 2d 491 (1944) (involving failure to deliver a telegram concerning a
gambling contract); Powelson v. National Airlines, 220 Miss. 595, 71 So. 2d 467 (1954),
(involving a contract to purchase stock in violation of a federal statute), and Morrissey v.
Bologna, 240 Miss. 284, 123 So. 2d 537 (1960) (involving indebtedness for illegal liquor).
¶34. The case at hand involves a nursing home, which furnishes services to those in need
and may only do so legally by agreeing to certain rules and regulations established by the
Mississippi Department of Health and the Legislature. In this case, Covenant Health has
attempted to contract away its binding duties under the law, which it cannot do. In its order,
the trial court specifically noted Covenant Health’s attempt to illegally avoid state and federal
16
regulations governing nursing homes by the contract. The agreement contains several
attempts to illegally contract away the minimum standards of care as provided by the state.
¶35. We will examine each illegal portion in turn.
I. B1: The Responsibility of the Facility.
¶36. The Mississippi Regulations Governing Licensure of Nursing Home Facilities set out
the minimum standard for daily care in a nursing home facility: “To be classified as a facility,
the institution shall comply with the following staffing requirements . . . [m]inimum
requirements for nursing staff shall be based on the ratio of two and eight-tenths (2.80) hours
of direct nursing care per resident per twenty-four (24) hours.” Miss. Reg. 12-000-045 §
201.1(a). There is no stated exception in the regulations for any reason.
¶37. However, Section B1 of the Agreement states that “[t]he Facility agrees to furnish
general duty nursing and nurse aide care equal to at least the State Medicaid minimum hours
per Resident day (this is generally approximately 2.0 to 2.8 hours per Resident day on average
including administration time). Temporary periods of extreme bad weather, strikes, unusual
labor problems or similar disruptions may result in temporary periods below this average.”
¶38. Accordingly, this provision attempts illegally to contract for services below the
minimum standards required by state regulation.
II. C5: Indemnification.
¶39. Displayed in bold print, the section reads in pertinent part that “[t]he Resident and
Responsible Party further agree to indemnify and hold harmless the Facility from and against
claims, loss, costs and expenses incurred as a result of claims against the Facility for any
17
reason by the Responsible Party, family members and friends of the Resident unless such
claim, loss, cost and expense is the result of the Facility’s willful misconduct.”
¶40. This clause purports to create total indemnity against the facility for negligence or any
other action that is not “willful misconduct.” On its face, this clause is illegal, as it violates
the Rules, Regulations and Minimum Standards for Institutions for the Aged or Infirm, the
set of regulations the state of Mississippi has adopted governing nursing homes. Specifically,
the regulations mandate that “[n]o agreement or contract shall be entered into between the
licensee and the resident or his responsible party which will relieve the licensee of
responsibility for the protection of the person and of the rights of the individual admitted to
the facility for care, as set forth in these regulations.” Miss. Reg. 12-000-45, § 404.3(b).
¶41. This section should also be read in concert with section C7, which purports to “agree”
that “the Facility primarily provides room and board and limited nursing care and is not
responsible for the actions or inactions of the attending physician, pharmacy and other health
care professionals not primarily compensated by the Facility.” This section also attempts to
illegally disclaim liability in violation of Section 404.3(b).
III. C7: Licensees and Agents.
¶42. Section C7 begins by stating “[t]hat the Resident and/or Responsible Party are
responsible for securing the care of a qualified licensed and qualified attending physician for
the patient.” This attempts to illegally contract around three separate regulations. Section
504.2 of Miss. Reg. 12-000-045 states that “[e]ach resident shall have a designated physician
or nurse practitioner who is responsible for their care,” and [i]n the absence of the designated
18
physician or nurse practitioner, another physician or nurse practitioner shall be designated to
supervise the resident medical care.” Additionally, Section 504.3 mandates that “[t]he facility
shall arrange for the provision of physician or nurse practitioner services twenty-four (24)
hours a day in case of an emergency.” Likewise, Section 504.4 commands that “[t]he resident
shall be seen by a physician or nurse practitioner every sixty (60) days.”
¶43. If the facility receives Medicare or Medicaid monies, it is required under federal
regulations to provide care by a physician. “The facility must ensure that: (1) The medical
care of each resident is supervised by a physician; and (2) Another physician supervises the
medical care of residents when their attending physician is unavailable.”42 C.F.R. 483.40 (a).
Additionally, “[t]he resident must be seen by a physician at least once every 30 days for the
first 90 days after admission, and at least once every 60 days thereafter.” 42 C.F.R. 483.40
(c)(1).
¶44. Accordingly, it is not the duty of the resident to secure a physician; it is the non-
delegable duty of the nursing home, as required under state and federal regulation. Covenant
Health’s attempt to delegate this regulatory responsibility to a resident is yet another example
of its attempt to contract for illegal services.
IV. C8: Indemnity for Criminal Acts.
¶45. Section C8 of the agreement reads in whole that:
Subject to the Facility complying with Section B.6 [agreeing that the facility
will “perform criminal background checks on all nursing department personnel
upon initial hiring of said personnel”], the Resident and Responsible Party
agree that should any individual or individuals, whether employees of the
Facility or not, commit any criminal act upon or against the Resident or
19
Responsible Party, that the Resident and Responsible Party agree to seek
damages and claims only against said individuals(s). Accordingly, the Parties
hereto agree to hold harmless the Facility, its officers, owners, directors and
employees for the criminal actions of any individual(s).
Like section C5, this clause is illegal on its face, as it violates the Mississippi state regulations
governing nursing homes, which mandate that “[n]o agreement or contract shall be entered
into between the licensee and the resident or his responsible party which will relieve the
licensee of responsibility for the protection of the person and of the rights of the individual
admitted to the facility for care, as set forth in these regulations.” Miss. Reg. 12-000-45, §
404.3(b).
V. E5 and E16: Notice Requirements and Statutes of Limitation.
¶46. Section E5 purports illegally to modify Mississippi statutes by requiring that “written
notice shall be delivered within 20 days of the date of the incident giving rise to the claim.”
Section E16 requires that, “[o]ther than the mediation requirement” of 20 days, “no legal
action shall be initiated against the Facility by the Resident or any other Party hereto prior to
sixty days following the filing of a written grievance . . . .”
¶47. Under Mississippi law, only certain types of actions require written notice; for
example, the Code requires 60 days’ written notice before filing suit against certain health
care providers. Miss. Code Ann. § 15-1-36 (15) (Rev. 2003). This clause attempts to
materially deviate from the language of this statute, which we have held must be strictly
observed, as “[a]ny different approach would render meaningless any rule or statute setting
time limitations on litigants.” Arceo v. Tolliver, 2006 Miss. LEXIS 385, *17 (Miss. 2006).
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¶48. It further places a notice requirement on a resident or responsible party when non-
medical negligence is asserted, such as a premises liability claim, which is not authorized by
common law or statute. This attempt to create a notice requirement not present in our state
statutes and to alter and shorten the existing statutory requirement for notice is further
evidence of an attempt to contract around the statute of limitaitons.
¶49. Additionally, E16 purports to change our statutorily-set statute of limitations and
common law, asserting that “no legal action shall be initiated against the Facility . . . in any
event more than one year following the happening of the event giving rise to such complaint,
claim or grievance.” There are three separate areas of impact from this section: first, our
statute of limitations for negligence, which is three years (Miss. Code Ann. § 15-1-49 (Rev.
2003)); second, our statute of limitations for medical negligence, which is two years (Miss.
Code Ann. § 15-1-36 (2) (Rev. 2003)); and last, the fact that our precedent on the “discovery
rule” allows for an action beyond the statutes of limitations in limited circumstances. See
Wright v. Quesnel, 876 So. 2d 362, 366 (Miss. 2004).
¶50. In Pitts v. Watkins, a party attempted to change our three-year statute of limitations for
negligence; we declared that “[t]his period of limitation cannot be changed by contract, and
any such change in the limitations period shall be null and void,” and held that “[t]he attempt
to create a private statute of limitations is further evidence of overreaching by [the defendant],
is oppressive, violates statutory law and is likewise unconscionable.” 905 So. 2d 553, 558
(Miss. 2005). Section E16 parallels the offending clause in Pitts, which we noted was in
21
violation of statutory law. These sections both attempt to illegally contract for that which
cannot be obtained.
VI. E7: Limitation of Liability.
¶51. In bold print, Section E7 limits the dollar value that can be awarded in case of a “claim,
dispute or controversy.” In pertinent part, it states that “the settlement thereof shall be for
actual damages not to exceed the lesser of a) $50,000 or b) the number of days the Resident
was in the Facility multiplied times the daily rate applicable to said Resident.” This clause
illegally infringes upon Mississippi state regulations governing nursing homes, which require
that each resident “has a right of action for damages or other relief for deprivations or
infringements of his right to adequate and proper treatment and care established by an
applicable statute, rule, regulation or contract.” Miss. Reg. 12-000-045, § 408.2(e).
VII. E12 and E6: Shared and Shifted Costs.
¶52. The trial court also found sections E12 and E6 indicative of overreaching. In part, E6
requires that “[t]he Parties agree to share equally the costs of such mediation.” E12 states in
whole that “[i]n the event a Party hereto fails to proceed with mediation and/or arbitration,
challenges the arbitrator’s award, or fails to comply with the arbitrator’s award, the other
Party is entitled to all costs of suit or action including reasonable attorney’s fees for having
to defend or enforce the arbitration award or having to defend or enforce the mediation or
arbitration provisions set forth herein.”
¶53. The United States Code defines when and under what circumstances a party can appeal
an arbitration decision; see 9 U.S.C. § 10 (governing method of vacating arbitration awards);
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9 U.S.C. § 11 (governing modification or correction of awards). These statutes do not provide
for an express grant of fees to the party who seeks vacation, modification, or correction.
Sections E12 and E6 are thus further demonstration of Covenant Health’s attempt to contract
for illegal services.
VIII. The Case at Hand.
¶54. The contract which Covenant Health seeks to enforce has no less than nine separate
sections which attempt to avoid its binding obligations under the law. It is one in a series of
contracts considered by this Court that has included increasingly offensive, unconscionable,
and flat-out illegal provisions in a contract for nursing home services. This one appears to be
the second time this Court has considered the exact same agreement, as the one at hand tracks
the agreement in Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507 (Miss. 2005).
Apparently, little has been learned since that case, and nursing home companies are
continuing to attempt to contract for illegal and unconscionable services. We must decline
to enforce even the smallest portion of these illegal contracts until they are free of illegality
and unconscionability.
¶55. It is our sworn duty as a Court to safeguard the rights of all Mississippians, but we
must be especially sensitive when dealing with the most vulnerable of our citizens, those in
the twilight of their lives. Nursing home companies provide a valuable service in our society,
but they cannot be allowed, unique among all other corporations, to contract for illegal
services. The contract Covenant Health wishes us to enforce is repugnant to the statutory and
common law of our state and country. It is simply grotesque. It cannot be upheld as a matter
23
of law, and because the majority declines to honor this centuries-old prohobition I must
respectfully dissent.
GRAVES, J., JOINS THIS OPINION.
RANDOLPH, JUSTICE, CONCURRING IN PART AND DISSENTING IN
PART:
¶56. I join the majority’s declaration that Sections C5, C8, E5, E6, E7, E8, E12, and E16
are all substantively unconscionable and unenforceable. However, I respectfully depart from
the majority’s decision to convert an admittedly, substantively unconscionable provision
(Section F) into a conscionable provision, by excising the unconscionable language. If
substantive unconscionability did not otherwise permeate the document, I might well join.
But that is not the case. I conclude that Section F, in its entirety, should face the same fate
as the aforementioned sections, and be stricken from the document.
¶57. The “Admission Agreement” at issue here is virtually identical to the “Admission
Agreement” in Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507 (Miss. 2005),12 wherein
this Court found that the agreement constituted a “contract of adhesion.” Id. at 525. That
finding equally applies here. “[L]aying a foundation that a contract was one of adhesion
makes an argument targeting a provision for a substantive unconscionability review easier to
prove.” Id. at 523 (emphasis added).
12
The only distinction being that the bottom of the first page of the “Admission
Agreement” here states, in bold, that “[t]his Agreement is subject to Arbitration as set forth
in Sections E and F.”
24
¶58. “Arbitration is about choice of forum – period.” Id. at 525. See also East Ford, Inc.
v. Taylor, 826 So. 2d 709, 716 (Miss. 2002) (“[a]rbitration agreements merely submit the
question of liability to another forum – generally speaking, they do not waive liability.”).
Section F, however, covertly alters the legal rights of the parties in favor of Covenant Health,
by weaving non-forum issues into the fabric of the section. Specifically, Covenant Health
unconscionably inserted terms regarding equal sharing of arbitration costs,13 the waiver of
punitive damages, and the limitation of liability into Section F, the latter two having been
expressly rejected by this Court in Pitts v. Watkins, 905 So. 2d 553 (Miss. 2005). The
language of Section F requires that this Court rely on other sections in the contract by
reference, including the consideration of multiple substantively unconscionable clauses, all
lacking any relation to forum. Covenant Health further attempts to protect these
unconscionable provisions, under the penumbra of an arbitration provision. Such integration
of substantively unconscionable clauses into the forum-only sphere of the arbitration
provision, is hardly benign and should therefore render Section F invalid, and thus
unenforceable. See Sanderson Farms v. Gatlin, 848 So. 2d 828, 852 (Miss. 2003) (Cobb, J.,
dissenting; Smith, P.J., and Carlson, J., joining) (“[n]either is it wise to allow companies to
draft arbitration clauses with unconscionable provisions and then let them try them out in the
marketplace, secure in the knowledge that the courts will at worst sever the offending cost
13
“The Parties agree to share equally the costs of such arbitration regardless of the
outcome.”
25
allocation after plaintiffs have been forced ‘to jump through hoops in order to invalidate those
agreements.’ Cooper v. MRM Inv. Co., 199 F. Supp. 2d 771, 782 (M.D. Tenn. 2002) . . . .”).
¶59. In 2005, this Court in Pitts held three clauses substantively unconscionable and
unenforceable: (1) an arbitration clause which “provide[d] an avenue for Watkins to pursue
his claims in a court of law, while requiring the Pittses to arbitrate[,]” Pitts, 905 So. 2d at 555;
(2) a limitation of liability clause “preclud[ing] the plaintiff’s ability to collect punitive
damages . . . [and] plac[ing] an unreasonable restriction to collect compensatory damages in
excess of $265[,]” id. at 556; and (3) a contractually-created one-year statute of limitations.
See id. at 558. This Court refused to enforce such provisions. See id. The majority opines
first, that this contract is one of adhesion. Then the majority is satisfied that this contract of
adhesion contains at least eight substantively unconscionable sections: (1) C5 – requiring
forfeiture by the resident of all claims against Covenant Health except those for “willful
misconduct;” (2) C8 – waiving Covenant Health’s liability for the criminal acts of individuals,
subject to their performing criminal background checks on all nursing personnel only; (3) E5
and E6 – on the “grievance resolution process” and mediation, and, like the substantively
unconscionable arbitration provision in Pitts, allowing Covenant Health to bring suit in court
on issues of payment, while prohibiting Brown from bringing suit in court on any grounds;
(4) E7 – the limitation of liability provision; E8 – the waiver of punitive damages provision;
E12 – requiring Brown to pay all costs to enforce the agreement if she avoided or challenged
the “grievance resolution process” or an award therefrom; and E16 – a contractually-created
26
one-year statute of limitations. This agreement violates all three Pitts disqualifiers, all the
Vicksburg Partners disqualifiers, and then some.
¶60. The majority opinion properly has found significant segments of the “Admission
Agreement” to be substantively unconscionable. Additionally, the dissent suggests instances
of Covenant Health attempting to circumvent applicable state regulations by this agreement.
In total, this scenario renders enforcement of the arbitration provision of Section F, which
itself contains substantively unconscionable clauses, a legal anomaly. The majority’s excision
of unconscionable sections results in this Court rewriting a contract which favors a goal of the
nullifying party; an undeserved reward for unconscionable conduct. I respectfully conclude
that Section F is also substantively unconscionable and should be stricken.
WALLER, P.J., JOINS THIS OPINION. DIAZ, J., JOINS THIS OPINION IN
PART.
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