Rankin v. Brinton Woods of Frankford ( 2019 )

Marcia Rankin, et al. v. Brinton Woods of Frankford, LLC, et al., No. 525, September
Term, 2017. Argued: April 9, 2018. Opinion by Sharer, J.
ARBITRATION AGREEMENTS – NURSING HOME ADMISSION CONTRACTS
– HEALTH CARE DECISIONS – THIRD PARTY SIGNERS
Arbitration agreements that require the contracting parties to waive their right to a jury trial
must be conspicuous and the provisions must be clear, concise, and comprehensive for the
contracting parties.
Enforceability of arbitration agreements contained within nursing home admission
contracts executed by someone other than the patient, will depend on whether the person
who executed the contract on behalf of the patient was the patient’s authorized agent with
the authority to enter into an arbitration agreement which includes the waiver of the
patient’s rights to a jury trial. Absent actual or apparent agency with the authority to
execute such an agreement, there can be no valid or enforceable arbitration agreement.
ARBITRATION AGREEMENTS – AGENCY – SCOPE OF AUTHORITY
Agency relationships are created either explicitly from the principal’s express
representations, whether oral or written, or implicitly through the principal’s acquiescence
in or ratification of the agent’s actions taken on the principal’s behalf. Whether actual or
apparent, an agent may not exceed the scope of authority created by the principal-agent
relationship.
When determining if a principal-agent relationship existed between the party executing a
nursing home admission contract and the patient to be admitted, in the absence of a written
agency directive, the court must look to what representations the signing party made to the
nursing home and whether it was objectively reasonable for the nursing home to have relied
on those representations, without the need for the principal to later ratify the execution of
the admission contract and consent to be bound by the arbitration agreement.
We hold that, because the record does not support the trial court’s finding of apparent
agency, the Estate is not bound by the arbitration provisions of the admission agreement.
ARBITRATION AGREEMENTS – UNCONSCIONABILITY – REVIEW – FACT
FINDING
Alternatively, we hold that the provisions of the admissions contract, and particularly the
arbitration/jury trial waiver clauses, are overbearing, as between a sophisticated party and
an unsophisticated party, in what is clearly a contract of adhesion. Thus, we conclude that
the terms of the agreement are unenforceable as unconscionable.
Circuit Court for Baltimore City
Case No. 24-C-16-005938
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 525
September Term, 2017
______________________________________
MARCIA RANKIN, ET AL.
v.
BRINTON WOODS OF FRANKFORD, LLC,
ET AL.
______________________________________
Meredith,
Leahy,
Sharer, J. Frederick
(Senior Judge, Specially Assigned),
JJ.
______________________________________
Opinion by Sharer, J.
______________________________________
Filed: June 27, 2019
Pursuant to Maryland Uniform Electronic Legal
Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document is authentic.
2019-07-02
15:56-04:00
Suzanne C. Johnson, Clerk
Willie Charles, Jr. died during his brief stay as a patient at Brinton Woods of
Frankford, LLC. Thereafter, appellants, Marcia Rankin, individually and as personal
representative of her father’s estate, Mark Allen, and Dawn Tracey brought, in the Circuit
Court for Baltimore City, a negligence action for survival and wrongful death claims
against several Brinton Woods entities.1
Brinton Woods responded to the complaint by filing a motion to compel arbitration
pursuant to provisions of the admission contract, which had been executed by Rankin on
behalf of Mr. Charles. The circuit court ruled that Rankin had acted as her father’s agent
– on an apparent agency theory – when she executed the admission contract on his behalf
and, therefore, the estate was bound by the arbitration agreement provisions.
The court granted Brinton Woods’ motion as to the survival claims, but denied the
motion as to the wrongful death claims. The Court ordered a stay of the wrongful death
proceedings pending arbitration of the survival claims.
The Estate asserts that the circuit court erred in granting Brinton Woods’ petition to
compel arbitration, based on its finding of apparent agency.2 Alternatively, it asks this
Court to hold the arbitration clause unenforceable as unconscionable.
1
Rankin, Allen, and Tracey are the surviving children of Mr. Charles. We shall refer to
appellants, collectively, as Rankin or the Estate.
Appellees are Brinton Woods of Frankford, LLC, Brinton Woods Post-Acute Care
Center, Brinton Woods Health Care Center, LLC, and Brinton Woods Management
Company, LLC. We shall refer to the Brinton Woods entities, collectively, as Brinton
Woods.
2
In its opening brief, the Estate poses three questions for our consideration:
Because we shall hold that the circuit court erred in finding Rankin to have been
Mr. Charles’ agent, and therefore erred in ordering arbitration based on that finding, we
shall reverse and remand the matter for further proceedings. Moreover, we find the
arbitration provisions of the contract to be unconscionable and, therefore, unenforceable.
I. BACKGROUND
Mr. Charles entered Brinton Woods Post-Acute Care Center on June 19, 2015. The
day prior to his admission, Rankin executed an admission contract on his behalf. The
contract included a clause that required all disputes that “arise[] regarding the care or
treatment of the Resident while residing at this Facility,” be submitted to a mediator for
resolution. The resolution clause further provided that, if mediation efforts failed to resolve
the disputes, “any controversy that remains unsettled after mediation[,]” must be submitted
to an arbitration process.3
The Estate’s Complaint alleged that, while in the care of Brinton Woods, Mr.
Charles developed serious health concerns including “painful pressure ulcers [bed sores]
1. Did the Circuit Court err in finding Ms. Marcia Rankin was the apparent
agent of her father, Mr. Willie Charles?
2. Did the Circuit Court err in finding Ms. Marcia Rankin had apparent
authority to make a health care decision for her father, Mr. Willie Charles,
and waive his right to a jury trial when she signed an admission contract
containing an arbitration agreement despite Mr. Charles being competent to
make his own health care decisions and no valid Advance Directive or Power
of Attorney being in effect?
3. Did the Circuit Court err in ruling the arbitration agreement contained within
an admission contract to a skilled nursing facility was not unconscionable?
3
The mediation requirement is not an issue in this appeal.
2
and penile necrosis [gangrene],” as a result of being deprived of adequate toileting, skin,
and catheter care. These adverse conditions were alleged to have been caused by Brinton
Woods’ negligence and, thus, responsible for having caused and expedited his death.
Proceedings
The Estate’s Complaint was filed on November 14, 2016. Prior to answering the
complaint, Brinton Woods filed a Petition to Compel Mediation and/or Arbitration and
Motion to Dismiss or Stay Proceedings. Brinton Woods asserted that Rankin executed the
admission contract as the health care agent for Mr. Charles, thus binding the Estate to the
arbitration clause.
In the Estate’s response, it argued that Rankin was not Mr. Charles’ agent, and had
neither actual nor apparent authority under his advance directive, or otherwise, to enter into
an arbitration agreement on his behalf. Alternatively, it argued that the arbitration
agreement was unconscionable and should not be enforced.
Following a hearing, the circuit court issued a memorandum opinion and order
granting Brinton Woods’ petition as to the survival claim only and stayed the wrongful
death claim. The motion to dismiss was denied.
Standard of Review
When our review of a circuit court’s decision involves both questions of fact and of
law,
we apply different standards of review to the questions of fact and to the
questions of law. One of our considerations is whether [the signing party]
was [the patient’s] agent for purposes of binding him to the arbitration
agreement. This is a factual determination that we review using the clearly
erroneous standard. Under the clearly erroneous standard, we will not
3
disturb the factual findings of the trial court [i]f there is any competent
evidence to support th[ose] factual findings. As to questions of law, both
parties have presented legal arguments based on their interpretation of
statutory and case law. We consider those arguments de novo; in other
words, we review the questions as a matter of law….
Dickerson v. Longoria, 414 Md. 419, 432–33 (2010) (internal quotations and citations
omitted).
This case was heard below on Rankins’s Motion to Dismiss Brinton Woods’
Petition to Compel Arbitration. Because enforceability of the arbitration agreement
depends on whether Rankin was her father’s agent and authorized to enter into such an
agreement on his behalf, we review the circuit court’s finding of apparent agency.se was
II. DISCUSSION
1. The Court’s Agency Finding
We have explained that, “[w]hen a party asserts a claim that is dependent upon an
agency relationship created by inference, that party has the burden of proving the existence
of the principal-agent relationship, including its nature and its extent.” Jackson v. 2109
Brandywine, LLC, 180 Md. App. 535, 565 (2008) (citing Hofherr v. Dart Industries, Inc.,
853 F.2d 259, 262 (4th Cir. 1988)). Agency is a question of fact and such a finding will
not be disturbed unless it was clearly erroneous. See Dickerson, 414 Md. at 433.
The circuit court concluded that “Rankin had apparent authority to enter into the
agreement with [Brinton Woods][,]” finding that, “[a]t the time the contract was signed,
[Brinton Woods] had not yet evaluated the decedent’s capacity and had no knowledge as
to whether or not he was capable of entering into the contract himself.” The court also
found that the “Advance Directive was provided to the Defendant Brinton Woods at the
4
time of admission to its facility.” Additionally, the court found that Rankin “identified
herself as both ‘agent’ and ‘daughter’ of her father[,]” and placed significance on the fact
that “he moved into the facility.” (Emphasis in original). Based on those findings, the court
concluded that “[Mr. Charles] was fully aware and complicit in allowing [Rankin] to act
as his apparent agent, and that [Brinton Woods] reasonably relied on that apparent agency.”
At that juncture, the record before the circuit court consisted of, in addition to the
pleadings: the initial complaint, with the attached Letters of Administration of a Small
Estate and the Certificate of Merit and Report; the petition to compel arbitration, with the
attached copy of the admission contract and the Daren Cortese4 affidavit; the response
opposing the petition, with a copy of the advance directive and Rankin’s affidavit; and
Brinton Woods’ reply to the response opposing the petition.
Brinton Woods’ petition to compel arbitration, and supporting memorandum,
asserted that Rankin “is identified in the Admission Contract as her father’s agent[,]” and
that “she had provided documentation to Brinton Woods identifying her as the health care
agent of Mr. Charles.” Those assertions were supported by repeated references to the
Cortese affidavit and excerpts from the admission contract. The advance directive
executed by Mr. Charles, referred to in the Cortese affidavit, however, was not appended
to the petition.5
4
The affidavit, executed on January 5, 2017, identifies Daren Cortese as “President and
Owner of Defendant Brinton Woods Health Care Center, LLC ….”
5
Brinton Woods addresses its failure to attach a copy of the advance directive with the
petition in a footnote to its reply, contending that the “argument rested on the existence of
an advance directive, not the specific contents therein and thus, [it had] erred on the side
5
The Cortese affidavit, relied on by Brinton Woods, does not in fact support those
assertions or the court’s finding that the advance directive had been provided to Brinton
Woods at the time the admission contract was executed. The affidavit, executed by Cortese
as “President and Owner of Defendant Brinton Woods Health Care Center, LLC[,]”
provides that the affiant is “familiar with the operations” and that he reviewed “materials
relating to the admission” of Mr. Charles. (Emphasis added). Further, based on his review
of those materials, he “can attest that the Admission Contract is a true and accurate copy
of the Admission Contract from the Brinton Woods business records governing the
admission [sic] Willie Charles, Jr.” While the affidavit might have supported the accuracy
of the copy of the admission contract provided from the business records, it does not
support the circumstances surrounding the contract’s execution or the receipt of the
advance directive.
The Cortese affidavit also affirms an inaccurate representation, purporting that the
advance directive “authorized Ms. Rankin to make health care decisions on [Mr. Charles’]
behalf[,]” which was contradicted by both Rankin’s affidavit and the language of the
advance directive itself, as it failed to include that such authority was conditioned on Mr.
Charles being certified as incapable of making informed decisions regarding his own health
care. The language of the advance directive clearly established the condition precedent for
its efficacy, by stating “[m]y agent’s authority becomes operative when my attending
of adding fewer sheets of paper to the [c]ourt’s file by simply acknowledging the advance
directive in the sworn affidavit[,]” – a facially hollow argument, since the advance directive
consisted of just three pages.
6
physician and a second physician determine and certify in writing that I am incapable of
making an informed decision regarding my health care ….” To this point, the circuit court
correctly concluded that “Rankin did not have actual authority since the decedent’s
Advance Directive only conveyed actual authority to [Rankin] at such time that decedent
was incapacitated.” Notwithstanding that finding, the court appears to have relied on the
advance directive and, possibly, the Cortese affidavit’s reference, as evidence of Rankin’s
apparent agency.
In support of its finding of Rankin’s apparent agency, the court posed the rhetorical
question: “Why else would [Rankin] have shown the Advance Directive to [Brinton
Woods] if not to satisfy [it] that she had the ability/authority to sign the admissions
contract?”
The circuit court challenged the Estate’s arguments during the petition hearing,
stating that:
It is disingenuous to argue, as Plaintiff’s [sic] counsel did at the hearing, that
the decedent was not aware that an admission contract of some kind was
signed before he was admitted to Defendant Brinton Woods. To insist on one
hand that he was totally competent as to invalidate the Advance Directive but
not competent enough to know a nursing home would require signed
paperwork before he moved into the facility seems inconsistent….
This finding, however, does not take into account the scope of the agency. As the
Dickerson Court noted, “an agent cannot extend his or her own authority beyond the
authority granted to him or her by the principal.” 414 Md. at 449 (citation omitted).
Further, the court’s assumption that arbitration clauses are common in nursing home
admission contracts, is a fact which the Dickerson Court acknowledged is not always the
7
case.6 There is an absence of evidence of past assent to the execution of an admission
contract that contained an arbitration clause, or that such clauses are common in nursing
home admission contracts, so that an applicant should reasonably expect an admission
contract to contain such a clause.
Brinton Woods does not suggest that Rankin represented that Mr. Charles had been
certified incompetent and that she had the authority bestowed in the advance directive, as
his health care agent.7 As explained in the admission contract, advance directives are to
assist in the making of “future medical treatment” decisions if the patient becomes
incapable of doing so.8
6
The Dickerson record contained admission contracts from several other health care
facilities to which Bradley had been admitted, but the Court pointed out that “[n]one of
these admissions documents included arbitration agreements, so they do not suggest that
Bradley had previously authorized Dickerson to sign arbitration agreements on his behalf,
either expressly or impliedly.” 414 Md. at 449 n.18.
7
Brinton Woods concedes that “[Rankin] signed all of the documentation as ‘agent’ and
as ‘daughter’ of her father before Brinton Woods was able to form any opinion about
whether Mr. Charles could sign these documents on his own behalf.” However, the name
“Willie Charles, Jr.” is not found anywhere in the admission contract. Other than the words
“agent” and “daughter” in the contract and in the section designating Rankin as the person
to be contacted in the event of the death of the patient, respectively, there is no other written
identity of the prospective patient.
8
The Certificate of Merit and Report, attached to the complaint, states that Mr. Charles
was transferred to Brinton Woods from Good Samaritan Hospital on June 19, 2015. The
advance directive statute requires an attending physician, who is made aware of an advance
directive, “shall promptly: … make the advance directive or a copy of the advance directive
a part of the declarant’s medical records[.]” Md. Code (2000, 2009 Repl. Vol., 2014 Supp.)
Health-General Article, § 5-602(f)(2)(i). Those facts might reasonably give rise to an
inference that Brinton Woods came into possession of the advance directive by virtue of it
being included with Mr. Charles’ medical records, which would have accompanied him on
his transport from the hospital to Brinton Woods.
8
The complaint alleges that Mr. Charles was placed in Brinton Woods because his
medical conditions “needed close medical and nursing supervision” that “required
professional attention,” so that he could “receive that specialized care.” The complaint
also alleges, and Brinton Woods does not contest, that prior to his admission, Brinton
Woods “had full knowledge of Mr. Charles’ medical condition[.]” As such, in the case of
Mr. Charles, an advance directive would have been necessary if, or when, he was to become
incapable of making a health care decision, and certified as such, while in the care of
Brinton Woods.
In Dickerson, the Court of Appeals qualified the applicability of the Health Care
Decisions Act (HCDA),9 stating that “the HCDA pertains only to ‘health care decisions,’”
and “establishes procedures by which an individual may make health care decisions to be
carried out if he or she is unable to make those decisions for him or herself.” 414 Md. at
435. The “intent is demonstrated by the HCDA’s mandate that treatment may only be
provided, withheld, or withdrawn pursuant to the HCDA if the patient is incapable of
making an informed decision regarding the treatment.” Id. (emphasis added) (internal
quotations and citations omitted). Notwithstanding, the Dickerson Court also noted that
“[n]othing in the HCDA … restricts the ability of an individual to appoint a health care
agent when, as in the present case, the individual who is to receive health care is apparently
capable of making informed decisions on his or her own behalf.” Id. (footnote omitted).
9
Codified under Md. Code (2000, 2009 Repl. Vol., 2014 Supp.) Health-General Article,
§§ 5-601 through 5-626.
9
The circuit court found that Rankin, by crossing out the word “Resident” and writing
the word “agent” below it on the contract, coupled with Mr. Charles’ move into the facility,
was “conduct by the principal which caused [Brinton Woods] to believe [Rankin] was
authorized[.]” However, that action alone should not support the court’s finding of what
Brinton Woods “reasonably relied” on as evidence of an apparent agency, particularly in
view of the existence of the advance directive.
Brinton Woods asserts that the advance directive acted “as additional evidence to
support [its] reasonable reliance on the apparent authority Mr. Charles invested in Ms.
Rankin.” It contends that “[t]he clearest indication that Mr. Charles authorized his daughter
to reach a decision about a nursing facility in which he would reside was Mr. Charles
moving into Brinton Woods the day after Ms. Rankin executed the Admission Contract.”
Brinton Woods also found support in the admission contract, where Rankin “acknowledged
herself to be both ‘agent’ and ‘daughter’ of Mr. Charles[,]” and “had supplied [Brinton
Woods] with a copy of the Advance Directive executed by her father in 2008.” Brinton
Woods attaches significance to the fact that “none of the terms of the Admission Contract
became applicable unless Mr. Charles actually became a resident of the facility.” The
Estate disagrees and contends that, under Dickerson, agency law is inapplicable when the
receipt of health care is conditioned on signing an arbitration clause and waiving the right
to a jury trial.
Rankin’s apparent crossing out of the word “Resident” and writing the word “agent”
below it on the contract does not alone support a finding that she held herself out as her
father’s agent. However, whether this act alone could be sufficient to support a nursing
10
home’s reasonable reliance on that act as evidence of her authority to execute an admission
contract, is another issue. As the Dickerson Court addresses, “[r]egardless of how she held
herself out to others, [she] could not expand her own authority and bind [the applicant] to
the arbitration agreement.” 414 Md. at 449–50.
Other than Rankin’s act of writing the word “agent” on the contract, there is little
evidence that Mr. Charles had granted her the authority to make a health care decision on
his behalf at the time she executed the admission contract, let alone one that also impacted
his right to a trial.
Before the motions court, Brinton Woods argued that Rankin “didn’t say I don’t
have the authority to sign this [agreement][,]” and explained that “[w]hat they were
presented with was an advance directive, … and they were dealing with the person that’s
designated as the responsible party or acted as a responsible party.” Brinton Woods argued
further, claiming that “[a]dvanced directives are of no import[,]” and that it is, “at best, an
indicia to the nursing home that the person before them has authority to sign the contract
because that person has been designated by the resident to act if the resident becomes
incapacitated.” Brinton Woods continued that “the best evidence of actual authority is how
did the parties comport themselves after the contract was signed[;] [t]hey moved the
resident in [sic] the facility.”
Even were we to accept the court’s apparent agency finding, the question remains:
Did that apparent authority extend to the execution of an admission contract that contained
a binding arbitration clause?
Existence of a Binding Arbitration Agreement
11
When interpreting an arbitration clause in a contract, we follow the objective law of
contract interpretation. Freedman, 190 Md. App. at 192. As such, we
“must first determine from the language of the agreement itself what a
reasonable person in the position of the parties would have meant at the time
it was effectuated.… In these circumstances, the true test of what is meant is
not what the parties to the contract intended it to mean, but what a reasonable
person in the position of the parties would have thought it meant….”
Id. (quoting Koons Ford of Balt., Inc. v. Lobach, 398 Md. 38, 47 (2007)).
The circuit court relied heavily on Dickerson, supra, to support its finding that “[t]he
decedent’s access to and receipt of health care was subject to the completion of the full
admission agreement, including the agreement to arbitrate.” The court also found that
Rankin, “acting as decedent’s agent, made a health care decision on behalf of the decedent
to admit him into [Brinton Woods], which included accepting on behalf of the decedent
the obligation to participate in arbitration.”
Brinton Woods agrees with the court’s conclusions, averring that “the Circuit Court
properly concluded that execution of the Admission Contract constituted a health care
decision.” It claimed that Rankin’s “decision to execute the Brinton Woods agreement as
written therefore constituted her decision to admit her father to that facility, a health care
decision.”
The Estate contends that the court “committed reversible error by holding in the
absence of a valid and in-effect Advanced Directive or Power of Attorney, [Rankin] was
the apparent agent of her father authorized to make a health care decision on his behalf –
the signing of the admission contract -- [sic] and bind her father to an arbitration agreement,
12
thereby waiving his jury trial rights.” For support, the Estate focuses on the language in
Dickerson, where the Court of Appeals concluded that,
neither a power of attorney nor any other advance directive is required to
bind a nursing-home resident to an arbitration agreement included in nursing-
home admission documents when, as in this case, signing the arbitration
agreement is not a prerequisite to admission to the nursing home.
414 Md. at 431–32 (emphasis added).
The Estate interprets this language to mean that “if signing the arbitration agreement
was a prerequisite to admission, then a valid power of attorney or advanced directive would
be required because it would involve a health care decision.” With that in mind, the Estate
asserts that “[a]pparent agency law is inapplicable to arbitration agreements when receipt
of health care is conditioned on signing an arbitration agreement and waiving jury trial
rights.” Further, it contends that, absent a document granting such authority, “the actual
recipient, if competent, of the prospective health care must sign the arbitration
agreement/paperwork[.]”
The Maryland Uniform Arbitration Act “‘expresses the legislative policy favoring
enforcement of agreements to arbitrate[.]’” Fraternal Order of Police, Montgomery Cty.
Lodge 35 v. Montgomery Cty., 216 Md. App. 634, 641 (2014) (quoting Stinebaugh, 374
Md. at 641). “‘Arbitration is a process whereby parties voluntarily agree to substitute a
private tribunal for the public tribunal otherwise available to them.’” Schneider Elec.
Bldgs. Critical Sys., Inc. v. Western Sur. Co., 454 Md. 698, 706 (2017) (emphasis in
original) (quoting Hartford Accident & Indem. Co. v. Scarlett Harbor Assocs. Ltd. P’ship
(Scarlett Harbor), 346 Md. 122, 127 (1997)). Because “‘[a]rbitration is consensual[,] …
13
only those who consent are bound[.]’” The Redemptorists v. Coulthard Servs., Inc., 145
Md. App. 116, 134 (2002) (quoting Scarlett Harbor, 346 Md. at 127).
While there was a clear manifestation by Mr. Charles to grant Rankin the authority
to make health care decisions on his behalf pursuant to the conditions of the advance
directive, the record is equally clear that the advance directive was not operative at the time
of the execution of the admission contract because Mr. Charles had not been certified as
incompetent to make his own health care decisions, as required by its terms. Regardless
of the representations made by Rankin at the time of her execution of the contract, on June
22, 2015, Brinton Woods’ physician evaluated Mr. Charles, finding him to be “alert and
oriented” and competent to make health care decisions.10 Brinton Woods, therefore, was
on notice that the advance directive was not yet in effect and that it would be necessary for
Mr. Charles to affirm Rankin’s authority or ratify the admission contract and its provisions.
See Tower Oaks Blvd., LLC v. Procida, 219 Md. App. 376, 405 (2014) (under agency law,
“when an actual or apparent agent purporting to act on behalf of a principal did not have
authority to act, the principal later may approve the unauthorized act” (citation omitted)).
Mr. Charles’ apparent acquiescence of the admission contract, by moving into the facility,
does not mean he has ratified the terms of the contract, unless he was made aware of the
10
The “Physician Certification Related to Medical Condition, Substitute Decision Making,
and Treatment Limitations” form contained conflicting reports of the level of competence.
Under the section for the “Certification of Ability to Comprehend Information and Make
Decisions,” while all the boxes checked signified that Mr. Charles was “able” to make his
own decisions, the physician also checked the box determining that Mr. Charles was
incapable of making informed decisions about “All medical treatments ….”
14
arbitration clause and still took no action.11 On this record, we cannot find competent
support for the circuit court’s conclusion that Rankin was Mr. Charles’ apparent agent.
Accordingly, we conclude that, absent actual or apparent agency with the authority
to execute an admission contract that included a waiver of jury trial rights, there is no valid
or enforceable arbitration agreement.
2. Unconscionability
Even were we to assume that a valid and enforceable arbitration agreement between
Brinton Woods and the decedent’s estate existed, there is evidence to support a conclusion
that the provisions contained therein are so one-sided as to present an issue of
unconscionability.
An arbitration agreement is “valid and enforceable, and is irrevocable, except upon
grounds that exist at law or in equity for the revocation of a contract.” Md. Code (1974,
2013 Repl. Vol.) Courts and Judicial Proceedings Article, § 3-206(a) (emphasis added).
Which means, “contract defenses, such as … unconscionability, may be asserted in court
to invalidate an arbitration agreement.” Henry v. Gateway, Inc., 187 Md. App. 647, 658
(2009) (citation omitted). “A court may also consider issues relating to the making and
performance of the agreement to arbitrate, … [but] [t]he burden of demonstrating these
defenses is on the party opposing arbitration, and these issues are often fact-intensive.” Id.(internal quotations and citations omitted).
11
The Restatement provides that “[i]f, at the time of affirmance, the purported principal is
ignorant of material facts involved in the original transaction, and is unaware of his
ignorance, he can thereafter avoid the effect of the affirmance.” Restatement (Second) of
Agency § 91(1) (1958).
15
As to the question of unconscionability, the circuit court wrote:
The Plaintiff [sic] cites [sic] several cases from outside Maryland
where arbitration clauses were found unconscionable. However, in Walther
[v. Sovereign Bank, 386 Md. 412 (2005)], it seems clear that the Maryland
Court of Appeals requires this Court to “consider whether the terms in the
arbitration clause are so one-sided as to oppress or unfairly surprise an
innocent party or whether there exists an egregious imbalance in the
obligations and rights imposed by the arbitration clause.”
* * *
This Court finds that in the instant case the terms of the arbitration
clause are not one-sided and do not create an imbalance in each party’s
obligations and rights. The Court does not find unconscionability ….
(Quoting Walther, 386 Md. at 431).
In reaching that conclusion, however, the circuit court provided no factual support
for its finding. Rather, the court merely concluded that it “does not find unconscionability.”
The Estate argues that the circuit court “committed reversible error by not engaging in any
meaningful analysis in support of its holding ….” We agree and explain.
There are two aspects of unconscionability – procedural and substantive – both of
which must exist for a court to decline to enforce an arbitration provision. Doyle v. Fin.
Am., LLC, 173 Md. App. 370, 383 (2007).
Procedural unconscionability “concerns the process of making a contract and
includes such devices as the use of fine print and convoluted or unclear language, as well
as deficiencies in the contract formation process, such as deception or a refusal to bargain
over contract terms.” Stewart v. Stewart, 214 Md. App. 458, 477 (2013) (internal
quotations and citation omitted).
16
Substantive unconscionability, on the other hand, “refers to contractual terms that
are unreasonably or grossly favorable to the more powerful party and includes terms that
attempt to alter in an impermissible manner fundamental duties otherwise imposed by the
law[.]” Stewart, 214 Md. App. at 477-78 (internal quotations and citation omitted). They
are “provisions that seek to negate the reasonable expectations of the nondrafting party,
and terms unreasonably and unexpectedly harsh … having nothing to do with … central
aspects of the transaction.” Id. at 478.
Despite the “fact-intensive” nature of disputes concerning the validity and
enforceability of arbitration agreements, the circuit court made no factual determinations
in support of its decision, or to adequately explain its rationale.
Procedural Unconscionability
The Estate argues that the arbitration agreement in the admission contract was both
procedurally and substantively unconscionable, thereby rendering it unenforceable. It also
contends that “there is no dispute [that] the arbitration agreement is a contract of adhesion
and was the product of procedural unconscionability.” Additionally, the Estate claims that
“the mediation/arbitration agreement is one-sided, solely for Brinton Woods’ benefit, and
presents an egregious imbalance of obligations and rights.”
In response, Brinton Woods contends that “the rights are equally applied” and “the
risk is borne by both parties to the Admission Contract.” Further, that “Appellants’
arguments in this case do not suggest unique problems with the arbitration clause at issue
in this case; rather, the elements the Appellants contend are unconscionable exist in
virtually every arbitration clause.” Brinton Woods also asserts that “[i]rrespective of the
17
forum, parties face costs, hurdles, and inconveniences, but the purpose of arbitration is to
provide alternative benefits to litigation, such as the liberal rules of evidence, which often
leads to speedier resolutions ….”
The language of the admission contract reveals either imprecise drafting, which is
supported by the numerous errors contained throughout, or a deliberate attempt to mislead
an inattentive reader.
The Estate argues – and we agree – that the documents constitute a contract of
adhesion. The Court of Appeals has defined a contract of adhesion as one “that is drafted
unilaterally by the dominant party and then presented on a ‘take-it-or-leave-it’ basis to the
weaker party who has no real opportunity to bargain about its terms.” Walther, 386 Md.
at 430 (quotations and citation omitted). The contract at issue was drafted by Brinton
Woods and presented in standard form. As we shall note, an imbalance leans heavily in
favor of the drafter.
The initial paragraph of the admission contract provides misleading information
about what an applicant will find in its contents, stating that: “This contract contains your
financial obligations, as well as your rights as a Resident of this Facility.” (Emphasis
added). This language fails to inform applicants that the contract also contains an
additional provision that is neither a financial obligation nor a right as a resident – the
waiver of the constitutional right to a jury trial. Similarly, under the “Additional
Documents” section, the document explains that it’s “not possible [in the contract] to cover
everything that is important to your stay ….” so “additional important documents [are
attached] as Exhibits.” Although the admission contract provided that those “Exhibits are
18
part of this Contract[,]” none of those documents are included in the record. Furthermore,
despite the ambiguous language of the mediation and arbitration clauses, and the
importance of one’s constitutional right to a jury trial, no “additional important documents”
concerning those provisions were included with the contract.
Procedural unconscionability is also evident from the format of the document and
the location of the mediation and arbitration clauses within the contract. These two sections
are simply numbered paragraphs that are presented in the same format as every other
provision. Neither of these two sections contain any apparent emphasis by either bolded,
underlined, or italicized language, as is apparent in other sections, denoting important
provisions or concepts. The failure to highlight the binding nature of mediation and
arbitration clauses or the significance of what the applicant is being compelled to waive,
supports a finding of a procedural unconscionability. See Walther, 386 Md. at 445.
Substantive Unconscionability
Addressing the claim of substantive unconscionability, the Estate avers generally
that “there is no mechanism or procedure for how the mediator is to be selected, who has
the right and power to select, how much the mediator will cost, where the mediation will
take place or who will pay for the mediator.” The Estate also outlines additional factors to
support substantive unconscionability, stating that the admission contract “then details its
own rules and procedures drafted exclusively by Appellees, including [that] there be a
three-person Arbitration Committee, a ‘loser pays’ provision, evidentiary rules and
presumptions if the matter is pursued in State Court, and waiver of all appeal rights[,]” as
well as a $1,000 deposit requirement.
19
The significant difference between the arbitration clauses in Walther, and those
before us, appears in the clear and informative language of the Walther clause, as well as
its location and format. The Walther Court noted that it was “loath to rescind a conspicuous
arbitration agreement[,]” 386 Md. at 444, pointing out that the agreement in that case
“appeared as part of the underlined and distinct arbitration clause, which was located
immediately above petitioners’ signatures[.]” Id. at 445. The Court recognized that the
arbitration clause included express language emphasizing the binding nature of the clause
and of the waiver of a right, providing that “[t]he parties acknowledge that they are waiving
their right to jury trial by consenting to binding arbitration.” Id. at 419, 443 n.10 (quoting
the Disclosure Agreement). Based on those observations, the Court concluded that,
“[b]ecause the jury trial waiver was not presented in the Disclosure Agreement in an
inconspicuous manner, … we hold that the jury trial waiver did not unfairly usurp the
fundamental right to a jury trial from petitioners.” Id. at 445. Such is not the case here.
The binding nature of the Brinton Woods arbitration clause and the waiver of the
right to a jury trial lack clarity and transparency. In addition to the misleading statement
in the first paragraph of the admission contract, supra, the mediation and arbitration
provisions, are also unclear and misleading. The contract imposes an initial mediation
requirement, prior to any issue being submitted to arbitration. In addition to failing to
provide any criteria for selection of mediators or scheduling and timing details of a
mediation, the provision fails to address the allocation of fees or costs associated with the
mediation requirement. The contract then imposes a requirement that any issue left
20
unresolved in mediation, must be submitted to arbitration. Moreover, the language of the
arbitration clause lacks clarity and includes apparent conflicting provisions.
For instance, the language concerning the arbitration process provides that it will be
“consistent with the American Arbitration Associate [sic] rules.” Next, the clause includes
a requirement that the parties abide by any decision made by the undefined “Arbitration
Committee” and that each will consent to such a decision being made by a “majority of the
subcommittee of three (3), appointed to act in this case.” Not only is the “Arbitration
Committee” not defined, the clause also introduces the undefined “subcommittee of three
(3),” a term not again referred to in any other section. It is that group who would be the
arbiters of the dispute. It is not until section D of the arbitration clause, that the word
“binding” is used for the first and only time. Section D provides that “[t]he findings of the
Arbitration Committee shall be as binding on us … as would be a decision of Court of Last
Resort of the State of Maryland.”
The last two paragraphs of section D appear to present conflicting rights and
obligations. The first paragraph suggests that a party who loses in arbitration can “decide
to then submit this matter to a State Court for its consideration,” requiring the losing party
to pay the court costs and attorneys’ fees of the winning party during the state court
proceeding. However, in the paragraph that follows, it states that “the judgment shall not
be appealable and shall not be stayed[,]” using the term “judgment” for the first and only
time.
It then provides that if
21
the party against whom the decision is made shall appeal from any such
decision or file or cause to be filed a Complaint 3 [sic] with any State Court
after the issuance of the Arbitrators’ findings, … [that party] agrees, without
questions [sic], to pay and be responsible for paying any and all Court costs,
attorneys’ fees and/or any cost incurred by the [other party] regardless of the
outcome of the litigation.
(Emphasis added).
We find those conflicting statements to create ambiguity. In nearly every instance
we can imagine, Brinton Woods would be considered a sophisticated party and the patient
an unsophisticated party. A reasonable person – particularly a lay person – would not
easily understand his or her rights and responsibilities under the contract. Such errors and
ambiguities likewise support a finding of procedural as well as substantive
unconscionability.
The contract also lacks detail of the procedures and cost allocation for the alternative
dispute procedures. Other than the initial $1,000 deposit requirement, refundable only if
the patient prevails, there is no guidance offered to reflect even an estimated range of
potential fees and costs. The gaps of important information in those provisions afford the
drafting party the ability to fill those gaps freely, thereby “impair[ing] the integrity of the
bargaining process ….” Freedman, 190 Md. App. at 209. It is evident that “there exists
an egregious imbalance in the obligations and rights imposed by the arbitration clause.”
Walther, 386 Md. at 431.
Further, an applicant for admission who may lack the ability to produce a $1,000
arbitration deposit may be put in a position to forego pursuit of arbitration. The
requirement of a loser-pays-all provision, without estimate of cost, likewise has the
22
potential to preclude recourse for a patient who lacks the financial resources to engage the
arbitration process.
III. CONCLUSION
We find that the record does not support the circuit court’s finding of apparent
agency. Hence, the Estate is not bound to the mandatory arbitration provisions of the
admission contract. Alternatively, we find the terms and conditions of the arbitration
clause to be overbearing and, as such, unenforceable as unconscionable.
JUDGMENT OF THE CIRCUIT COURT
FOR BALTIMORE CITY REVERSED;
CASE REMANDED TO THAT COURT
FOR FURTHER PROCEEDINGS. COSTS
ASSESSED TO APPELLEES.
23