King v. Bryant , 369 N.C. 451 ( 2017 )

IN THE SUPREME COURT OF NORTH CAROLINA
No. 294PA14
Filed 27 January 2017
ROBERT E. KING and wife, JO ANN O’NEAL
v.
MICHAEL S. BRYANT, M.D. and VILLAGE SURGICAL ASSOCIATES, P.A.
On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision
of the Court of Appeals, 235 N.C. App. 218, 763 S.E.2d 338 (2014), affirming an order
entered on 10 May 2013 by Judge Lucy N. Inman in Superior Court, Cumberland
County. After hearing oral argument on 18 May 2015 and receiving additional
findings of fact following the entry of a remand order on 19 February 2016, the Court
ordered the parties to submit supplemental briefs. Additional issues raised in the
supplemental briefs heard on 31 August 2016.
Beaver, Courie, Sternlicht, Hearp & Broadfoot, P.A., by Mark A. Sternlicht, for
plaintiff-appellees.
Walker, Allen, Grice, Ammons & Foy, L.L.P., by Robert D. Walker, Jr., O. Drew
Grice, Jr., and Alexandra L. Couch, for defendant-appellants.
Zaytoun Law Firm, PLLC, by Matthew D. Ballew, and Patterson Harkavy LLP,
by Burton Craige, for North Carolina Advocates for Justice, amicus curiae.
ERVIN, Justice.
This case arises out of a medical malpractice action that plaintiffs, Robert E.
King and his wife, Jo Ann O’Neal, brought against defendants, Michael S. Bryant,
M.D., and Village Surgical Associates, P.A. According to the allegations contained in
KING V. BRYANT
Opinion of the Court
plaintiffs’ complaint, Mr. King was scheduled to undergo a bilateral inguinal hernia
repair to be performed by Dr. Bryant at the Fayetteville Ambulatory Surgery Center
on 14 May 2009. At the time of his initial appointment with Dr. Bryant, Mr. King
was presented with an Agreement to Alternative Dispute Resolution (arbitration
agreement) that defendants routinely presented to new patients along with other
documents prior to the first occasion on which a patient met with a physician. The
arbitration agreement provided that:
In accordance with the terms of the Federal
Arbitration Act, 9 USC 1-16, I agree that any dispute
arising out of or related to the provision of
healthcare services by me, by Village Surgical
Associates, PA, or its employees, physician members,
and agents shall be subject to final and binding
resolution through private arbitration.
The parties to this Agreement shall agree upon three
Arbitrators and at least one arbitrator of the three shall be
a physician licensed to practice medicine and shall be board
certified in the same specialty as the physician party. The
remaining Arbitrators either shall be licensed to practice
law in NC or licensed to practice medicine in NC. The
parties shall agree upon all rules that shall govern the
arbitration, but may be guided by the Health Care Claim
Settlement Procedures of the American Arbitration
Association, a copy of which is available to me upon
request. I understand that this agreement includes all
health care [sic] services which previously have been or will
in the future be provided to me, and that this agreement is
not restricted to those health care [sic] services rendered in
connection with any particular treatment, office or hospital
admission. I understand that this agreement is also
binding on any individual or entity and not a precondition
to receiving health care [sic] services.
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Opinion of the Court
Mr. King, a witness, and Dr. Bryant each signed the arbitration agreement on 29
April 2009.
According to the unchallenged findings of fact, a front desk employee at Village
Surgical Associates provided Mr. King with several intake forms to complete and sign
while he waited to meet Dr. Bryant. The initial intake forms asked Mr. King to
provide personal and medical history information and to sign the signature lines on
all of the forms, including the arbitration agreement. Mr. King stated in his affidavit
that he was then provided with a second set of documents, which addressed insurance
and payment-related issues, after he had met with Dr. Bryant. Mr. King
acknowledged that he did not read any of the documents that he signed after his
initial meeting with Dr. Bryant and stated that he had believed them to be “just a
formality.” Mr. King denied having received a copy of the arbitration agreement on
the day that it was signed and asserted that the contents of the agreement were not
clear to him even after he had read it. Mr. King contended that, “[i]f the agreement
had been brought to my attention and I had been told signing it was optional, I would
not have signed it.”1
In the course of the performance of the hernia repair procedure, Dr. Bryant
injured Mr. King’s distal abdominal aorta, resulting in abdominal bleeding. Although
1Plaintiffs have not complained about, much less challenged the validity of, any of the
other documents that Mr. King signed during his visit to the Village Surgical Center on 29
April 2009. The identity and contents of these documents are not clear from the record.
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Opinion of the Court
Dr. Bryant was able to repair Mr. King’s injury, the necessary remedial procedures
led to occlusion of an artery, a thromboembolism to Mr. King’s right lower leg, and
acute ischemia in Mr. King’s right foot. After undergoing the performance of an
immediate revascularization at Cape Fear Valley Health Systems for the purpose of
salvaging his right leg, Mr. King remained hospitalized until 26 May 2009. At the
time of his discharge, Mr. King continued to suffer from complications related to his
abdominal aortic injury and needed additional treatment. As a result of the injury
that he sustained during the hernia repair procedure, Mr. King incurred unexpected
medical expenses, abdominal scarring, lost wages, numbness, and a limited ability to
use his right leg and foot.
On 28 September 2011, plaintiffs filed a complaint against defendants in the
Superior Court, Cumberland County, seeking damages for medical malpractice. On
7 November 2011, defendants filed a motion seeking to have further litigation in this
action stayed and the arbitration agreement that had been entered into between Mr.
King and defendants enforced and an answer in which defendants denied the
material allegations of plaintiffs’ complaint. Plaintiffs responded to defendants’
motion to stay and enforce the arbitration agreement by arguing that:
[T]he purported agreement is not enforceable for reasons
that include but are not limited to the undue, prohibitive
financial burden that enforcement of the agreement would
have on plaintiffs by requiring the hiring of three
arbitrators, one who must be a board certified physician in
the same specialty as the defendant, Michael S. Bryant,
M.D., and two who must be attorneys or physicians
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Opinion of the Court
licensed in North Carolina; the inherent unfairness of
requiring one arbitrator be a member of the same
profession and medical specialty as the defendant, . . .
especially in light of the absence of any comparable
requirement for an arbitrator to be similarly affiliated with
the plaintiffs . . . .
On 13 February 2012, defendants filed a motion seeking the entry of an order
compelling arbitration. On 23 March 2012, the trial court entered an order denying
defendants’ motion to enforce the arbitration agreement on the basis of conclusions
that:
4. The Agreement to Alternative Dispute
Resolution leaves material portions open to future
agreements by providing, inter alia, that the parties shall
agree upon three arbitrators and that the parties shall
agree upon all rules that shall govern the arbitration.
5. At most, the Agreement to Alternative
Dispute Resolution is an “agreement to agree” that is
indefinite and depends on one or more future agreements.
Seawell v. Continental Cas. Co., 84 N.C. App. 277, 281, 352
S.E.2d 263, 265 (1987).
6. The Agreement to Alternative Dispute
Resolution is not a binding contract and is not enforceable.
Defendants noted an appeal to the Court of Appeals from the trial court’s order.
On 5 February 2013, the Court of Appeals filed an opinion reversing the March
2012 order and remanding this case for further proceedings, King v. Bryant, 225 N.C.
App. 340, 737 S.E.2d 802 (2013) (King I), on the grounds “that the trial court erred in
concluding the Agreement between the parties was too indefinite to be enforced,” id.
at 345, 737 S.E.2d at 807. According to the Court of Appeals, “there was clearly an
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Opinion of the Court
offer to arbitrate any dispute which arose out of Defendants’ provision of medical care,
as well as an acceptance of that offer by Mr. King.” Id. at 346, 737 S.E.2d at 807.
Although plaintiffs had argued before the trial court and the Court of Appeals that
the arbitration agreement was unenforceable on unconscionability grounds, the
Court of Appeals declined to address that issue given that the trial judge in the March
2012 order had not made the necessary factual findings. Id. at 347, 737 S.E.2d at
808. According to the Court of Appeals, “the trial court is the appropriate body to
determine whether the agreement is unconscionable,” id. at 347-48, 737 S.E.2d at 808
(citation omitted), with the needed unconscionability analysis to “be undertaken with
an understanding of the unique nature of the physician/patient relationship,” id. at
348, 737 S.E.2d at 808. In addition, the Court of Appeals noted that, “[u]nder North
Carolina law, fiduciary relationships create a rebuttable presumption that the
plaintiff put his trust and confidence in the defendant as a matter of law.” Id. at 349,
737 S.E.2d at 809. As a result, the Court of Appeals required that these issues be
addressed on remand. Id. at 350, 737 S.E.2d at 809.
On 10 May 2013, the trial court entered an order on remand determining that,
given the nature of the fiduciary relationship that existed between Mr. King and
defendants, defendant Bryant “had a fiduciary duty to disclose to his patient all facts
material to their transaction.” More specifically, the trial court’s May 2013 order
found as a fact that:
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2. Mr. King, now 68, has no educational degree
beyond high school and his job requires little reading. He
has minimal experience reading legal documents.
3. Defendant Village Surgical Associates, P.A.
(“Village Surgical”) has experience in managing patient
complaints, responding to claims of medical negligence
made by patients, and resolving disputes through
arbitration.
4. On April 29, 2009, Plaintiffs visited
Defendant’s office for the first time to consult with
Defendant Bryant about performing laparoscopic surgery
on Plaintiff King to repair a hernia. Plaintiff King had
been referred to Defendants by his primary care physician.
5. While Plaintiffs were waiting to meet
Defendant Bryant and consult with him about performing
surgery, Defendant’s receptionist provided Plaintiff King
with several intake forms to complete and sign. Plaintiff
King considered the forms to be a formality.
6. Neither the receptionist, nor Defendant
Bryant, nor any agent of Defendants called to Plaintiff
King’s attention the fact that one of the forms he was asked
to sign, the Agreement, differed from all of the other forms
because it did not concern medical information, insurance
information, or payment for the surgery, all routine for a
new patient. Nor did anyone disclose to Plaintiff King that
the Agreement sought to foreclose his access to the judicial
process in the event that any dispute arose out of or related
to the surgery to be performed by Defendant Bryant.
....
8. The Agreement does not provide that by
signing it, the patient waives his or her right to a trial. The
Agreement does not include the word “jury” or “judge” or
“trial.” The Agreement does not provide that the patient
can consult an attorney before signing it.
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Opinion of the Court
9. There is no evidence that the physician or any
agent of Defendants discussed with the patient, Plaintiff
King, any provision of the Agreement.
....
11. At the time Plaintiff King signed the
Agreement and provided his medical information on intake
forms, even though he had not yet met Defendant Bryant,
he was already placing his confidence and trust in
Defendants, as demonstrated by his willingness to share
his confidential medical information.
....
14. The first, bold-faced paragraph of the
Agreement is poorly drafted, confusing, and nonsensical.
For example, it refers to the “provision of healthcare
services by me,” suggesting that “me” refers to the
physician rather than the patient.
15. The Agreement repeatedly refers to
arbitration without defining the term. The Agreement
includes no mention whatsoever of the judicial process, a
trial, or a jury. The Agreement does not disclose
Defendants’ intent for Plaintiff King to waive his rights to
the judicial process, including his right to a jury trial, in
the event of any claim arising from or related to the
surgery. A person of Plaintiff King’s education and
experience should not reasonably have been expected to
know from the language of the Agreement, or from any
information provided to him by Defendants, that he had a
right to a jury trial to resolve any potential dispute with
his surgeon. Nor should he have been expected to
understand from the language of the Agreement or other
information provided to him by Defendants that by signing
the Agreement, he would waive his right to a jury trial.
16. The last sentence of the second paragraph in
the Agreement starts with complex but complete clauses
. . . and ends with an incomplete clause . . . . A person of
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Opinion of the Court
Plaintiff King’s education and experience should not
reasonably be expected to understand the last, tacked on,
incomplete clause to mean that he did not need to sign the
Agreement in order for Defendant Bryant to perform the
surgery.
17. Plaintiff King read the Agreement after a
copy was provided to him by his attorney, and he still did
not understand its contents or the intended consequence of
signing it.
18. Unlike arbitration agreements which have
been upheld and enforced in medical negligence cases, the
Agreement includes no provision allowing or
recommending that the patient consult with an attorney
regarding the Agreement prior to signing it.
19. Defendants sought Plaintiff’s signature on
the Agreement to benefit themselves.
20. The Agreement’s provision requiring at least
one physician arbitrator, and its provision allowing all
three arbitration panelists to be a physician, confers a
benefit to Defendants and detriment to Plaintiffs.
....
23. Ms. Ramos, a receptionist at Defendant
Village Surgical, states in a sworn affidavit that the form
arbitration agreement is included in “registration
paperwork” presented to each new patient when he or she
visits the practice for an initial appointment, prior to
meeting with a physician. . . . It is reasonable to infer from
Ms. Ramos’ sworn statement that, in fact, it is the practice
of Defendants to obscure the form arbitration agreement
by presenting it among a pile of other documents without
pointing it out or explaining its contents.
Based upon these findings of fact, the trial court concluded as a matter of law in the
May 2013 order that:
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3. Defendants were fiduciaries of Plaintiff King
as the result of the physician-patient relationship.
4. Defendant Bryant and other agents of
Defendants breached their fiduciary duties to Plaintiff
King by failing to disclose to him all material terms of the
Agreement and failing to deal with him openly, fairly,
honestly, and without imposition, oppression, or fraud in
procuring his signature on the Agreement.
....
6. The Agreement is the product of constructive
fraud and is therefore unenforceable.
7. The Agreement is unconscionable and is
therefore unenforceable.
Defendants noted an appeal to the Court of Appeals from the trial court’s May 2013
remand order declining to enforce the arbitration agreement.
On 15 July 2014, the Court of Appeals filed an unpublished opinion affirming
the May 2013 remand order on unconscionability grounds. King v. Bryant, 235 N.C.
App. 218, 763 S.E.2d 338, 2014 WL 3510481 (2014) (unpublished) (King II). Although
defendants had argued on appeal that the arbitration agreement was “not a product
of constructive fraud and not unconscionable” and that the trial court had “erred by
denying their motion to compel arbitration,” King II, 2014 WL 3510481 at *2, the
Court of Appeals noted that “[d]efendants do not argue that the trial court’s findings
of fact are not based on competent evidence,” id. at *6, making the trial court’s
findings “binding on appeal,” id. at *6 n.1. In addition, the Court of Appeals declined
to address defendants’ contention that “a fiduciary relationship did not exist at the
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time that Mr. King signed the arbitration agreement because [Dr. Bryant] had not
yet accepted King as a patient,” id. at *6, given that the Court had already decided in
King I “that a fiduciary relationship existed between the parties and directed the trial
court to consider that fact on remand,” id. (citing N.C. Nat’l Bank v. Va. Carolina
Builders, 307 N.C. 563, 567, 299 S.E.2d 629, 631 (1983) (concluding that, “once a
panel of the Court of Appeals has decided a question in a given case that decision
becomes the law of the case and governs other panels which may thereafter consider
the case”)).
Upon reaching the unconscionability issue, the Court of Appeals noted this
Court’s holding in Tillman v. Commercial Credit Loans, Inc., to the effect that,
although
[a]rbitration is favored in North Carolina. . . . “equity may
require invalidation of an arbitration agreement that is
unconscionable.” A court will find a contract to be
unconscionable “only when the inequity of the bargain is so
manifest as to shock the judgment of a person of common
sense, and where the terms are so oppressive that no
reasonable person would make them on the one hand, and
no honest and fair person would accept them on the other.”
362 N.C. 93, 101-02, 655 S.E.2d 362, 369-70 (2008) (internal citations omitted)
(quoting Murray v. United Food & Commercial Workers Int’l Union, 289 F.3d 297,
302 (4th Cir. 2002), and Brenner v. Little Red Sch. House Ltd., 302 N.C. 207, 213, 274
S.E.2d 206, 210 (1981)). “A party asserting that a contract is unconscionable must
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prove both procedural and substantive unconscionability.” Id. at 102, 655 S.E.2d at
370 (citations omitted). However,
[s]ince Tillman, the United States Supreme Court has
issued two important opinions on the use of state law to set
aside an arbitration agreement when that agreement is
governed by the FAA: AT&T Mobility v. Concepcion, ___
U.S. ___, 179 L. Ed. 2d 742 (2011) (determining that the
FAA preempted California’s judicial rule prohibiting class
waivers in consumer arbitration agreements contained
within contracts of adhesion) and American Express Co. v.
Italian Colors Rest., ___ U.S. ___, 186 L. Ed. 2d 417 (2013)
(holding that the FAA does not permit courts to invalidate
an arbitration agreement on the grounds that it does not
permit class arbitration).
King II, 2014 WL 3510481, at *8. The Court of Appeals had addressed the impact of
Concepcion and Italian Colors on Tillman in Torrence v. Nationwide Budget Finance,
232 N.C. App. 306, 753 S.E.2d 802, disc. rev. denied and cert. denied, 367 N.C. 505,
759 S.E.2d 88 (2014), and stated that, “[w]hile both Concepcion and Italian Colors
dealt with class action waivers, underlying those decisions was a broader theme that
unconscionability attacks that are directed at the arbitration process itself will no
longer be tolerated.” Torrence, 232 N.C. App. at 321, 753 S.E.2d at 811 (citation
omitted). As a result, in Torrence, the Court of Appeals held that “(1) the
‘prohibitively high’ cost factor is no longer applicable to an unconscionability analysis;
(2) an agreement’s lack of mutuality, alone, is not sufficient to justify a finding of
substantive unconscionability; and (3) the prohibition of joinder of claims and class
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actions does not render an arbitration agreement unconscionable.” King II, 2014 WL
3510481 *8 (citing Torrence, 232 N.C. App. at 322, 753 S.E.2d at 811-12).
In spite of the limitations on the use of state law to preclude enforcement of
arbitration agreements noted in Torrence, the Court of Appeals concluded that “the
trial court correctly determined that the arbitration agreement here is
unconscionable,” id., given defendant’s failure to take “any active steps, in accordance
with their fiduciary duty, to make a full, open disclosure of material facts to King
before he signed the arbitration agreement,” id. at *9 (internal quotations marks
omitted). The Court of Appeals concluded that the arbitration agreement is
procedurally unconscionable because,
[g]iven (1) the fact that we analyze the agreement here in
the context of the fiduciary duty Defendants owed King, (2)
the disparate levels of sophistication between the parties,
(3) the nature of the delivery of the agreement, and
(4) Defendants’ burden because of their fiduciary duty to
King to provide full and open disclosure of the material
facts surrounding the transaction between the parties, we
hold that the arbitration agreement suffered from
significant procedural unconscionability. King did not
have a meaningful choice between whether to sign the
agreement or not. Accordingly, Defendants’ argument is
overruled.
Id. at *10. Similarly, the Court of Appeals found the arbitration agreement to be
substantively unconscionable because it is “a harsh, one-sided and oppressive
instrument.” Id. As a result, after concluding that “this agreement is unconscionable
because of Defendants’ failure to properly prepare and present the arbitration
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agreement to King in the context of their confidential, physician-patient, fiduciary
relationship,” id. at *11, the Court of Appeals affirmed the remand order, id.
On 18 August 2014, defendants filed a petition for discretionary review
requesting this Court to grant further review of the Court of Appeals’ decision in King
II. On 18 December 2014, this Court granted defendants’ discretionary review
petition. After briefing and oral argument, this Court entered an order on 21 August
2015 remanding this case to the Superior Court, Cumberland County, for the making
of further findings of fact relating to the issue of whether a physician-patient
relationship existed at the time that Mr. King signed the arbitration agreement on
the grounds that both the trial court’s May 2013 remand order and the Court of
Appeals decision in King II had “assumed the existence of such a relationship” and
that the record was devoid of sufficient findings to permit the proper resolution of
this case in the absence of such findings.
On 6 November 2015, Judge Mary Ann Tally entered an order on remand
making the factual findings requested in this Court’s remand order. In the November
2015 order, the trial court found as fact that:
5. When Mr. King completed the forms by
providing his confidential medical history, symptoms,
personal identifying information, and health insurance [ ]
information, and signing the arbitration agreement, he
trusted Dr. Bryant as his doctor, Dr. Bryant’s practice, and
its employees, particularly because of the referral from his
family doctor. Mr. King would not have provided private
and confidential information and signed the documents,
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including the arbitration agreement, if he had not
considered Dr. Bryant to be his doctor and trusted him.
6. Patient trust is fundamental to the physician-
patient relationship. The requirements of that
relationship include adequate communication between the
physician and patient; there be no conflict of interest
between the patient and the physician; personal details of
the patient[’]s life shared with the physician be held in
confidence; there be respect for the patient’s autonomy;
patient primacy; and selflessness. These requirements are
described in the North Carolina Medical Board Position
Statement, The physician-patient relationship. Each of
these requirements applied to the relationship between
defendants and Mr. King.
7. Each of those requirements arose because a
physician-patient relationship existed between defendants
and Mr. King. . . . [A] physician-patient relationship can
exist before a physician meets a patient, particularly when
the physician delegates to others certain duties that are
involved in the relationship, even though this may “not fit
traditional notions of the doctor-patient relationship.”
Mozingo v. Pitt Cnty. Mem. Hosp., Inc., 331 N.C. 182, 188,
415 S.E.2d 341, 344-45 (1992). These cases support the fact
that a physician-patient relationship can exist when a
physician has fewer than all of the duties that attach to the
relationship after the duty to treat arises or when a
physician, in today’s modern health care environment,
relies on others to participate in activities necessary for
patient care.
8. By analogy, the [a]ttorney-client privilege
protects “not only the giving of professional advice to those
who can act on it but also the giving of information to the
lawyer to enable him to give sound and informed advice.”
Upjohn Co. v. United States, 449 U.S. 383, 390, 394 (1981).
9. The physician-patient relationship began
before Mr. King signed the arbitration agreement and was
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in existence at the time he signed the arbitration
agreement.
After receiving these additional findings of fact concerning the physician-patient
relationship issue, this Court ordered supplemental briefing and argument. In their
supplemental brief, defendants urge us to “disregard the findings of fact entered by
the trial court, find that no physician-patient relationship existed at the time Mr.
King signed the arbitration agreement, and reverse the decision of the Court of
Appeals affirming the trial court’s order on the grounds that the arbitration
agreement is unconscionable.” Plaintiffs, on the other hand, argue that the findings
contained in the November 2015 order establish that a physician-patient relationship
existed when Mr. King signed the arbitration agreement, so that “this Court should
affirm the holdings that the Agreement is unenforceable due to constructive fraud
and unconscionability.”
Although they have vigorously challenged the legal effect of the factual
findings contained in the May 2013 and November 2015 orders, defendants have not
challenged the sufficiency of the evidence to support any of those findings. According
to well-established North Carolina law, “[w]here no exception is taken to a finding of
fact by the trial court, the finding is presumed to be supported by competent evidence
and is binding on appeal.” Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729,
731 (1991) (citing, inter alia, Schloss v. Jamison, 258 N.C. 271, 275, 128 S.E.2d 590,
593 (1962)). However, defendants do argue that the findings of fact fail to support
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the conclusions of law to the effect that “[d]efendants were fiduciaries of Plaintiff King
as the result of the physician-patient relationship” and that “[t]he Agreement is
unconscionable and is therefore unenforceable.” Unlike findings of fact,
“[c]onclusions of law drawn by the trial court from its findings of fact are reviewable
de novo on appeal.” Carolina Power & Light Co. v. City of Asheville, 358 N.C. 512,
517, 597 S.E.2d 717, 721 (2004) (citations omitted). As a result, we will review
defendants’ challenges to these conclusions of law using a de novo standard of review.
After carefully considering the record and the briefs and arguments submitted
by the parties, we believe that the proper resolution of this case hinges upon the
nature of the relationship that existed between Mr. King and Dr. Bryant at the time
that the arbitration agreement was signed. Although the parties, especially in their
supplemental briefs, have placed particular emphasis upon the issue of whether a
physician-patient relationship could have existed between Mr. King and Dr. Bryant
before Dr. Bryant met with and accepted Mr. King as a patient, we are not, after
extensive reflection, convinced that this case is properly viewed through a physician-
patient relationship lens. Instead, we believe that this case is most properly
understood as revolving around the issue of whether a fiduciary relationship existed
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between Mr. King and Dr. Bryant independent of the existence of a physician-patient
relationship at the time that Mr. King signed the arbitration agreement.2
“For a breach of fiduciary duty to exist, there must first be a fiduciary
relationship between the parties.” Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d
704, 707 (2001) (citing Curl v. Key, 311 N.C. 259, 264, 316 S.E.2d 272, 275 (1984), and
Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971)). “The courts generally
have declined to define the term ‘fiduciary relation’ and thereby exclude from this
broad term any relation that may exist between two or more persons with respect to
the rights of persons or property of either.” Abbitt v. Gregory, 201 N.C. 577, 598, 160
S.E. 896, 906 (1931). “In general terms, a fiduciary relation is said to exist [w]herever
confidence on one side results in superiority and influence on the other side; where a
special confidence is reposed in one who in equity and good conscience is bound to act
in good faith and with due regard to the interests of the one reposing the confidence.”
Vail v. Vail, 233 N.C. 109, 114, 63 S.E.2d 202, 206 (1951) (internal quotation marks
omitted).
A number of relationships have been held to be inherently fiduciary, including
the relationships between spouses, attorney and client, trustee and beneficiary,
members of a partnership, Dallaire v. Bank of America, N.A., 367 N.C. 363, 367, 760
2 Defendants have never contended at any point in this litigation that the breach of
fiduciary duty issue, which was clearly discussed in the trial court and raised before the Court
of Appeals during the proceedings that led to King II, is not properly before the Court.
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S.E.2d 263 266, and physician and patient, Watts v. Cumberland County Hospital
System Inc., 317 N.C. 110, 116, 343 S.E.2d 879, 884 (1986). However,
[t]he relation may exist under a variety of circumstances;
it exists in all cases where there has been a special
confidence reposed in one who in equity and good
conscience is bound to act in good faith and with due regard
to the interests of the one reposing confidence. . . . . Courts
of equity have carefully refrained from defining the
particular instances of fiduciary relations in such a manner
that other and perhaps new cases might be excluded. It is
settled by an overwhelming weight of authority that the
principle extends to every possible case in which a fiduciary
relation exists as a fact, in which there is confidence
reposed on one side and the resulting superiority and
influence on the other. The relation and the duties
involved in it need not be legal; it may be moral, social,
domestic, or merely personal.
Abbitt, 201 N.C. at 598, 160 S.E. at 906-07 (internal quotation marks omitted); see
also Dallaire, 367 N.C. at 367, 760 S.E.2d at 266 (concluding that fiduciary
relationships are characterized by “a heightened level of trust and the duty of the
fiduciary to act in the best interests of the other party”).
If a fiduciary relationship is found to exist, the fiduciary is “held to a standard
‘stricter than the morals of the market place’ . . . ‘[n]ot honesty alone, but the punctilio
of an honor the most sensitive, is [then] the standard of behavior.’ ” Dallaire, 367
N.C. at 367, 760 S.E.2d at 266 (second alteration in original) (quoting Meinhard v.
Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928)). Liability for breach of fiduciary
duty “is based on [the taking advantage of] a confidential relationship rather than a
specific misrepresentation.” Barger v. McCoy Hillard Parks, 346 N.C. 650, 666, 488
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S.E.2d 215, 224 (1997) (quoting Terry v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678-
79 (1981)); Priddy v. Kernersville Lumber Co., 258 N.C., 653, 658, 129 S.E.2d 256, 261
(1963) (stating that liability for breach of fiduciary duty “may exist without any
fraudulent intent”). As a result, “[w]here a relation of trust and confidence exists
between the parties, there is a duty to disclose all material facts and failure to do so
constitutes” a breach of fiduciary duty. Vail, 233 N.C. at 114, 63 S.E.2d at 206
(internal quotation marks omitted).3 However, before liability for breach of fiduciary
duty can exist, it must be shown that the defendant sought to benefit himself at the
expense of the other party. Barger, 346 N.C. at 666-67, 488 S.E.2d at 224.
The record evidence, as reflected in the factual findings contained in the May
2013 and November 2015 orders, demonstrates that Mr. King was referred to Dr.
Bryant by his family practitioner for the purpose of having a hernia repair procedure
performed. Individuals consult with surgeons, like they do with other physicians,
because such persons possess “special knowledge and skill in diagnosing and treating
diseases and injuries, which the patient lacks;” accordingly, “the patient has sought
3 The elements of a claim for breach of fiduciary relationship are the same as those for
constructive fraud. See Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971) (stating
that, “[w]here a transferee of property stands in a confidential or fiduciary relationship to the
transferor, it is the duty of the transferee to exercise the utmost good faith in the transaction
and to disclose to the transferor all material facts relating thereto and his failure to do so
constitutes fraud” (citing Vail, 233 N.C. 109, 63 S.E.2d 202)); Rhodes v. Jones, 232 N.C. 547,
548, 61 S.E.2d 725, 726 (1950) (stating that “[c]onstructive fraud often exists where the
parties to a transaction have a special confidential or fiduciary relation which affords the
power and means to one to take undue advantage of, or exercise undue influence over the
other.” (internal quotation marks omitted) (citing McNeill v. McNeill, 223 N.C. 178, 25 S.E.2d
615 (1943)).
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and obtained the services of the physician because of such special knowledge and
skill.” Black v. Littlejohn, 312 N.C. 626, 646, 325 S.E.2d 469, 482 (1985) (internal
quotation marks omitted). Upon arrival at defendants’ office, Mr. King was presented
with a collection of documents, including the arbitration agreement, and asked to
complete them. The majority of the documents that Mr. King was requested to
complete and sign involved the provision of medical information, which is inherently
sensitive and confidential in nature, for Dr. Bryant’s use in determining whether to
accept Mr. King as a patient and in determining how he should be treated. No one
directed Mr. King’s attention to the arbitration agreement, which was only one of a
number of documents presented to him on that occasion, or made any attempt to
explain the ramifications that would result from any decision on his part to sign it.
After Mr. King completed and signed these documents and met with Dr. Bryant, Dr.
Bryant agreed to assume responsibility for providing Mr. King with medical care and
treatment.
A careful examination of the information contained in the findings of fact made
in the May 2013 and November 2015 orders persuades us that, regardless of whether
a physician-patient relationship existed between Mr. King and Dr. Bryant at the time
that the arbitration agreement was signed, there was a confidential relationship
between them at that point. It is difficult for us to see how one could reach any
conclusion other than that Mr. King reposed trust and confidence in Dr. Bryant, to
whom he had been referred by his family physician for the purpose of receiving
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Opinion of the Court
surgical treatment. As we have already noted, the fact that Mr. King decided to
consult Dr. Bryant constituted recognition on Mr. King’s part that Dr. Bryant
possessed “special knowledge and skill in diagnosing and treating diseases and
injuries, which the patient lacks.” Black. 312 N.C. at 646, 325 S.E.2d at 482. Before
he even saw Dr. Bryant, Mr. King demonstrated sufficient trust and confidence in
him to provide Dr. Bryant with confidential medical information. Finally, unlike Dr.
Bryant, Mr. King had received a limited education and had little to no experience
interpreting legal documents. As a result, we conclude that a fiduciary relationship
existed between Mr. King and Dr. Bryant at the time that Mr. King signed the
arbitration agreement.
Similarly, we conclude that defendants violated their fiduciary duty to Mr.
King by failing to make full disclosure of the nature and import of the arbitration
agreement to him at or before the time that it was presented for his signature.
Instead of specifically bringing this agreement, which substantially affected his legal
rights in the event that an untoward event occurred during the course of the
treatment that he received from defendants, to Mr. King’s attention and explaining
it to him, defendants presented Mr. King with the arbitration agreement, which, at a
minimum, could have been worded more clearly, in a collection of documents, thereby
creating the understandable impression that the arbitration agreement was simply
another routine document that Mr. King needed to sign in order to become a patient.
Moreover, consistent with the unchallenged findings of fact, defendants benefitted
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Opinion of the Court
from Mr. King’s action in signing the arbitration agreement by ensuring that any
subsequent dispute between the parties would be resolved using the forum,
procedures, and decision makers of their choice. As a result, the findings of fact
contained in the May 2013 and November 2015 orders establish that defendants
failed to act consistently with their fiduciary duty to Mr. King by requesting that he
sign a document with substantial legal ramifications and which they believed to be
of benefit to themselves without making full disclosure to Mr. King.
Aside from the fact that defendants have failed to clearly advance a federal
preemption argument in reliance upon Concepcion and related decisions in the briefs
that they filed before this Court, State v. Garcell, 363 N.C. 10, 41, 678 S.E.2d 618,
638 (stating that, “[d]espite citing due process concerns to the trial court, defendant
fails to adequately develop a constitutional claim on appeal and has thus abandoned
any such argument”) (citing N.C. R. App. P. 28(a), (b)(6))), cert. denied, 558 U.S. 999,
130 S. Ct. 510, 175 L. Ed. 2d 362 (2009), and the fact that defendants have made no
attempt to show that the present arbitration agreement is subject to the Federal
Arbitration Act,4 we do not believe that our decision in this case is in any way
4 Any federal preemption claim advanced in this case pursuant to Concepcion and
related decisions must rest upon 9 U.S.C. § 2, which applies to “contract[s] evidencing a
transaction involving commerce.” The necessary nexus between the relevant transaction and
“interstate commerce” exists in the event that “the ‘transaction’ in fact ‘involv[e][s]’ interstate
commerce, even if the parties did not contemplate an interstate commerce connection.”
Allied—Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S. Ct. 834, 843, 130 L. Ed. 2d
753, 769 (1995) (first set of brackets in original). Given that the present record contains no
indication that the agreement between the parties constitutes a “transaction involving
commerce,” 9 U.S.C. § 2 (2012), and given that the burden of demonstrating the applicability
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Opinion of the Court
inconsistent with the federal preemption principles enunciated in Concepcion and
related cases. As those decisions clearly recognize, arbitration agreements are
subject to invalidation based upon “ ‘generally applicable contract defenses, such as
fraud,[5] duress, or unconscionability,’ but not by defenses that apply only to
arbitration or that derive their meaning from the fact that an agreement to arbitrate
is at issue.”6 Concepcion, 563 U.S. at 339, 131 S. Ct. at 1746, 179 L. Ed. 2d at 751
(quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656,
134 L. Ed. 2d 902, 909 (1996)) (other citations omitted). A decision to refrain from
enforcing the agreement on breach of fiduciary duty grounds does not rest upon the
fact that it provides for the arbitration of medical negligence claims, does not treat
arbitration agreements differently than other contracts, and does not make the
enforcement of arbitration agreements more difficult than the enforcement of any
other contract. On the contrary, we would have reached the same result on these
of the Federal Arbitration Act rests upon defendants, Sillins v. Ness, 164 N.C. App. 755, 760,
596 S.E.2d 874, 877-78 (2004) (observing that “defendants were required to submit sufficient
evidence in support of their motion to compel arbitration to establish that plaintiff’s contract
evidenced a transaction involving interstate commerce” and reversing and remanding for
additional findings an order denying arbitration, while noting that “defendants offered no
evidence in support of their motion to compel arbitration apart from the employment
agreement” itself), a necessary precondition to federal preemption under Concepcion and
related cases simply does not appear to exist in this case.
5 According to well-established North Carolina law, a breach of fiduciary duty
“constitutes fraud.” Link, 278 N.C. at 192, 179 S.E.2d at 704.
6 As the language quoted in the text of this opinion clearly recognizes, a party is
entitled to challenge the enforceability of an arbitration agreement on recognized state law
grounds in addition to unconscionability.
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Opinion of the Court
facts with respect to any agreement that substantially affected Mr. King’s
substantive legal rights, such as an agreement absolving defendants from the
necessity for compliance with otherwise applicable confidentiality requirements,
providing for the transfer of items of real or personal property from Mr. King to
defendants, or waiving any tort or contract-based claims that Mr. King might have
had against either or both defendants. Thus, since the breach of fiduciary duty
defense to enforcement of the agreement that we uphold in this case does not apply
“only to arbitration” or “derive [its] meaning from the fact that an agreement to
arbitrate is at issue,” id. at 339, 131 S. Ct. at 1746, 179 L. Ed. 2d at 759, a refusal to
enforce an arbitration agreement on that basis does not “stand[ ] as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress,” id. at
352, 131 S. Ct. at 1753, 179 L. Ed. 2d at 759 (quoting Hines v. Davidowitz, 312 U.S.
52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 2d 581, 587 (1941)). Instead, consistently with
Prima Paint Corp. v. Flood & Conklin Manufacturing. Co., 388 U.S. 395, 403-04, 87
S. Ct. 1801, 1806, 18 L. Ed. 2d 1270, 1277 (1967), our decision simply recognizes that
a “claim [of] fraud in the inducement of the arbitration [agreement] itself—an issue
which goes to the ‘making’ of the agreement to arbitrate—[is one that a] court may
proceed to adjudicate.”7 As a result, our decision to refrain from enforcing the
7 Given that judicial consideration of fraud-based challenges to the enforceability of
arbitration agreements is limited, by virtue of Prima Paint, to instances in which the
arbitration agreement, rather than the entire contract between the parties, was induced by
fraud, the fact that the “benefit” that defendants derived from the existence of the arbitration
agreement in this case was the right to litigate any dispute between the parties in an arbitral
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Opinion of the Court
arbitration agreement at issue in this case is not precluded by the doctrine of federal
preemption.
Thus, for all of these reasons, we hold that the arbitration agreement at issue
in this case was obtained as a result of defendants’ breach of a fiduciary duty that
they owed to Mr. King.8 In light of that determination, we hold that the Court of
Appeals did not err by upholding the trial court’s decision to deny defendants’ motion
to enforce the arbitration agreement.9 We do, however, wish to make clear that
nothing in our decision in this case should be understood to cast any doubt upon the
ability of physicians and patients, assuming that proper disclosure is made, to enter
into appropriately drafted agreements providing for the arbitration of disputes like
the one that underlies this case. However, given our determination that Mr. King
rather than a judicial forum has no bearing on a proper analysis of any federal preemption
issue that might be before us in this case. Any other result, given the limitations that Prima
Paint places upon judicial challenges to the enforceability of arbitration agreements
predicated on fraud or some similar defense, would effectively eliminate the ability of a party
to assert such a defense despite Concepcion’s recognition of its continued viability.
8 In view of our determination that the arbitration agreement is unenforceable on
breach of fiduciary duty grounds, we need not address plaintiff’s unconscionability claim,
Vail, 233 N.C. at 114, 63 S.E.2d 206 (stating that, in the event of a breach of fiduciary duty,
“ ‘the transaction will be set aside even though it could not have been impeached had no such
relation existed, whether the unconscionable advantage was obtained by misrepresentation,
concealment or suppression of material facts, artifice, or undue’ advantage” (quoting 23 Am.
Jur. Fraud and Deceit § 14 (1939))), even if there is no finding of unconscionability.
9 The decision of the Court of Appeals in Westmoreland v. High Point Healthcare, Inc.,
218 N.C. App. 76, 721 S.E.2d 712 (2012), has no bearing upon the proper resolution of this
case given the absence of a claim that the contract at issue in that case was allegedly procured
as the result of a breach of fiduciary duty.
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Opinion of the Court
had entered into a fiduciary relationship with Dr. Bryant at the time that the
arbitration agreement was signed and the fact that defendants did not make full
disclosure to Mr. King before presenting the agreement at issue in this case for his
signature, we hold that the arbitration agreement was obtained as the result of a
breach of fiduciary duty from which defendants benefitted and is, for that reason,
unenforceable. Thus, we modify and affirm the decision of the Court of Appeals in
King II by holding the arbitration agreement unenforceable on breach of fiduciary
duty, as opposed to unconscionability, grounds.
MODIFIED AND AFFIRMED.
Justice MORGAN did not participate in the consideration or decision of this
case.
Chief Justice MARTIN dissenting.
In Tillman v. Commercial Credit Loans, Inc., this Court applied common law
unconscionability doctrine to invalidate an arbitration clause in the plaintiffs’ loan
agreements. 362 N.C. 93, 103-09, 655 S.E.2d 362, 370-74 (2008) (plurality opinion);
id. at 110-11, 655 S.E.2d at 374-75 (Edmunds, J., concurring in result only). Three
years later, the Supreme Court of the United States decided AT&T Mobility LLC v.
Concepcion, which clarified the scope of the Federal Arbitration Act’s preemptive
effect when state law might otherwise make an arbitration agreement unenforceable.
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MARTIN, C.J., dissenting
See 563 U.S. 333, 340, 352 (2011). Because Concepcion’s rationale extends to a case
like this one, in which a broadly applicable state law defense (constructive fraud)
purportedly requires non-enforcement of an arbitration agreement specifically
because it is an arbitration agreement, I respectfully dissent.
Before I turn to the preemption issue, a few observations are in order about
the majority’s parsing of state law fiduciary duty principles. Because it asserts that
Dr. Bryant committed constructive fraud by failing to adequately disclose certain
contractual terms to Mr. King, the majority first has to find that a fiduciary
relationship between Mr. King and Dr. Bryant existed when Mr. King filled out the
paperwork that included the arbitration agreement—paperwork that Mr. King filled
out at Dr. Bryant’s office before Dr. Bryant had met him or accepted him as a patient.
As the majority correctly notes, certain relationships automatically “give[ ] rise to a
fiduciary relationship as a matter of law.” CommScope Credit Union v. Butler &
Burke, LLP, ___ N.C. ___, ___, 790 S.E.2d 657, 660 (2016). Curiously, though, the
majority does not decide whether a physician-patient relationship had been formed
by the time Mr. King signed the arbitration agreement. The majority thus does not
determine whether, as a matter of law, a fiduciary duty existed at that time. Instead,
the majority decides only that, at the time that Mr. King signed the arbitration
agreement, Dr. Bryant owed Mr. King a fiduciary duty in fact.
But, although the majority finds that a fiduciary relationship existed here only
as a matter of fact, it effectively determines that a physician-patient relationship
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MARTIN, C.J., dissenting
existed here in all but name. A fiduciary relationship exists as a matter of fact
“whenever ‘there is confidence reposed on one side, and resulting domination and
influence on the other.’ ” Id. at ___, 790 S.E.2d at 661 (quoting Abbitt v. Gregory, 201
N.C. 577, 598, 160 S.E. 896, 906 (1931)). Pointing to specific findings of fact by the
trial court, the majority maintains that a fiduciary relationship existed between Mr.
King and Dr. Bryant primarily because Mr. King placed his trust in Dr. Bryant as a
doctor.10 In addition, the majority quotes Black v. Littlejohn to suggest that Mr. King
sought Dr. Bryant’s services because of Dr. Bryant’s “special knowledge and skill,”
Black v. Littlejohn, 312 N.C. 626, 646, 325 S.E.2d 469, 482 (1985) (quoting 61 Am.
Jur. 2d Physicians, Surgeons, and Other Healers § 167 (1981)), and later quotes Black
to assert that Dr. Bryant possessed “special knowledge and skill in diagnosing and
treating diseases and injuries, which the patient lacks,” id. (quoting 61 Am. Jur. 2d
Physicians, Surgeons, and Other Healers § 167 (1981)). Both of these quotes come
from a passage in Black that discusses the characteristics of a fiduciary relationship
that exists between a physician and his patient. See id. Thus, the majority
determines, in effect, that the fiduciary relationship existed because Dr. Bryant was
Mr. King’s doctor—even though the majority claims that its conclusion is reached
10 On the other hand, the majority also finds a fiduciary duty here at least in part
because Mr. King “provide[d] Dr. Bryant with confidential medical information,” which is not
exactly based on Dr. Bryant’s status as a doctor. (A patient may, for instance, provide
confidential medical information to a health insurance company.) But the majority’s
reasoning confuses a duty of confidentiality—a more limited duty that can arise even when
no fiduciary duty exists—with a full-fledged fiduciary duty.
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“independent of the existence of a physician-patient relationship.”
So the majority tries to have its cake and eat it too. It purports not to take a
position on whether a physician-patient relationship exists, but then rests its analysis
on the characteristics of the physician-patient relationship. More particularly, the
majority does not indicate whether a physician-patient relationship exists at the
moment that a prospective patient fills out his preliminary paperwork, even when (as
here) the doctor has never met the patient or accepted him as a patient. Yet the
majority uses the characteristics of a physician-patient relationship, and the things
that a prospective patient thinks and does, to find a fiduciary relationship in fact. By
relying almost exclusively on aspects of a physician-patient relationship but then
finding a fiduciary duty that is “independent” of that kind of relationship, the
majority has muddied the waters in this area of the law. This legal sleight of hand is
especially troubling for our fiduciary duty jurisprudence and for doctors and patients,
who necessarily rely on us to provide clear and predictable rules to guide their daily
interactions.
What’s more, the majority’s muddled parsing of state law, however
well-intentioned, must yield to principles of federal preemption. Section 2 of the
Federal Arbitration Act (FAA) provides that an arbitration provision “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for
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MARTIN, C.J., dissenting
the revocation of any contract.” 9 U.S.C. § 2 (2012).11 In cases that it handed down
before this Court decided Tillman, the Supreme Court of the United States held that
Section 2 of the FAA preempted state law provisions that “set[ ] out a precise,
arbitration-specific limitation.” Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 688 n.3
(1996). In Perry v. Thomas, for example, the Supreme Court held that Section 2 of
the FAA preempted a California statute that allowed actions for the collection of
wages to be maintained even in the face of a private arbitration agreement. See 482
U.S. 483, 484, 490-91 (1987). And in Doctor’s Associates, Inc. v. Casarotto, the Court
held that Section 2 preempted a Montana statute that imposed special notice
requirements “specifically and solely” on “contracts ‘subject to arbitration.’ ” 517 U.S.
11 The majority expresses considerable doubt that Section 2 of the FAA applies to the
arbitration agreement at issue in this case. But it is unclear why the majority thinks that
this is such an uphill battle. By its terms, Section 2 applies to any contract to arbitrate a
transaction that is either specified in the contract or referred to by the contract, as long as
the contract “evidenc[es] a transaction involving commerce.” 9 U.S.C. § 2. Section 2’s phrase
“involving commerce” has the same meaning as the phrase “affecting commerce,” Allied–
Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1995), and Section 2’s reach thus
“extend[s] . . . to the limits of Congress’ Commerce Clause power,” id. at 268. The arbitration
agreement that Mr. King signed pertained to “any dispute arising out of or related to the
provision of healthcare services,” and clearly falls within both the commerce power and, by
extension, the terms of Section 2. The provision of healthcare services is a form of commerce,
see Nat’l Fed’n of Indep. Bus. v. Sebelius, ___ U.S. ___, ___, 132 S. Ct. 2566, 2587-88 (2012)
(opinion of Roberts, C.J.); id. at ___, ___, 132 S. Ct. at 2617, 2621 (Ginsburg, J., concurring in
part and dissenting in part), and contracting for those services is an economic activity that,
when aggregated with other economic activities of its kind, is bound to substantially affect
interstate commerce, see Gonzales v. Raich, 545 U.S. 1, 22 (2005); see also Nat’l Fed’n of
Indep. Bus., ___ U.S. at ___ n.7, 132 S. Ct. at 2622 n.7. The only quirk in this case is that the
arbitration agreement was made separately from any agreement to provide the services
themselves. But Section 2, which applies to “a contract . . . to settle by arbitration a
controversy thereafter arising out of such contract or transaction,” 9 U.S.C. § 2 (emphasis
added), clearly covers this scenario.
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at 683 (quoting Mont. Code Ann. § 27-5-114(4) (1995)); id. at 688. Both of these cases
addressed state statutory provisions that applied specifically to arbitration
agreements, but did not apply to contracts that did not have arbitration agreements.
After Tillman, however, the Supreme Court of the United States issued its
decision in AT&T Mobility v. Concepcion. In Concepcion, the Court squarely held
that the use of even a doctrine like unconscionability—which can be applied to any
contract, even one that does not contain an arbitration clause—can be preempted by
Section 2 of the FAA when the doctrine “ha[s] been applied in a fashion that disfavors
arbitration.” 563 U.S. at 341. The Court reaffirmed its holding in Concepcion two
years later. See Am. Express Co. v. Italian Colors Rest., ___ U.S. ___, ___, 133 S. Ct.
2304, 2312 (2013). Concepcion’s holding and rationale apply directly to the majority’s
approach and make the majority’s holding untenable.12
The majority claims that, because Dr. Bryant owed a fiduciary duty to Mr.
12 The majority asserts that “defendants have failed to clearly advance a federal
preemption argument” but then proceeds to address that argument at length. That is likely
because defendants did cite to Concepcion. Quoting Torrence v. Nationwide Budget Finance,
a recent case from our Court of Appeals, defendants raised the fact that Concepcion
“dismiss[ed] . . . the idea that an arbitration agreement, apart from any other form of contract,
could be found substantively unconscionable based solely upon its adhesive nature.” 232 N.C.
App. 306, 322, 753 S.E.2d 802, 812, disc. rev. denied and cert. denied, 367 N.C. 505, 759
S.E.2d 88 (2014). Although defendants’ reference to this sentence is not the clearest
articulation of Concepcion’s preemption principle, it is notable that the very next sentence in
Torrence states that the dismissal of this unconscionability argument “was an explicit part
of the Supreme Court’s reasoning” in holding that the FAA preempted a state
unconscionability rule. Id. at 322, 753 S.E.2d at 812.
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King, Dr. Bryant committed constructive fraud “by failing to make full disclosure of
the nature and import of the arbitration agreement to” Mr. King. But this conclusion
requires the majority to find that defendant sought to benefit himself at Mr. King’s
expense. See Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666-67, 488 S.E.2d
215, 224 (1997). The majority does so by finding that the arbitration agreement
“ensur[ed] that any subsequent dispute between the parties would be resolved using
the forum, procedures, and decision[-] makers of their choice.”13 Of course, that is
precisely what arbitration clauses in contracts of adhesion do. And that gets to the
heart of the matter: the majority takes issue with the arbitration agreement in this
case because it is an arbitration agreement.
In doing so, the majority runs headlong into the FAA's prohibition of state law
defenses that specifically target arbitration agreements. State law cannot address
the concerns presented by contracts of adhesion in a way that “conflict[s] with the
FAA or frustrate[s] its purpose to ensure that private arbitration agreements are
enforced according to their terms.” Concepcion, 563 U.S. at 347 n.6. Nor can state
courts apply a doctrine like constructive fraud “in a fashion that disfavors
arbitration.” Id. at 341. Because the majority does exactly that, its holding is
13 The majority refers to the trial court’s “unchallenged findings of fact” that Dr.
Bryant benefitted from the arbitration agreement in this way. But the majority is making a
legal argument that the arbitration agreement benefitted Dr. Bryant, and that Dr. Bryant
may therefore be liable for the breach of his purported fiduciary duty to Mr. King. We review
all conclusions of law de novo, even those that the trial court has characterized as findings of
fact.
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preempted by Section 2 of the FAA.
The majority maintains that its rationale does not single out arbitration
agreements for negative treatment because the majority would treat “any agreement
that substantially affected Mr. King’s substantive legal rights” in the same way. The
majority gives examples of other agreements that it thinks would substantially affect
a person’s legal rights in ways that have nothing to do with arbitration. But the fact
that the majority might find other contractual provisions to be problematic for other
reasons does not change the fact that the majority finds this arbitration agreement
to be problematic because it is an arbitration agreement.14
In sum, if a state court cannot say that an arbitration agreement is
unconscionable for arbitration-specific reasons, it likewise cannot say that the same
agreement gives rise to a constructive fraud claim for arbitration-specific reasons. By
declining to reach the unconscionability issue and focusing on constructive fraud
instead, the majority artfully tries to evade federal preemption. But in our
post-Concepcion legal landscape, federal law cannot be so easily evaded. Because the
14 The majority quotes Prima Paint Corp. v. Flood & Conklin Manufacturing Co.’s
statement that, “if [a] claim is fraud in the inducement of the arbitration clause itself,” then
a “court may proceed to adjudicate it.” 388 U.S. 395, 403-04 (1967). But this invocation of
Prima Paint is a red herring because Prima Paint is not about preemption at all. It is simply
about whether a certain kind of claim arising under Section 2 of the FAA—namely, a “claim[ ]
of fraud in the inducement of [a] contract generally,” id. at 404—should be resolved by an
arbitrator or by a court, id. at 396-97. Thus, Prima Paint’s holding that an arbitrator, not a
court, should resolve this claim, see id. at 404—and its related assertion that a court may
resolve a claim about fraud in the inducement of an arbitration clause specifically, see id. at
403-04—does not provide any grist for the majority’s mill.
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majority has applied the constructive fraud doctrine in a way that disfavors
arbitration, and because the FAA clearly prohibits applying that doctrine in that way,
I respectfully dissent.
Justice NEWBY dissenting.
The United States Supreme Court has repeatedly held that arbitration
agreements may not be invalidated by state-law defenses arising from the fact that
an arbitration agreement is at issue. Congress has explicitly indicated that
arbitration is to be favored. Despite these mandates, the majority invents a new
defense to enforcement of an arbitration agreement, not raised by plaintiff below, to
mask their disparate treatment of and continued hostility towards arbitration,
thereby attempting to circumvent an unconscionability analysis. Startlingly, without
argument or findings, the majority baldly asserts that the Federal Arbitration Act
(FAA) does not apply. This jiggery-pokery is precisely the type of impermissible
“rationalization” admonished by the United States Supreme Court. Such a tortured
attempt to obviate the FAA fails. Because the arbitration agreement at issue here is
not unconscionable and is otherwise enforceable at law, I respectfully dissent.
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NEWBY, J., dissenting
The majority seeks to avoid an unconscionability analysis by fabricating a
contract defense not raised by plaintiff, namely the breach of a fiduciary duty.15
Based solely on the fact that the contract in question is an arbitration agreement,
which the majority contends “substantially affected [plaintiff’s] legal rights,” the
majority holds that “defendants violated their fiduciary duty to [plaintiff] by failing
to make full disclosure of the nature and import of the arbitration agreement to him.”
In their view, this breach of fiduciary duty would void the arbitration agreement ab
initio. The majority asserts that “defendants benefitted by [plaintiff’s] action in
signing the arbitration agreement,” and states that the language “could have been
worded more clearly” and was presented “in a collection of documents, thereby
creating the [ ] impression that the arbitration agreement was simply another routine
document.” (Emphasis added.)
Since 1925 Congress has established that arbitration agreements are “valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for
15 Though plaintiffs are Robert E. King and wife Jo Ann O’Neal, the record reflects
Mr. King was the primary actor in the following events, and I refer to him in the singular as
“plaintiff.”
Plaintiff never raised a “breach of fiduciary duty” defense to enforcement of the
agreement. At the trial court, plaintiff opposed defendants’ motion to compel arbitration on
three grounds: that the arbitration agreement was (1) “not a contract” but an unenforceable
“agreement to agree,” (2) ineffective as to co-plaintiff’s consortium claim for lack of her
signature, and (3) unconscionable. The trial court denied defendants’ motion on the first
ground. Only on interlocutory appeal did the Court of Appeals, not plaintiff, mention
“fiduciary relationship” as a procedural consideration for plaintiff’s burden of proof under his
unconscionability defense on remand. King v. Bryant, 225 N.C. App. 340, 349, 737 S.E.2d
802, 809 (2013).
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the revocation of any contract.” Federal Arbitration Act (FAA), ch. 213, § 2, 43 Stat.
883, 883 (1925) (codified as amended at 9 U.S.C. § 2 (2012)). The FAA “reverse[d] the
longstanding judicial hostility to arbitration agreements . . . and place[s them] upon
the same footing as other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 24, 111 S. Ct. 1647, 1651, 114 L. Ed. 2d 26, 36 (1991). The preemptive effect
of the FAA may “extend even to grounds traditionally thought to exist ‘at law or in
equity for the revocation of any contract.’ ” AT&T Mobility LLC v. Concepcion, 563
U.S. 333, 341, 131 S. Ct. 1740, 1747, 179 L. Ed. 2d 742, 752 (2011) (quoting Perry v.
Thomas, 482 U.S. 483, 492 n.9, 107 S. Ct. 2520, 2527 n.9, 96 L. Ed. 2d 426, 437 n.9
(1987) (emphasis omitted)).
Arbitration agreements may “be invalidated by ‘generally applicable contract
defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply
only to arbitration or that derive their meaning from the fact that an agreement to
arbitrate is at issue.” Id. at 339, 131 S. Ct. at 1746, 179 L. Ed. 2d at 751 (quoting
Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656, 134 L. Ed. 2d
902, 909 (1996)). A court may not “rely on the uniqueness of an agreement to
arbitrate as a basis for a state-law holding that enforcement would be
unconscionable.” Perry, 482 U.S. at 493 n.9, 107 S. Ct. at 2527 n.9, 96 L. Ed. 2d at
437 n.9.
Contract defenses cannot be “applied in a fashion that disfavors arbitration.”
Concepcion, 563 U.S. at 341, 131 S. Ct. at 1747, 179 L. Ed. 2d at 752. Such an
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application is not justified by state-law “rationalizations,” even when the defense
could apply to other contracts. Id. at 342, 131 S. Ct. at 1747, 179 L. Ed. 2d at 752 (“In
practice, of course, the [defense] would have a disproportionate impact on arbitration
agreements; but it would presumably apply to [nonarbitration] contracts . . . as
well.”); see also id. at 342, 131 S. Ct. at 1747, 179 L. Ed. 2d at 753 (“Such
[rationalizations] are not fanciful, since the judicial hostility towards arbitration that
prompted the FAA had manifested itself in ‘a great variety’ of ‘devices and formulas’
declaring arbitration against public policy.” (quoting Robert Lawrence Co. v.
Devonshire Fabrics, Inc., 271 F.2d 402, 406 (2d Cir. 1959))).
Contrary to well-settled law, the majority impermissibly targets arbitration
agreements for disparate treatment, attempting to ignore plaintiff’s claim of
unconscionability and cloaking their disfavor of arbitration under the guise of newly
constructed fiduciary-relationship principles. This sort of manufactured state-law
justification is a facade and cannot displace the preemptive effect of the FAA.
The purported breach of a fiduciary duty described by the majority is a
procedural consideration in an unconscionability analysis. As such, any concerns
arising from the circumstances under which plaintiff signed the arbitration
agreement are squarely contemplated by his assertion of unconscionability, yet the
majority refuses to address this defense at all. See Rite Color Chem. Co. v. Velvet
Textile Co., 105 N.C. App. 14, 20, 411 S.E.2d 645, 648 (1992) (“Procedural
unconscionability involves ‘bargaining naughtiness,’ ” which encompasses the use of
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sharp practices and unequal bargaining power. (citations omitted)). Instead, the
majority has taken the extraordinary step of crafting a new legal theory for plaintiff,
attempting to bypass the obligation to address his unconscionability defense. Though
plaintiff “should not be allowed to change his position with respect to a material
matter in the course of litigation,” Ussery v. Branch Banking & Tr. Co., 368 N.C. 325,
340, 777 S.E.2d 272, 282 (2015) (quoting Whitacre P’ship v. Biosignia, Inc., 358 N.C.
1, 26, 591 S.E.2d 870, 886 (2004)), and “[i]t is not the role of the appellate court[ ] . . .
to create [his] appeal,” Viar v. N.C. Dep’t of Transp., 359 N.C. 400, 402, 610 S.E.2d
360, 361 (2005) (per curiam), it seems this Court is more than willing to do so for him
when arbitration is involved.
Our case law is clear that a fiduciary relationship raises a procedural hurdle,
not a requirement to void the transaction. Only when a complainant alleges and
establishes that a fiduciary relationship arose and that the offending party benefitted
from the transaction to the detriment of the complainant, does the burden shift from
the complainant to the offending party to prove that “no fraud was committed, and
no undue influence or moral duress exerted.” Wachovia Bank & Tr. Co. v. Johnston,
269 N.C. 701, 711, 153 S.E.2d 449, 457 (1967) (emphasis omitted) (quoting McNeill v.
McNeill, 223 N.C. 178, 181, 25 S.E.2d 615, 616-17 (1943)); see Watts v. Cumberland
Cty. Hosp. Sys., Inc., 317 N.C. 110, 116, 343 S.E.2d 879, 884 (1986). The majority
fails to identify any such detriment to plaintiff and instead relies on the unlawful
presumption that arbitration itself is harmful. The majority’s speculation that
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“defendants benefitted from [plaintiff’s] action in signing the arbitration agreement
by ensuring that any subsequent dispute between the parties would be resolved using
the forum, procedures, and decision makers of their choice” falls well short of
establishing the requisite benefit and harm. Such a “state-law principle that takes
its meaning precisely from the fact that a contract to arbitrate is at issue does not
comport with” the FAA. Perry, 482 U.S. at 493 n.9, 107 S. Ct. at 2527 n.9, 96 L. Ed.
2d at 437 n.9.
Assuming without deciding that the alleged breach of fiduciary duty results in
procedural unconscionability, the agreement is plainly not substantively
unconscionable, and plaintiff’s defense therefore fails. The agreement contains none
of the “harsh, oppressive, and ‘one-sided terms’ ” that are the hallmarks of
substantive unconscionability, Rite Color Chem. Co., 105 N.C. App. at 20, 411 S.E.2d
at 648-49 (citations omitted), and follows the “Health Care Claim Settlement
Procedures of the American Arbitration Association,” governed by the FAA.
Furthermore, this analysis comports with recent comprehensive appellate review of
arbitration agreements. See Westmoreland v. High Point Healthcare Inc., 218 N.C.
App. 76, 77-78, 721 S.E.2d 712, 715 (2012) (concluding that an arbitration agreement
was valid and not unconscionable when signed among a stack of other patient intake
forms for a nursing home facility). By skirting such an analysis, see id. at 79, 721
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S.E.2d at 716, the majority’s new breach of fiduciary duty defense seems without
limit, deprived of the traditional constraints of the unconscionability doctrine.16
Irrespective of whether a fiduciary relationship arose, the majority justifies
handling plaintiff’s arbitration agreement differently than other “routine [contract]
documents” because the agreement “substantially affected [plaintiff’s] legal rights.”
Isolating arbitration agreements in this way plainly subjects them to impermissible
scrutiny. See Concepcion, 563 U.S. at 342, 131 S. Ct. at 1747, 179 L. Ed. 2d at 752.
All contracts affect legal rights; the contract at issue here designates dispute
resolution through arbitration. See Am. Express Co. v. Italian Colors Rest., ___ U.S.
___, ___, 133 S. Ct. 2304, 2309, 186 L. Ed. 2d 417, 424 (2013) (“[A]rbitration is a
matter of contract” and “courts must ‘rigorously enforce’ arbitration agreements.”
(citations omitted) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221,
105 S. Ct. 1238, 1242, 84 L. Ed. 2d 158, 165 (1985)); see also Ussery, 368 N.C. at 336,
777 S.E.2d at 279 (“One who executes a written instrument is ordinarily charged with
knowledge of its contents, . . . and he may not base his action on ignorance of the legal
effect of its provisions in the absence of considerations such as fraud or mistake.”
(citations omitted)); accord Westmoreland, 218 N.C. App. at 83, 721 S.E.2d at 718
(citation omitted). Either arbitration agreements are on equal footing with other
For example, is there always a breach of fiduciary duty by a professional who does
16
not adequately explain arbitration, and is the required result that the agreement is void ab
initio?
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“routine” contracts or they are not. The United States Supreme Court has directed
that a court cannot construe arbitration “agreement[s] in a manner different from
that in which it otherwise construes nonarbitration agreements.” Perry, 482 U.S. at
493 n.9, 107 S. Ct. at 2527 n.9, 96 L. Ed. 2d at 437 n.9.
In a strained effort to add more window dressing, the majority brazenly claims
that the FAA does not apply “[g]iven the record contains no indication that the
agreement between the parties constitutes a ‘transaction involving commerce,’ 9
U.S.C. § 2.” Not only have the parties not argued this point, nor has the trial court
made any accompanying findings, but the first line of plaintiff’s arbitration
agreement expressly incorporates the FAA by stating: “In accordance with the terms
of the Federal Arbitration Act, 9 USC 1-16 . . . .” See Johnston County v. R.N. Rouse
& Co., Inc., 331 N.C. 88, 92-93, 414 S.E.2d 30, 33 (1992) (discussing the incorporation
of law into contracts); Pike v. Wachovia Bank & Tr. Co., 274 N.C. 1, 16, 161 S.E.2d
453, 465 (1968) (“[L]aws in force at the time of the execution of a contract become a
part of the contract.”); see also Perry, 482 U.S. at 490, 107 S. Ct. at 2526, 96 L. Ed. 2d
at 436 (The FAA’s ambit is expansive and “embodies Congress’ intent to provide for
the enforcement of arbitration agreements within the full reach of the Commerce
Clause.”). Moreover, such professional service contracts generally “involve
commerce” under the broad purview of the FAA.17
17See, e.g., Morrison v. Colo. Permanente Med. Grp., 983 F. Supp. 937, 943-44 (D. Colo.
1997) (finding a patient-physician “medical services agreement” evidenced a “transaction
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In sum, plaintiff raised his contract defenses and received the benefit of
asserting them.18 The arbitration agreement is not substantively unconscionable,
and plaintiff’s defense therefore fails. Apparently unsatisfied with this result, the
majority, once again, impermissibly targets arbitration agreements. E.g., Tillman v.
Commercial Credit Loans, Inc., 362 N.C. 93, 114, 655 S.E.2d 362, 377 (2008) (Newby,
J., dissenting) (“The majority finds the agreement unconscionable based on provisions
that would only exist in an arbitration agreement.” (emphasis added)); see also
Torrence v. Nationwide Budget Fin., 232 N.C. App. 306, 321, 753 S.E.2d 802, 811
(concluding that Tillman conflicts with United States Supreme Court precedent),
disc. rev. denied and cert. denied, 367 N.C. 505, 759 S.E.2d 88 (2014). Such a policy
decision is not for this Court to determine. See Perry, 482 U.S. at 493 n.9, 107 S. Ct.
at 2527 n.9, 96 L. Ed. 2d at 437 n.9 (A court may not construe arbitration agreements
differently or “rely on the[ir] uniqueness . . . as a basis” for a contract defense, “for
this would enable the court to effect what . . . the state legislature cannot.”). Instead
of pursuing its relentless assault on the FAA, the majority should follow the
principles clearly expressed by the United States Supreme Court. Because the
involving commerce”); Ex parte Lorance, 669 So. 2d 890, 892 (Ala. 1995) (finding a physician’s
professional services contract “involve[es] commerce”); Vicksburg Partners, L.P. v. Stephens,
911 So. 2d 507, 515-16 (Miss. 2005) (same for patient’s “nursing home admissions
agreement”), overruled in part on other grounds by Covenant Health & Rehab., LP v. Estate
of Moulds, 14 So. 3d 695, 706 (Miss. 2009).
18 Plaintiff’s remaining contract defenses are not before the Court at this time.
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majority has concocted a new contract defense in a fashion that disfavors arbitration
in contravention of the FAA and binding United States Supreme Court precedent, I
respectfully dissent.
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