Opinion
Nos. 2D21-673 2D21-674
04-27-2022
ADDIT, LLC and Capital Funding Group, Inc., Appellants, v. Sean E. HENGESBACH, as personal representative of the Estate of Carl N. Ingolia, deceased, Appellee. New Port Richey Operating, LLC ; CHG Management New Port Richey, LLC; Capital Health Group Management, LLC; Milestone Retirement Communities, LLC ; John W. Dwyer; Kenneth Assiran; Timothy Nicholson; Paul Dendy; and Betsie Olson, Appellants, v. Sean E. Hengesbach, as personal representative of the Estate of Carl N. Ingolia, deceased, Appellee.
Blair H. Clarke and Gail F. Moulds of Deacon, Moulds & Stofer, St. Petersburg, for Appellants Addit, LLC and Capital Funding Group, Inc. James J. Maskowitz, Jodi G. Barrett, and William T. Viergever of Hall Booth Smith, P.C., Tampa, for Appellants New Port Richey Operating, LLC; CHG Management New Port Richey, LLC; Capital Health Group Management, LLC; Milestone Retirement Communities, LLC; John W. Dwyer ; Kenneth Assiran; Timothy Nicholson; and Paul Dendy. Lisa M. Tanaka and Dara A. Cooley of Wilkes & Associates, P.A., Tampa, for Appellee. No appearance for Appellant Betsie Olson.
Blair H. Clarke and Gail F. Moulds of Deacon, Moulds & Stofer, St. Petersburg, for Appellants Addit, LLC and Capital Funding Group, Inc.
James J. Maskowitz, Jodi G. Barrett, and William T. Viergever of Hall Booth Smith, P.C., Tampa, for Appellants New Port Richey Operating, LLC; CHG Management New Port Richey, LLC; Capital Health Group Management, LLC; Milestone Retirement Communities, LLC; John W. Dwyer ; Kenneth Assiran; Timothy Nicholson; and Paul Dendy.
Lisa M. Tanaka and Dara A. Cooley of Wilkes & Associates, P.A., Tampa, for Appellee.
No appearance for Appellant Betsie Olson.
SMITH, Judge.
In two separate appeals, the Assisted Living Appellants (ALF Appellants) appeal from the trial court's order denying their motions to dismiss and to compel arbitration and to stay proceedings pursuant to an arbitration agreement (Arbitration Agreement) contained in the Residency Agreement related to Carl N. Ingolia's residence at The Villas at Sunset Bay (the ALF). Because the trial court erred in denying the motions to compel arbitration where unconscionable provisions included in the Arbitration Agreement were severable, we reverse and remand for the trial court to strike the offending provisions and order the parties to arbitration.
The two appeals arise from the same lawsuit before the lower court and concern the same arbitration agreement contained in the same Residency Agreement signed on behalf of the same resident. Accordingly, these two appeals have been consolidated for purposes of this opinion.
The ALF Appellants include New Port Richey Operating, LLC; CHG Management New Port Richey, LLC; Capital Health Group Management, LLC; Milestone Retirement Communities, LLC; John W. Dwyer; Kenneth Assiran; Timothy Nicholson; Paul Dendy; Addit, LLC; and Capital Funding Group, Inc.
The ALF Appellants filed separate motions to dismiss and to compel arbitration in the trial court. Specifically, New Port Richey Operating, LLC, and Betsie Olson filed their motion on May 6, 2020; Capital Health Group Management, LLC, Milestone Retirement Communities, LLC, John W. Dwyer, Kenneth Assiran, Timothy Nicholson, and Paul Dendy filed their separate motion on May 6, 2020; Montani Investors, LLC, and Alan J. Zuccari filed their motion on May 7, 2020; and Addit, LLC, CHG Management New Port Richey, LLC, and Capital Funding Group, Inc., filed their amended motion on May 13, 2020. The trial court disposed of all motions in the same January 27, 2021, order. Montani Investors, LLC, and Alan Zuccari filed a separate appeal of the denial of their motion in case number 2D21-0675. That appeal was later dismissed after the parties failed to file their initial brief.
In the instant case, Mr. Ingolia's estate (Estate) filed a complaint against the ALF Appellants for injuries Mr. Ingolia sustained while a resident at the ALF. The Estate's complaint includes causes of action for negligence, wrongful death, breach of fiduciary duty, civil conspiracy, and violations of Florida's Deceptive and Unfair Trade Practices Act and section 415.1111, Florida Statutes (2020). In response to the complaint, the ALF Appellants filed motions to compel arbitration pursuant to the Arbitration Agreement contained in the Residency Agreement, which was signed by Mr. Ingolia's attorney-in-fact, Sean E. Hengesbach. The Arbitration Agreement contains a number of questionable provisions, some of which are undoubtedly unconscionable. The provisions of the Arbitration Agreement at issue here include (1) a waiver of attorneys' fees and costs; (2) the lack of a right to appeal; (3) a limitation on discovery; (4) a one-sided arbitration obligation; and (5) a confidentiality provision. The Arbitration Agreement also contains a severability clause, which expressly provides that if any portion of the Arbitration Agreement "be deemed invalid, the validity of the remaining sub-sections, or parts thereof, will not be affected." Here, the trial court denied the motions to compel arbitration finding that the Arbitration Agreement is unconscionable and, therefore, unenforceable. This was error.
On appeal, the parties also address the benefits provision in the Arbitration Agreement, which states the benefit of arbitration to ALF residents is that these residents are "elderly and may have a limited life-expectancy" and arbitration is a "quick method of resolution." While the stated benefit of "selecting a quick method of resolution" to the residents who are "elderly and may have a limited life-expectancy" is perhaps unpalatable, a review of the record reveals that the trial court did not make any findings related to the "benefits of arbitration" provision, and as such, whether this provision is substantively unconscionable is not properly before this court on appeal.
A trial court's decision to grant a motion to compel arbitration is based in part on factual findings. Accordingly, the decision presents a mixed question of law and fact. The appellate review of the trial court's factual findings is limited to determining whether they are supported by competent, substantial evidence. However, the standard of review applicable to the trial court's construction of the arbitration provision and to its application of the law to the facts found is a de novo review.
Woebse v. Health Care & Ret. Corp. of Am. , 977 So. 2d 630, 632 (Fla. 2d DCA 2008).
"Arbitration is mandated when (1) there is a valid written agreement to arbitrate, (2) there is an arbitrable issue, and (3) the right to arbitrate was not waived." Lopez v. Ernie Haire Ford, Inc. , 974 So. 2d 517, 519 (Fla. 2d DCA 2008). Here, the Estate opposed the ALF Appellants' motions to compel arbitration arguing there is no valid written agreement to arbitrate because the Arbitration Agreement is unconscionable. "To succeed on an unconscionability claim, there must be a showing of both procedural and substantive unconscionability." Woebse , 977 So. 2d at 632 (citing Bland, ex rel. Coker v. Health Care & Ret. Corp. of Am. , 927 So. 2d 252, 256 (Fla. 2d DCA 2006), abrogated on other grounds by Basulto v. Hialeah Auto. , 141 So. 3d 1145, 1159-60 (Fla. 2014) ). While both procedural and substantive unconscionability must be proven in order to succeed on an unconscionability claim, they do not have to be present to the same degree. "Instead, a ‘sliding scale’ approach is utilized when both are present to some degree, and ‘the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’ " SHEDDF2-FL3, LLC v. Penthouse S., LLC , 314 So. 3d 403, 409 (Fla. 3d DCA 2020) (quoting Basulto , 141 So. 3d at 1159 ). However, "[a]s a general rule, contractual provisions are severable, where the illegal portion of the contract does not go to its essence, and, with the illegal portion eliminated, there remain valid legal obligations." Fonte v. AT&T Wireless Servs., Inc. , 903 So. 2d 1019, 1024 (Fla. 4th DCA 2005) (citing Gold, Vann & White, P.A. v. Friedenstab , 831 So. 2d 692 (Fla. 4th DCA 2002) ).
I.
We first consider whether the Arbitration Agreement in this case is procedurally unconscionable. "Procedural unconscionability relates to the manner in which a contract is made and involves consideration of issues such as the bargaining power of the parties and their ability to know and understand disputed contract terms." Woebse, 977 So. 2d at 632 (citing Bland , 927 So. 2d at 256 ). Procedural unconscionability also requires consideration of whether the "important terms were ‘hidden in a maze of fine print and minimized by deceptive sales practices.’ " Powertel, Inc. v. Bexley , 743 So. 2d 570, 574 (Fla. 1st DCA 1999) (quoting Williams v. Walker-Thomas Furniture Co. , 350 F.2d 445, 449 (D.C. Cir. 1965) ). Further, although it is not dispositive of the issue of procedural unconscionability, whether the contract is one of adhesion is significant. Generally, an adhesion contract is defined as a "standardized contract form offered to consumers of goods and services on essentially [a] ‘take it or leave it’ basis without affording [the] consumer [a] realistic opportunity to bargain and under such conditions that [the] consumer cannot obtain [the] desired product or services except by acquiescing in the form contract." Id. (alterations in original) (quoting Adhesion Contract , Black's Law Dictionary 40 (6th ed. 1990)).
Here, the contract was one of adhesion—it is a standardized contract offered on a take it or leave it basis. While the person who executed the residency agreement is an attorney, there is no evidence in the record to determine the type of law practiced by Mr. Hengesbach, who signed the Residency Agreement on behalf of Mr. Ingolia as his attorney-in-fact. Moreover, the record reveals that Mr. Hengesbach was merely given a copy of the agreement to sign and return, and nothing more—there was no opportunity for any meaningful negotiation. Finally, the Arbitration Agreement is located on page fifteen of a twenty-three-page agreement; it is neither set off nor made conspicuous in any manner. In short, this record supports the trial court's finding that the Estate met its burden in proving some procedural unconscionability.
II.
We next consider the specific terms of the Arbitration Agreement to ascertain whether any substantive unconscionability is present. See Gainesville Health Care Ctr., Inc. v. Weston , 857 So. 2d 278, 284–85 (Fla. 1st DCA 2003) ("To determine whether a contract is substantively unconscionable, a court must look to the terms of the contract, itself, and determine whether they are so ‘outrageously unfair’ as to ‘shock the judicial conscience.’ ").
As an initial matter, we note that the ALF Appellants concede that both the provision that purports to waive any attorneys' fees and costs and the provision that forecloses any right to appeal the decision of the arbitrator are unconscionable and should be severed from the Arbitration Agreement. Similarly, with regard to the provision that limits discovery, the ALF Appellants stipulated below to expanding the scope of discovery to include depositions of current employees pursuant to Angels Senior Living at Connerton Court, LLC v. Gundry , 210 So. 3d 257, 259–60 (Fla. 2d DCA 2017). And we further note the terms of the Arbitration Agreement that provide that discovery in the arbitration shall be governed by the Florida Rules of Civil Procedure unless specifically modified by the Arbitration Agreement.
In Connerton Court, LLC , the arbitration agreement included a discovery provision that allowed for document production and the deposition of experts, treating physicians, and opposing parties. In noting that Connerton stipulated to allow the depositions of its current employees in the arbitration proceeding, this court held:
Even if the discovery clause does not provide the full panoply of discovery available under Florida Rule of Civil Procedure 1.280(b), we are reluctant to conclude that the provision violates public policy. In light of Connerton's concession concerning the deposition of current employees, we cannot say that the Estate will be denied meaningful discovery. Further, the applicable AHLA rules will provide the Estate an opportunity to seek additional discovery if necessary.
210 So. 3d at 259–60.
The Arbitration Agreement also includes an unlevel-playing-field provision wherein the ALF Appellants are permitted to pursue eviction actions against its residents in court—outside of any arbitration proceeding—while residents, on the other hand, must submit all conflicts through the arbitration process. Specifically, the Arbitration Agreement provides:
Any and all claims or controversies arising out of or in any way relating to the Agreement or the Resident's stay at the Community, excluding any action for eviction, and including disputes regarding interpretation of the Agreement, whether arising out of State or Federal law, whether existing or arising in the future, whether for statutory, compensatory or punitive damages and whether sounding in breach of contract, tort or breach of statutory duties (including, without limitation, any claim based on Florida Statutes § 400.428 entitled Resident Bill of Rights and/or 400.429 entitled Civil Actions to Enforce Rights, or a claim for unpaid Basic Services or Personal Service charges), irrespective of the basis for the duty or the legal theories upon which the claim is asserted, shall be submitted to binding arbitration, as provided below, and shall not be filed in a court of law.
"Where one party is bound to arbitration of its claims but the other is not, there can be substantive unconscionability." Palm Beach Motor Cars Ltd. v. Jeffries , 885 So. 2d 990, 992 (Fla. 4th DCA 2004) ; see also Bellsouth Mobility, LLC v. Christopher , 819 So. 2d 171, 173 (Fla. 4th DCA 2002) (holding arbitration agreement substantively unconscionable where "customers are bound to arbitration, [while] Bellsouth still has the option of pursuing court action in some instances, including the collection of a debt"). Here, the only claims that are carved out of the Arbitration Agreement are those for eviction, which claims can only be brought by the ALF Appellants. Accordingly, this provision is plainly substantively unconscionable and thus, some substantive unconscionability is present in the Arbitration Agreement.
The confidentiality provision contained in the Arbitration Agreement, provides:
The arbitration proceeding shall remain confidential in all respects, including the Demand for Arbitration, all arbitration filings, deposition transcripts, documents produced or obtained in discovery, or other material provided by and exchanged between the parties and the arbitrator's findings of fact and conclusions of law. Following receipt of the arbitrator's decision, each party agrees to return to the producing party within thirty (30) days the original and all copies of documents exchanged in discovery and at the arbitration hearing, except those documents required to be retained
by counsel pursuant to law. Further, the parties to the arbitration also agree not to discuss the amount of the arbitration award or any settlement, the names of the parties, or the name/location of the Community except as required by law.
Whether a confidentiality provision in an arbitration agreement is substantively unconscionable is an issue of first impression for the courts of this state. While there are no cases from Florida's state courts that address the unconscionability of a confidentiality clause in an arbitration agreement, the Federal Court for the Middle District of Florida has ruled that a confidentiality provision contained in an arbitration agreement was not unconscionable. See Delano v. Mastec, Inc. , No. 8:10-CV-320-T-27MAP, 2010 WL 4809081, *7–8 (M.D. Fla. Nov. 18, 2010). The court in Delano noted that both parties may prefer confidentiality and that while a confidentiality agreement may be more favorable to "repeat players" than to individuals, the confidentiality provision is not so offensive as to be invalid. Id . at *8.
The Estate relies heavily on Judge Altenbernd's special concurrence in ManorCare Health Services, Inc. v. Stiehl , 22 So. 3d 96, 101 (Fla. 2d DCA 2009) (Altenbernd, J., specially concurring), to argue that confidentiality provisions in arbitration agreements are substantively unconscionable. However, Judge Altenbernd's opinion is more accurately read to address the issue of arbitrators deciding the enforceability of certain clauses in an arbitration agreement and those decisions being confidential. Id. We do not interpret that special concurrence to reach the issue before us—whether confidentiality provisions, in general, are unconscionable. Id . at 101 ("I concur in this decision because it is consistent with the existing precedent from this district. I have come to the conclusion, however, that it is both bad policy and bad law to allow an arbitrator to make case-specific, non-precedential, confidential decisions about the enforceability of clauses in an arbitration agreement when those clauses limit or eliminate rights specially created by the legislature to protect nursing home residents.").
In ManorCare Health Services, Inc. , the issue was whether the court or the arbitrator should rule on issues related to restrictive clauses prior to arbitration. ManorCare Health Servs., Inc. , 22 So. 3d at 99–100. The majority held that "the validity of the remedial limitations may be determined by the arbitrator" and not the courts. Id . at 101. In his special concurrence, Judge Altenbernd opined that the court, and not the arbitrators, should decide the validity of remedial limitations in an arbitration agreement. He stated:
If a trial judge decides that a clause of the arbitration agreement is enforceable or unenforceable, the order is a public order and an aggrieved party can appeal that ruling. The district court can review the order, and whether the district court affirms or reverses, it can create precedent that resolves the matter for future similar claims. If the agreement needs to be refined for future residents, the drafters have guidance, and if the legislature concludes that the court has misinterpreted the rights it created, the statute can be amended.
If an arbitrator makes a similar decision, the parties have agreed to maintain the confidentiality of the arbitrator's "conclusions of law." The agreement prevents an appeal, and the limited judicial review in circuit court permitted by section 682.13 will not permit a judicial review of such a ruling. Not only does this procedure prevent the creation of binding precedent, it creates nothing approaching the rule of law.
Id . at 103 (Altenbernd, J., concurring).
In fact, Florida courts generally recognize and enforce confidentiality agreements in other contexts. See Concept, Inc. v. Thermotemp, Inc. , 553 So. 2d 1325, 1326 (Fla. 2d DCA 1989) (holding temporary injunction was properly issued where defendant breached a written confidentiality agreement by using the plaintiff's confidential information); Steven Enters. Grp. Inc. v. Diversified Aero Inventory I, LLC , 326 So. 3d 128, 130 (Fla. 3d DCA 2021) (enforcing confidential settlement agreement); Gulliver Schs., Inc. v. Snay , 137 So. 3d 1045, 1048 (Fla. 3d DCA 2014) (enforcing confidentiality provision contained in settlement agreement reached during mediation); Paranzino v. Barnett Bank of S. Fla., N.A. , 690 So. 2d 725, 727 (Fla. 4th DCA 1997) (recognizing the confidentiality provision of a mediation report and agreement that was "signed by all of the parties [and that] specifically stated that the mediation proceedings were to be confidential").
Courts in other jurisdictions have held that the mere existence of these confidentiality provisions contributes to a finding of substantive unconscionability. See Ting v. AT&T , 319 F.3d 1126, 1152 (9th Cir. 2003) ("AT&T has placed itself in a far superior legal posture by ensuring that none of its potential opponents have access to precedent while, at the same time, AT&T accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract. Further, the unavailability of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against AT&T. For these reasons, we hold that the district court did not err in finding the secrecy provision unconscionable."); Brookdale Senior Living Cmtys., Inc. v. Hardy , No. C15-96 MJP, 2015 WL 13446704, at *5 (W.D. Wash. June 5, 2015) ("Though facially neutral, strict confidentiality of arbitration proceedings is widely acknowledged to benefit repeat players, such as assisted living facilities, to the detriment of one-time litigants, such as residents."); Luna v. Household Fin. Corp. III , 236 F. Supp. 2d 1166, 1180-81 (W.D. Wash. 2002) ("The advantages repeat participants possess over ‘one time’ participants in arbitration proceedings are widely recognized in legal literature and by federal courts ... [which the arbitration agreement's] confidentiality provision magnifies the effect of those advantages. Therefore, although facially neutral, the ... confidentiality provision unduly favors [the corporation] and therefore contributes to a finding of substantive unconscionability.").
We are certainly mindful of the public policy reasons articulated by courts of other states in holding that a confidentiality clause in an arbitration agreement is substantively unconscionable. However, those cases are not binding on us and only constitute persuasive authority. See Lobree v. Caporossi , 139 So. 2d 510, 511 (Fla. 2d DCA 1962) ("Opinions from other jurisdictions are not binding upon the courts of this state, but are only persuasive." (citing Stevens v. Duke , 42 So. 2d 361, 363 (Fla. 1949) )). And we are not persuaded. On the other hand, we find it more compelling that Florida courts have acknowledged and enforced confidentiality agreements related to mediation proceedings—an alternative dispute resolution mechanism much like arbitration proceedings. See Gulliver Schs., 137 So. 3d at 1048 ; Paranzino, 690 So. 2d at 727. And because Florida courts encourage and favor alternative dispute resolution proceedings, we hold that the instant confidentiality provision contained in the Arbitration Agreement is not substantively unconscionable.
III.
Having determined that a number of the offending provisions of the Arbitration Agreement are substantively unconscionable, we must now ruminate on the effect of the Arbitration Agreement's severability clause. "As a general rule, contractual provisions are severable, where the illegal portion of the contract does not go to its essence, and, with the illegal portion eliminated, there remain valid legal obligations." Fonte , 903 So. 2d at 1024 (citing Gold, Vann & White, P.A , 831 So. 2d at 696 ); see also Osprey Health Care Ctr., LLC v. Pascazi , 329 So. 3d 177, 187 (Fla. 2d DCA 2021) (explaining that an unenforceable provision in an arbitration agreement "is severable if it ‘does not go to the heart of the [arbitration agreement]’ " and "[s]tated differently, if an arbitration agreement is otherwise enforceable, a ‘court should sever the offending provisions ... so long as such severance does not undermine the parties' intent.’ " (first alteration and omission in original) (first quoting Hochbaum v. Palm Garden of Winter Haven, LLC , 201 So. 3d 218, 223 (Fla. 2d DCA 2016) ; and then quoting Lemos v. Sessa , 319 So. 3d 135, 142 (Fla. 3d DCA 2021) )). Ultimately, "the ‘controlling issue is whether an offending clause or clauses go to "the very essence of the agreement." ’ " Hochbaum , 201 So. 3d at 222 (quoting Estate of Yetta Novosett v. Arc Vills. II, LLC , 189 So. 3d 895, 896 (Fla. 5th DCA 2016) ).
In the instant case, as analyzed above, the unconscionable provisions include (1) the waiver of attorneys' fees and costs; (2) the limitation on discovery; and (3) the one-sided arbitration obligation. A valid obligation to arbitrate would remain under the terms of this Arbitration Agreement should these provisions be severed. It is clear from the Arbitration Agreement that the parties agreed to bind themselves to arbitration for any disputes arising out of Mr. Ingolia's residency at the ALF. The primary thrust of the Arbitration Agreement—as expressly provided—is to "avoid the expense and delay of judicial resolution in the court system." Striking the offending provisions would preserve the alternative dispute forum and the appointed finder of fact, which are central to Arbitration Agreement in this case. See Estate of Deresh v. FS Tenant Pool III Tr. , 95 So. 3d 296, 301 (Fla. 4th DCA 2012). The offending provisions do not go to the heart of the Arbitration Agreement, and so severance of these provisions would not result in a drastic rewrite of the agreements and allows for the preservation of the parties' intent to adjudicate their disputes in arbitration. See Hochbaum , 201 So. 3d at 223 ; Estate of Deresh, 95 So. 3d at 296. Accordingly, because the offending provisions of the Arbitration Agreement may be severed without disrupting the parties' intent to resolve their claims through arbitration, we reverse the trial court's orders denying each of the motions to compel arbitration and remand for the trial court to strike the offending provisions, consistent with this opinion, and to enter orders compelling the parties to arbitration.
Reversed and remanded with instructions.
LaROSE and BLACK, JJ., Concur.