August 14, 2013
KORAL MOORE, a minor by and through her Guardians ad Litem, MONICA & KEVIN MOORE, and MONICA & KEVIN MOORE, Individually, Plaintiffs-Respondents,
WOMAN TO WOMAN OBSTETRICS & GYNECOLOGY, L.L.C., and LISA VERNON M.D., Defendants, and CARLOS FERNANDEZ, M.D., and PREMIER PERINATAL, L.L.C., Defendants-Appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 12, 2012
On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1558-09.
Joel I. Fishbein argued the cause for appellants (Spector, Gadon & Rosen, P.C., and Hardin, Kundla, McKeon & Poletto, P.A., attorneys; Mr. Fishbein and Janet L. Poletto, on the brief).
Marc C. Johnson argued the cause for respondents (Weiss & Paarz, attorneys; Mr. Johnson, on the brief).
Before Judges Fuentes, Grall and Hayden.
This case is before us for the second time. Defendants Carlos Fernandez, M.D., and Premier Perinatal, L.L.C., appeal from the September 30, 2011 Law Division order that denied their motion to compel arbitration of plaintiffs Monica and Kevin Moore and their daughter Koral Moore's medical malpractice complaint. For the reasons that follow, we reverse the denial of arbitration as to Monica and Koral and affirm as to Kevin.
The facts and procedural history relevant to the first appeal are contained in our earlier opinion, Moore v. Woman to Woman Obstetrics & Gynecology, L.L.C., 416 N.J.Super. 30 (App. Div. 2010). Briefly stated, Monica's doctor, defendant Lisa Vernon, practicing with defendant Woman to Woman Obstetrics, L.L.C., referred Monica, then forty-four years old, to defendants Carlos Fernandez, M.D. and Premier Perinatal, L.L.C. (Premier), due to her high-risk pregnancy based on her age. On her first visit to Dr. Fernandez's office, Monica signed an arbitration agreement on behalf of herself and her spouse and unborn child, which covered all past and future claims for medical diagnosis and treatment. Subsequently, plaintiffs filed a complaint against all four defendants alleging medical malpractice due to Koral being born with Downs Syndrome.
Based on the arbitration agreement, the initial motion judge granted defendants' summary judgment motion and entered an order compelling arbitration of plaintiffs' claims against Fernandez and Premier and dismissing the complaint against them without prejudice. In Moore, we held that while the arbitration agreement was not per se unenforceable, id. at 35, defendants were not entitled to summary judgment on the question of whether it was unconscionable. Id. at 45-46. We reversed the order granting summary judgment and remanded to the trial court for further proceedings. Id. at 46.
After the remand, the parties engaged in substantial discovery, including depositions of Monica, Kevin, Dr. Fernandez, and two of Premier's office staff. Defendants then filed a motion to compel arbitration. A different motion judge found the arbitration agreement was clear and unambiguous but rejected defendants' argument that the Moore appellate panel "got [it] wrong" in characterizing it as a contract of adhesion. Based upon defendants' failure to provide Monica a copy of the agreement, thus depriving her of attorney review and an opportunity to rescind the contract, he concluded that the agreement was unenforceable as it was procedurally unconscionable. Because he concluded that the agreement was not binding on Monica, the judge did not reach the issue of whether she had bound her co-plaintiffs, Kevin and Koral, to participate in binding arbitration. This appeal followed.
The relevant facts developed during discovery are not in dispute. The record reveals that Monica had an initial appointment at Premier with Dr. Fernandez, a high-risk pregnancy specialist, for an ultrasound. Monica was a high school graduate who had taken some college courses and worked as an engineering technician at a federal government facility. She brought to the appointment a family member and four children. Upon her arrival, the staff gave her a clipboard and a stack of about twelve sheets of paper concerning insurance, financial, medical history, and privacy rights. The staff member showed her where to sign and where to fill out her information. She arrived early at Premier and had enough time to fill out the forms. Monica recalled filling out paperwork but had no specific recollection of the arbitration agreement. She acknowledged, based upon her signature on the agreement, that she signed it. She did not receive a copy of the arbitration agreement to keep. Monica did not recall noticing any signs posted about the arbitration agreement. Neither the doctor nor the staff discussed the substance of the arbitration agreement with her.
The staff reported that it was office policy at that time not to give a patient a copy of the arbitration agreement unless she asked. According to the staff, all patients were given a letter from the doctor's insurance company, explaining the arbitration policy and providing a phone number to call if a patient had a question about the agreement. The staff's practice was to show all patients a list of doctors in the area who did not require their patients to consent to arbitration, but Monica did not recall viewing such a list. A notice posted on the wall in the waiting room informed patients that "[o]ur insurance company requires all patients to sign a mutual arbitration agreement. This helps to control our insurance costs and patient fees." Dr. Fernandez stated that if a person declined to sign the arbitration agreement, he would still treat her.
The arbitration agreement was four pages long, with paragraph headings and certain other statements in bold and capitalized in twelve-point font. The agreement stated in relevant part:
ARBITRATION AGREEMENT FOR CLAIMS ARISING OUT OF OR RELATED TO MEDICAL CARE AND TREATMENT
1. AGREEMENT TO ARBITRATE CLAIMS REGARDING FURTRE CARE AND TREATMENT
(a) Patient and the Medical Care Provider agree that any controversy arising between them . . . shall be resolved only by binding arbitration conducted in accordance with the provision of this Agreement.
(b) The Patient's agreement to submit any and all such claims to binding arbitration shall be binding on the Patient, his or her spouse, the Patient's children (born or unborn) . . . .
3. WAIVER OF RIGHT TO JURY TRIAL
The Patient and the Medical Care Provider acknowledge that by agreeing to resolve any and all claims and controversies arising out of future care and treatment and past care and treatment by binding arbitration, they are abandoning their constitutional right to have such claims or controversies resolved by a jury in a court of law . . . .
8. RIGHT TO COUNSEL
The Patient acknowledges that this Agreement is a legal document with binding consequences and that the Patient has been afforded the right to consult with an attorney prior to entering into this Agreement. The Medical Care Provider expressly encourages the Patient to consult with an attorney before entering into this Agreement.
9. MISCELLANEOUS ITEMS
(e) Patient's Right to Rescind Agreement. The Patient acknowledges that,
notwithstanding the Patient's execution of this Agreement, the Patient retains the right to cancel and rescind the Agreement within 15 days of the date of execution by providing written notice to the Medical Care Provider. Such notice shall be provided by returning a copy of this Agreement to the Medical Care Provider with the word "cancelled" written across the first page thereof and signed by the Patient.
In the agreement, Monica acknowledged twice that the staff had provided the names of other doctors in the area who did not require her to sign an arbitration agreement but that, since she desired Dr. Fernandez to treat her, she was entering into the agreement. In addition, above and below the signature line in bold-face type, notice was twice given that by signing the document she gave up her "right to a jury trial." The agreement also contained a severability clause.
On appeal, defendants argue that arbitration should be compelled because prevailing federal and State laws and case precedent clearly favor arbitration, and that this particular arbitration agreement must be enforced because plaintiffs did not sustain their burden that the arbitration agreement was a contract of adhesion or that it was procedurally or substantively unconscionable. They also argue that as the agreement is binding on Monica, it is also binding on Kevin and Koral. Conversely, plaintiffs argue that under basic contract law the arbitration agreement is unconscionable and unenforceable.
We begin by reviewing some well-established applicable legal principles. "'[W] hether the parties have a valid arbitration agreement at all' is a 'gateway' question that requires judicial resolution." Muhammad v. Cnty. Bank of Rehoboth Beach, Del., 189 N.J. 1, 12 (2006). We consider the interpretation of an arbitration clause, which is a matter of contract construction, de novo. Coast Auto. Grp., Ltd. v. Withum Smith & Brown, Div. 2010). The burden of proving the defense of unconscionability is on the party challenging the enforceability of the agreement. Martindale v. Sandvik, Inc., 173 N.J. 76, 91 (2002).413 N.J.Super. 363, 369 (App.
The Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16, demonstrated "a national policy favoring arbitration, " Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1, 12 (1984), and provided that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2. This section "reflects both 'a liberal federal policy favoring arbitration, ' and 'the fundamental principle that arbitration is a matter of contract.'" NAACP of Camden Cnty. E. v. Foulke Mgmt. Corp., 421 N.J.Super. 404, 424 (App. Div. 2011) (internal citations omitted). "The substantive protection of the FAA applies irrespective of whether arbitrability is raised in federal or state court." Martindale, supra, 173 N.J. at 84.
Similarly, New Jersey law favors arbitration agreements. "The 2003 [New Jersey] Arbitration Act, N.J.S.A. 2A:23B-1 to -32, 'continues our State's long-standing policy to favor voluntary arbitration as a means of dispute resolution.'" EPIX Holding Corp. v. Marsh & McLennan Cos., Inc., 410 N.J.Super. 453, 471 n.7 (App. Div. 2009) (quoting Block v. Plosia, 390 N.J.Super. 543, 551 (App. Div. 2007)). Under the Act, an agreement to arbitrate "is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract." N.J.S.A. 2A:23B-6(a). All parties agree that the subject arbitration agreement is governed by the FAA and applicable New Jersey laws.
"An agreement relating to arbitration should thus be read liberally to find arbitrability if reasonably possible." Jansen v. Solomon Smith Barney, Inc., 342 N.J.Super. 254, 257 (App. Div. 2001). Where certain clauses in an arbitration agreement are unconscionable or otherwise unenforceable, those parts may be excised from the otherwise valid agreement. See Ruszala v. Brookdale Living Cmtys., Inc., 415 N.J.Super. 272, 300 (App. Div. 2010). "Severability is only an option if striking the unenforceable portions of an agreement leaves behind a clear residue that is manifestly consistent with the 'central purpose' of the contracting parties, and that is capable of enforcement." NAACP of Camden Cnty. E., supra, 421 N.J.Super. at 437 (quoting Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 33 (1992)).
As in any contract, when parties enter into an arbitration agreement, "only those issues may be arbitrated which the parties have agreed shall be." Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 132 (2001). We consider the intentions of the parties "as reflected in the four corners of the written instrument" in determining a written contract's validity. Leodori v. CIGNA Corp., 175 N.J. 293, 302, cert. denied, 540 U.S. 938, 124 S.Ct. 74, 157 L.Ed. 2D 250 (2003). Thus, courts examine arbitration provisions "on a case-by-case basis." Rockel v. Cherry Hill Dodge, 368 N.J.Super. 577, 580 (App. Div.), certif. denied, 181 N.J. 545 (2004).
"In determining whether a contract is unconscionable, courts have focused on two factors: '(1) unfairness in the formation of the contract; and (2) excessively disproportionate terms.'" Delta Funding Corp. v. Harris, 189 N.J. 28, 55 (2006) (Zazzali, J., concurring in part and dissenting in part) (quoting Sitogum Holdings, Inc. v. Ropes, 352 N.J.Super. 555, 564 (Ch. Div. 2002)). "The first factor — procedural unconscionability — can include a variety of inadequacies, such as age, literacy, lack of sophistication, hidden or unduly complex contract terms, bargaining tactics, and the particular setting existing during the contract formation process." Ibid. "The second factor — substantive unconscionability — simply suggests the exchange of obligations so one-sided as to shock the court's conscience." Ibid. This determination is made "using a sliding scale analysis, " considering "the way in which the contract was formed and, further, whether enforcement of the contract implicates matters of public interest." Stelluti v. Casapenn Enters., L.L.C., 203 N.J. 286, 301 (2010).
On appeal, defendants argue initially that the U.S. Supreme Court's holding, made subsequent to our opinion in Moore, in AT&T Mobility, L.L.C. v. Concepcion, 563 U.S., 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), prohibits the consideration of the unconscionability defense that plaintiffs raise here. We disagree.
In AT&T Mobility, the Court made clear that the FAA still "permits agreements to arbitrate to 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." 563 U.S. at, 131 S.Ct. at 1746, 179 L.Ed.2d at 751 (citation omitted). We have recently held that AT&T Mobility did not alter the basic premise that "an agreement to arbitrate must be the product of mutual assent, as determined under customary principles of contract law." NAACP of Camden Cnty. E., supra, 421 N.J.Super. at 424. We further emphasized: "in the aftermath of AT&T Mobility, state courts remain free to decline to enforce an arbitration provision by invoking traditional legal doctrines governing the formation of a contract and its interpretation." Id. at 428. In this case, we are satisfied that plaintiffs invoked, and the court utilized, standard legal principles applicable to all contracts in raising the defense of unconscionability.
Defendants next argue that, based on the full record developed in discovery since the remand, our prior conclusion in Moore that the arbitration was a contract of adhesion was erroneous. Again, we disagree.
As we previously stated:
Contracts of adhesion are unique. The essential nature of a contract of adhesion is that it is presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without opportunity for the adhering party to negotiate except perhaps on a few particulars. A contract of adhesion is a contract where one party must accept or reject the contract. Such a contract does not result from the consent of that party.
The facts here show that the agreement meets the above description of a contract of adhesion. Monica received the four-page standardized form arbitration agreement with several other forms from the staff to be filled out before seeing the doctor. Other forms Monica signed on her first office visit indicated that she was not obliged to provide information, but the arbitration agreement form did not state that she did not have to sign it. The office had a notice on its wall which stated that its insurance carrier required the mutual arbitration agreements. The document contained no suggestion that its terms were negotiable.
Defendants contend that the provisions allowing cancellation of the agreement within fifteen days and advising the signer to consult an attorney before signing demonstrated that the agreement was not a "take-it-or-leave it" contract. This argument ignores the fact that Monica was not provided with a copy of the contract, rendering these provisions illusory. Nor does Dr. Fernandez' deposition statement that he would have treated her if she declined to sign the agreement change the coercive nature of the agreement since this information was not conveyed to her by the doctor, his staff, the posted sign, or the agreement itself. Thus, the agreement was a contract of adhesion. See
Ruszala , 415 N.J.Super. at 295-96.
Upon such a finding, the next step is to engage in a "sharpened inquiry" concerning unconscionability by applying four Rudbart factors to determine the enforceability of the agreement. Muhammad, supra, 189 N.J. at 15. These factors include "the subject matter of the contract, the parties' relative bargaining positions, the degree of economic compulsion motivating the 'adhering' party, and the public interests affected by the contract." Rudbart, supra, 127 N.J. at 356.
The first factor – the subject matter – here involves the provision of medical services for a high-risk pregnancy. The Arbitration Act provides that an arbitration agreement may cover "any existing or subsequent controversy." N.J.S.A. 2A:23B-6. We previously found that the provision of medical services is amenable to arbitration agreements. Moore, supra, 416 N.J.Super. at 44-46. See also Ruszala, supra, 415 N.J.Super. at 279 (finding arbitration agreement covering nursing home residents not unconscionable). Arbitration has long been considered a "favored means of dispute resolution, " Hojnowski v. Vans Skate Park, 187 N.J. 323, 342 (2006), and we discern no inherent harm to the doctor/patient relationship that flows from the agreement to substitute one forum for another in the event of future claims.
Consideration of the second factor — the parties' relative bargaining power — leads to the conclusion that the bargaining power was unequal here. Defendants had specialized knowledge and skill that Monica needed, thus giving them more bargaining power. Defendants' failure to give Monica a copy of the agreement, thereby preventing her from showing it to her attorney and cancelling it within fifteen days, created an additional inequality in the parties' respective bargaining power. On the other hand, to the extent that, as Monica acknowledged in signing the arbitration agreement, there were other doctors in the area that did not require the patient to enter into an arbitration agreement, defendants' bargaining power was reduced. Most importantly, unequal bargaining power alone does not preclude enforcement of a contract of adhesion.
Young v. Prudential Ins. Co ., 297 N.J.Super. 605, 620, certif. denied, 149 N.J. 408 (1997).
It is undisputed that the third factor — economic compulsion — did not come into consideration here. Monica, who has health insurance covering much of the costs of defendants' services, does not argue that she entered into the agreement due to any economic pressure. Finally, as previously discussed, public policy favors arbitration agreements, including in health care settings. Moore, supra, 416 N.J.Super. at 45;. Reviewing the arbitration agreement as a whole in light of the Rudbart factors, we conclude that it is generally enforceable. We do not find significant inadequacies due to Monica's "age, literacy, lack of sophistication, " the agreement's "hidden or unduly complex contract terms, " the defendants' "bargaining tactics, and the particular setting existing during the contract formation process" that lead us to find "overwhelming procedural unconscionability." Sitogum Holdings, supra, 352 N.J.Super. at 564-65. Consequently, we conclude that the arbitration agreement is enforceable against Monica.
However, we noted previously that a provision in the agreement appeared to be "overreaching." Moore, supra, 416 N.J.Super. at 45. In the agreement, Monica purported to bind her spouse and unborn child to arbitration and to waive their separate rights to a jury trial. First, we recognize that a parent may bind an unborn child to arbitrate future tort claims, based upon the principle that a parent can bind a minor child to such arbitration. Hojnowski, supra, 187 N.J. at 343 (citation omitted) ("[I]f a parent has the authority to bring and conduct a lawsuit on behalf of the child, he or she has the same authority to choose arbitration as the litigation forum."). Both in utero and after their birth, parents have the right to make medical decisions for their children. See Draper v. Jasionowski, 372 N.J.Super. 368, 373 (App. Div. 2004). A child may sue for medical malpractice occurring while he or she was in utero, including for not providing the mother the information for her to make an informed decision to terminate the pregnancy. Id. at 379. Similarly, as the medical decision maker for the fetus in utero, the parent has the right to choose the forum for any tort as a result of that medical treatment. Cf. Pietrelli v. Peacock, 16 Cal.Rptr.2d 688, 690-91 (Ct. App. 1993); McKinstry v. Valley Obstetrics-Gynecology Clinic, P.C., 405 N.W.2d 88, 99 (Mich. 1987) (holding that a mother may bind her unborn child to arbitration as neither a fetus in utero nor a minor child has the capacity to contract for medical care on his or her own behalf). Accordingly, as we held previously, Monica did have the authority to agree to arbitration on Koral's behalf.
We reach a different conclusion concerning Monica's ability to waive Kevin's right to a jury trial and bind him to arbitrate all future claims. Our Supreme Court has recently emphasized "the importance of ensuring that a party has actually waived its right to initiate a claim in court in favor of submitting to binding arbitration." Hirsch v. Amper Fin. Servs., L.L.C., N.J., (2013) (slip op. 24). We noted that the individual claim asserted by Kevin as Koral's father was not derivative of Monica's claim. Moore, supra, 416 N.J.Super. at 45 (citing Procanik v. Cillo, 97 N.J. 339, 348 (1984)). As the United States Supreme Court long ago observed, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of Am. v. Warriors & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409, 1417 (1960). A party cannot be forced to arbitrate if he or his representative did not willingly manifest his or her agreement to be bound by the arbitration agreement. See Nuclear Electric Ins. Ltd. v. Cent. Power & Light Co., 926 F.Supp. 428, 434 (S.D.N.Y. 1996); Restatement (Second) of Contracts §§ 163 comment a, 174 comment a (1981).
Agency relationships can serve as the basis for compelling arbitration. Hirsch, supra, N.J. at (slip op. 21) (citing Alfano v. BDO Seidman, L.L.P., 393 N.J.Super. 560, 569-70 (App. Div. 2007). While a spouse may appoint his or her spouse as an agent, "[n]either husband nor wife by virtue of the relation has power to act as agent for the other." Restatement (Second) of Agency § 22 comment b (1958). Defendants cannot point to anything in the record demonstrating that Kevin appointed Monica his agent or gave her the authority to waive his right to a jury trial and bind him to the arbitration agreement. Instead, the record reflects that Kevin did not read, sign, or even know about the arbitration agreement, and had no knowledge of the right to rescind that agreement. He did not attend the office visit and the staff did not ask Monica if she had the authority from her husband to sign the agreement on his behalf. Monica was using her own health insurance, not Kevin's.
Defendants rely on Trocki Plastic Surgery Ctr. v. Bartkowski, 344 N.J.Super. 399, 403 (App. Div. 2001), certif. denied, 171 N.J. 338 (2002), where we held a father responsible to pay a bill that his wife signed for when he attended the doctor's visit with his wife, provided his health insurance information, and the reimbursement check from the insurance company was in his name. However, defendants' reliance on Trocki is misplaced as the facts differ completely from this case. We also reject as without factual support in the record defendants' contention that allowing Kevin to decline to waive his rights and refuse to submit to arbitration in any way interferes with Monica's well-recognized right to control her own body. Accordingly, we conclude that the provision purporting to agree to arbitrate on behalf of her spouse was unenforceable against Kevin. Hence, it must be severed from the arbitration agreement. Ruszala, supra, 415 N.J.Super. at 300; Muhammad, supra, 189 N.J. at 26.
Under the totality of circumstances in this case, based upon the more complete record developed on remand, defendants were entitled to enforce the arbitration agreement against Monica and Koral, because the arbitration agreement, as excised, was not unconscionable.
The order denying defendants' motion to compel arbitration for plaintiffs' medical malpractice claims is hereby reversed as to Monica and Koral. We affirm the denial of defendants' motion to compel Kevin to arbitrate his individual claims. The matter is remanded for further proceedings.