Alterra Healthcare Corp. v. Estate of Linton, 2007 Fla. App. LEXIS 2727 (Fla. 1st DCA 2007)

Plaintiff filed suit for negligence and violations of the Florida Nursing Home Residents Act (Plaintiff was beaten and raped). Defendants moved for arbitration. Plaintiff argued that the resident never signed the arbitration agreement and her son, who signed it, had no authority to do so. Plaintiff also argued that the arbitration agreement was substantively and procedurally unconscionable because it included a $250,000 cap on non-economic damages and a total waiver of punitive damages. Plaintiff also argued that the agreement did not apply to an employee defendant since she was not a party to the agreement. The trial court compelled arbitration, but ruled that the provisions limiting compensatory and punitive damages were void and unenforceable as against public policy and that claims against the employee defendant were not subject to arbitration except to the extent Plaintiff sought to hold the nursing home vicariously liable for her conduct; the court found that a severability clause allowed reformation of the agreement. On appeal, Defendants argued that the trial court had no authority to determine the validity of the arbitration agreement as part of a motion to compel. The court of appeals ruled otherwise, holding that doing so was step one under the court’s analysis in Seifert v. U.S. Home Corp, 750 So.2d 633, 636 (Fla. 1999). The also rejected Defendants’ argument that Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) prevents the court from reforming the agreement. “In Buckeye, the Supreme Court reaffirmed the general rule that “a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” See Buckeye, 126 S. Ct. at 1210. The defendants here unconvincingly argue that the plaintiff challenged the entire residency agreement, rather than the arbitration agreement alone, based on its mischaracterization of the limitation of liability clause as “outside” the arbitration provision. However, the limitation of liability clause is plainly part of the arbitration provision, as it is expressly incorporated by reference therein.” The court then rejected Defendants’ arguments that the limitations on liability did not violate public policy; the Resident Rights Act is a remedial statute designed to protect residents and the agreement would defeat that purpose by eliminating punitive damages and capping non-economic damages. The court reversed the trial court’s finding that the arbitration agreement did not apply to the employee defendant. Where the arbitration agreement would include persons within the respondeat superior doctrine, claims against the company’s employees may be subject to arbitration even though the employee did not sign the agreement. In Plaintiff’s cross-appeal, the court found that the wrongful death beneficiary was bound by the arbitration agreement, finding that she was an intended beneficiary of the agreement; there was no discussion in the appeal of Plaintiff’s argument that the son did not have authority to sign the agreement. Plaintiff also argued that the arbitration agreement could not be reformed, but the court found that the severability clause allowed the trial court to reform the agreement.

Following this case, you should expect limitations on damages to appear in admissions agreements or in free-standing agreements, outside the arbitration agreement itself. You should also expect severability clauses to appear in arbitration agreements