Court Holds That Arbitration Requirement Is Not Unconscionable If Retainer Agreement Provides That Attorney Will Pay The Arbitration Costs

The Arizona Supreme Court this week decided a case which it characterized as one “of first impression and statewide importance.” In Rizzio v. Surpass Senior Living LLC, a nursing care facility sought to compel arbitration of a claim brought by a resident who had been injured in a physical altercation with another resident. The plaintiff claimed that the arbitration provision was both procedurally and substantively unconscionable. Lower court proceedings resulted in a judicial determination that a contractual requirement that the plaintiff shoulder all the arbitration costs–whether she won or lost–indeed was procedurally unconscionable, resulting in a judicial severance of this provision from the arbitration agreement.

The issue remaining for the Arizona Supreme Court to decide was whether the agreement nonetheless remained substantively unconscionable due to the projected costs of the arbitration and the limited financial means of the plaintiff. Notwithstanding limited personal resources, plaintiff’s engagement letter with her attorney provided that the attorney “would be responsible for all ‘[c]osts of arbitration, including [defense]’s legal costs and attorney’s fees, arbitration fees and similar costs.’”

The Court rejected arguments that it would be “improper to consider a fee agreement because it would violate the collateral-source rule, which precludes consideration of benefits received by a plaintiff to reduce the amount of a defendant’s liability in personal injury actions.” As the Court explained,

“Applying that rule when assessing a plaintiff’s ability to meet the costs of arbitration is misplaced… The amount of damages a defendant may be liable for is determined without reference to any costs advanced by a plaintiff’s attorney. The collateral-source rule does not apply to this inquiry.”

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