The Florida Supreme Court recently weighed in on the enforceability of severability clauses in the case of Shotts v. O.P. Winterhaven, Inc. 36 Fla. L.Weekly S665. The case involved an action by the Personal Representative (Shotts) of a deceased nursing home patient against the nursing home (OP Winterhaven). Winterhaven moved to compel arbitration in accordance with an agreement signed when the decedent entered the nursing home. The case is a must read on the enforceability of arbitration provisions in contracts. It contains a good overview of both State and Federal law relevant to the enforceability and grounds for challenging an arbitration agreement.
It was the Court’s treatment of the severability clause in the arbitration agreement at issue however, that caught my eye. In the contractual context, a severability clause is a provision which provides that a contract’s valid provisions remain enforceable even if its other part or parts are determined to be unenforceable.
Although the Court did not frame its opinion in these terms, the Court’s severability analysis can be expressed in golfing parlance as, “Whether a severability clause will work depends whether your golf game is match play or stroke play.” In match play, each hole is a separate competition. The player with the fewest strokes on an individual hole wins that hole; the player winning the most holes wins the match. In stroke play, every shot counts towards the total score. The player with the lowest 18 hole score wins the game.
In match play, the outcome of every hole stands on its own. A player can have one terrible hole and still win the match so long as he or she wins the majority of the 18 holes. In stroke play, every single stroke counts towards the player’s final score. A player might play superlatively for 17 holes. But if he or she had 1 sufficiently bad hole, the score on that hole could cause the player to lose the match.
Severability clauses lend themselves to the same sort of analysis. Many practitioners insert severability clauses in documents as a matter of course. The inclusion of a severability clause however, can also be a signal that the drafter recognizes that he or she is “pushing the envelope” with a particular clause and so the drafter wants to hedge against the entire contract failing should that clause be determined invalid.
The situation is not unlike the predicament faced by a golfer having found him or herself deep in the rough choosing between safely “punching out” to the fairway or attempting to hit the “miracle shot” between two trees with a low boring hook in an attempt to reach the green. In match play, if the miracle shot does not work and instead careens off a tree coming to rest against the base of another tree, the consequence may be simply the loss of that hole.
In stroke play however, it may take so many shots for the player to recover from the ill advised miracle shot, the contest will be lost. In other words, in stroke play, one terrible hole can so infect the round that the game is lost. Similarly, in a contract, the unenforceable provision may be so essential, that without it, there may be no agreement left.
The Shotts Court had before it the issue of whether an arbitration clause was or was not enforceable. For purposes of this discussion, it is sufficient to note that the contract provided as follows:
- The arbitration will be conducted in accordance with the American Health Lawyers Association (AHLA) Rules; and
- The arbitrators will have no authority to award punitive damages.
- The provisions of the Agreement were severable, so that “if any portion of this Agreement will be determined invalid or unenforceable, the remainder of the Agreement will be deemed to continue to be binding upon the parties hereby in the same manner as if the invalid or unenforceable provision were not a part of the Agreement (hereinafter referred to as the “Miracle Shot” or the “Severability Clause”).
As you may have guessed, the Miracle Shot hit the tree, and the Court decided the “contract game” between the nursing home and the personal representative of the deceased nursing home patient was stroke play.
After first determining that it was for the Court and not the arbitrator to decide whether the arbitration provision violated public policy, the Shotts’ Court held that the imposition of the AHLA rules and the limitation of punitive damages violated public policy and hence those provisions were unenforceable. Like Johnny Miller providing color commentary from the 18th Hole Tower, the Court then analyzed the nursing home’s unsuccessful “Miracle Shot.”
The Court held that the offending provisions were not severable. Citing to its decision, Local No. 234 v. Henley & Beckwith, Inc., 66 So. 2d 881, 822 (Fla. 1953) the Court stated “… a bilateral contract is severable where the illegal portion of the contract does not go to its essence, and where, with the illegal portion eliminated, there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other.” The Johnny Miller translation of the Court’s application of that rule to the nursing home’s Miracle Shot might have been, “I’m not sure what he was trying to do there!”
The Shotts’ Court concluded, that notwithstanding the Severability Clause, “… the AHLA provision goes to the very essence of the Agreement. If the provision were to be severed, the trial court would be forced to rewrite the Agreement [a/k/a the scorecard in stroke play] and to add an entirely new set of procedural rules and burdens and standards, a job the trial court is not tasked to do. See Local No., 234, 66 So. 2d at 821-22.”
I suppose it could be said that in drafting as in golf, “no guts-no glory!” But better to save those really gutsy clauses for contracts where you are sure the Court will score the contest as match play and not stroke play. In the latter, if your Severability Clause is held to have cut more deeply than you had planned, you may have cut your own throat. When it doubt, just punch out to the fairway!
