Chapter 8
Capacity, Legality,
Assent, and Form
Case 8.1
838 A.2d 179, 267 Conn. 351
Supreme Court of Connecticut.
YALE DIAGNOSTIC RADIOLOGY
v.
ESTATE OF HARUN FOUNTAIN et al.
No. 16922.
Argued Sept. 22, 2003.
Decided Jan. 13, 2004.
, J.
The sole issue in this appeal is whether a medical service provider that has provided emergency medical services to a minor
may collect for those services from the minor when the minor's parents refuse or are unable to make payment. The
defendants, the estate of Harun Fountain, an unemancipated minor, and Vernetta Turner-Tucker (Tucker), the fiduciary of
Fountain's estate, appeal from the judgment of the Superior Court following an appeal from an order of the Probate Court
for the district of Milford. The Probate Court had denied the motion of the plaintiff, Yale Diagnostic Radiology, for
distribution of funds from the estate. The trial court ordered recovery of the funds sought by the plaintiff. The defendants
claim that the trial court improperly determined that they are liable to the plaintiff for payment of Fountain's medical
expenses. We affirm the judgment of the trial court.
The defendants appealed from the judgment of the Superior Court to the Appellate Court, and we transferred the
appeal to this court pursuant to and .
The plaintiff filed a proof of claim against the defendants and a motion for distribution of funds in the Probate Court. The
Probate Court denied the motion for distribution of funds. The plaintiff appealed to the trial court, which sustained the
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appeal and rendered judgment in favor of the plaintiff.
The following facts and procedural history are undisputed. In March, 1996, Fountain was shot in the back of the head at
point-blank range by a playmate. As a result of his injuries, including the loss of his right eye, Fountain required extensive
lifesaving medical services from a variety of medical services providers, including the plaintiff. The expense of the services
rendered by the plaintiff to Fountain totaled $17,694. The plaintiff billed Tucker, who was Fountain's mother, but the bill
went unpaid and, in 1999, the plaintiff obtained a collection judgment against her. In January, 2001, however, all of
Tucker's debts were discharged pursuant to an order of the Bankruptcy Court for the District of Connecticut. Among the
discharged debts was the judgment in favor of the plaintiff against Tucker.
There is no reference to Fountain's father in the record or briefs of either party. We therefore assume that he is not
available as a viable source of payment of the plaintiff's bill for services rendered to Fountain.
During the time between the rendering of medical services and the bankruptcy filing, Tucker, as Fountain's next friend,
initiated a tort action against the boy who had shot him. Among the damages claimed were "substantial sums of money
[expended] on medical care and treatment...." A settlement was reached, and funds were placed in the estate established on
Fountain's behalf under the supervision of the Probate Court. Tucker was designated the fiduciary of that estate. Neither
Fountain nor his estate was involved in Tucker's subsequent bankruptcy proceeding.
Following the discharge of Tucker's debts, the plaintiff moved the Probate Court for payment of the $17,694 from the estate.
The Probate Court denied the motion, reasoning that, pursuant to , parents are liable for medical services rendered to their
minor children, and that a parent's refusal or inability to pay for those services does not render the minor child liable. The
Probate Court further ruled that minor children are incapable of entering into a legally binding contract or consenting, in
the absence of parental consent, to medical treatment. The Probate Court held, therefore, that the plaintiff was barred from
seeking payment from the estate.
provides: "Notwithstanding the provisions of subsection (a) of this section, it shall be the joint duty of each spouse
to support his or her family, and both shall be liable for: (1) The reasonable and necessary services of a physician or
dentist; (2) hospital expenses rendered the husband or wife or minor child while residing in the family of his or her
parents; (3) the rental of any dwelling unit actually occupied by the husband and wife as a residence and
reasonably necessary to them for that purpose; and (4) any article purchased by either which has in fact gone to the
support of the family, or for the joint benefit of both."
Although was amended by No. 01-195 of the 2001 Public Acts to include a technical change for purposes of gender
neutrality, that change is not relevant to this appeal. References herein are to the current revision of .
The plaintiff appealed from the decision of the Probate Court to the trial court. The trial court sustained the appeal and
rendered judgment for the plaintiff, holding that, under Connecticut law, minors are liable for payment for their
"necessaries," even though the provider of those necessaries "relies on the parents' credit for payment when [the] injured
child lives with his parents...." The trial court reasoned that, although parents are primarily liable, pursuant to , for their
child's medical bills, the parents' failure to pay renders the minor secondarily liable. Additionally, the trial court relied on
the fact that Fountain had obtained money damages, based in part on the medical services rendered to him by the plaintiff.
This appeal followed.
The defendants claim that the trial court improperly determined that a minor may be liable for payment for emergency
medical services rendered to him. They further claim that the trial court, in reaching its decision, improperly considered the
fact that Fountain had received a settlement, based in part on his medical expenses. We disagree with both of the
defendants' claims.
Connecticut has long recognized the common-law rule that a minor child's contracts are voidable. See ; . Under this rule, a
minor may, upon reaching majority, choose either to ratify or to avoid contractual obligations entered into during his
minority. See 4 S. Williston, Contracts (4th Ed.1992) § 8:14, pp. 271-72. The traditional reasoning behind this rule is based
on the well established common-law principles that the law should protect children from the detrimental consequences of
their youthful and improvident acts, and that children should be able to emerge into adulthood unencumbered by financial
obligations incurred during the course of their minority. See The rule is further supported by a policy of protecting
children from unscrupulous individuals seeking to profit from their youth and inexperience.
The rule that a minor's contracts are voidable, however, is not absolute. An exception to this rule, eponymously known as
the doctrine of necessaries, is that a minor may not avoid a contract for goods or services necessary for his health and
sustenance. See 5 S. Williston, Contracts (4th Ed.1993) § 9:18, pp. 149-57. Such contracts are binding even if entered into
during minority, and a minor, upon reaching majority, may not, as a matter of law, disaffirm them. Id.
The parties do not dispute the fact that the medical services rendered to Fountain were necessaries; rather, their dispute
centers on whether Connecticut recognizes the doctrine of necessaries. As evidenced by the following history, the doctrine of
necessaries has long been a part of Connecticut jurisprudence.
In this court affirmed a judgment in favor of a dentist against a minor for services rendered to the minor, who had an estate
and who was an orphan for whom a guardian had been appointed. This court stated: "In suits against minors, instituted by
persons who have rendered services or supplied articles to them, the term 'necessaries' is not invariably used in its strictest
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sense, nor is it limited to that which is requisite to sustain life, but includes whatever is proper and suitable in the case of
each individual, having reference to his circumstances and condition in life."
The court further noted that the services
were "within the legal limitations of the word 'necessaries,' " and that the plaintiff was not required to inquire as to the
minor's guardianship before rendering the services because the services were "necessary to meet an unsupplied want."
Furthermore, from 1907 to 1959, statutory law regarding minors and the doctrine of necessaries remained unchanged.
General Statutes (1958 Rev.) provided: "Capacity to buy and sell is regulated by the general law concerning capacity to
contract, and to transfer and acquire property. When necessaries are sold and delivered to an infant, or to a person who by
reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price therefor.
Necessaries in this section mean goods suitable to the condition in life of such infant or other person, and to his actual
requirements at the time of delivery." Therefore, insofar as it referred to minors, this statute codified the common-law
doctrine of necessaries. See We recognize that was repealed in 1959; see Public Acts 1959, No. 133, § 1- 103; when
Connecticut adopted the Uniform Commercial Code. That repeal was not intended, however, to eliminate the doctrine
because the statute was replaced by , which contemplated that the Uniform Commercial Code would continue to be
supplemented by the general principles of contract law regarding minors.
provides: "Unless displaced by the particular provisions of this title, the principles of law and equity, including the
law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation,
duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions."
(Emphasis added.)
In light of these precedents, we conclude that Connecticut recognizes the doctrine of necessaries. We further conclude that,
pursuant to the doctrine, the defendants are liable for payment to the plaintiff for the services rendered to Fountain.
We have not heretofore articulated the particular legal theory underlying the doctrine of necessaries. We therefore take this
occasion to do so, and we conclude that the most apt theory is that of an implied in law contract, also sometimes referred to
as a quasi-contract. We further conclude that based on this theory, the defendants are liable.
Courts in other jurisdictions that have held that minors may be liable pursuant to the doctrine of necessaries for
medical services have done so by applying varying legal theories. See annot., . For example, some courts have held
minors liable only if the creditor can show that the minor was not living with or being supported by his or her
parents at the time the contract arose or the services were rendered, or, put another way, only if it is shown that
the services were furnished on the minor's credit and not that of his or her parents. See (minor not liable when
parents provided all necessaries but were found not to be willing or able to pay one bill); see also ; ; ; ; . Some
courts have held that liability is only established where an express or implied in fact contract arose between the
minor and the creditor. See . Still other courts have held minors liable after determining that the goods or
services rendered were necessaries, and the minor's parent or guardian was unwilling or unable to pay for them.
See (minor's father's use of insurance proceeds to buy minor car sufficient for finding that father was unwilling to
pay minor's medical expenses); see also ; ; Some courts, however, have held minors liable under the doctrine of
necessaries primarily due to the fact that the minor had recovered from a tortfeasor. See, e.g., . Still other courts
have reasoned that the minor's ever present secondary liability for payment for medical services rendered to him
gives rise to an implied in law contract. See In the ; . As we explain in the text of this opinion, we agree with this
latter approach.
"In distinction to an implied [in fact] contract, a quasi [or implied in law] contract is not a contract, but an obligation which
the law creates out of the circumstances present, even though a party did not assume the obligation.... It is based on
equitable principles to operate whenever justice requires compensation to be made.... . With no other test than what, under
a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary
... to examine the circumstances and the conduct of the parties and apply this standard. ." (Emphasis in original; internal
quotation marks omitted.) .
Thus, when a medical service provider renders necessary medical care to an injured minor, two contracts arise: the primary
contract between the provider and the minor's parents; and an implied in law contract between the provider and the minor
himself. The primary contract between the provider and the parents is based on the parents' duty to pay for their children's
necessary expenses, under both common law and statute. Such contracts, where not express, may be implied in fact and
generally arise both from the parties' conduct and their reasonable expectations. The primacy of this contract means that
the provider of necessaries must make all reasonable efforts to collect from the parents before resorting to the secondary,
implied in law contract with the minor.
Our common law has long recognized the parents' obligation to provide for their minor child. See, e.g., ("[t]here is a
law of our universal humanity ... which impels parents, whether fathers or mothers, to protect and support their
helpless children").
For the text of , see footnote 3 of this opinion.
The secondary implied in law contract between the medical services provider and the minor arises from equitable
considerations, including the law's disfavor of unjust enrichment. Therefore, where necessary medical services are rendered
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to a minor whose parents do not pay for them, equity and justice demand that a secondary implied in law contract arise
between the medical services provider and the minor who has received the benefits of those services. These principles
compel the conclusion that, in the circumstances of the present case, the defendants are liable to the plaintiff, under the
common- law doctrine of necessaries, for the services rendered by the plaintiff to Fountain.
The present case illustrates the inequity that would arise if no implied in law contract arose between Fountain and the
plaintiff. Fountain was shot in the head at close range and required emergency medical care. Under such circumstances, a
medical services provider cannot stop to consider how the bills will be paid or by whom. Although the plaintiff undoubtedly
presumed that Fountain's parent would pay for his care and was obligated to make reasonable efforts to collect from Tucker
before seeking payment from Fountain, the direct benefit of the services, nonetheless, was conferred upon Fountain. Having
received the benefit of necessary services, Fountain should be liable for payment for those necessaries in the event that his
parents do not pay.
Furthermore, in the present case, we note, as did the trial court, that Fountain received, through a settlement with the boy
who caused his injuries, funds that were calculated, at least in part, on the costs of the medical services provided to him by
the plaintiff in the wake of those injuries. Fountain, through Tucker, brought an action against the tortfeasor and, in his
complaint, cited "substantial sums of money [expended] on medical care and treatment...." This fact further supports a
determination of an implied in law contract under the circumstances of the case.
The defendants claim, however, that the doctrine of necessaries has been legislatively abrogated by . See footnote 3 of this
opinion. We disagree. governs the joint liability of parents for the support and maintenance of their family, and, in doing
so, merely codifies the common-law principle, long recognized in Connecticut, that both parents are primarily responsible for
providing necessary goods and services to their children. See ; see also footnote 6 of this opinion. , however, is silent as to a
child's secondary liability. That statute neither promotes nor prohibits a determination of secondary liability on the part of
a minor when the minor has received emergency medical services and the parents are either unwilling or unable to pay for
those services. We, therefore, decline the defendants' invitation to read into , which governs the relationship of parents to
one another and to their creditors, any rule regarding the relationship of their minor children to those same creditors.
Nothing in either the language or the purpose of indicates an intent on the part of the legislature to absolve minors of their
secondary common-law liability for necessaries.
To the contrary, the purposes behind the statutory rule that parents are primarily liable and the common-law rule,
pursuant to the doctrine of necessaries, that a minor is secondarily liable, when read together, serve to encourage payment
on contracts for necessaries. Those purposes are (1) to reinforce parents' obligation to support their children, and (2) to
provide a mechanism for collection by creditors when, nonetheless, the parents either refuse or are unable to discharge that
obligation.
The defendants further contended, at oral argument before this court, that, even if we were to conclude that the doctrine of
necessaries is applicable, the defendants are not liable to the plaintiff because there has been no showing that Tucker was
unwilling or unable to provide necessaries to Fountain. Specifically, the defendants argue that, because Fountain lived in
Tucker's home, it cannot be shown that, as a matter of law, Tucker was unwilling or unable to provide Fountain with
necessary medical care. We disagree.
The undisputed facts show that Tucker had four years to pay the plaintiff's bill for the services rendered to Fountain. She
did not pay that bill even when the plaintiff pursued a collection action against her. These facts are sufficient to show that
Tucker was unwilling or unable to pay for Fountain's necessary medical services.
Furthermore, the premise underlying the legal structure placing primary liability in the parent and secondary liability in
the minor, and requiring that the creditor first exhaust reasonable efforts to collect from the parent, is that the creditor has
the legal capability, beyond moral suasion, to require the parent to pay. That premise simply disappears when the parent's
primary obligation has been erased by an intervening bankruptcy.
This reasoning applies, moreover, whether the minor is living in the parent's home, as was the case here, or elsewhere. The
place of the minor's residence is simply irrelevant to the question of whether the creditor has an enforceable claim against
the parent. That is because the fact that Tucker may be supplying other necessaries, such as food and shelter, does not
undermine the claim that she has not made payment for this necessary medical service, which was already provided by the
plaintiff to Fountain.
The judgment is affirmed.
is ALLOWED, and this matter is hereby DISMISSED WITH PREJUDICE in its entirety.
Case 8.2
CHAPTER 8: CAPACITY, LEGALITY, ASSENT, AND FORM
169
592 S.E.2d 215
Court of Appeals of North Carolina.
Bobby L. ROBERTS, Employee/Plaintiff,
v.
CENTURY CONTRACTORS, INC., Employer,
And Royal & Sunalliance Insurance Company, Carrier/Defendants.
No. COA03-93.
Feb. 17, 2004.
, Judge.
Plaintiff (Bobby Roberts) suffered a compensable injury by accident on 28 July 1993 when he was struck by a pipe while
working for Century Contractors, Incorporated, causing trauma to his neck and back. Defendants admitted liability, and
plaintiff sought treatment for his injuries with Dr. James Markworth of Southeastern Orthopaedic Clinic. Dr. Markworth
diagnosed plaintiff as having some narrowing of the cervical spinal canal and some degeneration of multiple levels of the
cervical disks, with bulging of some of the discs. Dr. Markworth performed an anterior cervical discectomy infusion at C3-4,
C4-5, C5-6, and C6-7 with bone grafts being placed at each location.
Following this surgery, Dr. Markworth reviewed plaintiff's x-rays and determined that while the films showed a line at the
inferior margins of the C3-4 graft, C5-6 graft, and maybe the C6-7 graft, these areas appeared to be remolding nicely. Dr.
Markworth subsequently indicated that plaintiff was at maximum medical improvement and stopped treating plaintiff. A
physician's assistant at Southeastern Orthopaedic Clinic continued to treat plaintiff. Because he was still experiencing pain,
plaintiff issued a request for a second medical opinion on 3 April 1998.
On 2 June 1998, plaintiff saw Dr. Allen Friedman for a second medical opinion. Dr. Friedman noted that there was a
question of lucency below the graft at C5-6 and that x-rays needed to be repeated to be sure that the fusion was stable. Dr.
Friedman indicated his concern to plaintiff that current x- rays needed to be obtained to be certain as to whether the fusion
was solid. The parties attended a mediation on 13 May 1998. The negotiation resulted in a settlement amount of $125,000
and payment of related medical expenses. Following his visit to Dr. Friedman, plaintiff executed the settlement agreement
that had been negotiated on 13 May 1998. The settlement agreement contained a waiver of any right to make further
claims in regard to plaintiff's injury. The settlement agreement was approved by the North Carolina Industrial Commission
on 25 June 1998.
Plaintiff subsequently filed a claim for Workers' Compensation, seeking compensation and medical benefits for the same
injuries which were addressed in the settlement agreement. Plaintiff alleged that the Commission should set aside the
settlement agreement pursuant to due to mutual mistake of fact. In support of this allegation, plaintiff offered Dr.
Markworth's deposition testimony that his office's diagnosis of maximum medical improvement was a mistake.
The Full Commission found that the parties had mistakenly relied on Dr. Markworth's diagnosis of maximum medical
improvement and that this fact was material to the settlement agreement. The Full Commission set aside the agreement
and awarded plaintiff compensation and medical benefits in an Opinion and Award filed on 18 September 2002. Defendants
gave Notice of Appeal, which was received by the Industrial Commission on 8 October 2002. While the appeal was pending,
the Full Commission filed another Opinion and Award on 10 March 2003, which also set aside the settlement agreement
due to mutual mistake.
Defendants appeal from both Opinions and Awards, contending (1) the first Opinion and Award must be reversed because
the Full Commission erred in setting aside the parties' mediated settlement agreement on the basis of mutual mistake of
fact, and (2) the second Opinion and Award must be vacated because the Full Commission lacked jurisdiction to issue it. We
affirm the 18 September 2002 Opinion and Award, and vacate the 10 March 2003 Opinion and Award.
We first address defendants' argument that the Commission committed reversible error when it voided the parties'
settlement agreement due to mutual mistake of fact.
On appeal from an opinion and award of the North Carolina Industrial Commission, the standard of review is "limited to
reviewing whether any competent evidence supports the Commission's findings of fact and whether the findings of fact
support the Commission's conclusions of law." . The Industrial Commission's findings of fact "are conclusive on appeal if
supported by competent evidence even though there is evidence to support a contrary finding." . "[T]he full Commission is
the sole judge of the weight and credibility of the evidence...." "[T]his Court is not at liberty to reweigh the evidence and to
set aside the findings ... simply because other ... conclusions might have been reached." (citation and quotation marks
omitted). This Court reviews the Commission's conclusions of law de novo. The North Carolina Workers' Compensation Act
permits parties to enter into settlement agreements, subject to approval by the Commission, "so long as the amount of
compensation and the time and manner of payment are in accordance with the provisions of [the Act]." .
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No party to any agreement for compensation approved by the Commission shall deny the truth of the matters contained in
the settlement agreement, unless the party is able to show to the satisfaction of the Commission that there has been error
due to fraud, misrepresentation, undue influence or mutual mistake, in which event the Commission may set aside the
agreement.
Id. (emphasis added). "Compromise settlement agreements, including mediated settlement agreements [in Workers'
Compensation cases], are governed by general principles of contract law." (citation and internal quotation marks omitted).
"It is a well-settled principle of contract law that a valid contract exists only where there has been a meeting of the minds as
to all essential terms of the agreement." . Therefore, where a mistake is common to both parties and concerns a material
past or presently existing fact, such that there is no meeting of the minds, a contract may be avoided. .
To afford relief, the mistake must be of a certain nature. The fact about which the parties are mistaken must be "an
existing or past fact." (citation omitted). The mistaken fact must also be material, which has been described to mean the
following:
[I]t must be as to a fact which enters into and forms the basis of the contract, or in other words it must be of the essence of
the agreement, the sine qua non, or, as is sometimes said, the efficient cause of the agreement, and must be such that it
animates and controls the conduct of the parties.
(quoting ). See also (discussing, but not applying, the doctrine of mutual mistake of fact in a Workers' Compensation case
one year before the General Assembly amended the Act to include mutual mistake as a ground for avoiding a settlement
agreement).
Additionally, relief from a contract due to mistake of fact will be had only where both parties to an agreement are mistaken.
. "Thus, as a general rule relief will be denied where the party against whom it is sought was ignorant that the other party
was acting under a mistake and the former's conduct in no way contributed thereto." (citation and quotation marks
omitted). Likewise, a party who assumed the risk of a mistaken fact cannot avoid a contract.
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made that he has only limited knowledge with respect to the facts to which the
mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
(quoted and applied in
What a party believes the facts and circumstances to be and whether those beliefs induce a party to act are questions
concerning that party's mental state. Such questions about the operation of a party's mind have been held to be questions of
fact. See . Likewise, "[w]hether [a party] has assumed the risk of mistake is a question of fact...." .
In the instant case, the Commission made the following findings of fact:
10. The x-rays taken in April 1998, six months after Dr. Markworth or Southern Orthopaedic Clinic had last treated
plaintiff, indicated Dr. Markworth's diagnosis of maximum medical improvement ... was a mistake. Dr. Markworth
testified, and the Full Commission finds as fact, that advising plaintiff that he was at maximum medical improvement at
that time was a mistake.
...
13. The Full Commission finds as fact, based on reasonable inference drawn from the evidence before it, that the finding
of maximum medical improvement and the impairment rating given by Dr. Markworth were material to the settlement of
this claim and that both parties relied on this information in entering into settlement negotiations.
14. Plaintiff testified, and the Full Commission finds as fact, that being told he was at maximum medical improvement
was material to his decision to settle his case and that he would not have settled his case had he known there was a nonunion of his cervical spine and that he was not at maximum medical improvement.
15. On April 3, 1998, plaintiff had requested a second opinion from Alan Friedman, M.D. During mediation, the parties
agreed to plaintiff getting the second opinion.
16. Dr. Friedman saw plaintiff on June 2, 1998. This appointment was eight days prior to the signing of the settlement
agreement. Plaintiff did not provide Dr. Friedman with his past medical records. Dr. Friedman reviewed x- rays from
October but was not certain as to the date of the x-rays. Dr. Friedman indicated x-rays needed to be repeated and [sic] to
be sure the fusion was stable. Dr. Friedman indicated his concern to plaintiff that current x- rays needed to be obtained to
be sure the fusion was solid or not; however, the carrier would not authorize the taking of new x-rays. Dr. Friedman
testified, and the Full Commission finds as fact, that plaintiff was not at maximum medical improvement with regard to
his cervical spine when he examined plaintiff on June 2, 1998.
....
20. The greater weight of the evidence indicates there was a mutual mistake with regard to plaintiff's medical condition at
the time of the signing of the settlement agreement.
Thus, the Commission made explicit findings that the parties believed that plaintiff had reached maximum medical
improvement and, further, that they materially relied upon this fact in reaching a settlement. Defendants' essential
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171
argument on appeal is that because plaintiff either knew that there was a possibility that his fusion was not solid or was
negligent in not declining to sign the settlement agreement, "mutual mistake is a legal impossibility" in this case. As the
facts also support a contrary conclusion, we do not agree.
In making its findings, the Commission necessarily had to consider the issue of whether plaintiff assumed the risk that he
may not have reached MMI and/or that he may have had an unsatisfactory fusion. Plaintiff's primary physician advised
him that he had reached maximum medical improvement, and another physician expressed possible doubt about that
conclusion. The doubt expressed by the second physician was never confirmed or investigated due to circumstances which
may not necessarily be attributed to the plaintiff. The plaintiff testified that he based his decision to sign the settlement
agreement on Dr. Markworth's diagnosis and that he would not have settled his case if Dr. Friedman had told him that
there was no fusion in the back of his neck. Thus, there is competent record evidence to support the Commission's findings
that the parties were mistaken as to whether plaintiff had reached maximum medical improvement and that this mistaken
fact was material. These findings are, therefore, binding on appeal. .
We note that when a party asserts assumption of risk as a defense to recision of a compromise settlement on the grounds of
mutual mistake under , it is the better practice for the Industrial Commission to make a specific finding detailing the
reason(s) the Commission rejects or accepts this contention. This assignment of error is overruled. We affirm the
Commission's Opinion and Award filed 18 September 2002. We next address defendants' contention that the Commission's
Opinion and Award issued 10 March 2003 must be vacated because the Commission was without authority to issue it. An
appeal to this Court divests the Industrial Commission of jurisdiction to issue opinions and awards. ; . Though an appeal is
not perfected until docketed in this Court, perfection relates back to the time that Notice of Appeal is given. .
In the instant case, the Commission filed an Opinion and Award on 18 September 2002. Defendants gave Notice of Appeal
of that Opinion and Award, which was received by the Commission on 8 October 2002. At this point, the Commission was
divested of jurisdiction in the matter. Nevertheless, on 10 March 2003, the Commission filed another Opinion and Award
even though the appeal of the first order was still pending. Therefore, the second Opinion and Award was issued without
jurisdiction, and is hereby vacated.
The Opinion and Award filed 18 September 2002 is affirmed; the Opinion and Award filed 10 March 2003 is vacated.
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Case 8.3
(Cite as: 772 A.2d 494)
154 Ed. Law Rep. 225
Supreme Court of Vermont.
Robert H. SARVIS
v.
VERMONT STATE COLLEGES.
No. 99-390.
March 2, 2001.
*496 SKOGLUND, J.
Plaintiff Robert Sarvis appeals the grant of summary judgment in favor of defendant Vermont State Colleges. Plaintiff
contends: (1) the court erred when it found defendant had just cause to terminate his employment contracts; and (2) he is
entitled to Title VII protection because defendant terminated him for his criminal history. We affirm.
The material facts in this case are not in dispute. On March 13, 1995, plaintiff was convicted of five counts of bank fraud
and sentenced to serve forty-six months in prison. He was ordered to pay over $12 million in restitution to five banks in
order of priority, including two million dollars to the Proctor Bank, a Vermont bank, which was given top payment priority.
He was incarcerated from April 4, 1995 to August 17, 1998, at the Allenwood prison in Lewisburg, Pennsylvania, where he
worked in the prison's electric department. In August of 1998, two weeks after he was released from prison, plaintiff
applied for an adjunct professor position at Community College of Vermont (CCV), a division of defendant. Plaintiff
provided defendant with a resume, in which he indicated that from 1984-1998 he was "President and Chairman of the
Board" of "CMI International Inc., Boston, Massachusetts."
In describing his duties, plaintiff indicated he was
"[r]esponsible for all operations and financial matters." He ended his summary with the following: "[f]rom 1995-1998 this
company was sold off by various divisions and I have retired."
Defendant replied, and asked plaintiff to fill out an
"Instructor Information" form. On September 30, 1998, plaintiff submitted this form and, in the space provided to list
applicant's "Most Recent Previous Employment," plaintiff referred his reader to the resume he submitted with his August
letter.
Plaintiff also applied for a position as CCV's Coordinator of Academic Services, and submitted a second resume in
connection with this application. The second resume was similar to the first, except he changed the last line of his
description of duties at CMI to read: "From 1995-1998 this company was sold off by various divisions. I have since been
semi-retired." Under the "Business Experience" heading, he also added a line, "1998-present" "Semi- retired. Adjunct
Instructor of Business at Colby-Sawyer College and Franklin Pierce College." In a memorandum to a CCV administrator,
plaintiff also advised that "I have not 'worked' for almost four years," and discouraged defendant from contacting
management at Franklin Pierce for additional references.
Plaintiff provided defendant with additional application materials, attempting to secure a teaching position. Plaintiff
listed for defendant the classes he believed defendant would find him "well equipped to teach." He highlighted business law
and business ethics as courses in which he had "the highest level of capability and interest." He alerted defendant that he
had "a great interest and knowledge of business law" and that he believed he would do "an excellent job" teaching a business
ethics class because this subject was "of particular concern" to him.
In response to the information plaintiff provided, defendant entered into three employment contracts with plaintiff,
covering plaintiff's duties as academic coordinator, teacher, and independent studies instructor. After plaintiff commenced
performance on the coordinator and independent study contracts, his probation officer alerted defendant to plaintiff's
criminal history. Defendant terminated plaintiff before the *497 expiration of his contracts of employment, [FN1] citing,
FN1. Plaintiff was fired before he began teaching the spring semester course contemplated by the teaching contract.
[t]he nature of the federal offenses (involving dishonesty), the gravity of the offenses (multiple counts of bank fraud, over
$12 million dollars in restitution) the presence of local victims (Proctor Bank and any other Vermont victims) and the
potential harm to CCV's reputation, [as] substantial factors contributing to the termination decision.
Plaintiff filed a complaint alleging that defendant was liable for breach of all three contracts and wrongful termination.
Plaintiff later amended the complaint to add a demand for punitive damages based on defendant's alleged Title VII
violation. Plaintiff moved for summary judgment contending there were no disputed facts, and that he was entitled to
judgment as a matter of law on all counts of the complaint. Defendant opposed the motion, and also moved for summary
CHAPTER 8: CAPACITY, LEGALITY, ASSENT, AND FORM
173
judgment on all claims. Defendant's summary judgment motion asserted that plaintiff was fired during the probationary
period during which he was subject to termination for any reason, and plaintiff's breach of contract claims are barred due to
his resume fraud and criminal background history, and fraud in the inducement permitted CCV to rescind the contracts.
The court granted defendant's motion, concluding that it was reasonable for defendant to discharge plaintiff because of his
material misrepresentations about his criminal record, and that plaintiff had notice that dishonesty and fraud were just
cause for dismissal. See In re Towle, 164 Vt. 145, 150, 665 A.2d 55, 60 (1995).
[1][2][3] In reviewing a grant of summary judgment, this Court shall apply the same standard as the trial court. City of St.
Albans v. Northwest Reg'l Planning Comm'n, 167 Vt. 466, 469, 708 A.2d 194, 196 (1998). Summary judgment will be
granted where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Viles
v. Vermont State Colleges, 168 Vt. 459, 461, 724 A.2d 448, 450 (1998). The party opposing the motion will be granted the
benefit of all reasonable doubts and inferences. City of Burlington v. National Union Fire Ins. Co., 163 Vt. 124, 127, 655
A.2d 719, 721 (1994).
I.
On appeal, plaintiff first contends that defendant had no cause to dismiss him. Plaintiff claims that because his criminal
history predated his employment, he did not engage in misconduct while employed with defendant that would justify
termination. Plaintiff also claims that he did not make any misrepresentations during the pre-employment process that
could support a just cause dismissal.
[4] An employment contract for a definite term may not be terminated by the employer before the expiration of that term
except for just cause. See Lambert v. Equinox House, Inc., 126 Vt. 229, 231, 227 A.2d 403, 404-05 (1967) (employer must
show just cause for discharge of an employee before expiration of contract for hire term). The test for a just cause dismissal
is whether "the employee's conduct was egregious enough that the discharge was reasonable, and second, that the employee
had fair notice, express or implied, that such conduct could result in discharge." Nadeau v. Imtec, Inc., 164 Vt. 471, 475, 670
A.2d 841, 844 (1995).
*498 We have held that dishonesty can provide reasonable grounds for a just cause termination. In re Graves, 147 Vt. 519,
524, 520 A.2d 999, 1002 (1986). We have not, however, had occasion to decide whether resume fraud or misrepresentation
during the hiring process constitutes just cause for dismissal. See Genier v. Department of Employment Sec., 140 Vt. 453,
455, 438 A.2d 1116, 1117 (1981) (Reversing on other grounds, we "need not decide whether misrepresentation can, as a
matter of law, constitute misconduct."). Because plaintiff's suit includes breach of employment contracts, we will look to
contract law to inform our decision whether fraudulent inducement during pre-employment negotiations may constitute just
cause for termination.
[5][6][7][8] It is well established that a party induced into a contract by fraud or misrepresentation can rescind the contract
and avoid liability for any breach thereon. See Negyessy v. Strong, 136 Vt. 193, 194, 388 A.2d 383, 384-85 (1978) (Where a
party was induced to enter into a contract by fraud or misrepresentation, "the deceived party may seek the remedy of being
excused from the contract through rescission, or seeking the damages occasioned by the fraud."). A misrepresentation is
fraudulent when made with knowledge of its falsity. See Smith v. DeMetre, 119 Vt. 73, 79, 118 A.2d 346, 351 (1955).
Where the procurer of a statement knew it was false, materiality is not required. New York Life Ins. Co. v. McLaughlin, 112
Vt. 402, 408, 26 A.2d 108, 111 (1942). Materiality is required where the mistake or false statement was not intentionally
made, see id., and may be proved where the statement is "likely to induce a reasonable person to manifest his assent, or if
the maker knows that it would be likely to induce" such assent. Restatement (Second) of Contracts § 162(2) (1981). Unlike
a fraud action seeking damages in tort, a party seeking to rescind a fraudulently induced contract is not required to prove its
case by clear and convincing evidence. Union Bank v. Jones, 138 Vt. 115, 121, 411 A.2d 1338, 1342 (1980) (noting
distinction between the elements for an action in fraud and deceit, and fraudulent misrepresentation, providing grounds for
rescission of a contract).
We have applied this well-established principle to a variety of contractual relationships. See, e.g., Winey v. William E.
Dailey, Inc., 161 Vt. 129, 132-34, 636 A.2d 744, 747-48 (1993) (discussing fraudulent inducement in a contract for
professional services); Larochelle v. Komery, 128 Vt. 262, 267-69, 261 A.2d 29, 33-34 (1969) (discussing misrepresentation of
value of consideration offered in sale of stock in hotel); Collier v. Nolan, 125 Vt. 82, 84-87, 211 A.2d 265, 268-70 (1965)
(finding misrepresentation of milk production of farm herd offered in sale of dairy farm); Gramatan Nat'l Bank & Trust Co.
v. Beecher, 121 Vt. 39, 48-49, 146 A.2d 246, 252 (1958) (discussing fraud in the inducement of a contract and note).
[9] Relying on this principle, other courts have held that conduct extreme enough to rescind an employment contract is
sufficiently egregious to warrant a just cause dismissal. See Crawford Rehab. Servs., Inc. v. Weissman, 938 P.2d 540, 549
(Colo.1997) (Resume fraud and misstatements during the hiring process justify dismissal where "the employee's fraud was
material and that a reasonable, objective employer would not have hired the employee if it had discovered the
misrepresentation at the outset" and "the employee concealed or misrepresented the fact or facts with the intent of creating
a false impression in the mind of the employer."); Johnson v. Honeywell Info. Sys., Inc., 955 F.2d 409, 414 (6th Cir.1992)
("As a general *499 rule, in cases of resume fraud, summary judgment will be appropriate where the misrepresentation or
omission was material, directly related to measuring a candidate for employment, and was relied upon by the employer in
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making the hiring decision."). We agree that principles of fraudulent inducement support a rule allowing an employer to
avoid liability for breach of contract arising from an employment relationship induced by an employee's fraud. Thus,
misrepresentation during the hiring process can be a basis for rescission of an employment contract. Further, we hold as a
matter of law, such misrepresentation can constitute misconduct sufficient to support a just cause dismissal.
Plaintiff fraudulently induced defendant into entering into the employment contracts. Plaintiff misrepresented material
facts related to his candidacy upon which defendant relied in making its employment decision. In both resumes, plaintiff
omitted the fact that he was in prison from 1995 through 1998. Instead, he misrepresented his work history with the intent
of creating the false impression of how he spent those years. During that time, he claimed he was, as president and
chairman of the board of CMI, "[r]esponsible for all operations and financial matters" of CMI. In reality, he was in prison
and working in the prison's electric department. Also during the hiring process, in a written response to defendant's
coordinator of academic services, plaintiff declared that he had not worked for almost four years and that he had not worked
for someone else since 1984. Plaintiff knew this statement was false and deceptive because four months earlier, seeking
district court approval for employment in Maine under a post-prison relocation plan, he admitted that "[a]t Allenwood FPC I
currently work in the Electrical Department." Defendant's assertions and omissions were not in accord with the facts, and
were offered for the sole purpose of affecting the employment decision. See Restatement (Second) of Contracts §§ 159 (1981)
("A misrepresentation is an assertion that is not in accord with the facts."); 162 ("A misrepresentation is fraudulent if the
maker intends his assertion to induce a party to manifest his assent and the maker ... knows or believes that the assertion is
not in accord with the facts ....").
[10] Plaintiff seeks to avoid rescission and enforce the contracts by faulting defendant for failing to discover his criminal
background. Plaintiff, however, cannot enforce the contract where his own actions hampered defendant's inquiry. See
Sutfin v. Southworth, 149 Vt. 67, 70, 539 A.2d 986, 988 (1987) (where nature of misrepresentation or fraudulent
concealment itself led party to forbear from making full inquiry, recovery will not be denied). Plaintiff discouraged
defendant from contacting his current employers at Franklin Pierce for references. In a letter to defendant's academic
services coordinator, plaintiff demurred that he did "not believe Franklin Pierce management could give an evaluation of me
at this short date and I feel it would be unfair of me to ask that." What plaintiff failed to reveal to defendant was that he
had disclosed his criminal history to Franklin Pierce. Plaintiff's effort to discourage defendant from contacting Franklin
Pierce management for a reference succeeded in dissuading defendant from making full inquiry into his background.
[11] Plaintiff also argues that his nondisclosure of his criminal history does not constitute fraud or misrepresentation
because he had no duty to disclose his criminal past. [FN2] Contrary to plaintiff's claim, *500 plaintiff's misrepresentation
involved more than nondisclosure. We have found fraud from partial disclosure.
FN2. This assertion seems to be based on the fact that the conditions of his probation did not necessarily require him to
reveal his criminal history to others.
Where one has full information and represents that he has, if he discloses a part of his information only, and by words or
conduct leads the one with whom he contracts to believe that he has made a full disclosure and does this with intent to
deceive and overreach and to prevent investigation, he is guilty of fraud against which equity will relieve, if his words and
conduct in consequence of reliance upon them bring about the result which he desires.
Crompton v. Beedle, 83 Vt. 287, 298, 75 A. 331, 334-35 (1910). The misrepresentation in this case occurred through
plaintiff's partial disclosure of his past work history and references and his effort to limit defendant's inquiry into his past.
Plaintiff was not silent; he carefully drafted his resumes and supplemental materials to lead defendant to believe he had
made a full disclosure about his past and his qualifications. He listed classes in business ethics and law in which he
claimed he had the highest level of capability and knowledge but failed to mention his felony bank fraud conviction. Plaintiff
assured defendant that making additional inquiries into his background would have revealed "more of the same" type of
information as that offered by the references plaintiff supplied. This was not true. Contact with plaintiff's probation officer
or supervisor at the Allenwood prison would have notified defendant of plaintiff's fraud convictions, period of incarceration,
and work history at the prison. We agree with the trial court's conclusion that plaintiff misrepresented material facts
related to his candidacy upon which defendant relied in making its employment decision.
The trial court correctly held that plaintiff misrepresented his past and that it was reasonable for defendant to fire him.
Because honesty is an implicit duty of every employee, plaintiff had notice that his misrepresentation was grounds for
dismissal. See In re Carlson, 140 Vt. 555, 560, 442 A.2d 57, 60 (1982). The trial court did not err in concluding that
defendant was entitled to judgment as a matter of law as to plaintiff's contract claims.
[12] Plaintiff contends neither law nor public opinion recognizes termination for criminal history unrelated to the job as
good cause for dismissal.
We affirm the decision below because plaintiff misrepresented his past to create a false
impression to persuade defendant to hire him. As a matter of law, just cause existed to fire plaintiff under these grounds.
We need not determine whether the mere fact of a prior criminal history can support a just cause dismissal.
II.
[13] Plaintiff next challenges the grant of summary judgment dismissing his Title VII claim. Plaintiff contends that Title
VII prohibits termination of an employee solely because of his criminal history where the criminal history is unrelated to the
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job.
Title VII, however, does not list criminal history as a class or status entitled to protection from employment
discrimination. See 42 U.S.C. § 2000e-2(a)(1). The cases cited by plaintiff do not support his argument that Title VII
protection extends to employees based solely on their criminal history. Instead, Title VII protection extended to the
employees in the cited cases because the employers made distinctions based on race between workers with criminal
histories. What distinguished the disparate employment *501 treatment was not the workers' criminal activity but rather
the workers' race. See McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273, 280, 96 S.Ct. 2574, 49 L.Ed.2d 493 (1976)
(Title VII prohibits racial discrimination against white employees where an employer fires white employees accused of
stealing while retaining black employees charged with the same offense.). In fact, in McDonald, the United States Supreme
Court recognized that the employer "may decide that participation in a theft of cargo may render an employee unqualified
for employment." Id. at 283, 96 S.Ct. 2574. The Court admonished only that if the employer adopted this measure, "this
criterion must be applied, alike to members of all races." Id. (internal quotations omitted).
[14][15] Here plaintiff has not challenged that defendant has treated him differently because of his race or some other
protected characteristic. Accordingly, he cannot establish a prima facie case that defendant violated Title VII, and the court
properly dismissed his claim. Plaintiff has not specifically pled a disparate impact claim, and we need not consider it here.
See Lavalley v. E.B. & A.C. Whiting Co., 166 Vt. 205, 213, 692 A.2d 367, 372 (1997). Even if he had included a disparate
impact claim, plaintiff has failed to offer any evidence that a policy of defendant to terminate employees with criminal
records disparately impacted on older, white, or another protected class of employees of which plaintiff was a member. See,
e.g., id. at 213-14, 692 A.2d at 372; Decision No. 81-7, 27 Fair Empl. Prac. Cas. 1780, 1780 (BNA 1980) (reasonable cause to
believe employer discriminated where blanket policy of not hiring applicants with criminal conviction disparately impacts
blacks as a class); Decision No. 78-35, 26 Fair Empl. Prac. Cas. 1755, 1756 (BNA 1978) (employment practice of
disqualifying persons with criminal convictions can be expected to have a disproportionate adverse impact on blacks).
Plaintiff contends that Massey v. Trump's Castle Hotel & Casino, 828 F.Supp. 314 (D.N.J.1993), compels a different result.
We disagree. Massey was an after acquired evidence case in which defendant discovered employee's misconduct after
defendant allegedly made its termination decision based on race. "In the after acquired evidence cases, ... the employment
decision was based solely on illegal grounds. Absent those illegal motives, the employee would still be employed." Id. at
322. The court held that the employee's state and federal anti-discrimination statutory claims would not be barred by after
acquired evidence of the employee's misconduct. Id. at 324-25. The court also held, however, as to the employee's breach of
contract claim:
[A]n employer may not be held liable for breach of an employment contract, if it can show that it had the power to void the
contract due to reliance on material misrepresentations, even where the employer was unaware of that power when the
breach occurred. Unlike the policies underlying the anti- discrimination statutes, there is no competing policy under
ordinary contract principals [sic] to discourage an employer's breach of contract.
Id. at 325.
This is not an after acquired evidence case. Defendant fired plaintiff precisely because of plaintiff's misrepresentations
during the hiring process. The court properly dismissed plaintiff's statutory claims, not because of plaintiff's underlying
misconduct, but because Title VII does not prohibit employment decisions based on a person's criminal history.
Plaintiff's misrepresentation regarding his past work history and references warrants *502 rescission of the employment
contracts and supports a just cause dismissal.
Affirmed.
Supplemental Case Printout
for: Adapting the Law to the
Online Environment
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62 P.3d 653, 275 Kan. 243, 49 UCC Rep.Serv.2d 782
Supreme Court of Kansas.
STATE of Kansas ex rel. Carla J. STOVALL, Attorney General, and Kansas Board of
Pharmacy, Appellants,
v.
DVM ENTERPRISES, INC., d/b/a/ Cybrxpress; John S. Stiverson, a/k/a/ Scott
Stiverson, d/b/a Stivercorp, and d/b/a Online Physicians; Daniel Thompson, M.D.;
and Home Prescription Services, Inc., Appellees.
No. 88,657.
Jan. 31, 2003.
The opinion of the court was delivered by , J.:
This is an appeal by the State of Kansas from a summary judgment granted in favor of DVM Enterprises, Inc. (DVM) and
Daniel Thompson, M.D. The sole issue on appeal is whether the acts or practices of the defendants in selling controlled
substances over the internet were unconscionable under the Kansas Consumer Protection Act (KCPA), K.S.A.2001 Supp. 50623 et seq. The district court concluded they were not and we affirm.
The Attorney General of Kansas filed suit under the KCPA against DVM; Daniel Thompson, M.D.; John Stiverson; and
Home Prescription Services, Inc. (HPS) following a sting operation targeting the sale of controlled substances over the
internet.
The Attorney General's investigation involved three purchases. Harvey Harris, an attorney general agent, purchased
Meridia; Stuart Nelson, a minor under the supervision of an attorney general agent, purchased Meridia; and Joseph
Trawicki, also an attorney general agent, purchased phentermine.
On May 23, 1999, Agent Harris visited the Online Physicians website at Stiverson.com for the purpose of purchasing
Meridia. Upon selecting the "order" button, Harris' browser was referred to the CybRxpress.com website. In accordance
with instructions, Harris entered his height, 71 inches, and his weight, 235 pounds, so that the website could calculate his
body mass index. That same web page provided the following information:
"MeridiaTM is FDA-approved for weight loss in those individuals with a BMI (Body Mass Index) of 25 or more. If your
BMI is less than 25, you should try our All-Natural Weight Loss Program, which uses natural herbs in combination with
our patented diet.
Meridia causes appetite suppression through neurotransmitters (Dopamine/Norepinephrine/ &
Serotonin) in the hypothalamus or 'feeding center' of the brain. We have found that the primary advantage of using
MeridiaTM v. Phentermine is that clients experience fewer side effects, i.e. restlessness and insomnia. The two major
draw backs to MeridiaTM are: MeridiaTM is more expensive than Phentermine, and MeridiaTM cannot be used by
anyone taking antidepressants. If you are interested in using MeridiaTM, please refer to the BMI calculator below to see
if you qualify."
He was then asked if he wished to proceed to a Meridia consultation. Harris was required to agree that he understood the
consultation information provided him through his internet browser. He was further required to agree to a waiver of
liability. Following the waiver of liability, Harris was directed to the order form. After the order form, Harris reached a
medical questionnaire to which he entered truthful information. Harris indicated his date of birth, height, and weight.
The questionnaire required him to provide information about blood pressure. Harris was required to indicate whether he
was taking any medications for depression and to agree not to take any over-the-counter medicines while taking Meridia
without consulting a pharmacist. Additionally, the questionnaire required Harris to agree to monitor his blood pressure
once every 2 weeks and to stop taking Meridia if his blood pressure exceeded certain parameters. The questionnaire then
asked Harris to list his current medical conditions, medications he was currently taking, along with medications he was
planning to take while taking Meridia, allergies, surgeries, and any other information he deemed relevant.
Upon submitting the questionnaire, Harris ordered and paid $250 for a 1-month supply and was informed that Meridia
would be shipped pending the approval of a physician. He received Meridia in a bottle indicating that it came from HPS.
On May 24, 1999, Stuart Nelson, a 16-year-old minor, accessed the Online Physicians website at Stiverson.com for the
purpose of purchasing Meridia. Nelson experienced the same procedure described above in connection with the Harris
transaction. After completion of the required forms, Nelson ordered Meridia which, was paid for through his mother's
credit card. On May 26, 1999, Nelson received Meridia in the mail with a label which indicated the prescription drugs came
from HPS. Nelson was never contacted by a physician regarding the application.
Teresa Salts, an attorney general
employee, supervised Nelson's purchase.
On May 24, 1999, Joseph Trawicki accessed the website for Online Physicians at Stiverson.com, indicating that he wished to
purchase phentermine.
Following the same procedures outlined above, Trawicki's web browser was referred to the
CybRxpress.com website. Trawicki completed the consultation form and submitted it. He purchased and received a
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177
package of phentermine tablets with the HPS label. Trawicki never had direct contact with a physician regarding the
prescription for phentermine.
In its petition, the State advanced three claims against the defendants: Count I, the defendants had committed deceptive
acts and practices under K.S.A.2001 Supp. 50-626; Count II, the defendants had committed unconscionable acts and
practices under K.S.A.2001 Supp. 50-627; and Count III, HPS had violated Kansas statutes regulating pharmacists, et seq.
The State requested declaratory relief, injunctive relief, damages on behalf of consumers, investigative fees, expenses, civil
penalties, and court costs.
The State filed a motion for judgment by default against defendant Stiverson, which the district court granted. Stiverson is
not involved in this appeal. The district court also approved a consent judgment between the State and HPS, which is not a
party to this appeal.
While this action was pending and after the two remaining defendants, DVM and Thompson, filed their motion for summary
judgment, this court entered its decision in . The question this court resolved in was whether a nonresident medical doctor
committed unconscionable acts under the Kansas Consumer Protection Act (KCPA), et seq., when he dispensed the sexual
enhancement drug Viagra to a Kansas resident without any physical examination or direct contact other than through an
out-of-state internet site.
Based upon facts similar to those we consider in this case, this court concluded that there were
no grounds for a claim of unconscionability under the KCPA. .
In this appeal, the defendants rely upon our decision in They contend that based upon almost an exact set of facts this court
in concluded that there were no deceptive or unconscionable acts.
DVM and Thompson submitted a copy of the journal entry of consent order in a separate case against them filed December
4, 2000. That order enjoined DVM and Thompson from practicing medicine and dispensing prescription drugs in Kansas:
"It is therefore, ordered that Daniel Lee Thompson and DVM Enterprises, Inc. are permanently enjoined from practicing
the healing arts within the State of Kansas without license or authority. Specifically, these Defendants are enjoined from
prescribing, dispensing, or delivering any prescription-only drug to a person located within the State of Kansas unless
licensed to practice medicine and surgery by the State Board of Healing Arts, or unless licensed by the State Board of
Pharmacy and acting pursuant to a lawful order of another person who is licensed to practice medicine and surgery by the
State Board of Healing Arts.
"It is further ordered that these Defendants must post on all written and Internet advertisements a notice that these
Defendants will not deliver a prescription-only drug into the State of Kansas, and that this notice will remain on all
written and Internet advertisements until such time as these Defendants are authorized to deliver prescription-only drugs
into the State of Kansas, as provided by this order."
In its response to the defendants' motion for summary judgment, the State sought to distinguish this case from our decision
in in primarily two respects. First, the State notes that "[t]he case involved sales of Viagra, a medication available by
prescription only, yet not a controlled substance; the present case involves controlled substances which have their own set
of state statutory and regulatory laws governing their dispensation." Second, the State, in what must be considered a
marked change from what was presented to the district court, attacks the waiver required to be signed before purchase as
unconscionable and against Kansas public policy.
Other than its mentioning that scheduled drugs are classified as such based upon the potential for abuse and that such
substances may be used to achieve side effects other than related to their intended use, the State relies upon the same
arguments advanced in The State stresses the absence of a personal consultation with a physician and the minor status of
the purchaser. We are reluctant on the basis of the sparse arguments advanced to create separate treatment for the
Schedule IV controlled substances in this case under the KCPA. We note that in as well as this case, the medications sold
required a prescription from a physician. Both cases involved the sale of prescription medication to minors over the
internet without physician consultation. Great potential for abuse exists in both kinds of medication, and for this reason
dispensing such medication requires a physician and a pharmacy. Thus, in the absence of additional persuasive reasons,
we find the State's assertion that scheduled drugs should be accorded special status under the KCPA fails.
More specifically, the State argues that the waiver of liability required to be signed before purchase is against public policy
in Kansas because the consumers and the website sellers were not on equal footing and did not have equal bargaining
power; that it was improper to put the burden of collecting the necessary information to make an informed decision on the
patient; that some of the information on the website was inaccurate, and that the information provided by the website and
the controls surrounding the procedure of dispensing the prescription drugs over the internet were inadequate.
The same district judge who initially decided found in this case that the defendants engaged in no deceptive acts or
practices in violation of the KCPA. See K.S.A.2001 Supp. 50-626. The State does not contend in this appeal that the
defendants' acts were deceptive under the KCPA. The State admitted in its response to DVM and Thompson's motion for
summary judgment that each of the online buyers received the medication he requested, in the amount requested, and that
all medications were authentic. The State also admitted that the transactions occurred exactly how the State's agents
understood they were to occur. The district court noted that there was no harm to the buyers and that the agents of the
attorney general had received exactly what they ordered. The district court further concluded that the defendants DVM
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and Thompson did not engage in any unconscionable acts in violation of K.S.A.2001 Supp. 50-627, finding that their conduct
did not resemble the statutory examples of unconscionable acts under the KCPA.
The Attorney General's appeal was transferred to this court pursuant to .
Standard of Review
Whether an action is unconscionable under the KCPA is a legal question for the court. K.S.A.2001 Supp. 50-627(b); see .
However, our unlimited standard of review is somewhat tempered, as explained in
"While we do not retreat from what we have previously said concerning our standard of review as being unlimited, we also
note that in rev. denied , the court said: 'Generally speaking, the unconscionability of acts under the Kansas Consumer
Protection Act, et seq., and amendments thereto is left to the sound discretion of the trial court to be determined under
the peculiar circumstances of each case.'
"The opinion also quoted from , where the trial court's finding that the KCPA was inapplicable was reversed but the
appellate court upheld the trial court's determination that unconscionability did not exist with the following statement:
' "The trial court concluded that defendant's conduct was not unconscionable. We are not of a mind to now hold that
defendant's complained- of conduct was unconscionable as a matter of law.
With a concept so nebulous as
'unconscionability' involved, it is necessary that a certain amount of leeway be granted trial courts when deciding the
unconscionability of acts. Our legislature recognized this and, accordingly, left the unconscionability question to be
decided by the court under the peculiar circumstances of each case." ' .
"In addition, a review of 50-627 shows that the determination of unconscionability involves not only a review of the
written documents but also consideration of the witness testimony as to actions surrounding the transaction. We have
long held that the credibility of witnesses will not be reweighed on appeal. ." .
Generally, whether an action is unconscionable under the KCPA is a question of law subject to unlimited review. However,
the determination of unconscionability ultimately depends upon the facts in a given case. Thus, to a great extent, the
determination is left to the sound discretion of the trial court to be determined on the peculiar circumstances of each case.
Unconscionability
Unconscionability is not defined in the KCPA, but the Act provides the context for consideration of the term. provides:
"This act shall be construed liberally to promote the following policies:
(a) To simplify, clarify and modernize the law governing consumer transactions;
(b) to protect consumers from suppliers who commit deceptive and unconscionable practices;
(c) to protect consumers from unbargained for warranty disclaimers; and
(d) to provide consumers with a three-day cancellation period for door-to- door sales." (Emphasis added.)
The KCPA prohibits sellers from engaging in unconscionable acts or practices. K.S.A.2001 Supp. 50-627(a). ("No supplier
shall engage in any unconscionable act or practice in connection with a consumer transaction. An unconscionable act or
practice violates this act whether it occurs before, during or after the transaction.") While the KCPA does not define
"unconscionability," it does set forth the following statutory examples of unconscionable acts:
"(1) The supplier took advantage of the inability of the consumer reasonably to protect the consumer's interests because of
the consumer's physical infirmity, ignorance, illiteracy, inability to understand the language of an agreement or similar
factor;
"(2) when the consumer transaction was entered into, the price grossly exceeded the price at which similar property or
services were readily obtainable in similar transactions by similar consumers;
"(3) the consumer was unable to receive a material benefit from the subject of the transaction;
"(4) when the consumer transaction was entered into, there was no reasonable probability of payment of the obligation in
full by the consumer;
"(5) the transaction the supplier induced the consumer to enter into was excessively onesided in favor of the supplier;
"(6) the supplier made a misleading statement of opinion on which the consumer was likely to rely to the consumer's
detriment; and
"(7) except as provided by , and amendments thereto, the supplier excluded, modified or otherwise attempted to limit either
the implied warranties of merchantability and fitness for a particular purpose or any remedy provided by law for a breach
of those warranties." (Emphasis added.) K.S.A.2001 Supp. 50-627(b).
The above are the examples referred to by the district court in this case when it concluded that the defendants DVM and
Thompson did not engage in any unconscionable acts in violation of K.S.A.2001 Supp. 50-627, finding that their conduct did
not resemble any of the above statutory examples.
In , this court identified 10 factors that should be considered in the determination of whether an act is unconscionable under
the KCPA:
"Although the doctrine of unconscionability is difficult to define precisely courts have identified a number of factors or
elements as aids for determining its applicability to a given set of facts. These factors include: (1) The use of printed
form or boilerplate contracts drawn skillfully by the party in the strongest economic position, which establish industry
wide standards offered on a take it or leave it basis to the party in a weaker economic position [citations omitted]; (2) a
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179
significant cost-price disparity or excessive price; (3) a denial of basic rights and remedies to a buyer of consumer goods
[citation omitted]; (4) the inclusion of penalty clauses; (5) the circumstances surrounding the execution of the contract,
including its commercial setting, its purpose and actual effect [citation omitted]; (6) the hiding of clauses which are
disadvantageous to one party in a mass of fine print trivia or in places which are inconspicuous to the party signing the
contract [citation omitted]; (7) phrasing clauses in language that is incomprehensible to a layman or that divert his
attention from the problems raised by them or the rights given up through them; (8) an overall imbalance in the
obligations and rights imposed by the bargain; (9) exploitation of the underprivileged, unsophisticated, uneducated and
the illiterate [citation omitted]; and (10) inequality of bargaining or economic power. [Citations omitted.]"
The activity of the defendants in this case does not resemble any of the above-listed factors.
, discussed Kansas case law and the concept of unconscionability, concluding: "The cases seem to support the view that
there must be some element of deceptive bargaining conduct present as well as unequal bargaining power to render the
contract between the parties unconscionable." In this case, there is no evidence of deceptive or unequal bargaining power.
While the State claims inequality between the parties, it acknowledges that there was no deceptive conduct.
Our decision in addresses many of the arguments raised by the State in this case. This court did not find that the liability
waiver requirement was unconscionable under the KCPA. See
We also rejected the State's arguments that a $75
consultation fee, prescribing medication without a physical examination or advisement of the dangers of the medicine, and
prescribing Viagra to a minor without consulting the parents or guardian, constitute individually or collectively
unconscionable practices under K.S.A.2001 Supp. 50-627.
In addition, we noted that there was no unequal bargaining
power established.
The same may be concluded in this case.
With respect to the lack of a physical examination and the lack of physical supervision of the patient, the court quoted for
the proposition that the State needed to prove some element of deceptive bargaining conduct and unequal bargaining power
to prove unconscionability. Further, the court quoted , for the proposition that there is no claim under the KCPA without
evidence of any deceptive or oppressive practices, overreaching, intentional misstatements, or concealment of facts.
concluded that (1) the attorney general agents received exactly what they asked for; (2) they never intended to use the
drugs they ordered; (3) they received more information than those who receive actual face-to-face consultations; and (4) the
information required of the online patients was more in depth than some receive from traditional prescriptions.
Again,
the same may be concluded in this case. We concluded in as we are able to conclude in this case, that the defendants did
not deceive, oppress, or misuse superior bargaining power in supplying medication.
Other than the State's claim, there is
no evidence in the present case of unequal bargaining power.
Finally, the language used by applies as well to the case we now consider:
"Ultimately, after examining all of the documents and hearing all of the witnesses, the trial court properly held Dr.
Levine's actions did not involve advertising techniques, contract terms, debt obligation, limitation of warranties, or the
type of conduct intended to be considered unconscionable under K.S.A.2000 Supp. 50-627 of the KCPA." (Emphasis
added.) .
The Waivers
The State's major focus before this court is the waiver the buyer is required to agree to before purchase. The State argues
that the waiver requirements, in addition to the defendants taking advantage of the buyers, should convince this court that
unconscionable acts have occurred.
With respect to phentermine, DVM required the buyer to agree to the following waiver:
"By choosing 'I Agree' at the bottom of this page, you agree to release from liability and hold harmless DVM Enterprises,
Inc., DVM Medical Consultants, Inc., CybRxpress Pharmacies, Inc., CybRxpress Web Services, Inc., 2U Netmail, LLC,
their affiliates, subsidiaries, directors, officers, employees, representatives, and independent contractors from all causes of
action, suits, penalties, liens, judgments, liabilities, obligations, losses, actual or consequential damages, actual or
threatened claims which may arise at any time by reason of, relating to, arising directly or indirectly out of any matter
whatsoever related to the prescription of Phentermine HCL."
The waiver for Meridia contained substantially similar language.
The waiver, by its express terms, applies to the following five entities: (1) DVM Enterprises, Inc. (the present defendant);
(2) DVM Medical Consultants, Inc.; (3) CybRxpress Pharmacies, Inc.; (4) CybRxpress Web Services, Inc.; and (5) 2UNetmail, L.L.C. The waiver also refers to the affiliates, subsidiaries, directors, officers, employees, representatives, and
independent contractors of these five entities.
The State argues that the waivers include waivers of the warranty of merchantability and the warranty of fitness for a
particular purpose which, according to its claim, adds support to its argument that the waivers are unconscionable under
the KCPA. We disagree that the waivers relate to warranty of merchantability and warranty of fitness for several reasons.
Rather, we noted in that the waivers related to liability. Moreover, the waivers related to the prescriptions of Meridia and
phentermine, not the quality of the drugs themselves.
A distinction must be drawn between the prescription for a
medication and the medication.
The waiver only applied to the prescription and would arise if Dr. Thompson were
negligent in prescribing the drug.
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CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW TODAY: THE ESSENTIALS
The Uniform Commercial Code (UCC) defines the implied warranty of merchantability as follows:
"(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among
all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require; and
(f) conform to the promises or affirmations of fact made on the container or label if any." .
Thus, in the case of the implied warranty of merchantability, the warranty applies to the quality of the goods. The State
does not contend that the quality of the medication was deficient. Again, it must be noted that the State admitted in its
response to DVM and Thompson's motion for summary judgment that each of the online buyers received the medication
they requested, in the amount requested, and that all medications were authentic.
In the case of the implied warranty of fitness for a particular purpose, the UCC defines the warranty as follows:
"Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required
and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded
or modified under the next section an implied warranty that the goods shall be fit for such purpose." .
DVM and Thompson argue that the buyer picks out the medication and therefore does not rely on the skill or judgment of
the seller. In this case, the goods are to be used for their usual, ordinary purpose. See ("When goods are acquired for the
ordinary purposes for which such goods are generally used, no implied warranty of fitness for a particular purpose arises.").
Finally, the waivers do not qualify as waivers of implied warranty under the UCC. In the case of the implied warranty of
merchantability, requires the waiver to be conspicuous and mention the word "merchantability." With respect to the
implied warranty of fitness for a particular purpose, the UCC requires that such waivers be conspicuous. . Both warranties
can be disclaimed with the following type of language: "There are no warranties which extend beyond the description on the
face hereof." . In the present case, the waivers do not specifically address warranties either expressed or implied.
DVM and Thompson correctly argue that even if the waivers were improper under K.S.A.2001 Supp. 50-639, seeking a
waiver of merchantability and fitness for a particular purpose does not require a finding of unconscionability under
K.S.A.2001 Supp. 50-627(b)(7). Instead, it is one factor to be considered. "[A]n attempt to restrict potential warranties is
not itself an unconscionable act per se. [Citation omitted.] Rather, the attempted disclaimer is one element the court must
examine in combination with other facts present in the case in determining whether the seller acted unconscionably." .
Moreover, any attempt to disclaim such warranties is void in Kansas. K.S.A.2001 Supp. 50-639(e).
The State also argues that the defendants have engaged in unconscionable acts because they took advantage of the buyers,
which is a factor of unconscionability pursuant to K.S.A.2001 Supp. 50-627(b)(1). However, the buyers--in this case the
agents for the Attorney General--received exactly what they asked for. See ("As the trial court pointed out, Nelson and
Crawford paid for Viagra and received Viagra."). The same is true in this case. The online buyers received exactly what
they asked for. The record supports the district court's conclusion that the actions of the defendants did not involve
deception or unequal bargaining conduct, nor did their actions resemble any of the statutory examples of unconscionable
acts or any of the factors this court has identified as unconscionable under K.S.A.2001 Supp. 50-627(b).
Standing
In their brief on appeal, DVM and Thompson argue that the State is not a consumer under the KCPA and because there has
been no harm to consumers in this case, the Attorney General is without standing to bring the present action. The State
persuasively argues that the KCPA grants the Attorney General standing to enforce the provisions of the KCPA whether or
not a consumer is involved. The district court did not address this issue. We have addressed the precise question upon
which summary judgment was granted and do not reach the question of standing in this opinion.
Affirmed.