Mental Capacity To Knowingly Enter Into Contract With Arbitration Clause Is A Question For The Trial Court

The Plaintiffs Walker Bark and Debra Yahquo were parties to two contracts with Lake Country Chevrolet for the purchase of automobiles. The Plaintiffs then brought a lawsuit which sought to have the contracts rescinded (or set aside) and to recover damages for fraud on the part of the car dealer. The car dealership filed a motion to compel arbitration arguing that the contracts signed by the Plaintiffs included an agreement to resolve any disputes through arbitration, not a lawsuit.

In response, the Plaintiffs asserted that Mr. Bark suffered from a service-related disability and cognitive impairment and because of this, he did not knowingly agree to any of the terms of the contract including the arbitration clause. As an alternative, the Plaintiffs requested the court hold a hearing where it could hear evidence on the issue of whether cognitive impairment existed and the affect, if any, it had on the Plaintiffs ability to comprehend the contract. The trial court refused to hold a hearing or hear evidence and instead denied the dealership’s motion and allowed the lawsuit to proceed.

The dealership appealed the decision. The appellate court reversed the ruling of the trial court and remanded the case back to the trial court with instructions that it conduct an evidentiary hearing. As part of this hearing the trial court was instructed to make a determination as to the existence of the Plaintiffs’ mental capacity and ability to knowingly enter into a contract and agree to arbitration.

 Bark v. Lake Country Chevrolet Cadillac, LLC, 2014 OK CIV APP 24, __ P.3d __

Punitive Damages Are Exempted From A Supersedeas Bond

As part of the tort reform law passed in 2009, 12 O.S. § 990.4(I),‘exempted punitive damages from the obligation to post a bond on appeal as a means to stay execution of a judgment. The legislation was declared unconstitutional by the Oklahoma Supreme Court citing Douglas v. Cox Retirement Properties, 2013 OK 37, 302 P.3d 789. Some attorneys have erroneously rushed to the conclusion that a supersedeas bond is again required for punitive damage awards due to the determination the 2009 statute was held unconstitutional as violative of Oklahoma’s procedural requirements. The attorneys argue that the March 15, 2005, version of the statute is the existing law since the 2009 version was determined to be unconstitutional.  The position is entirely incorrect and ignores the Legislature’s 2010 amendment of the statute. The 2010 version, not the 2005 version, is the correct existing law.

The Oklahoma legislature revisited 12 O.S. § 990.4(I) effective November 1, 2010. The procedural defect in the 2009 statute was corrected by the passage of the 2010 version of the statute. Under settled Oklahoma law, the actions of the Legislature are not to be ignored and the courts are expected to follow the statutes enacted. In Douglas, supra, cited by the Plaintiff, the Supreme Court stated:

"Every presumption is to be indulged in favor of the constitutionality of a statute." Id. "It is also firmly recognized that it is not the place of this Court, or any court, to concern itself with a statute's propriety, desirability, wisdom, or its practicality as a working proposition." Fent, 1999 OK 64, ¶ 4, 984 P.2d 200, 204. "A court's function, when the constitutionality of a statute is put at issue, is limited to a determination of the validity or invalidity of the legislative provision and a court's function extends no farther in our system of government."  Id. 

A procedural defect in a statute can be cured by later adoption or re-enactment of the statute. See Atchley v. Board of Barber Examiners of State, 1953 OK 146, 257 P.2d 302, 304-305, citing Atlas Life Ins. Co., v. Rose, 1946 OK 52, 166 P.2d 1011. Accordingly, in our view the Legislature’s actions in amending Section 990.4 in 2010 cured any constitutional defect of the statute; therefore, Section 990.4 as amended in 2010 remains in full force and effect.

Oklahoma Does Not Allow Plaintiffs To Recover For Unnecessary Losses Which Could Have Been Avoided

Unnecessary damages which could have been avoided by the insured cannot be recovered in a lawsuit for breach of contract as every Oklahoma insurance lawyer well knows.  A party who asserts a claim for breach of contract against an insurance company has a duty to use reasonable efforts to mitigate his damagesHidalgo Properties, Inc. v. Wachovia Mortgage Company, 617 F.2d 196, (10th Cir. 1980)  A party, including a policyholder, has a duty under Oklahoma law, to make all reasonable efforts to minimize his damages.  Sabine Corp. v. ONG Western, Inc., 725 F.Supp. 1157, (Okla. W.D. 1989).

The principle of mitigation of damages is summarized in the Restatement (Second) of Contracts Section 350 comments (1979) as follows:

As a general rule, a party cannot recover damages for loss that he could have avoided by reasonable efforts. Once a party has reason to know that performance by the other party will not be forthcoming, he is ordinarily expected to stop his own performance to avoid further expenditure. . . . Furthermore, he is expected to take such affirmative steps as are appropriate in the circumstances to avoid loss by making substitute arrangements or otherwise. 

A promisee is not required to go to extraordinary lengths or expense to avoid loss; only efforts that are reasonable under the circumstances are necessary.

Any Oklahoma insurance law attorney defending a case brought against an insurance company for breach of contract, fraud, bad faith, or any other cause of action will always look to see if the losses could have been reasonably avoided to prevent the insurance company from being forced to pay more than the law requires.  The lawyer representing the insured will attempt to show reasonable efforts were used or it was impossible to lessen the damage.

My favorite example is the hail storm that knocks a hole in the roof.  The insured needs to do something to stop the water from raining inside and soaking the furniture, i.e., mitigate or lessen the damage by tarping the hole in the roof.  He can't just sit back and watch the water run down the walls!

Oklahoma Insurance Law Attorneys Know Special Damages Must Be Forseeable

Oklahoma attorneys defending lawsuits brought by policyholders against insurance companies regularly use the defense of forseeability to limit special damages which are claimed in the lawsuit.  Special damages for failure to pay under an insurance policy must be the kind of damages that would ordinarily result from breach of contract.  The concept comes under the rule of law in Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854) which limits damages for breach of contract to losses that were forseeable at the time of contracting.  Oklahoma courts limit damages which are not forseeable.  Coker v. Southwestern Bell Telephone Company, 1978 OK 85, 580 P.2d 151, Missouri Pacific Railroad Company v. Ridley, 1962 OK 277, 383 P.2d 227.

The term "forseeable" is best understood as the consequences one would expect from a certain action.  As an example, a mistake in accidentally denying a $500.00 property damage claim from a fender bender would not forseeably end up with the insured filing for bankruptcy.  On the other hand, refusing to promptly pay a valid business interruption claim could "forseeably" result in a business having to close its doors and shut down.  Experienced attorneys defending litigation in which the insured wants to be paid for things not directly related to the insurance policy will challenge whether the insurer could have anticipated the events.