Arbitration agreements in nursing home admissions contracts: are nursing home residents and their assignees bound by mandatory arbitration agreements? Not necessarily.

Few issues stir more emotion and controversy in law and politics than binding, mandatory arbitration. Recent developments in many jurisdictions have made it attractive for companies to include arbitration agreements in consumer contracts. The agreements have found their way into nearly every contract for goods and services in jurisdictions throughout the country, including nursing home admissions contracts.

Although most trial lawyers are generally well educated in the law surrounding the enforceability of arbitration provisions, the provisions raise some interesting, novel issues in cases involving nursing home admissions contracts. In many jurisdictions, those issues fall within a gray legal area because little or no guidance is available from the courts and legislatures.

Mandatory arbitration is generally initiated as a result of a binding clause inserted into a contract long before a dispute between the parties to the contract arises. In 1925, Congress passed the Federal Arbitration Act (FAA) to address a perceived disparity in treatment of private agreements, including agreements to arbitrate. Section two of the act states that

   a written provision in any maritime transaction
   or a contract evidencing a transaction
   involving interstate commerce to settle by
   arbitration a controversy thereafter arising out
   of such contract or transaction, or the refusal
   to perform the whole or any part thereof, or an
   agreement in writing to submit to arbitration
   an existing controversy arising out of such
   contract, transaction, or refusal, shall be valid,
   irrevocable, and enforceable, save upon such
   grounds as exist at law or in equity for the
   revocation of any contract. (1)

The act was intended to encourage settlement of disputes outside the court system by placing arbitration agreements on the "same footing as other contracts." (2)

In 1967, the U.S. Supreme Court considered whether the FAA applied in diversity-jurisdiction cases before the federal judiciary. In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., the Court held that although substantive state law generally applied in such cases, Congress intended the FAA to apply in federal courts in diversity cases. (3) This was a departure from its holding in Erie Railroad Co. v. Tompkins. (4)

The Court took the analysis one step further in 1995 with Allied-Bruce Terminix Cos., Inc. v. Dobson. Considering an Alabama statute that prohibited the enforcement of predispute arbitration clauses, it held that because the FAA contained the phrase "involving commerce," it extends to the full limit of Congress's power under the Commerce Clause. (5) The Court's Terminix decision in effect preempts state statutes, such as Alabama's, that seek to prohibit the enforcement of predispute arbitration clauses where the underlying transaction comes within the purview of the Commerce Clause and that affect "interstate commerce." (6)

After Terminix, arbitration clauses became a staple in consumer contracts across the country, and there has been an explosion of litigation concerning their enforceability. The pertinent law varies from jurisdiction to jurisdiction: Review your jurisdiction's court opinions to understand how the law has developed and how best to attack the enforceability issue.

Admissions contracts

Most trial lawyers have become accustomed to reviewing prospective clients' consumer contracts for arbitration provisions. Those evaluating nursing home cases should review all admissions documents that the resident or his or her family signed, and be prepared to litigate the arbitration provisions' enforceability.

The typical clause generally provides for mandatory, binding arbitration before an arbitrator or panel from an organization such as the American Health Lawyers Association (AHLA). The typical arbitration clause for long-term care facilities states:

   Pursuant to the Federal Arbitration Act, any
   action, dispute, claim, or controversy of any
   kind (e.g., whether in contract or in tort, statutory
   or common law, legal or equitable, or otherwise)
   now existing or hereafter arising
   between the parties in any way arising out of,
   pertaining to, or in connection with the provision
   of health care services, any agreement
   between the parties, the provision of any other
   goods or services by the Health Care Center, or
   other transactions, contracts, or agreements
   of any kind whatsoever, and past, present, or
   future incidents, omissions, acts, errors, practices,
   or occurrence causing injury to either
   party whereby the other party or its agents,
   employees, or representatives may be liable, in
   whole or in part, or any other aspect of the
   past, present, or future relationships between
   the parties shall be resolved by binding arbitration
   administered by the American Health
   Lawyers Association.

Such a clause raises numerous considerations for plaintiff lawyers faced with the prospect of litigating its enforceability. In addition, the specific nature of cases against long-term care facilities points to arguments that should be made. In crafting an argument to attack enforceability, consider the following.

Nonsignatory issues. As a general rule, arbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute that he or she has not agreed to submit. (7) The issue then becomes whether the resident or someone else with proper legal authority agreed to submit the controversy to arbitration. The analysis generally turns on the facts of the case.

Many nursing home residents cannot handle their own affairs and are not competent to contract on their own behalf. As a result, long-term care facilities generally seek a family member, friend, or other individual to serve as the resident's "sponsor," that is, to sign the admissions contract on the resident's behalf.

Nursing homes generally let sponsors sign regardless of whether they have the legal authority to do so, through either a durable power of attorney or court appointment as the resident's guardian or conservator. That begs the question of whether an individual with no legal authority to contract on behalf of another can agree to an arbitration provision that waives the resident's right to a jury trial. You should argue that a resident who did not agree to the provisions of an arbitration clause should not be bound by it.

Burden of proof. Generally, the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration. (8) When your client is confronted with an arbitration clause in a nursing home admissions contract, immediately obtain the rules and procedures of the arbitration forum the parties agreed to in the underlying contract. Analyze how they change, modify, or otherwise interfere with the resident's legally guaranteed rights.

The arbitration clause has already abrogated the resident's constitutionally guaranteed right to have his or her case heard by a jury. Has it also abrogated other rights and legal guarantees? Can you use the abrogation of those rights and legal guarantees to attack the enforceability of the arbitration provision? The applicability of such arguments varies from jurisdiction to jurisdiction; in many cases, it may require some creative thinking.

For example, in Alabama, only punitive damages are available in cases brought under the state's wrongful death statute. (9) In some instances, the rules and procedures of arbitration forums prevent arbitrators from awarding punitive damages, or they substantially change the burden of proof to obtain a punitive damages award. Given that a wrongful death plaintiff in Alabama can obtain only punitive damages under state law, the plaintiff would be unable to have his or her case heard by a judge and jury and unable to obtain damages through arbitration. If the arbitration forum's rules essentially deny the resident any remedy or redress, or interfere with his or her legally guaranteed rights, you can argue against enforceability.

The AHLA's arbitration rules and procedures provide, in part, that when nursing home residents or their sponsors sign a contract containing an arbitration provision, they agree that the AHLA rules and procedures are part of the agreement. Nursing homes and other long-term care facilities usually do not provide copies of the arbitration rules and procedures for review when a resident is admitted, so residents and their sponsors do not know that they are, in effect, agreeing to make the arbitration rules and procedures part of the admissions contract.

These are only a few examples of arguments that can be made regarding how arbitration agreements affect, abrogate, and/or interfere with nursing home residents' legally guaranteed rights. Many more arguments can help prevent the enforcement of arbitration agreements.

State law contract-revocation defenses. FAA [section] 2 states that arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." State law contract-revocation arguments can be based on mutuality of assent, as well as unconscionability, contracts of adhesion, public policy, fraud, and incapacity. Possible arguments will vary from jurisdiction to jurisdiction.

If one party to a contract is incompetent or lacks legal authority to contract, there can be no mutuality of assent. This argument is particularly pertinent in a nursing home admission case: It is viable when the resident is not competent to contract due to some incapacitation, or when someone other than the resident agreed to the arbitration clause with no legal authority to do so.

Waiver of arbitration clauses. In some instances, defendants do not immediately seek to enforce arbitration agreements, but rather wait until well after the plaintiff has commenced litigation. In such circumstances, you can argue that the nursing home waived its right to compel arbitration if it substantially invoked the litigation process and thereby prejudiced the party opposing arbitration. (10)

Case law

Courts in some states have recently considered the enforceability of nursing home admissions contracts.

Alabama. In Community Care of America of Alabama, Inc. v. Davis, pressure sores on the plaintiff's feet were so severely infected that both legs had to be amputated. The plaintiff alleged that the nursing home breached the appropriate standards of care by allowing the sores to form and letting them go untreated. The trial court denied the defendant's motion to compel arbitration. Upholding its ruling, the Alabama Supreme Court stated that the defendant was a foreign corporation not qualified to do business in Alabama at the time the contract was signed. As such, the court held, the defendant could not use Alabama courts to enforce a contract. (11)

Florida. The plaintiff in Integrated Health Services of Green Briar, Inc. v. Lopez-Silvero filed suit for improper care. The nursing home moved to compel arbitration under a clause in the admissions contract, but the trial court denied the motion because the nursing home had not signed the contract. (12)

Reversing, the Florida District Court of Appeal held that "a contract is binding, despite the fact that one party did not sign the contract, where both parties performed under the contract." (13) The court stated that because the nursing home performed under the terms of the admissions contract, the fact that it had not signed the contract was not enough to invalidate the contract and its arbitration provision. (14)

In another Florida case, Estate of Blanchard v. Central Park Lodges, Inc., a state appeals court reversed the trial court, which had granted the defendant nursing home's motion to stay litigation pending the outcome of arbitration. The appeals court remanded the case to the trial court to consider whether a valid agreement to arbitrate existed and, if so, whether the contract was unconscionable. (15)

California. The plaintiffs in Condee v. Longwood Management Corp. filed suit when their relative, a resident at a nursing home managed by Longwood, died after slipping and falling. The nursing home moved to compel arbitration based on a clause in the admissions contract.

The trial court denied the motion after finding that the contract was not properly authenticated. The California Court of Appeal remanded the case to the trial court with instructions to grant the petition unless it "determines that: (a) the right to compel arbitration has been waived by the petitioner; or (b) grounds exist for the revocation of the agreement." (16)

In another California case, Pagarigan v. Libby Care Center, Inc., the adult children of a deceased resident brought a personal injury action against the convalescent hospital, alleging negligence, intentional infliction of emotional distress, elder abuse, fraud, and wrongful death. The hospital moved to compel arbitration based on two agreements that the plaintiffs signed a week after their mother was admitted to the hospital. The California Court of Appeal held that the plaintiffs lacked authority to sign the agreements and denied the petition to compel arbitration. (17)

The law regarding arbitration provisions in nursing home admissions contracts is far from settled and varies greatly from jurisdiction to jurisdiction. Lawyers who thoroughly understand both the statutory and case law affecting enforceability will stand a greater chance of succeeding in court. Become familiar with your jurisdiction's law on enforceability of arbitration agreements, and review the law of other jurisdictions. It may provide novel approaches to litigating the enforceability issue and, in the process, help you protect your client's rights.

Notes

(1.) 9 U.S.C. [section] 2 (West 2002).

(2.) Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 275 (1995) (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974)).

(3.) 388 U.S. 395, 404 (1967).

(4.) 304 U.S. 64 (1938).

(5.) Terminix, 513 U.S. 265, 273-74.

(6.) Id.

(7.) See Ex parte Roberson, 749 So. 2d 441, 445 (Ala. 1999); A.G. Edwards & Sons, Inc. v. Clark, 558 So. 2d 358, 362 (Ala. 1990).

(8.) See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991); Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987).

(9.) Alabama's wrongful death statute, codified at ALA. CODE [section] 6-5-410 et seq., is one of a very small number of such statutory regimes in the country allowing for only punitive damages in wrongful death cases.

(10.) See, e.g., Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So. 2d 897, 899 (Ala. 1995).

(11.) No. 1010454, 2002 WL 31045217 (Ala. Sept. 13, 2002) at *3 (citing ALA. CODE 1975, [section]10-2B-15.01(a)).

(12.) 827 So. 2d 338 (Fla. Dist. Ct. App. 2002).

(13.) Id. at 339.

(14.) Id.

(15.) 805 So. 2d 6 (Fla. Dist. Ct. App. 2001).

(16.) 105 Cal. Rptr. 2d 597, 598-99 (Ct. App. 2001).

(17.) 120 Cal. Rptr. 2d 892, 893 (Ct. App. 2002).

W. Todd Harvey is a partner with the law firm of Whatley Drake in Birmingham, Alabama.