Nursing Home Arbitration Provisions

SPECIAL OFFER: Get an online subscription to Medical Malpractice Law & Strategy for only $299. Click here, select Digital Only and use promo code MMLSOL299 at checkout. This offer is valid for new subscribers only.

'

Lawsuits against nursing homes have proven to be some of the more difficult and unpredictable cases to try. While the perception is that such cases should yield lower verdicts due to the age of the patient or because their condition at the time of the injury included chronic illness and/or life-altering “comorbid” conditions that prevented independent living, juries continue to return staggering verdicts for millions of dollars. These verdicts, representing either “the full value of the life of the decedent” or the pain and suffering of the patients, are often driven by allegations of poor bed sore care and related infections. Family members often paint a gruesome picture with vivid photographs of a progressing bed sore.'

Verdicts are often affected by emotional testimony, designed to elicit sympathy from the jurors. In an effort to stem the tide of sizeable jury verdicts, nursing homes and other facilities across the country have been offering arbitration as an alternative in admission documents. By so doing, they seek to avoid the unpredictability that comes with 12 men and women in the jury box, who bring their personal opinions, experiences and biases against the industry.

However, state court judges frequently circumvent arbitration provisions by declaring them unconscionable, against public policy, or in violation of state contract law. Likewise, many states, including Georgia, California, Illinois, New Jersey, New York, Oklahoma and West Virginia, have enacted statutes that undermine the arbitration effort by protecting the traditional right of nursing home residents to a jury trial.

Do efforts like these leave nursing homes without valid arguments for enforcing contractural arbitration clauses?

Federal Law vs. State Law

Many state statutes limiting the enforcement of arbitration clauses may conflict with the Federal Arbitration Act (FAA). Enacted in 1925, the FAA favors the liberal application of pre-dispute arbitration clauses and preempts state law under certain circumstances. 9 U.S.C. ' 1, et seq. The U.S. Supreme Court addressed this issue, generally, in the 2011 case of AT&T Mobility, LLC v. Concepcion , 131 S.Ct. 1740 (2011), and, more recently, in the case of Marmet Healthcare Ctr., Inc. v. Brown , 132 S.Ct. 1201 (2012). In these cases the Supreme Court held that the FAA preempts state law that outright prohibits the arbitration of a particular type of claim. In the wake of these two opinions, renewed hope exists regarding the enforceability of nursing home arbitration provisions.

In Marmet, the Court held that the FAA preempted West Virginia's prohibition of arbitration provisions in nursing home contracts, calling the West Virginia law a “categorical rule” prohibiting arbitration. The Court went on to hold that the law not only violated the FAA, but also was in conflict with the Concepcion decision. Marmet was a step in the right direction to breathe life back into the power of nursing home arbitration provisions. However, the decision left open the possibility of challenging the enforceability of arbitration based on unconscionability and common-law principles germane to arbitration provisions specifically, including general contract defenses, like duress in the execution of the agreement.'

There is no U.S. Supreme Court case defining unconscionability in the context of nursing home arbitration provisions. However, the West Virginia Supreme Court of Appeals discussed the issue in Brown v. Genesis Healthcare Corp. , 229 W.Va. 382, 729 S.E.2d 217 (2012). The Brown Court held that the doctrine of unconscionability includes both procedural and substantive fairness. The Brown court used a sliding scale to determine whether an arbitration provision is conscionable. Essentially, the more substantively oppressive the arbitration provision, the less evidence of procedural unfairness is required to consider the provision unconscionable ' and thus, unenforceable. The court listed a number of factors to consider in determining substantive unconscionability, including the reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and public policy concerns.

According to the decision, procedural unconscionability involves the circumstances surrounding the bargaining process and formation of the contract itself. This injury takes into account: the age, literacy, sophistication levels of the party; unduly complex contract terms; the adhesive nature of the contract; the manner in which the contract was formed; and whether each party had a reasonable opportunity to understand the terms of the contract.

State Court Interpretations

Appellate courts in Georgia and South Carolina have provided some guidance on the enforceability of nursing home arbitration clauses. In Grant v. Magnolia Manor-Greenwood Inc. , 383 S.C. 125 (2009), the South Carolina Supreme Court found that an arbitration agreement was unenforceable because the arbitration association designated in the contract was unavailable to act as arbitrator. The court held that the parties agreed to use a specific arbitral forum and that this was a substantive requirement in the contract, as opposed to being merely ancillary. Under general principles of contract law, the provision was unenforceable.

The Georgia Court of Appeals, in Triad Health Management of Georgia, III, LLC v. Johnson , 298 Ga. App. 204 (2009), addressed whether a nursing home resident's power of attorney could waive the right to a jury trial for the resident. The court enforced the provision, holding that a “general power of attorney” delegates the power to act on behalf of a resident. As a result, the holder of the power of attorney may enter into an arbitration agreement on behalf of a resident. By comparison, the court of appeals has invalidated arbitration provisions executed by individuals holding only a “health care power of attorney” because the power was limited to making health care decisions and did not encompass the ability to contract. Life Care Centers of America v. Poole , 298 Ga.App. 739 (2009).

Practice Tips

In light of these decisions, there are some tactics and guidelines to consider employing to maximize the chances of being able to enforce arbitration provisions.

First, the individual signing the arbitration agreement must have the legal capacity to sign. Family relation alone (including being the spouse of a resident) is insufficient to bind a resident to arbitration. To this end, it may be wise to have an employee specifically discuss the arbitration arrangement with the resident and their family, to point out the existence of the provision and to explain that signing on to it will result in a waiver of the right to a jury trial. It is also recommended to have a sentence signed by the individual acknowledging that he or she discussed it and agreed to the arbitration provision. Similarly, it may also help to indicate that the parties exchanged specific consideration for the agreement to waive the right to a jury trial.

Next, the arbitration provision should not be 'buried' among boilerplate language in the contract. Rather, the provision should be labeled and set off in its own paragraph. Admission should not be made contingent on signing the arbitration agreement, and the contract should state as much. This will help dispel the notion that the contract was entered into under circumstances of “duress,” a contention frequently raised to invalidate such provisions.'

Another suggestion is to provide for a limited opt-out provision, which would permit the resident to revoke the agreement within a certain number of days.

Importantly, neither the admission agreement nor the arbitration agreement should contain limitations or caps on emotional, consequential, or punitive damages, as multiple courts have invalidated arbitration agreements because of such language.

Finally, arbitration provisions should contain the basic elements of a contract (offer, acceptance and consideration), and be labeled and identified in a conspicuous manner (as opposed to appearing in the middle of contract provisions, or as mentioned earlier, in boilerplate). It should also be noted that many states have statutes requiring certain features, such as language in boldface letters and titles in all capitalized letters. See, e.g., S.C. Code Ann. ' 15-48-10(a).

Conclusion

In light of recent trends and decisions detailed above, following these basic guidelines should increase the likelihood that arbitration provisions will be enforceable as to nursing home negligence claims. In establishing its enforceability, nursing homes can use arbitration to remove the severe and costly bias against nursing homes in general, as well as limit the potential for enormous verdicts that juries sometimes render based on sympathetic facts and gruesome photographs.

By preventing claims from going to the jury through use of arbitration agreements, nursing home litigants have the best chance for the dispute to be resolved before a panel of neutral, impartial, and educated people who may have knowledge of nursing homes and the types of issues facing such facilities. Financial savings can be significant and could include decreased litigation expenses in addition to limiting recovery of punitive damages and other general damages. It could also result in streamlined and simplified litigation of such claims. With renewed pronouncements by the Supreme Court favoring arbitration, it is wise to consider including arbitration provisions in nursing home admission paperwork, and to make sure the documents are properly drafted and executed in order to ensure their enforceability.

Adam L. Appel is a partner and Andrew W. Countryman is an associate in Carlock, Copeland & Stair, resident in the Atlanta and Charleston, SC, offices, respectively. Kim Ruder is of counsel to the firm, also resident in Atlanta.

'