What every provider should know about arbitration
Steven D. Weiner
Recent developments in both state and federal law have upheld the permissibility of arbitration clauses in nursing home admission agreements. Yet such agreements are still held to a high level of judicial scrutiny, as they compel litigants to cede their basic right to sue in court.
Those who oppose arbitration, particularly in the context of long-term care, argue that these clauses are simply a means by the providers to exploit a vulnerable population and use their “superior bargaining power” and sophistication to undermine the rights of “victims” of abuse, curb jury verdicts and, ultimately, insulate providers from being fully accountable for providing substandard care.
Arguments opposing arbitration are typically rooted in promoting fear in the general population. However, courts will recognize the validity of arbitration so long as basic principles of fairness have been followed, loosely grouped together as matters pertaining to substantive and procedural unconscionability. Among the threshold questions that the courts ask when examining the validity of any arbitration clause is the manner by which the arbitration agreement is presented to the resident or their representative.
Courts will investigate whether the arbitration agreement is readily discernible and stands out within the mass of documents presented to the family during the admission process. If a stand-alone arbitration agreements is used, has its' terms been incorporated by reference in the main admission agreement? If the admission agreement alone is executed, was it readily apparent that arbitration was among the provisions agreed upon? These are some of the questions the court will seek to answer.
Another threshold question is whether the agreement to arbitrate was conspicuous. Arbitration provisions that are in bold-face type, clearly delineated by an appropriate paragraph heading, and easy to understand without any legalese, typically fair better under judicial scrutiny than those clauses which do not have such safeguards. Some states require certain types of fonts, different inks and sizes for an arbitration clause to be enforceable. Others even prohibit photocopies of arbitration clauses unless the proper colored ink is contained.
Courts will invalidate arbitration agreements if the subject matter of the arbitration is unclear or not intended to be an arbitratable claim. In other words, the court must be convinced that the scope of arbitration was clearly set forth and that the dispute at issue is one that was intended to be arbitrated in the first place. Additionally, there must an attempt to describe what arbitration actually is and what it is not. Though arbitration is quasi-judicial a plaintiff relinquishes their right to a jury or judge trial. Courts will not treat this waiver lightly.
In arbitration, the parties mutually select an arbitrator whereas, in litigation, they have no say in the selection of a judge. Limited evidence is allowed in arbitration, while in litigation, broad disclosure is permitted. Generally, in arbitration, there is no right to an appeal (absent a showing of bias, which can be difficult), so once an arbitrator decides the merits, there is no further recourse and the findings are binding.
Arbitration is typically private and confidential, as opposed to litigation which, at some point, may end up in a courtroom. Arbitration may offer benefits to both parties in that it is fairly quick, unlike litigation, which can drag on for years. This expediency can be particularly advantageous to an elderly patient population.
In most instances, federal law favors arbitration as codified by the Federal Arbitration Act. The FAA typically pre-empts any state law prohibiting arbitration. As nursing homes are engaged in interstate commerce, since they rely on out-of-state vendors for goods and services, accept private insurance from insurers doing business throughout the country, and accept payment via federally funded programs (Medicare and Medicaid), courts have begun to recognize that the FAA should control any nursing home dispute.
Courts also probe the circumstances of the execution of the arbitration agreement. Was the signatory competent or have the legal authority to sign the arbitration agreement and bind the resident or their representatives? Was it signed? Does the provider have a consistent policy in place in that the person(s) who presents the arbitration agreement is qualified and trained to explain it in detail? Did the signatory know what they were signing? Were the terms explained to them? Is there a separate and concurrent chart note that reflects that the arbitration provision was presented to the resident or their representative? Did the signatory have time to digest the arbitration provision and ask questions about it?
Courts may likely invalidate any clauses mandating that arbitration be held in a foreign venue, or which designate a specific arbitrator, or limits the pool of arbitrators. Clauses that change the standard of proof required to make out a prima facie case under the applicable laws or limit damages otherwise provided by law, are also subject to invalidation. Most providers place severability clauses in their agreements so that if some provision is deemed unenforceable, the remainder survives.
Opponents of arbitration will always look for reasons to invalidate an arbitration agreement. But when courts are confronted with a simply stated, yet precise arbitration provision that does not suggest any procedural or substantive unconscionability, the courts may ultimately be bound to enforce the agreement as written and honor the agreement to arbitrate as a binding contract.
Steven D. Weiner is a senior partner at Kaufman Borgeest and Ryan and heads the firm's long-term care group. Mario C. Giannettino is a partner in the firm who specializes in the defense of long-term care providers.
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