Ruling: State courts cannot treat nursing home arbitration agreements differently than other contracts

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Former nursing home worker confesses to murdering resident in 2007
Former nursing home worker confesses to murdering resident in 2007
State courts do not have the authority to categorize nursing home arbitration agreements differently than other contracts, the New Mexico Supreme Court recently ruled. The decision sets up a fight over whether a nursing home's specific arbitration agreement violated state law.

Nina R. Strausberg signed an arbitration agreement upon her April 2007 admission to the Arbor Brook Healthcare nursing home, owned and operated by Laurel Healthcare LLC. In June 2008, after being discharged, she sued the company, alleging negligent care and saying that the arbitration agreement was “unconscionable.” 

An agreement can be ruled legally unconscionable based on a variety of factors, such as if one party was too ill or medicated to understand the document.

A district court said the arbitration agreement should stand. An appeals court reversed the ruling.

In most cases, the party arguing that an agreement is unconscionable must prove that claim, but nursing home arbitration agreements should be handled differently, the appeals court ruled. Prospective nursing home residents are “at their most vulnerable” when they enter into an arbitration agreement, so nursing homes should have to prove that an agreement was conscionable when challenged, the court said.

But federal law preempts the appeals court's ruling, according to the state's Supreme Court. Under the Federal Arbitration Act, arbitration agreements must be enforced unless they are found to be invalid under normal contract law. By creating the exception over which party must prove an agreement is conscionable, the appeals court created a “presumption that all nursing home arbitration agreements are unconscionable,” and violated the FAA's requirement that these agreements be treated in the same way as any other contract, the Supreme Court justices wrote.

The high court declined to rule on the merits of whether the arbitration agreement in this case is unconscionable, and said this should be taken up by the appeals court.