Long Term
CARE
&
& Senior
Senior Housing
Housing Practice
Practice
NATIONAL TRENDS IN ADMISSION CONTRACT
ARBITRATION AGREEMENT ENFORCEMENT
Summer/Fall 2004
On January 9, 2003, CMS issued a memorandum regarding its
position on the existence of binding arbitration agreements in
nursing homes in particular. See Ref: S&C-03-10. CMS stated
that its primary focus was on issues of quality of care and that so
long as the quality of the care is not compromised by arbitration
agreements, the issue is a matter between the resident and the
nursing home. CMS further stated that it would defer to state law
as to whether or not such agreements were enforceable. This
article looks to decisions by state courts on this very topic. As the
author is located in the state of Washington, there is a specific
discussion regarding Washington state arbitration trends. Finally,
this article offers some suggestions on drafting an arbitration clause
and offering it in a context that may increase the likelihood of its
enforceability if you are in a jurisdiction that allows the use of
such clauses.
By Barbara Duffy
and
Linda B. Clapham
INTRODUCTION/ABSTRACT
As long term care providers have suffered the weight of extraordinary increases in their insurance premiums and a trend toward
larger jury verdicts, the providers and their insurers have investigated means of reducing the costs of managing risk and defending
claims related to the care and services provided at their facilities.
One such method is for a long term care provider to require its
residents to sign an agreement that all disputes related to the services or professional care provided by the facility be subject to private arbitration rather than argue the claim in a court of law. This
article does not endeavor to comment on the overall savings of
arbitration versus trial, but simply looks to various courts’ interpretations of the enforceability of various arbitration clauses in the
context of long term care.
DISCUSSION
Of the jurisdictions that have addressed the arbitration clause
issue, Alabama, Florida, and Kentucky tend to read the clauses in
favor of arbitration and reject most unconscionability claims.
Courts in Tennessee and South Carolina seem more willing to
find arbitration agreements void for unconscionability or for other
violations of state contract law. California courts have not yet
discussed the validity of arbitration agreements in terms of unconscionability or lack of consideration, instead holding the arbitration agreement valid or invalid for other reasons.
There are very few cases on the subject, and the jurisdictions
that have encountered this issue have split in their assessments of
the arbitration clauses. Courts that have found arbitration clauses
to be unconscionable have done so when the clauses are presented
on a “take-it-or-leave-it” basis, substantially favor the facility over
the resident, are buried within a contract, and are not explained to
the resident.
I. Unconscionability
State laws regarding arbitration agreements and the Federal Arbitration Act (if applicable) permit challenges to the validity of
arbitration agreements based on state law contract defenses, including unconscionability. Gainesville Health Care Center, Inc. v.
Weston, 857 So.2d 278, 283 (Fla. Dist. Ct. App. 2003). Many of
the cases seeking to invalidate arbitration agreements in nursing
home admissions contracts involve claims of unconscionability,
with mixed results. Courts seem more willing to find an arbitration clause to be unconscionable when the contract is substantively unfair to one party, is presented on a “take-it-or-leave it”
basis as a requirement for entry into the facility, or is buried within
the contract and not explained to the resident.
No court has explicitly found an arbitration clause to be invalid
due to lack of consideration when the resident’s health care costs
are paid by Medicare or Medicaid. The issue has been briefly discussed in a few cases. The jurisdictions are also divided as to whether
nursing home admission contracts should be analyzed under the
Federal Arbitration Act or under state law. The differing forms of
analysis have resulted in courts reaching opposite outcomes even
when the facts of the cases are very similar.
1
Several Florida cases have upheld arbitration agreements against
unconscionability defenses. In Gainesville Health Care Center, for
example, the court denied the plaintiff ’s claim that an arbitration agreement was unconscionable because no one at the center explained its
terms to the resident’s representative. Id. at 286. Citing evidence that
the signor had ample opportunity to ask questions about the clause
and had neglected to read the clause before signing it, the court found
that there was also no proof that the representative had “no meaningful choice” before executing the contract. Id. at 288. In addition, even
though the nursing home specifically stipulated which arbitration organization would be used in the event of a claim, the resident’s representative failed to present any proof that the specified arbitral forum
would be biased in favor of the nursing home. Id. at 286. But cf.
Estate of Mary Chapman v. Gainesville Health Center, Inc., No. 012001-CA-003277 (Fla. Alachua County Ct. Apr. 8, 2002) (order) (denying motion to compel arbitration).
A. Alabama
The Alabama Supreme Court has not yet found any arbitration agreements invalid due to unconscionability. In Owens v. Coosa Valley
Health Care, Inc., the court rejected a claim that the arbitration agreement was unconscionable because the resident was in ill health and
did not understand the terms of the agreement, stating that the guardian “essentially asks us to adopt a per se rule that would find unconscionable any arbitration agreement involving a nursing home and an
elderly resident in poor health; this we cannot do.” ___ So.2d ___,
2004 WL 260969, at *5 (Ala. 2004). Likewise in Briarcliff Nursing
Home, Inc. v. Turcotte, the court denied the resident’s executors’ claims
that the arbitration clause was unconscionable, finding that the executors had not proven that the clause grossly favored one party over
another or that there was an imbalance in bargaining power. ___ So.
2d ___, 2004 WL 1418698, at *3-*4 (Ala. 2004). Although there were
only two nursing homes in the vicinity, the court stated that the lack
of options was not a per se indicator of unequal bargaining power.
Id. at *4. In order to show a total lack of a meaningful choice, the
executors had to provide proof that other assisted living or at-home
care options would require “considerable expenditure of time and
resources,” which they had not done. Id.
In another case, the court held that the nursing home’s failure to
explain an optional, “boilerplate” arbitration agreement was not per
se evidence of unconscionability. Consolidated Resources Healthcare
Fund I, Ltd. v. Fenelus, 853 So.2d 500, 504 (Fla. Dist. Ct. App. 2003).
The resident’s executor did not offer any proof that the he was forced
to assent to the clause before the resident would be admitted to the
facility, that he did not have time to read the agreement before signing
it, or that the terms were substantively unfair; accordingly, the court
rejected his unconscionability claim. Id. at 505. The Florida District
Court of Appeal ruled similarly in several other cases arising out of
arbitration clauses in admissions contracts. See, e.g., Five Points
Healthcare, Ltd. v. Alberts, 867 So.2d 520, 522 (Fla. Dist. Ct. App.
2004) (finding arbitration clause valid even though it required arbitration of statutory claim); Eldridge v. Integrated Health Services, Inc.,
805 So.2d 982 (Fla. Dist. Ct. App. 2001) (deciding not to address substantive unconscionability when procedural unconscionability claim
was not proven).
B. Kentucky
In Kentucky, the court upheld an arbitration agreement because
the plaintiff executrix had not provided any evidence that the arbitration agreement was ambiguous or unfairly presented when her mother
needed emergency medical care. Smithson v. Integrated Health Services of Lester, Inc., No. Civ. A. 99-199 (E.D. Ky. Aug. 13, 1999)
(mem. opinion and order). Even if the arbitration clause were to be
found to be a “contract of adhesion,” the court found that the plaintiff had not given any evidence that it was presented on a “take-it-orleave-it” basis or that the terms were unclear. Id. at *3. In addition,
the plaintiff had time to read the contract before and after her mother’s
admission to the facility but admitted that she had not done so. Id. at
*3.
Although most Florida courts have not found arbitration clauses to
be unconscionable, the District Court of Appeal did hold that an
arbitration clause suffered from both procedural and substantive unconscionability and was therefore invalid. Romano v. Manor Care,
Inc., 861 So.2d 59, 62 (Fla. Dist. Ct. App. 2003). The arbitration clause
in Romano was deemed substantially unconscionable because it prevented residents from seeking punitive damages or attorneys’ fees in
violation of rights guaranteed by the Florida Nursing Home Resident’s
Rights Act. Id. at 63. The court held that the arbitration clause’s prohibition on seeking additional damages prevented the resident from
vindicating her statutory rights. Id. Although the arbitration clause
was written clearly and not hidden in fine print, the court still found
that it was procedurally unconscionable because the resident’s husband was not told about the terms of the agreement or told that he
did not have to sign the agreement in order for his wife to receive
care. Id. at 63. Coupled with the “egregious substantive unconscionability of the terms of the agreement,” the court found that this relatively small level of procedural unconscionability was sufficient to
invalidate the clause. Id. at 64.
C. Florida
Florida courts frequently address the issue of unconscionability
when deciding whether to enforce an arbitration clause in a nursing
home admission contract. See, e.g., Richmond Healthcare, Inc. v. Digati,
2004 Fla. App. LEXIS 7738, at *8 (Fla. Dist. Ct. App. Jun. 2, 2004)
(appeal of a non-final order) (stating that “We are … unable to find
any statutory authority allowing judges to refuse to enforce valid arbitration provisions in nursing home admission contracts of competent
parties, for reasons other than unconscionability.”). In order to prove
that an arbitration clause is unconscionable and therefore invalid,
Florida courts require proof of both procedural unconscionability
(which involves analyzing the circumstances in which the arbitration
agreement was presented) and substantive unconscionability (which
involves analyzing the terms of the arbitration agreement). Gainesville
Health Care Center, Inc., 857 So.2d at 284.
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Florida courts have also refused to uphold an arbitration agreement
that forced the parties to arbitrate in another state. Northport Health
Services v. Raidoja, 851 So.2d 234, 235 (Fla. Dist. Ct. App. 2003). The
court did not specifically address the issue in terms of unconscionability, but rather stated that although public policy favors arbitration, Florida
courts cannot compel arbitration in another jurisdiction when one party
objects. Id.
A. Alabama
The Supreme Court of Alabama recently denied the argument that
arbitration agreements for Medicaid or Medicare residents are void
for lack of consideration. Owens, 2004 WL 260969 at *5. In Owens,
the plaintiff guardian objected to the assisted living facility’s attempt
to compel arbitration during a medical malpractice suit. Id. at *2 (Ala.
2004). Among other reasons, the plaintiff claimed that the arbitration
agreement was invalid under 42 U.S.C. § 1396r(c)(5)(A)(iii), which reads
in part:
With respect to admissions practices, a nursing facility must—
....
(iii) in the case of an individual who is entitled to medical assistance
for nursing facility services [such as Medicare or Medicaid], not charge,
solicit, accept, or receive, in addition to any amount otherwise required to be paid under the State plan under this subchapter, any gift,
money, donation, or other consideration as a precondition of admitting ... the individual to the facility or as a requirement for the
individual’s continued stay in the facility.
D. Tennessee
Based on the two cases on the topic, it appears that Tennessee courts
are more willing to find an arbitration clause to be unconscionable
than other jurisdictions. Unlike the contracts in the Alabama, Kentucky, and Florida cases, however, both of the contracts in the Tennessee cases were presented on a “take-it-or-leave-it” basis as a requirement for admission to the health care facility. In Howell v. NHC
Healthcare-Fort Sanders, Inc., a resident’s husband was told that his
wife, who was in need of emergency care, could not enter the facility
until he signed all of the paperwork for her admission. 109 S.W.3d
731, 732 (Tenn. Ct. App. 2003). The man, who could not read or
write, claimed that no one in the office explained to him what the
arbitration agreement meant, but also admitted that he never asked
what was within the contract either. Id. The court held that arbitration agreement was unconscionable because the husband had no realistic choice as whether to sign the agreement or not. Id. at 734. In
addition, the court drew attention to the fact that the arbitration agreement was “buried” on page ten of the eleven-page contract and was
in the same font size and type as other parts of the contract. Id. Because the nursing home had presented the agreement on a “take-it-orleave-it” basis and had not met the burden of showing that the parties
had actually bargained over the agreement, the court denied the motion to compel arbitration. Id. at 735.
Id. The court rejected the guardian’s argument because there was
no evidence that the resident’s fees were paid by Medicare or Medicaid. Id. The court added, however, that there was no lack of consideration in its view: “[A]n arbitration agreement sets a forum for future
disputes; both parties are bound to it and both receive whatever benefits and detriments accompany the arbitral forum.” Id. (emphasis in
original). Calling the argument “without merit,” the court affirmed
the lower court’s ruling compelling arbitration. Id. at *6.
B. Florida
Although it did not discuss the issue in depth, the Gainesville court
in was presented with the question of whether arbitration agreements
contracts for Medicaid or Medicare-provided care fail for lack of consideration. 857 So.2d at 288. The plaintiff claimed that 42 C.F.R. §
483.12(d)(3) prohibited health care facilities from accepting any additional consideration from a Medicare or Medicaid resident beyond
the fees paid by Medicare or Medicaid. Id. The court rejected the
claim, stating simply that “[w]e have found no authority from any
jurisdiction which holds that an arbitration clause constitutes ‘consideration’ in this sense; nor do we believe that the federal regulation [42
C.F.R. § 483.12(d)(3)] was intended to apply to such a situation.” Id.
In another case featuring a husband signing an arbitration agreement for his wife, the Court of Appeals again refused to uphold the
agreement because the terms were not explained to the resident and
the agreement was in regular type deep within the contract. Raiteri v.
NHC Healthcare/Knoxville, Inc., 2003 WL 23094413, at *1, *4 (Tenn.
Ct. App. Dec. 30, 2003) (interlocutory appeal). Citing Howell, the
Raiteri court stated that the agreement was unconscionable because
the husband was not given a meaningful choice whether to accept the
agreement or not and was given a long, confusing contract with little
explanation at an emotionally trying time in his life. Id. at *8. According to the Court of Appeals, courts in Tennessee are more willing to
invalidate arbitration clauses “when the agreements are hidden within
other types of contracts and do not afford the residents an opportunity to question the terms or purpose of the agreement,” because the
situation puts the health care provider at an unfair advantage over
resident. Id. at *6.
C. Tennessee
Both plaintiffs in Tennessee cases raised the Medicaid/consideration argument as an alternative reason for invalidating the arbitration agreement. Since both courts found the agreement invalid due to
unconscionability, neither addressed the issue.
II. Medicaid or Medicare Residents
III. Federal Arbitration Act and Interstate Commerce
Only two cases have directly addressed the issue of whether arbitration clauses are invalid for residents who have Medicaid or Medicare-provided care due to a lack of consideration. Both of the jurisdictions found the clauses to be valid despite the consideration argument, but neither case discussed the issue in depth.
Under the Federal Arbitration Act, arbitration agreements that comply with federal and state law are “valid, irrevocable, and enforceable,” indicating a strong presumption in favor of arbitration. 9 U.S.C.
§ 2 (2004). The Federal Arbitration Act supersedes any contradictory
3
state statute for contracts for transactions that involve interstate commerce. Owens, 2004 WL 260969 at *3. When deciding whether nursing home admission contracts involve interstate commerce, two jurisdictions have come to opposite conclusions.
IV. Additional Analyses of Arbitration Agreements
In addition to the unconscionability, Medicaid/Medicare, and interstate commerce analyses, courts have applied other tests to determine whether arbitration clauses are valid.
A. Alabama
A. Validity of Arbitration Agreement Under State Law
The bulk of discussion in Alabama arbitration cases involves the
issue of whether an assisted living facility contract should be considered within the realm of interstate commerce and therefore under the
Federal Arbitration Act. In Briarcliff Nursing Home, Inc., the Supreme Court of Alabama determined that a nursing home admission
contract affected interstate commerce, despite the plaintiff ’s argument
that it was intrastate only. 2004 WL 1418698, at *5. The court found
that the contract affected interstate commerce because the assisted
living facility was headquartered in Maryland, had its regional office
in Florida, and regularly received shipments from Georgia and Wisconsin. Id. The contract was therefore subject to the Federal Arbitration Act. Id.
The issue of interstate commerce arose in another case with identical results. McGuffy Health & Rehab. Ctr. v. Gibson, 864 So.2d 1061
(Ala. 2003). When a woman was injured during her stay at a rehabilitation center, the center wanted to compel arbitration of the resulting
medical malpractice charge. Id. at 1062. The contract’s arbitration
agreement fell within the Federal Arbitration Act because the items
the center used to care for the resident were articles of interstate commerce, and two-thirds of the funds paid to the center for the resident’s
care came from federally funded Medicare and Medicaid programs.
Id. at 1062-63. The court held that the transfer of federal funding
across state lines could be considered within the Federal Arbitration
Act’s “substantial effect on interstate commerce” requirement. Id. at
1063.
B. South Carolina
An older South Carolina case runs counter to the Alabama court
findings that nursing home arbitration agreements fall within the realm
of the Federal Arbitration Act’s “affecting interstate commerce” test.
Timms v. Greene, 427 S.E.2d 642 (S.C. 1993). The South Carolina
Supreme Court found that although the health care facility in Timms
had its headquarters in Delaware, bought supplies from out of state,
and accepted payments from federal agencies such as Medicaid and
Medicare, the relationship between those activities and the contract
with the resident was insufficient to support a finding that the contract affected interstate commerce. Id. at 644. Therefore, the Federal
Arbitration Act did not apply to the contract in question, and the
court instead applied the corresponding South Carolina Uniform
Arbitration Act to determine whether the arbitration agreement was
valid. Id. The contract did not contain several of the required Uniform Arbitration Act elements, including a reference to the arbitration agreement located prominently on the first page of the contract,
and was therefore held to be invalid. Id.
At least one California court has found an arbitration clause to be
valid without going through an unconscionability, consideration, or
interstate commerce analysis. In one unpublished case, a resident’s
executor challenged an arbitration agreement claiming that the agreement did not comply with the location and language requirements
mandated by California law, the resident was not competent to sign
the agreement, and the agreement was signed after the resident had
been admitted to the facility. Flaum v. Super. Ct. of L.A. County, 2002
WL 31852905, at *2 (Cal. Ct. App. Dec. 20, 2002) (unpublished opinion). The court disagreed with the first claim, stating that the agreement did comply with California law because the agreement was on a
separate sheet from the admissions contract and contained only minor, inconsequential deviations from the required language. Id. at *4.
The court did not discuss unconscionability when considering the
executor’s incompetence defense, deferring instead to the trial court’s
decision not to hold an evidentiary hearing on the issue of incompetence. Id. Finally, the court found that the center only had to make a
reasonable effort to get the paperwork signed before admission per
California law, and that contracts signed after admission were still
valid. Id.
B. Invalid Contract Under State Law
In the one Alabama case in which the court did not enforce an
arbitration agreement, the court refused to allow an assisted living
facility to enforce its arbitration clause when that facility did not have
the authority to transact business in the state at the time the contract
was signed. Comm. Care of America of Alabama, Inc. v. Davis, 850
So.2d 283, 289 (Ala. 2002). Because Alabama Code § 10-2B-15.02
prohibits the enforcement of contracts made by unauthorized foreign corporations, the court found that it did not need to apply the
Federal Arbitration Act’s “affecting interstate commerce” criteria as
it would for contracts that were made by authorized agents. Id. at 287.
Rather, the court used an analytical structure based on the Commerce
Clause, U.S. Const. art. 1, §8, cl. 3, to find that the activities of the
assisted living facility were localized and that localized labor transactions are not “articles of interstate commerce.” Id. at 288-89. Therefore, it was within Alabama’s right to regulate the terms of the contract. Id. at 289.
Community Care is an exception to the traditional arbitration analysis. The court in Briarcliff later distinguished its case from Community Care, since the contract at issue in Briarcliff was executed in compliance with Alabama state statutes and was therefore subject to the
Federal Arbitration Act “substantial effects” test and not a Commerce
Clause analysis. 2004 WL 1418698, at *5.
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1258 (1995). The courts have found arbitration clauses to be substantively unconscionable when the costs of the arbitration are prohibitive to the party seeking arbitration. For example, the Court of Appeals found an arbitration agreement to be substantively unconscionable when the agreement required a financially strapped party seeking arbitration to use a specified arbitration agency and pay up-front
costs and filing fees totaling more than $2,000, even though his claim
was only for $1,500. Mendez v. Palm Harbor Homes, Inc., 111 Wn.
App. 446, 471 45 P.3d 594 (2002). But see Heaphy v. State Farm Mut.
Auto. Ins. Co., 117 Wn. App. 438, 446, 72 P.3d 220 (2003) (denying
claim of “prohibitive costs” when a plaintiff did not present any evidence of financial status and other party offered to pay the arbitration costs).
C. Status of Contract Signor
Two other California cases involve challenges to the contract’s validity based on the status of the signor as the resident’s representative.
In Pagarigan v. Libby Care Center, Inc., the court faced a question of
whether the adult children of a resident acted as legal agents for their
mother when they signed all the admission paperwork, including the
arbitration clause, without their mother’s consent. 120 Cal. Rptr. 2d
892, 894 (2002). Although the daughters, as next of kin, had the authority to make medical decisions on their mother’s behalf under
California Health & Safety Code §1418.8(c), the court found no indication that the legislature had intended to grant the next of kin the
authority to bind the resident to an arbitration agreement. Id. at 897.
The court added that “[a] person cannot become the agent of another merely by representing herself as such.” Id. at 895. Because the
court determined the signature to be invalid, it did not discuss whether
the terms of the arbitration agreement itself were in violation of federal or state law. Id. at 894.
When discussing procedural unconscionability for arbitration agreements, Washington courts consider similar factors as those in Florida
and Tennessee, including whether the party lacked a meaningful choice
when entering into the agreement, whether the parties had time to ask
questions about the agreement’s terms, and whether the agreement
was buried “in a maze of fine print.” Tjart v. Smith Barney, Inc., 107
Wn. App. 885, 898, 28 P.3d 823 (2001). However, such contracts of
adhesion are not necessarily unconscionable. Mendez, 111 Wn. App.
at 460. In Tjart, the court rejected a claim that an arbitration clause in
an imbalanced contract of adhesion was procedurally unconscionable.
107 Wn. App. at 899. Although the employee had to sign a new employment contract in order to continue in her position after her firm
was acquired by Smith Barney, she had a reasonable opportunity to
read and examine the arbitration agreement before signing it. Id. at
899. Other courts have held contractual clauses (although not necessarily arbitration clauses) to be valid even though the clauses were
boilerplate, in regular type, and deep within the contract. See, e.g.,
Public Emp. Mut. Ins. Co. v. Hertz Corp., 59 Wn. App. 641, 650 800,
P.2d 831 (1990); Planet Ins. Co. v. Wong, 74 Wn. App. 905, 914-15,
877 P.2d 198 (1994) (stating that “[s]mall printing alone does not render a standard agreement unconscionable”).
The court reached an identical result in Phillips v. Crofton Manor
Inn, holding that an adult daughter did not have the right to bind her
father to arbitration or waive her siblings’ rights to pursue legal action
based on a wrongful death claim. 2003 WL 21101478, at *6 (Cal. Ct.
App. June 13, 2003) (unpublished opinion). Furthermore, even if the
signature did bind the daughter herself to arbitration, the Court of
Appeals held that it was within the trial court’s discretion to permit
her claims to proceed in court along with her siblings’ related claims.
Id.
V. Washington State Arbitration Trends
Although the Washington courts have not yet faced the issue of
arbitration agreements in nursing home admissions contracts, there
have been a number of cases involving arbitration clauses in other
types of contracts. Based on the existing case law, it is possible that a
Washington court could find an arbitration clause to be invalid on
unconscionability grounds, but it is unlikely to do so unless the contract is shockingly one-sided or presented on a “take-it-or-leave-it”
basis with no explanation.
It is hard to determine whether a court would find a nursing home
contract to be either substantively or procedurally unconscionable. It
seems that the “prohibitive costs” substantive unconscionability claim
would not be a factor in the nursing home context, since, unlike the
relatively small claim in Mendez, damages sought in elder abuse or
wrongful death claims would likely be much greater than any up-front
arbitration costs. Likewise, it is unlikely that Washington courts would
find a nursing home arbitration clause to be procedurally unconscionable unless the resident had absolutely no meaningful choice when
signing the contract or the terms of the agreement were almost impossible for a prudent reader to find. An as-of-yet undecided Washington Supreme Court case may provide additional guidance. Zuver v.
Airtouch Communications, Inc., No. 74156-5 (Wn. filed Jul. 9, 2003)
(claiming that employment arbitration contract is unconscionable contract of adhesion because it mandates cost-splitting, finds that prevailing party may be able to recoup attorney’s fees, lacks bilateral remedies, and requires confidentiality).
A. Unconscionability
In Washington, contracts cannot be enforced if they are either procedurally or substantively unconscionable. Walters v. A.A.A. Waterproofing, ___ Wn. App. ___, 85 P.3d 389, 393 (2004). To date, Washington courts have invalidated very few arbitration agreements on
grounds of unconscionability. It is possible that a court could find a
nursing home contract arbitration agreement to be unconscionable,
but it is unlikely to do so unless the agreement is exceedingly onesided or the resident lacked all meaningful choice before entering into
the contract.1
Possible grounds for substantive unconscionability include one-sided
or “shockingly harsh” contracts, although no modern Washington
court has found an arbitration agreement to be invalid for those specific reasons. Nelson v. McGoldrick, 127 Wn.2d 124, 131, 896 P.2d
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proceedings and in fact encourages using “the least formal means available to try to resolve … dispute[s].” RCW 74.34.200(2).
B. Lack of Consideration
Since Washington courts have not heard any cases about nursing
home arbitration agreements, the issue of Medicaid/Medicare consideration has obviously not been raised. However, one court has faced
a consideration-based claim and found that the arbitration clause was
not void for lack of mutual consideration.
If the Federal Arbitration Act does not apply, a court in a nursing
home arbitration dispute could face a claim that the arbitration clause
is against public policy. Although Washington courts favor arbitration
of disputes, “contract law still provides that ‘parties to a contract may
determine the specific terms of the agreement, but the contract provisions are subject to limitation and invalidation if they contravene
public policy.’” Tjart, 107 Wn. App. at 901. The test for contravening
public policy is whether the provisions are against public good, tend
to do evil, or are injurious to the public. Id. at 899. Washington courts
analyzing arbitration clauses have found some clauses to be against
public policy. See, e.g., Young v. Ferrellgas, L.P., 106 Wn. App. 524, 21
P.3d 334 (2001) (holding that public policy against wrongful discharge
outweighs public policy favoring arbitration and that “”[a]llowing an
employment contract arbitration provision to replace this statutory
cause of action would thwart public policy guaranteeing fair wages”).
But see Walters, 85 P.3d at 394 (stating that statutory right of seeking
overtime pay was not “given up” since it could still be raised in arbitration proceedings). In order to prevail on a claim that an arbitration
is against public policy, the plaintiff must show that she gave up her
substantive statutory rights or that enforcing the provision would be
against Washington public policy. Tjart, 107 Wn. App. at 901.
In Walters, the plaintiff claimed that the arbitration clause was invalid due to a lack of mutual consideration. 85 P.3d at 392. The court
disagreed, citing a number of non-Washington cases to the contrary
and stating that
where the contract as a whole is otherwise supported by consideration on both
sides, most courts have not ruled the arbitration clause invalid for lack of mutuality,
even when the clause compelled one party to submit all disputes to arbitration but
allowed the other party the choice of pursuing arbitration or litigation in the
courts.
Id. Despite the body of case law supporting the court’s statement,
the court still added that since Walters was not forced into arbitration
exclusively and that A.A.A. Waterproofing did not have complete
choice as to the arbitrable forum, the agreement was valid. Id. It is
hard to determine whether a court hearing the Medicaid/lack of consideration argument would follow the Walters court, since the issue
of Medicaid involves federal statutory rights. If all other jurisdictions
reject the Medicaid/consideration argument, it is likely that Washington will follow suit.
If a court does find that nursing home contracts fall under interstate commerce and applies the Federal Arbitration Act, it will likely
enforce the contract so long as there are no unconscionability claims.
Even if the contract does not affect interstate commerce, however, it
is still very likely that the court will enforce it under Washington law
as long as the arbitration provision does not require the resident to
give up any substantive statutory rights or fail other contractual defenses.
C. Federal Arbitration Act
It is unclear whether Washington courts would find nursing home
contracts to affect interstate commerce and thus fall under the Federal Arbitration Act. Even if the Federal Arbitration Act does not
apply, however, written arbitration clauses are valid under Washington law as long as there are no “grounds as exist in law or equity for
the revocation of [the] agreement.” RCW 7.04.010.
CONCLUSION
Based on the available cases, it seems that courts are willing to uphold arbitration agreements so long as those agreements (i) are presented to the resident either on a separate page or in a distinctive font,
(ii) are explained to the resident with time for him to ask questions or
consult the advice of others, (iii) do not deny the resident of any
statutory rights or contain terms that otherwise “shock the conscience,”
and (iv) are not given to the resident on a take-it-or-leave it basis as a
requirement for admission.
A few cases have analyzed other types of contracts in terms of the
Federal Arbitration Act’s interstate commerce requirement. In Walters
v. A.A.A. Waterproofing, Inc., the court rejected the claim that an
employment contract for a local position did not affect interstate commerce because part of the employee’s responsibilities were to help the
company with its expansion efforts in other northwest states. 85 P.3d
at 392. In a case involving a condominium contract arbitration clause,
the court found that the Federal Arbitration Act did not apply, even
though one buyer was from out of state and another transferred funding from another state. Marina Cove Condo. Owners Ass’n v. Isabella
Estates, 109 Wn. App. 230, 244 34 P.3d 870 (2001). Since the interstate connection was “negligible” and the Federal Arbitration Act did
not preempt state law, the court instead applied the Washington Condominium Act which prohibits the waiver of judicial proceedings for
any statutory obligation under the act. Id. A similar argument would
probably not succeed in the nursing home context. Unlike the Washington Condominium Act, the Washington Abuse of Vulnerable Adults
Statute, RCW 74.34 et seq., does not prohibit the waiver of judicial
There have been no cases that have struck down arbitration clauses
in admissions contracts because the resident’s care was covered by
Medicaid or Medicare, although that issue has been raised frequently
across the jurisdictions. It is unclear whether another court in a different jurisdiction might find an arbitration clause in a Medicaid or Medicare resident’s admission contract void for lack of consideration.
It is also unclear whether a jurisdiction will apply the Federal Arbitration Act or a state statute when analyzing the validity of the clause.
If the court holds that the nursing home contract affects interstate
commerce, the Federal Arbitration Act supersedes the related state
6
Barbara J. Duffy is a partner in the Seattle office of Lane Powell
Spears Lubersky LLP. Barb is the Chair of the Long-term Care Practice
Group and focuses her trial practice on class actions and complex
commercial disputes. Barbara can be reached at 206.223.7944 or at
duffyb@lanepowell.com
law and the presumption is strongly in favor of arbitration. If, however, the court follows the lead of the South Carolina Supreme Court
in Timms and finds that nursing home contracts do not affect interstate commerce, the contract will be subject to the state law instead.
If a state law severely regulates or prohibits the use of arbitration
clauses, the court may invalidate even those arbitration clauses that
conform to the criteria presented above.
Linda Blohm Clapham is a partner in the Seattle office of Lane
Powell Spears Lubersky LLP. She is a member of the Firm’s appellate
practice group. For more than ten years Linda has focused on appellate
related matters. Linda can be reached at 206.223.7962 or at
claphaml@lanepowell.com
1
The author is aware of a situation in Washington where the Washington
State Department of Social and Health Services has taken the position with
an assisted living facility that the operator was prohibited from including an
arbitration clause in it's resident agreement even where it was not presented
as a “take it or leave it” proposition. The Department was apparently relying
upon a State administrative code prohibiting a provider from requesting that
a resident “waive any rights.” The Department seemingly takes the position
that agreeing to arbitration is a waiver of a jury trial.
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YOUR
PACIFIC NORTHWEST
LAW FIRM R
The article was researched with invaluable assistance from Kari
Rosenthal Annand, a Summer Associate in the Seattle office of Lane
Powell Spears Lubersky LLP. She attends Stanford Law School and
will graduate in 2006.
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