Arbitration in nursing home cases: trends, issues, and a glance into the future.

• Author: Bates, Reed R.

ALTHOUGH COURTS have a long history of addressing arbitration agreements in business and consumer transactions, the concept of arbitration in nursing home cases is a relatively recent development that has become a hotly contested area of law. (1) Unique legal issues are raised by the use of arbitration agreements by long term care providers, and these issues have been increasingly litigated. This article summarizes common arguments raised in opposition to arbitration in nursing home cases and trends among courts throughout the United States with respect to enforcement of arbitration agreements in nursing home cases, considers the impact of FAA Section Four Complaints to Compel Arbitration, and provides a glance into the future of arbitration in nursing home cases, including potential federal legislative changes to curtail arbitration.

1. Common Arguments Asserted To Avoid Arbitration

   A party moving to compel arbitration has the initial burden of establishing (1) the existence of a valid arbitration agreement, (2) involving interstate commerce. (2) After this burden is satisfied by the moving party, the burden shifts to the party opposing arbitration to establish the absence of a valid or enforceable agreement to arbitrate. (3)

   Plaintiffs commonly oppose efforts to pursue arbitration in nursing home cases based upon the following grounds:

   1. Signatory Issues

      Signatory issues are the most common issues litigated throughout the country. Nursing homes routinely require admission documents, including arbitration agreements, to be signed by a resident or a representative acting on behalf of the resident. Because many residents are elderly and have other individuals acting on their behalf during the admission process, plaintiffs often dispute the enforceability of arbitration agreements executed under these circumstances.

      Common signatory issues raised by plaintiffs include (1) the resident did not sign the agreement, (2) the resident lacked capacity to contract, i.e., was not competent to sign the agreement, (3) the representative who signed agreement on behalf of the resident lacked authority (legal, express, implied, or apparent) to sign on behalf of the resident, and (4) the purported signature of the resident and/or representative was fraudulently executed.

      1. Capacity Arguments

         Defendants frequently respond to claims of capacity by asserting that the resident has never been declared legally incompetent and, therefore, had sufficient mental capacity to contract regardless of whether the resident suffered from any mental deficits. The law in many states supports this argument, providing that a party is presumed sane, fully competent and capable of understanding the nature and effect of his or her contracts. (4) Accordingly, the party seeking to invalidate a contract on grounds of mental incompetence bears the burden of proving the alleged incompetence.

      2. Authority Arguments

         Defendants respond to claims of lack of authority by asserting that the resident's representative had (a) legal and/or express authority to sign the arbitration agreement on behalf of the resident based upon a power of attorney, other legal documents, or certain statutory authorities, or (b) apparent and/or implied authority to execute the agreement on behalf of the resident.

         A resident may grant express or actual authority to act on his or her behalf pursuant to verbal express authority, power of attorney ("POA"), durable power of attorney ("DPOA"), or court appointment as guardian or conservator for the resident. Courts have frequently held arbitration agreements enforceable when executed by such individuals acting on behalf of the resident. (5) However, some courts have held arbitration agreements unenforceable even when executed by the POA or DPOA based upon case specific fact scenarios. (6)

         State surrogacy statutes may also grant express or actual authority to certain family members to make health care decisions on behalf of a family member. Courts from certain jurisdictions have held that surrogacy statutes vest a family member with express or actual authority to enter into a binding arbitration agreement on behalf of a resident, (7) but other courts have refused to hold arbitration agreements enforceable on the basis of surrogacy statutes. (8)

         Defendants also argue that the individual who executed the arbitration agreement had apparent or implied authority to act on behalf of the resident, evidenced by holding himself or herself out as someone with authority to make health care decisions for the resident. Several courts around the country have addressed this issue and have held arbitration agreements enforceable on the basis of apparent/implied authority. (9) Other courts have refused to enforce arbitration agreements on the basis of apparent/implied authority. (10) Courts refusing to apply this doctrine have often done so on grounds that the scope of the alleged apparent authority did not extend to executing arbitration agreements and situations where the resident suffered from severe mental deficits upon admission to the nursing home. (11)

      3. Other Arguments to Compel Arbitration

         Defendants also argue that the resident becomes a third party beneficiary to the agreement signed by the representative on behalf of the resident, and the plaintiff is bound by the arbitration agreement based upon principles of ratification, waiver, and estoppel (e.g., the plaintiff's intentional and voluntary act of asserting a breach of contract claim on behalf of the resident, or the resident's estate, may be construed as waiver of right to deny existence of a valid agreement).

         Parties seeking to enforce an arbitration agreement on grounds the resident was a third party beneficiary of the agreement argue that the resident, pursuant to the arbitration agreement/other admission documents executed as part of the admissions process, enjoyed the benefit of becoming a resident of the facility and is, therefore, a third party beneficiary and bound by the arbitration agreement. Likewise, the resident's personal representative, who stands in the resident's shoes, cannot claim the benefits of the arbitration agreement by suing under it and simultaneously attempt to avoid arbitration of their claims. The third party beneficiary argument is most compelling when the arbitration provision is contained within the admission agreement as opposed to being a "stand alone" arbitration agreement. Courts around the country have enforced arbitration agreements on grounds the resident, a nonsignatory to the arbitration agreement, was an intended third party beneficiary of the agreement. (12)

         Estoppel, waiver, and ratification of the arbitration agreement by a resident, resident's family, or resident's "responsible party" may provide additional or alternative grounds to compel arbitration. In this regard, a party may be estopped from simultaneously claiming the benefits of a contract and repudiating the contract's burdens and conditions. Similarly, a non signatory can be estopped from refusing to comply with an arbitration clause if that party received a direct benefit from the contract. (13)

   2. Unconscionability

      Unconscionability is also a recurring argument asserted by plaintiffs in opposition to arbitration in nursing home cases. Many jurisdictions require a plaintiff to prove both "procedural" and "substantive" unconscionability to establish the defense of unconscionability. (14) In analyzing procedural unconscionability, courts look to the "bargaining power" of the parties. (15) Regarding substantive unconscionability, courts generally look to whether the terms of the agreement are "outrageously unfair." (16)

      When confronted with a challenge to an arbitration agreement based on unconscionability, courts may consider (1) the absence of meaningful choice on one party's part (e.g., all nursing homes in the same geographic area require arbitration agreements as a condition of admission to facility), (2) contractual terms that are unreasonably favorable to one party, (3) unequal bargaining power, and (4) whether the contract contains oppressive, one sided, or patently unfair terms.

      In addressing these factors, the party seeking to enforce the arbitration agreement may assert that (1) alternative nursing homes were available to the resident that did not require arbitration as a condition of admission; (17) (2) the nursing home has agreed to incur most/all administrative fees and costs associated with arbitration; (3) the nursing home staff closely reviewed and discussed the arbitration agreement with the resident and/or the representative prior to signing of the agreement; (4) the nursing home did not place any time constraints on the resident or the representative for reviewing the agreement prior to execution; (5) the arbitration agreement has a revocation period during which the resident or the representative could have revoked the agreement; (6) a recognized and unbiased arbitration forum is designated as the forum of choice in the agreement; (7) the arbitration agreement is not "hidden" and is conspicuous among admission documents; and (8) references to any other provisions of the agreement or facts and circumstances surrounding execution of the agreement that are indicative of the resident/ representative's meaningful choice, equal bargaining power, and overall "fair" terms of the agreement and circumstances under which the agreement was executed.

      Another creative unconscionability argument frequently proffered in opposition to arbitration is that the agreement to arbitrate constitutes "additional consideration" in violation of Medicare and Medicaid regulations. This argument is premised upon certain regulations stating that, when admitting residents entitled to assistance through Medicare or Medicaid, a facility must "not charge, solicit, accept, or receive, in addition to any amount otherwise required to be paid under the State plan ... any gift, money...