COLUMN: Who’s Afraid of the Arbitration Clause

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Based upon a medical power of attorney (MPOA) giving him the authority to make health care decisions for her, Walter signed the papers to admit his mother into a nursing home in Tennessee. Walter paid little attention to the “Binding Arbitration” clause in the contract. Two years later, Walter sued the nursing home, asserting that the death of his mother was due to the negligence of the nursing home. Walter demanded monetary damages to compensate for the loss of his mother and requested a jury trial.

The nursing home demanded that the court compel Walter to submit his claims to arbitration instead, claiming he had agreed to that in signing the contract of admission.

What is Arbitration?

Arbitration is a process whereby a dispute is presented to one or more third parties to resolve rather than through a court of law. The third parties or arbitrators deciding the case are presumably independent and unbiased. Arbitration deprives a person of the right to a trial by a court or a jury because the decision in arbitration is generally final and binding.

What’s to be Afraid of?

First of all, whether the persons on the arbitration panel are neutral and independent can be questionable. Walter learned that the panel that would hear his case consisted of professional arbitrators the nursing home had used to handle multiple disputes. Walter was justifiably concerned that the panel members might lean toward the nursing home, afraid if they found against it, they would not get repeat business. Alternatively, Walter represented a one-time customer for the arbitrators.

Studies do bear out that consumers win less often through the arbitration process. When they do win, they tend to be awarded less money than plaintiffs in similar cases tried in the courts. Aon Global Risk Consulting analyzed 1,149 closed cases involving long-term care providers from 2003 to 2011. The study found that no money was awarded in 30% of claims settled by arbitration, as opposed to 19% with no money awarded in court cases. The study found that, while 12% of court cases resulted in awards of $250,000 or more, only 8.5% of arbitration cases resulted in awards of that amount or more.

Are There Advantages to Arbitration?

Arbitration does tend to provide a speedier resolution than do the courts. The attorneys’ fees involved also tend to be less. However, some of these savings are wiped out because the parties have to split the cost of the arbitrator(s), which can be $400 to $1,000 per hour. Neither side is required to pay for the judge in a court case.

How to Avoid Arbitration

The simplest way to avoid arbitration is, upon becoming aware an arbitration clause is included in the admission, cross it out and initial the deletion before signing. This can be easier said than done, however. Had Walter refused to sign the arbitration clause, the nursing home might have refused to admit his mother. Given the alleged negligence that occurred later, perhaps, that would have been for the best. But Walter would have had to find another facility that did not require his signing an arbitration agreement, one that additionally was willing to admit his mother.

In one case involving a nursing home in Walter’s state of Tennessee, the appellate court sent a case appealed to it back to the trial court to determine if the arbitration clause was “unconscionable.” A contract is considered unconscionable if it is so grossly unfair and one-sided that it should not be enforced.

If all the other nursing homes Walter could find also required signing an arbitration clause to permit entry, elder law attorneys would advise him to present to the nursing home, in writing, his objections to having to sign, noting that he was signing under duress in order to place his mother. Although this action would be no guarantee that he could avoid being compelled to submit to arbitration, it would present, at least, the argument that the arbitration clause is “unconscionable.” Courts tend to find an arbitration clause unconscionable if the party signing is put in a “take it or leave it” position.

Since 2006, when this type case began to show up around the country, Texas has had 6 law suits which involve nursing homes and arbitration clauses. Mississippi has had the same number but Tennessee, where Walter faced the arbitration dilemma, has had 10. California and Kentucky had 4; Alabama, Colorado and Virginia, 3; Pennsylvania, Missouri, Georgia and North Carolina, 2 and New Jersey, Maryland, Connecticut, West Virginia, Massachusetts, Arizona and South Carolina had 1 each.

Expect More Arbitration Clauses in Admission Contracts in the Near Future

Under the Texas Civil Practice and Remedies Code, health care providers had been required to include a notice with arbitration clauses that the agreement was not valid unless reviewed prior to signing by the signer’s private attorney. This requirement had a chilling effect on the use of arbitration clauses in Texas, resulting in most facilities not including them in admission contracts. However, the case of Fredericksburg Care Company v Perez, decided in March this year will likely change that. The Texas Supreme Court found that, because the health care facility involved accepted Medicare, the Federal Arbitration Act pre-empted the Texas statute, making the notice requirement unlawful. Based on this case, expect arbitration clauses to return. Those signing admissions contracts to nursing homes will once again have to fear the big bad wolf of binding arbitration. They may have to rely upon showing that the clause was unconscionable under the circumstances to avoid of enforcement of these clauses.