Justices: Courts can't enforce lopsided nursing home arbitration plans

By Steve Korris | Jul 1, 2011

Ketchum

Farrell

CHARLESTON – Courts can't enforce lopsided arbitration agreements in nursing home admission contracts, the Supreme Court of Appeals ruled on June 29.

The Justices reversed Kanawha Circuit judges Tod Kaufman and James Stucky, who dismissed wrongful death suits against Marmet Health Care Center.

Justice Menis Ketchum declared arbitration provisions in both cases unconscionable.

"The doctrine of unconscionability means that, because of an overall and gross imbalance, one sidedness, or lopsidedness in a contract, a court may be justified in refusing to enforce the contract as written," he wrote.

He defined admission documents as contracts of adhesion, drafted and imposed by a party of superior strength, with little or no opportunity to alter the terms.

"A contract of adhesion should receive greater scrutiny than a contract with bargained for terms," he wrote.

In the case before Kaufman, Clayton Brown blames Marmet Health Care Center's negligence for the death of brother Clarence Brown.

"The arbitration clause was not explained to plaintiff, he did not have an attorney present, and did not have any particularized legal or commercial experience when the agreement was signed," Ketchum wrote.

"Furthermore, we do not discern from the record that the plaintiff had any meaningful alternative other than to sign the admission agreement," he wrote.

He wrote that arbitration filing fees start at $975 and run to $8,700 for claims between $500,000 and $1 million.

He wrote, "We believe that these fees, in the context of an action for negligence by a nursing home, are an unconscionable bar to relief."

In the case before Stucky, Jeffrey Taylor blames Marmet Health Care Center's negligence for the death of Leo Taylor.

Leo's wife, Ellen Taylor, signed a 13 page contract of closely spaced type in small font.

It ended with a check list confirming that important terms were explained to and reviewed by the resident or a representative.

"This check list covers such elements as noting the resident has received information relating to beauty and barber services," Ketchum wrote.

"The list does not contain an entry indicating that the arbitration clause was explained, reviewed, or that Mrs. Taylor knew what rights were being waived," he wrote.

"Combined with Mrs. Taylor's lack of sophistication and advanced age, we believe that the circuit court erred in enforcing the arbitration clause in the admission agreement," he wrote.

The suits seek damages not only from the center but also from owner Genesis Health Care, many of its subsidiaries, and individual employees.

In a third case, from Harrison County, the Justices didn't decide unconscionability but left the decision to Circuit Judge James Matish.

In that case, Sharon Marchio blames negligence at Clarksburg Nursing and Rehabilitation Center for the death of Pauline Willett.

Matish asked the Justices to resolve a conflict between the Federal Arbitration Act of 1925 and West Virginia nursing home law that forbids waiver of the right to sue.

Matish thought federal law preempted state law, and the Justices agreed.

That would have counted as a defense victory, but the Justices didn't stop there.

Ketchum wrote that the Arbitration Act "does not favor or elevate arbitration agreements to a level of importance above all other contracts; it simply ensures that private agreements to arbitrate are enforced according to their terms."

He wrote that general contract defenses, such as waiver, fraud, and unconscionability, may apply to invalidate an arbitration agreement.

He stepped into the shoes of those admitting those they love to nursing homes.

He wrote, "The process of signing paperwork for medical care – specifically, a contract for admission to a nursing home – is often fraught with urgency, confusion, and stress."

He wrote, "People seek medical care in a nursing home for long term treatment to heal; they rarely view the admission process as an interstate commercial transaction with far reaching legal consequences."

He wrote, "A person's admission to a nursing home often follows a period of acute hospitalization."

He wrote, "The hospital, and not the person or the person's family, contacts area nursing homes to determine which nursing home facility has the sskills, equipment, and space to admit the person."

He wrote, "In the process, the hospital and nursing home discuss the person's medical condition and – in essence – initiate the process of admission to the nursing home without input or knowledge from the person or the person's family."

He wrote, "Medical records are transferred and arrangements are made to smooth the person's transfer to the nursing home, so that when the person arrives there is nothing more to be done than signing the nursing home's forms."

He wrote, "A person's 'decision' to enter a nursing home is, therefore, often made when the person's decision making abilities are seriously impaired."

Chief Justice Margaret Workman concurred, as did Justice Thomas McHugh and temporary Justice Philip Gaujot.

Justices Robin Davis and Brent Benjamin disqualified themselves.

The decision pleased a friend of the court, West Virginia Association for Justice, which challenged the arbitration clauses due to "profoundly different bargaining power."

"When one party literally holds the key to necessary medical care, the disparity in bargaining power rises, practically speaking, to the level of duress," WVAJ President Paul T. Farrell Jr. said.

The decision disappointed American Health Care Association, which argued as friend of the court that lawyers kept 55 percent of proceeds from nursing home litigation.

"Ultimately, the cost of nursing home litigation and increasing insurance expense for liability costs is borne by state and federal taxpayers," the association wrote.

West Virginia Health Care Association also pleaded for arbitration as friend of the court, arguing that arbitrators hear and decide claims under state law in the same manner as a civil judge and jury.

James McHugh, Michael Fuller, and Bryant Chaffin, all of Hattiesburg, Mississippi, represented Brown, along with Harry Deitzler of Charleston.

Andrew Paternostro and Jeff Stewart, both of Bell Law Firm in Charleston, represented Taylor.

Frank Simmerman and Chad Taylor, both of Clarksburg, represented Marchio.

Shawn George of Charleston represented Marmet Health Care Center.

Mark Robinson and Ryan Brown, both of Charleston, represented Clarksburg Nursing and Rehabilitation Center.

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