Nursing Home Arbitration Clauses

Meaningful Agreement?*

Three patients—Van Buren Adams, Olive Clark and Joe Paul Wellner—died while residents of Kentucky nursing homes or rehabilitation centers. Before they were admitted to one of the facilities, each patient designated a family member as his or her attorney-in-fact, authorizing the family member to make decisions on his or her behalf. At the time of their admissions, each attorney-in-fact signed on the resident’s behalf a document agreeing to resolve any disputes in private arbitration rather than in court. After the patients’ deaths, however, each attorney-in-fact sued the facilities for negligence, statutory violations, and wrongful death. Each facility argued that the documents signed at the time of admission required the case to be resolved through arbitration. See Kindred Nursing Centers Limited Partnership v. Clark, 137 S.Ct. 368 (2016).

Pre-dispute arbitration clauses are a popular tool for companies desiring to limit their liability in court. Under the Federal Arbitration Act (“FAA”) these clauses are “valid, irrevocable, and enforceable.” 9 U.S.C. § 2 (2016). In Southland Corp. v. Keating, 465 U.S. 1 (1984), the U.S. Supreme Court interpreted the FAA as articulating a strong federal policy favoring the arbitration of disputes. Subsequent U.S. Supreme Court decisions have continued to express this view, with the Court routinely upholding pre-dispute arbitration agreements. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), for example, the Court demonstrated the reach of arbitration agreements by holding that statutory claims may be subject to binding pre-dispute arbitration agreements. In 14 Penn Plaza v. Pyett, 556 U.S. 247 (2009) the Court reiterated the stance it took in Gilmer by finding that the Age Discrimination in Employment Act (“ADEA”) does not preclude arbitrating claims brought under the ADEA statute. Additionally, in CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012), the Court held that a compulsory arbitration clause in a credit card agreement was enforceable under the FAA. The Court spoke of the “liberal federal policy favoring arbitration agreements,” and stated that the FAA requires courts to enforce arbitration agreements unless “the FAA’s mandate has been overridden by a contrary congressional command.” Id. at 97–98.

In AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the Court held that a rule prohibiting companies from including class action arbitration waivers in their contracts was preempted by the FAA and therefore invalid. The Court noted that when state law wholly prohibits arbitrating a particular claim, the FAA preempts that conflicting state law. Id. at 334. The reach of the FAA, however, goes further. The Court stated that “[a]lthough §2’s saving clause preserves generally applicable contract defenses, it does not suggest an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.” Id. Those objectives include the ability to enforce arbitration agreements to facilitate a more streamlined, efficient adjudication process. Finally, the Court reinforced its favorable treatment of arbitration clauses in Marmet Health Center, Inc. v. Brown, 565 U.S. 530, 533 (2012), when it held that West Virginia’s ban of mandatory pre-dispute arbitration agreements for personal-injury or wrongful-death claims against nursing homes is a categorical ban against arbitrating a particular type of claim, which is prohibited by the FAA. The Court noted that the FAA makes no exception for personal-injury or wrongful-death claims. Id.

Despite these rulings, the Kentucky trial courts denied the nursing homes’ motions to dismiss the lawsuits and compel arbitration; the facilities appealed. The Kentucky Supreme Court held that they would not infer delegation of power—to an attorney-in-fact—to waive the right to trial “without a clear and convincing manifestation of the principal’s intention to do so.” Finding that none of the power-of-attorney documents involved in these cases demonstrated clear intent to allow the attorney-in-fact to agree to pre-dispute arbitration, the court concluded that the arbitration agreements were not validly formed. Extendicare Homes, Inc. v. Whisman, 478 S.W.3d. 306 (Ky. 2016). The facilities appealed to the U.S. Supreme Court and the Court agreed to hear the case. See Kindred Nursing Centers Limited Partnership v. Clark, 137 S.Ct. 368 (2016).

The U.S. Supreme Court heard oral arguments for this case on February 22. During the oral argument the respondents argued that there was “an absence of authority of the signator to this arbitration agreement,” and that therefore the contract should be revoked. Transcript of Oral Argument at 37–39, Kindred Nursing Centers Limited Partnership v. Clark, 137 S.Ct. 368 (2016) (No. 16–32). On the contrary, the petitioners argued that the Kentucky Supreme Court’s ruling would put arbitration contracts at a disadvantage compared to other contracts. The Supreme Court Justices used the questions to explore issues on both sides of the argument. Justice Alito raised the context within which these disputes arise, noting that this case is not about arbitrating a dispute regarding charges on a cable bill but instead “involves a situation where an elderly person needs care.” Id. at 9. In addition, Chief Justice Roberts probed whether the Kentucky Supreme Court “single[d] out arbitration” as the petitioners suggested, exploring whether the issue of the validity of power of attorney waivers just happened to come up in the context of an arbitration agreement. Id. at 43.

While there was hesitation by some justices to agree with the petitioners, there were also strong opinions in favor of the petitioners’ arguments. For example, Justice Breyer was “highly suspicious” of the State of Kentucky and suggested that the State simply does not like the federal laws regarding arbitration and therefore will not follow them. Id. at 23. Justice Breyer posed multiple hypotheticals during the oral argument—hypotheticals that attempted to explore the difference between the waiver of the right to a jury and the waiver of any other fundamental rights—that signaled his belief that the Kentucky Supreme Court decision discriminates against arbitration agreements. In addition, Justice Ginsburg communicated her concern that ruling in favor of the petitioners could make an arbitration agreement more difficult to form than other agreements, violating the FAA and discriminating against arbitration agreements. Id. at 35–36. These concerns and the Court’s longstanding support for arbitration may signal significant challenges ahead for the Kentucky Supreme Court’s decision.

In a parallel development, a Center for Medicare and Medicaid Services (“CMS”) rule banning the use of compulsory pre-dispute arbitration agreements in nursing home contracts was set to go into effect in November 2016. 81 C.F.R. § 483.70(n)(1) (2016). CMS passed this regulation because the agency believes it is “fundamentally unfair” and “is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen.” See American Health Care Association v. Burwell, No. 3:16–CV–00233, 2016 WL 6585295, at *2 (N.D. Miss. Nov. 7, 2016). A federal judge, however, granted a preliminary injunction delaying implementation of the rule while challenges to the rule’s validity are resolved. Id. at *39–40. Among other things, the Court stated that in order for CMS to defend its regulation banning all pre-dispute nursing home arbitration it must prove that nursing home arbitration negatively impacts the residents’ “health, safety, and welfare.” Id. at *27. The court noted the unique issues surrounding mental competency that can attend agreements to arbitrate in the nursing home context but found that CMS had not focused on this question or relied on sufficient evidence to “support using this issue as a basis for an effective ban on nursing home arbitration contracts.” Id. at *17–18. Accordingly, the judge temporarily halted the CMS rule from taking effect.

Consumer arbitration raises many hotly contested issues, with the validity of arbitration clauses in nursing home contracts being only one example. The pending case and CMS rule raise the general issue of consumer contracts that require arbitration and the ability of consumers to understand and meaningfully consent to waiving their right to raise claims in court. Consumer arbitration mandates also raise specific questions about how these issues affect the people admitted to nursing homes and other long-term care facilities—people who may be sick, disabled or dependent, and making decisions under significant stress. Other concerns raised by the CMS rule include unequal bargaining power, the potential for coercion, the possibility of inadequate explanation of the nature and consequences of the agreement, and the inherent conflict of interest in the facility providing such explanations. Given the 1.4 million residents of nursing homes in the U.S. (National Center for Health Statistics, 2014), dispute resolution processes and procedures for ensuring the appropriate waiver of rights in this context have the potential for widespread impact. Many of the issues raised would be usefully informed by social science research comparing litigation and arbitration and exploring the contractual decision making and expectations of those admitted to long-term care and their attorneys-in-fact. A better understanding of these decision-making processes will increase the ability of courts and policy makers to analyze the impacts of the law in this area.

* This blog post is adapted from Katherine Kargl & Jennifer K. Robbennolt, Should Families Be Able to Sue Nursing Homes?, Monitor on Psychol., March 2017, at 36.

** J.D. Candidate, 2017, University of Illinois College of Law.

*** J.D., Ph.D. Jennifer Robbennolt, is the Associate Dean for Research, the Alice Curtis Campbell Professor of Law, Professor of Psychology, and Co-Director of the Illinois Program on Law, Behavior and Social Science at the University of Illinois College of Law. Professor Robbennolt’s research integrates psychological theory and methods into the study of law and legal institutions, particularly in the areas of torts and dispute resolution.