Articles Posted in Arbitration

If you have ever read a contract closely, there is frequently a clause included that compels the parties signing the contract to arbitrate, rather than litigate, if a dispute arises. These clauses are most commonly known as arbitration clauses and are often included in all kinds of contracts because arbitration is often less costly and more expedient than a traditional lawsuit when it comes to dispute resolution. The inclusion of an arbitration clause in a contract, however, does not automatically mean it is valid and enforceable. In fact, sometimes, if the terms of the arbitration clause are particularly unfair, the court could determine that the arbitration agreement is unenforceable and invalid.

According to a recent state court opinion, some arbitration clauses contained in nursing home residency agreements may be unenforceable because of unfair terms. The court noted, however, that if the unfair terms are severable, or removable, from the agreement, the arbitration clause could still be enforced. To succeed on a claim that an agreement is unconscionable, or unfair, there must be a showing that the contract was made under deceptive or confusing circumstances for one party so that bargaining power was limited, and if the terms of the contract itself are significantly unfair to one party.

In the case at hand, several terms in the arbitration agreement were deemed “undoubtedly unconscionable” by the court. The unjust terms included a waiver of attorneys’ fees and costs, an inability to appeal, a limitation on discovery, a one-sided arbitration obligation, and a confidentiality provision.

Although much of nursing home regulation and action happens at the state level across the country, federal regulations also often impact the day-to-day operations and quality of care that our seniors receive in long-term care facilities. If you have a loved one living in a nursing home facility, it is always important to keep up to date with recent developments both at the state and federal level so that you can best protect your family members and advocate on their behalf if necessary.

According to a recent news report, the 8th Circuit Court of Appeals approved of a federal regulation that allows nursing homes to use arbitration agreements with residents but prevents them from making the agreements a prerequisite for admission to the facility. In its opinion, the three-judge panel rejected arguments from a group of nursing homes that claimed that the regulation was unlawful.

In its opinion, the court concluded that it was reasonable for the Centers for Medicare & Medicaid Services (CMS)—the federal agency that promulgated the regulation—to regulate the use of arbitration agreements in nursing homes. The regulation, the court reasoned, would further the well-being and overall health and safety of residents, especially when the elderly individual is first admitted into the facility.

The U.S. House of Representatives recently introduced the Forced Arbitration Injustice Repeal Act, known as the FAIR Act, that would limit private arbitration agreements. The Act as proposed would prohibit companies from requiring workers and consumers to resolve legal disputes through arbitration. Proponents of the Act claim that forcing arbitration tricks consumers into agreeing to arbitration by using fine-print arbitration clauses and deprives them of their right to seek damages in court from a jury. The proposed legislation would include a ban on forced arbitration agreements for residents in Maryland nursing homes by prohibiting pre-dispute arbitration agreements in long-term care facility admission contracts. The Act was previously introduced in 2019 but did not become law.

In October 2016, the Obama administration banned the use of pre-dispute arbitration agreements in long-term care settings. However, a judge struck down the ban and prevented it from being enforced. The Trump administration later issued a new rule, which went into effect in September 2019. That rule reversed the previous ban on pre-dispute arbitration agreements in nursing facilities but required certain conditions to be met. The recently introduced legislation seeks to address the issue once again.

What Is Arbitration?

Nursing home abuse and neglect is, unfortunately, a rampant problem in Maryland and across the nation. While Maryland state law, recognizing this problem, allows individuals whose loved ones are injured by instances of nursing home abuse and neglect to file a civil negligence lawsuit against the negligent staff or home, many Maryland families may be unwittingly signing away this right. This is because nursing homes may often ask residents or their families to sign an arbitration agreement when the resident moves in. But Maryland residents should always read the fine print of these agreements very carefully and, generally, should avoid signing these arbitration agreements.

Arbitration agreements are essentially contracts stating that if any dispute comes up between the individual and the nursing home, it must be settled through arbitration rather than through a civil negligence lawsuit. Basically, nursing home residents who sign these can be barred from pursuing their case in court. And in most cases, arbitration is not an adequate substitute for having a case heard in court. Arbitration processes do not include a jury, may cap damages to way below what is available in court, and may limit a family’s ability to access or provide evidence of the abuse and neglect their loved one faced. Arbitration is also binding, with very little opportunity to appeal.

Importantly, the arbitrator (the decision maker in the process) is usually chosen by the nursing home, giving them an incentive to decide in favor of the nursing home. Nursing homes tend to like arbitration agreements for all of these reasons, as well as the fact that arbitration processes are covered by strict confidentiality rules, meaning that the nursing home’s abuse and neglect will stay hidden from the public. In contrast, filing a lawsuit against a nursing home provides plaintiffs with all the rights given to them by law, which may include the availability of larger monetary damages, a jury trial, access to more evidence regarding the abuse and neglect, and an impartial decision maker.

As arbitration agreements have become routine in many nursing facilities, questions may arise after ownership of the facility has been changed. Like other agreements, Maryland nursing home arbitration agreements can generally be assigned. An assignment of an agreement allows the assignee to “stand in the shoes” of the original party to the contract by granting all the rights the assignor previously had under the agreement.

A recent federal court decision considered whether an arbitration agreement could be enforced against residents after the facility had been transferred to new owners and new agreements had been signed. The case raised issues about when an arbitration agreement is properly assigned and transferred.

In that case, two residents entered a nursing facility in 2019. In April 2019, one resident entered the facility and signed numerous admission documents, including an arbitration agreement, though the agreement was not a condition of admission. The arbitration agreement stated that all claims relating to the resident’s stay were required to be decided through arbitration. In August 2019, the second resident was admitted and signed the same admission documents. In February 2020, the facility was sold and transfer to a new entity. A transfer agreement assigned the new entity as the assignee for certain agreements.

When Joe Biden is sworn into the office of the President of the United States, there are going to be some major changes. Indeed, he and President Trump clashed on many of the most important issues facing the country. However, one very important issue that got relatively little attention was how a Biden administration might impact Maryland nursing home arbitration agreements.

Arbitration is a way for litigants to settle a claim out-of-court. Instead of filing a case in court and letting a judge or jury decide the outcome, in arbitration, a neutral arbitrator hears the evidence and issues a binding decision. While this may seem good in theory, it often works in favor of nursing homes, who get to choose the forum and are intimately familiar with the rules of arbitration. Additionally, there are generally very few ways to appeal an arbitrator’s decision, limiting a resident’s ability to obtain any form of judicial review. For these reasons, and others, many nursing home residents end up at a major disadvantage when they are forced to arbitrate their claims.

During the Obama administration, the Centers for Medicare and Medicaid Services precluded nursing homes from asking residents to sign pre-admission arbitration contracts. The reasoning behind this was that nursing home residents and their families may not be in a position to negotiate the terms of the agreement, and would likely just accept them, even if they are against their interest.

Arbitration is a process in which the parties agree to have a private arbitrator decide the case instead of having the case decided by a court. Although arbitration has some advantages, it can put Maryland nursing home residents at a great disadvantage in many instances. For residents that agree to arbitration as part of their admission paperwork, arbitration agreements can be difficult to get out of—in part because the Maryland Uniform Arbitration Act provides that arbitration agreements are favored.

But there are successful challenges to arbitration. For one, the parties must consent to the arbitration. Consent to arbitration in the nursing home context generally occurs by signing an arbitration agreement as part of an agreement to be admitted to the facility. Because both parties must consent, in some cases, an arbitration agreement is not valid or enforceable because the resident (against whom the agreement is often enforced) did not sign the agreement. For example, a family member may have signed the agreement who did not have the authority to sign on the resident’s behalf.

Agreements may also be unenforceable because they are unconscionable. The language may be unclear or hidden, and unreasonably favorable to one party, leaving the other party with no choice but to accept. Under these circumstances, an agreement may also be unenforceable.

Generally, an arbitration agreement, like any other contract, can be enforced against the parties to the agreement. Yet, Maryland nursing home admission agreements (which may include arbitration agreements) are sometimes signed by someone other than the resident. This raises the question of whether the agreement can be enforced against the resident when someone else signed the agreement. If an arbitration agreement was signed, nursing homes will almost always argue that the case must be resolved through arbitration—but the agreement may not always be enforceable. Both parties to the agreement must voluntarily agree and consent to the arbitration. Under Maryland law, someone who purportedly signs an agreement on a nursing home resident’s behalf must have the legal authority to do so.

In a recent state court appellate opinion, the court held that a nursing home resident’s daughter did not have the authority to sign on her mother’s behalf when she was admitted to the facility. In that case, the mother was 77 years old and suffering from dementia and other medical problems when she was admitted to the facility. The daughter and her husband were appointed temporary conservators of the mother before she was admitted to the facility and they signed the paperwork when she was admitted. Among other admission paperwork, the daughter signed an arbitration agreement, and her husband signed underneath the daughter’s name. The mother did not sign the document. Soon after she was admitted she allegedly suffered injuries including fractures and bruises and she passed away a few months later. The plaintiffs filed suit against a senior living facility for negligence, elder abuse and neglect, and wrongful death.

The facility argued that the case was required to be moved to arbitration based on the arbitration agreement the daughter had signed when the mother was admitted. However, the appeals court found that there was not sufficient evidence to show that when the daughter signed the document, she had the authority to bind the mother to the arbitration agreement. The court found that although the daughter and her husband were temporary conservators, and they did not have the authority to make long-term decisions that gave up substantial rights without her consent or without an adjudication that she lacked capacity. In addition, because there was no evidence presented indicating that they intended to sign the agreement on their own behalf, it could not be enforced against them. Therefore, arbitration could not be compelled.