Theresa L. Concepcion
Today, nearly every nursing home dispute in Pennsylvania, and the rest of the United States, involves either an optional or mandatory predispute arbitration agreement. Although some states have resisted enforcing predispute personal injury arbitration agreements, the U.S. Supreme Court, in Marmet Health Care Center v. Brown, 565 U.S. ___ (2012) (per curiam), rejected such efforts and recently overturned a West Virginia Supreme Court of Appeals decision that "held unenforceable [as a matter of state public policy] all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against nursing homes." In vacating the decision in Marmet, the Supreme Court held that the Federal Arbitration Act "reflects an emphatic federal policy in favor of arbitral dispute resolution," and "when state law prohibits outright the arbitration of a particular type of claim ... the conflicting rule is displaced by the FAA." Thus, the court held that a carte blanche "prohibition against predispute agreements to arbitrate personal-injury or wrongful-death claims against nursing homes" could not stand.
Despite the strong public policy in favor of enforcing predispute nursing home arbitration agreements, the question remains: Is the arbitration agreement still enforceable if the selected arbitration forum is unavailable? The answer hinges on whether or not the unavailable arbitrator can be replaced.
Section 5 of the FAA provides that when the designated arbitration forum is unavailable, the court may appoint an alternate arbitrator. Courts, however, have held that an alternate may only be appointed if the selected arbitration forum was not "integral" to the agreement. The question of whether a selected arbitration forum is integral has caused a split in federal courts. For example, district courts in Washington, New Jersey and Texas have found the selection of a forum integral to arbitration agreements, while courts in Michigan, South Dakota and Georgia have found that clauses selecting an arbitration forum can be severed. In holding that the unavailability of a designated forum renders arbitration agreements unenforceable, federal courts have weighed factors including contract language, the incorporation of a forum's rules and procedures into the agreement, and the absence of an alternate forum chosen by the parties. Pennsylvania courts have also applied those factors and have fallen on the side of finding that the designated forum is integral to the arbitration agreement.
Challenges to predispute nursing home arbitration agreements typically arise when the American Arbitration Association and the National Arbitration Forum are the designated forums. Although the AAA and the NAF are frequently selected in nursing home arbitration agreements, their lingering popularity is something of a mystery. By its own directive, issued in 2003, the AAA has been unavailable to arbitrate individual patient health care claims absent a post-injury agreement to arbitrate. (See www.adr.org/aaa/ShowPDF?doc=ADRSTG_011014.) Similarly, the NAF has been unavailable to arbitrate a vast array of disputes in areas including health care, pursuant to a consent decree it entered with the attorney general of Minnesota in 2009. (See pubcit.typepad.com/files/nafconsentdecree.pdf.) Both forums have been at issue in recent Pennsylvania cases.
The Philadelphia Court of Common Pleas tackled the AAA's unavailability in Ludmerer v. Nazarian, 2011 Phila. Ct. Com. Pl. LEXIS 284 (Sept. 12, 2011). That case involved medical malpractice claims where all plaintiffs had signed pretreatment arbitration agreements, which provided that the arbitrations would abide by the AAA "Health Care Claims Arbitration Rules." The Court of Common Pleas noted that (1) there were no rules titled "Health Care Claims Arbitration Rules," (2) the arbitrations would be bound by the Commercial Arbitration Rules and Mediation Procedures, and (3) the AAA had issued a health care policy statement in 2003 saying it would no longer "accept the administration of cases involving individual patients without a post-dispute agreement to arbitrate." In finding that the arbitration agreements were unenforceable, the court held that "an essential term of the agreements has failed, and thus the agreements cannot be enforced ... [because] AAA actually has a policy of only accepting such claims where there has been a post-dispute agreement."
In reaching its decision, the Ludmerer court relied upon the Superior Court's holding in Stewart v. GGNSC-Canonsburg, 9 A.3d 215 (Pa. Super. Ct. 2010), which is the leading Pennsylvania case on this issue. In Stewart, the plaintiff sued a nursing home, claiming the nursing home was negligent in its care of the plaintiff resident. Although the NAF was unavailable as a forum, the arbitration agreement stated the dispute "shall be resolved exclusively by binding arbitration in accordance with the [NAF] Code of Procedure." The plaintiff sought to have the arbitration agreement declared unenforceable and the defendants relied upon the agreement's severability clause, which provided that any sections of the agreement that were deemed unenforceable could be excised and the remaining provisions could survive. The court found that the entire arbitration agreement was unenforceable because the selection of the NAF was integral and could not be severed.
The Stewart court acknowledged that the agreement was governed by Section 5 of the FAA and began its analysis with the premise that "an arbitration agreement will not fail because of the unavailability of a chosen arbitrator unless the parties' choice of forum is an 'integral part' of the agreement to arbitrate, rather than 'an ancillary logistical concern.'"
Significantly, although the court acknowledged that some federal courts find the presence of a severance clause to be proof that the forum selected is ancillary, it held that it is a "cardinal contract principle" to "view the plain language of the agreement as the principal evidence of the parties' intent as to whether the NAF and the NAF Code were an integral part of the agreement." The court found that replacing the NAF with another institution, when there was an "express statement" designating the NAF as the arbitrator in the agreement, would "run contrary to the clear intent of the parties," as it would force the court to "rewrite an arbitration agreement and insert additional terms to replace an unenforceable provision that was integral to the agreement."
Section 2 of the FAA provides that arbitration agreements "shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Thus, the Stewart court's application of general contract principles to the arbitration agreement is in accordance with the FAA as well as numerous federal decisions on the issue.
Indeed, federal courts have held that "in order to determine whether the designation of the NAF as the sole arbitration forum is an integral part of the arbitration agreement, 'the court must employ the rules of contract construction to determine the intent of the parties.'" (See Ranzy v. Tijerina, 393 Fed. Appx. 174, 175 (5th Cir. 2010) (per curiam).) Applying those rules, the Ranzy court affirmed the district court's determination that the "'mandatory, not permissive' plain language of the arbitration provision 'evinces a specific intent of the parties to arbitrate before [the specified forum].'" In Ranzy, the court found the use of the word "shall" dispositive, and determined that the "parties explicitly agreed that the NAF shall be the exclusive forum for arbitrating disputes." Furthermore, the Ranzy court held that "where the parties' agreement specifies that the laws and procedures of a particular forum shall govern any arbitration between them, that forum-selection clause is an important part of the arbitration agreement."
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