There is a civil war underway between the states and the federal courts over long-term care and health care policy. The Supreme Court, wielding the Supremacy Clause and a broad federal statute favoring arbitration, has the upper hand, but the states, armed with common law contract principles, are fighting to vindicate the rights of injured litigants to reach state courts.
And it all has nothing to do with the Affordable Care Act.
The battle centers over the sweeping scope of the Federal Arbitration Act (FAA) and state laws to permit litigants, aggrieved by nursing home failures, to seek redress in the state courts. As part of the enactment of a 1975 federal law, various states implemented new statutes designed to permit families of nursing home victims to seek tort-like relief. In many cases (New York included), states incorporated "anti-waiver" provisions in those statutes, which barred mandatory arbitration clauses or contractual waivers of the victim's right to seek redress in the courts. See e.g., N.Y. Pub. Health Law §2801-d(8). During the last five years, these claims under the Public Health Law have multiplied throughout the New York courts, resulting in large verdicts, drawing trial lawyers' attention and fluttering the nerves of insurers and nursing home administrators.
Meanwhile, the Supreme Court, in a riff of decisions, has given the FAA broad reach and held if an arbitration clause exists, all disputes must be heard by the arbitrator and any public policy exceptions—such as the "anti-waiver" provisions under New York's nursing home liability act­—are swept aside.
The continuing clash of federal and state doctrines challenges the notion of when aggrieved families can seek public jury trials for damages or whether they must succumb to the less-friendly, more private and less-likely-to-produce-sizable-verdicts confines of arbitration.
Battle in West Virginia
The central battle of this increasingly uncivil war occurred in West Virginia. Three plaintiffs brought negligence suits against nursing homes in West Virginia. They each had signed an agreement containing a clause requiring arbitration of all disputes. In all three cases, the West Virginia Supreme Court held that West Virginia law, which guaranteed a victim's right to seek a jury trial, was not preempted by the FAA. The West Virginia court found the Supreme Court's broad reading of the FAA "tendentious"—"biased"—and "intended to promote a particular point of view—namely that arbitration is a panacea for all the woes of litigation and should therefor be given special favor." Brown v. Genesis Healthcare, 724 SE 2d 250 (2011) (Brown I)
When appealed to the Supreme Court, the higher court, in a per curiam opinion fired back, claiming the West Virginia court was "misreading and disregarding the precedents of this Court" and added the West Virginia court's interpretation of the FAA was "incorrect and inconsistent with clear instructions in the precedents of this Court." Marmet Health Care Center v. Brown, 132 S. Ct. 1201 (2012) (Brown II).
The Supreme Court described its earlier rulings as "straightforward"—any anti-waiver provision in state law "is displaced by the FAA." The justices unanimously overturned the West Virginia ruling. Brown II at 1204. The Supreme Court left one option on the table: the West Virginia court had not determined whether the arbitration agreement was "unconscionable" under West Virginia law and the high court remanded the case for consideration of that common law rule.
On remand, the West Virginia Supreme Court bowed to the Supreme Court's warning against "the ancient judicial hostility to arbitration." See Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995). West Virginia was not hostile to arbitration the state Supreme Court noted but, in what can only be described as a shot across the bow of the Supreme Court and its pro-arbitration tilt, the court added it was "hostile toward contracts of adhesion that are unconscionable and rely on arbitration as an artifice to defraud a weaker party of rights clearly provided by the common law or statute." The court noted that the admission process in a nursing home was not viewed by patients as "an interstate commercial transaction with far-reaching legal consequences":
Many contracts for admission are signed by a patient or family member in a tense and bewildering setting. It may be disingenuous for a nursing home to later assert that the patient or family member consciously, knowingly and deliberately accepted an arbitration clause in the contract, and understood the clause was intended to eliminate their access to the courts if the nursing home negligently injured or killed the patient.
Brown v. Genesis Healthcare, 729 SE 2d 217, 226 (W. Va. 2012) (Brown III).
In what can be further described as a judicial backhanded volley to the high court, the West Virginia Supreme Court noted that their colleagues had required arbitration "without elucidating how and why the FAA applies to negligence actions that arise subsequently and only incidentally to a contract containing an arbitration clause." Despite that pointed criticism of the high court and after articulating standards for both procedural and substantive unconscionability and broadly suggesting these agreements could be unconscionable, the state Supreme Court remanded the case to lower courts to develop the record on this common law defense.
While the West Virginia Supreme Court did not decide the victor in this contest between arbitration and a right to a jury trial, the Supreme Court and West Virginia state court opinions draw the battle lines over enforcement of long-term care policy. The Supreme Court's commanding view of arbitration under the FAA has been repeatedly reaffirmed, and the New York Court of Appeals has acknowledged its broad breadth. N.J.R. Assoc. v. Tausend, 19 NY3d 597 (2012). The Supreme Court decisions in interpreting the FAA do not acknowledge any public policy exceptions to arbitration, even though New York continues to recognize such exceptions to arbitration under Article 75 of the CPLR. See City School Dist. v. McGraham, 17 NY3d 917 (2011).
Common Law Tools
Faced with the broad reach of the federal statute, state courts are increasingly turning to common law tools to contest contract formation and, coincidentally, permit families to avoid arbitration of nursing home claims. Unconscionability, highlighted by the West Virginia Supreme Court in Brown II, may offer a path to voiding arbitration clauses, given the often palpable disparity in bargaining power between families of frail adults, desperate for an adult placement, and nursing homes. But, even unconscionability may not succeed. For example, in THI of New Mexico at Hobbs Center v. Spradlin, 2012 U.S. Dist. LEXIS 139893 (D.N.M. 2012), a woman, with an 11th-grade education, signed an admission agreement for her mother and was required to arbitrate because the federal court held, under state law, that even though she did not understand the agreement, did not understand the term "arbitration" and was rushed to sign the agreement for her dementia-afflicted mother, the agreement was neither substantive nor procedurally unconscionable.
Other courts have applied the scope of common law agency principles and determined that children, while able to give their parents' consent to medical treatment, may not be able to bind the decedent claims to arbitration. Hoigsett v. Parkwood Nursing & Rehabilitation Center, 2013 U.S. Dist. Lexis 30016 (N.D. Ga. 2013)(63-year-old amputee's daughter, without a power of attorney and no status as legal representative, had no authority to waive claims involving her death to arbitration, even though she might have authority, under Georgia law, to consent to medical treatment); West Virginia ex rel. v. King, 2013 W. Va Lexis 36 (Sup. Ct. App. W.V. 2013) (arbitration agreement, signed by a health-care surrogate, unenforceable because surrogate acted outside the scope of her authority); Ping v. Beverly Enterprises, 376 Sw 3d 581 (Ky. 2012) (daughter with power of attorney and health care management proxy did not have express or implied authority to bind estate to arbitration absent express authorization to agree to dispute resolution).
Wrongful death actions, in which heirs, acting under statutes, sued to recover damages, have been permitted because the plaintiffs were not parties to arbitration clauses in admission agreements. Carter v. SSC Odin Operating, 976 NE 2d 344 (Ill. 2012) (plaintiff, a daughter of the deceased, who signed the arbitration agreement on her mother's behalf, could maintain a wrongful death action because the claim by decedent's heirs was not an asset of the decedent's estate); GGNSC Omaha Grove v. Payich, 708 F.3d 1024 (8th Cir. 2013) (son, who signed as mother's representative, was not barred from commencing wrongful death claim because as the estate representative he was not bound by the agreement, applying Nebraska law); Setlock v. Pinebrook Personal Care and Retirement Center, 56 A.3d 904 (Pa. Super. 2012) (a wrongful death claim could be maintained because the arbitration clause only applied to claims governed by the agreement and did not explicitly apply to claims regarding the standard of medical care).
New York Law
The resort to arbitration seems to be a likely course for claims under New York's nursing home liability statute. The broad selection of potential damages under Public Health Law Section 280-d—including damages to "dignity"—have already resulted in substantial verdicts against homes, including punitive damages. Homes and their insurance carriers are becoming reluctant to face juries, often populated with older jurors or "sandwiched jurors" who understand the rigors of dealing with incapacitated parents or loved ones.
Furthermore, New York's law on unconscionability sets a high standard for invalidating an arbitration agreement: The family must prove that it lacked a meaningful choice and the terms of the arbitration clause unreasonably favor the nursing home. Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10 (1988). One New York court has intoned that because arbitration is favored as a public policy in New York, it would be difficult to find an arbitration clause unconscionable. Thies v. Bryan Cave, 13 Misc.3d 1220(A)(Sup. Ct. New York City 2006).
With the legal landscape changing rapidly, state courts are scrambling to vindicate state laws and public policy favoring access by injured nursing homes plaintiffs to judicial forums and jury trials. As the Supreme Court decision in Brown II forces more would-be plaintiffs into arbitration, the state legislatures, under pressure from families and seeking to strengthen state policies to curb nursing home abuses, may seek additional statutory devices to circumscribe the power of nursing homes to force arbitration during the admission process.
The battle—with the ubiquitous FAA dictating a preference for arbitration and the states seeking judicial remedies for injured or deceased nursing home patients and their families—will persist, but attorneys for nursing homes and the aging patients should carefully examine admission agreements and evaluate a proper forum selection for future tort and statutory claims.
Richard A. Dollinger is a member of the New York Court of Claims and acting Supreme Court Justice in Rochester. Jennifer Coleman and Shannon O'Donnell, students at the St. John Fisher College pre-law program, assisted in the research of this article.