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Recent developments in the U.S. Supreme Court, Department of Health and Human Services, a Mississippi district court, and the New York Appellate Division, pertaining to mandatory arbitration in nursing home agreements necessitate an update of my prior column on this topic.1 At issue in each of these venues has been the enforceability of nursing home admission agreement provisions that require prospective resident to waive the right to a jury trial and to agree to resolve disputes through the arbitration process.

One of the most significant roles of an elder law attorney is advising the client who is in the hospital and requires placement in a nursing home. The decision frequently is made under the pressure of very narrow time constraints. The hospital demands a transfer under the threat of financial exposure for any delay and the nursing home demands a quick decision while the bed is available. In this fraught environment, the client is presented with an admission agreement and asks the elder law attorney for advice. The various developments currently being decided will affect the legal opinion rendered to clients regarding provisions to arbitrate any and all past, present or future disputes between the resident and the nursing home.

SCOTUS: ‘Kindred v. Clark’

The U.S. Supreme Court will hear arguments on Feb. 22, 2017 on a nursing home arbitration case.2 Prior to entering a nursing home, Olive Clark executed a power of attorney naming her daughter as agent. The power of attorney gave broad authority to the agent (“to draw, make, and sign, in my name any and all checks, promissory notes, contracts, deeds or agreement; … . to institute or defend suits concerning my property or rights”). But it did not have a provision expressly authorizing the agent to waive the principal’s right to a jury trial. When Olive Clark entered a nursing home, her daughter signed a mandatory arbitration agreement as agent under that power of attorney. After Olive Clark’s demise, her daughter filed a wrongful death claim against the nursing home. The nursing home moved to dismiss the suit and to compel arbitration.

The Supreme Court of Kentucky ruled that the mandatory arbitration agreement was not enforceable given the fact that the power of attorney did not unambiguously authorize the agent to waive the resident’s right to access to the courts. The decision is based upon the extraordinary significance given by that court to the right to a trial by jury. The court remarked:

It bears emphasis that the drafters of our Constitution deemed the right to a jury trial to be, inviolate, a right that cannot be taken away; and, indeed, a right that is sacred, thus denoting that right and that right alone as a divine God-given right.

The Supreme Court of Kentucky ruled that an agent under a power of attorney cannot bind the principal to an arbitration agreement unless the document contained language that expressly authorized that authority. The nursing home, in its petition for a writ of certiorari argued that it was improper to recognize the authority of the agent under the power of attorney for all matters except to agree to arbitrate and that the Federal Arbitration Act pre-empted the state law.

CMS Regulations

The U.S. Department of Health and Human Services, through its Center for Medicare and Medicaid Services (CMS), undertook to revise the rules for long-term care facilities. A part of that extensive revision covered the use of pre-dispute binding arbitration agreements. CMS received almost 1,000 comments on this particular section of the regulations and stated: “However, the comments we received have confirmed our conclusion that predispute arbitration clauses are, by their very nature, unconscionable. As one commenter noted, it is virtually impossible for a resident or their surrogate decision maker to give fully informed or voluntary consent to such arbitration provisions.”3

CMS then issued regulations4 that prohibited mandatory pre-dispute arbitration clauses in admissions agreements for facilities that participate in the Medicare or Medicaid programs. The regulations allowed post dispute arbitration if the resident voluntarily agreed and the agreement was not a condition of continued residence in the facility.

‘American Health Care v. Burwell’

In reaction to the CMS final rules, suit was filed by the American Health Care Association,5 challenging the authority of the agency to issue these regulations. On Nov. 7, 2016, the district court issued an order granting a preliminary injunction against the enforcement of the rule. The order is remarkable in that the decision begins with the judge discussing “General Observations and Experiences Regarding Nursing Home Arbitration” and his judicial exposure to the troubling issue of mental capacity of residents to arbitration agreement. He then states: “For those nursing homes inclined to use it, this court is unaware of any form of litigation which provides as effective a tool for pure delay, while not advancing the underlying litigation, as nursing home arbitration litigation.” However, the court felt constrained under the Administrative Procedure Act to make his decision solely on the administrative record.

CMS, in compliance with the preliminary injunction, issued a letter, dated Dec. 9, 2016, suspending the pre-dispute arbitration ban until and unless the injunction is lifted.

‘Friedman v. Hebrew Home’

The plaintiff initiated this action in the Supreme Court, Bronx County, for injuries sustained by his mother while a resident in the nursing home. Her admission agreement contained a mandatory arbitration clause. The Supreme Court denied the defendant’s motion to stay the action and to enforce the arbitration agreement.

The Appellate Division, First Department, unanimously reversed,6 holding that Public Health Law §2801-d did not invalidate the arbitration agreement and was preempted by the Federal Arbitration Act and that the arbitration clause was not unconscionable. The N.Y. State Court of Appeals dismissed the plaintiff’s motion to appeal.

Conclusion

The plethora of entities grappling with mandatory pre-dispute nursing home admission agreements is an indication of the importance of this issue. A clear resolution of this issue is of critical importance to the 1,400,000 current residents in nursing homes in the United States.

Endnotes:

1. Daniel G. Fish, “Banning Pre-Dispute Arbitration Clauses in Nursing Home Contracts,” NYLJ, June 3, 2009.

2. Kindred v. Clark, 478 S.W. 3d 306.

3. Fed. Reg., Vol. 81, No. 192, page 68792.

4. 42 C.F.R §483.70(n)(1).

5. U.S. District Court for the Northern District of Mississippi, Oxford Division, Civil Action No. 3:16-CV-00233.

6. Friedman v. Hebrew Home, 13 N.Y.S.3d 896 (1st Dept. 2015).