In response to increasing runaway verdicts with large awards for punitive damages, many nursing homes are including arbitration clauses in their admission agreements. The U.S. Supreme Court’s decision in Marmet Health Care Center v. Brown, 132 S.Ct. 1201 (Feb. 2012), held that these agreements are enforceable because the Federal Arbitration Act (FAA) preempts both state laws and judicially established public policies that prohibit contracts that require arbitration to resolve personal injury lawsuits. The only exceptions are if the party seeking to enforce the agreement took advantage of the other or the terms are so one-sided that the clause is “unconscionable.”
The issue of enforceability of the contract, however, is deferred to the state courts to apply their own contract principles and laws to determine if the contract between the nursing home and the patient is so unconscionable it cannot be enforced under the FAA.
The Marmet decision on its face nullifies the prohibition on arbitration in NY Public Health Law section 2801-d (8). If a court finds that the admission agreement is an enforceable contract, the decision as to whether damages are warranted, and if so how much, is determined by the arbitrator. Many states, such as Illinois, New Jersey and Oklahoma, have already embraced the decision, declaring their respective statutory prohibitions invalid [Carter v. SSC Odin Operating Co., LLC 237 Ill.2d 30, (2010); Estate of Anna Ruszala v. Brookdale Living Cintys, Inc., 1 A.3d 806 (Sup. Ct. NJ, App. Div. 2010); Rainbow Health Care Ctr. Inc. v. Crutcher, 2008 U.S. Dist. LEXIS 6705, (U.S.D.C. N.D. OK)]. Indeed, even the court in West Virginia (where the Marmet case arose) accepted that it had no choice but to declare its section of the Nursing Home Act against arbitration void [Brown v. Genesis Health Care Corp., 228 W.Va. 642 (2011)].
Lawyers for nursing home residents in New York, however, have argued that Marmet undermines section 2801-d, which was created for the very purpose of protecting nursing home patients and others who cannot protect themselves. Judges may be loath to enforce such agreements. While choice of venue provisions in the admission contracts have routinely been upheld throughout New York, stripping litigants of their day in court has not been welcomed in the same manner thus far. We have been litigating the first motion in New York seeking to compel arbitration in this context. The lower court has already denied the motion to refer the matter to arbitration and that decision is on appeal.
According to Marmet, the only legitimate basis on which any court can rule against the enforceability of an arbitration provision in a nursing home admission agreement is the state’s contract law. The most challenging criterion to establish in this context is the competency of the two parties entering into the contract, since many residents require long-term care because of a diagnosis of dementia. If the patient lacked the capacity to negotiate an arm’s-length agreement, there is a stronger case that the clause is unconscionable. Those with foresight may have designated a family member, usually an adult child, as the resident’s power of attorney before being admitted. If a family member without legal authority signs the agreement, however, the question becomes whether that person can waive the resident’s right to a trial of their personal injury claim.
The Marmet decision raises other issues in New York. It is unclear if an arbitration provision is binding on the heirs or distributees of a patient in a wrongful death claim. In states where this issue has already been litigated, the results are largely inconsistent. Nursing homes may also argue that the arbitration clause nullifies that section of the NY Public Health Law that permits the imposition of punitive damages if there is a determination at trial that there was a willful or reckless deprivation of a right conferred by the statute. For reasons to be discussed another time, in our view, punitive damages are still possible in arbitration, though it is far less likely that an arbitrator will award them.
The tenet on which Marmet stands may lead nursing home residents and patient advocacy groups to insist on an amendment to the FAA restricting its application to non–personal injury suits. Advocates for the facilities naturally embrace the decision as, at least for now, it compensates for the unfortunate reality that jury verdicts are disproportionate to the value of other personal injury cases, particularly with the imposition of punitive damages. Nursing homes should take advantage of this quasi tort reform while they still can, and include an arbitration clause in their admission agreements.