The Impact of AT&T Mobility on the Enforceability of Arbitration Agreements in Nursing Home and Assisted Living Facility Resident Agreements

The Impact of AT&T Mobility on the Enforceability of Arbitration Agreements in Nursing Home and Assisted Living Facility Resident Agreements

The precedential value of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law] is questionable in the context of arbitration agreements/provisions in resident admission contracts for assisted living facilities, nursing homes and other senior living facilities. In this Analysis, Joseph Hylak-Reinholtz discusses the decision in detail, the anticipated impact of the Arbitration Fairness Act of 2011 (AFA of 2011), and includes best practices for writing new and strengthening existing arbitration agreements in sr. living facility admissions contracts. He writes:

     A growing number of courts have been asked to determine whether pre-dispute arbitration agreements should be enforced, especially in the context of such agreements that appear in resident admission contracts for assisted living facilities, nursing homes and other senior living facilities. Earlier this year, in Brown v. Genesis Healthcare Corporation [enhanced version / unenhanced version] (hereinafter "Brown"), the Supreme Court of Appeals of West Virginia held that juries, rather than arbiters, should be the decision-maker related to disputes arising in nursing homes, and concluded that the arbitration clauses in question were unconscionable and therefore unenforceable. Importantly, the court ruled that the Federal Arbitration Act (the "FAA") did not prevent the court from voiding the arbitration agreement under state contract law principles. The FAA includes a "savings clause" that makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." As a result, state courts have historically been allowed to overturn arbitration agreements using state-based contract law principles.

     Last year, in Carter v. SSC Odin Operating Co. [enhanced version / unenhanced version] (hereinafter "Carter"), the Illinois Supreme Court held that the FAA preempted the Illinois Nursing Home Care Act's anti-waiver provisions and upheld the validity of arbitration agreements and provisions in nursing home admissions contracts due to preemption of the state law pursuant to the FAA. However, the Illinois Appellate Court, Fifth District (the "Fifth District"), addressing several issues on remand from the Illinois Supreme Court, recently held [enhanced version / unenhanced version] that arbitration agreements and provisions in nursing home resident contracts were void for lack of mutuality and unenforceable because the agreements were signed by a "resident representative" rather than the nursing home resident in "her individual capacity or on her own behalf as a potential wrongful death plaintiff." In a fashion similar to the Brown decision in West Virginia, the Fifth District's decision to overturn the arbitration agreement was based on state contract law principles.

     The enforceability of pre-dispute arbitration agreements generally is also being questioned by certain members of the Federal legislative branch. The most recent proposal, filed by Senator Al Franken (D-Minnesota), is the Arbitration Fairness Act of 2011 ("AFA of 2011"). The AFA of 2011 is a bill to prohibit mandatory arbitration clauses in employment, consumer and civil rights cases, and is a direct response to the United States Supreme Court (the "Supreme Court") decision in AT&T Mobility v. Concepcion (hereinafter "AT&T Mobility"). Justice Scalia, writing for the majority in AT&T Mobility, argued that the lower court's decision should be overturned because it improperly allowed a class action lawsuit to proceed when the class action plaintiffs had previously signed contracts that included a provision requiring disputes to be settled through binding arbitration. More specifically, the majority opinion in AT&T Mobility limits a state court's ability to rely on the FAA's savings clause to void arbitration agreements or provisions, asserting that although the savings clause preserves generally applicable contract defenses under state law, the FAA does not suggest an intent to preserve state law rules that stand as an obstacle to the accomplishment of the FAA's objectives. As a result, courts must determine whether "a doctrine normally thought to be generally applicable, such as . . . unconscionability, is alleged to have been applied in a fashion that disfavors arbitration."

     ....

IV. Best Practices

     Because AT&T Mobility will not likely affect arbitration agreements and provisions in senior living facility admissions agreements, such facilities should consider drafting and maintaining its arbitration agreements and provisions to comport with applicable state law contract principles, including, but not limited to, contract formation defenses such as unconscionability and lack of mutuality. At a minimum, senior living facility owners and operators should determine what their state's contract law mandates for valid and enforceable contracts. In general, persons drafting arbitration agreements or provisions should consider the following:

1. First and foremost, ensure that the admissions contract, including the arbitration agreement or provision, is signed voluntarily, absent of any duress or coercion by the facility or a third party. Avoid, if possible, an arbitration agreement or provision where acceptance to the facility is contingent upon acceptance of mandatory arbitration.

(footnotes omitted)

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