Defeating Mandatory Arbitration Clauses

Are insurance companies satisfied with the litigation climate post-tort reform? Of course not! Mandatory arbitration clauses contained in many consumer contracts are the latest wave of tort reform storming the beaches. The insurance industry calculates its insureds will fare better with arbitrators than jurors; however, by including these clauses, it denies legal clients their Seventh Amendment right to a jury trial. The nursing home industry has been aggressively enforcing these clauses, emboldened by recent cases from the Ohio Supreme Court (Hayes v. Oakridge Home, 122 Ohio St. 3d 63, 2009-Ohio-2054) and United States Supreme Court (Marmet Health Care Ctr. v. Brown, 132 S. Ct. 1201, 182 L. Ed. 2d 42 2012).

A Recent Nursing Home Case

In a recent case, our firm was successful in defeating a nursing home admission agreement with an arbitration clause both in the trial court and later in Montgomery County’s Second District Court of Appeals.

The plaintiff’s father was admitted to the defendants’ nursing home facility for short-term rehabilitation, and the plaintiff was asked to sign admission papers despite her father being able and competent. The plaintiff was presented with several documents including an admission agreement with a one-sentence mandatory arbitration clause, which she signed, and an arbitration agreement, which she refused to sign in the presence of the admission officer.

The plaintiff’s father was admitted and died ten days later of a treatable infection due to the defendants’ failure to properly evaluate and care for the father.

How We Succeeded

The key to our success in this case was a strong factual record and an aggressive attack using basic contract law principles. We provided the court with a detailed affidavit comprised of the father’s daily activities to demonstrate his competency and a complete factual narrative of the admission procedure including conversations with the admission officer.

At the hearing before the trial court, the plaintiff was the only witness to testify, while the defendants relied only on the signed admission agreement containing the mandatory arbitration clause.

Asking the Right Questions

When applying basic contract law to defeat mandatory arbitration clauses, we asked the following questions:

  • Did the proper parties sign the agreement?
  • Was the plaintiff competent to sign?
  • Was there an offer, acceptance and consideration?
  • Was there a “meeting of the minds” between the plaintiff and defendant on all substantive provisions?

In our case, the plaintiff told the admission officer she did not wish to arbitrate and refused to sign the arbitration agreement. The trial court found this uncontroverted evidence compelling and held there was no agreement to arbitrate (i.e., “no meeting of the minds”).

Proving Unconscionability

Assuming there was a proper and enforceable contract, the analysis then shifts to whether the contract is procedurally and substantively unconscionable. Procedural unconscionability examines the bargaining power, age, education and business acumen of the involved parties, while substantive unconscionability refers to the terms of the contract.

In our case, the trial court found the plaintiff was under significant emotional duress when she signed the admission agreement, and there was a lack of other available nursing home choices. Moreover, the contract was deemed one-sided; the terms allowed the defendant to sue the plaintiff in court for non-payment but required the plaintiff to submit any disputes to arbitration forgoing a jury trial.

Utilizing solid factual documentation and applying basic contract law can help lawyers protect their clients’ right to a jury trial. These clauses can be defeated with assaults on many fronts. Good luck!