A Second Look at Marmet Health Care Center v. Brown:

Transcription

1 A Second Look at Marmet Health Care Center v. Brown: State Contract Law Provides Defenses to Nursing Home Contract Arbitration Clauses By Ron M. Landsman, CAP I. Federal Law Saves an Arbitration Clause Only if There is a Contract... xx II. State Contract Law Can Still Protect Elder Law Clients By Denying existence of a Contract... xx III. Arrows in the Elder Lawyer s Quiver... A. Document Power of Attorney and Health Care Proxy Drafting and Execution... xx B. Advice at the Time of, but Prior to, Admission... xx 1. The Terms of the Agreement... xx 2. Whether There Is a Contract with the Resident... xx a. A Guardian of Property... xx b. A Guardian of the Person or Others with Health Care Decision Authority... xx c. An Agent Under a Health Care Proxy... xx d. The Spouse and Other Relatives... xx C. Post-Admission Admission Agreement... xx D. Litigation... xx IV. Conclusion... xx A recent NAELA Journal review 1 of Marmet Health Care Center v. Brown 2 suggested that Marmet reflected a business-oriented defense of nursing homes, allowing them to profit from preventable negligence causing injury and death. 3 Marmet is the progeny of a string of decisions preceding the Roberts Court that stretched the boundaries of federal law on arbitration to its limits. 4 But Marmet also is a unanimous decision with which all of the liberal justices agreed. Such a unanimous decision might instead be read as a liberal minority snatching victory from the jaws of hostile conservative precedent. 5 Ron M. Landsman, Esq., CAP, is the principal of Ron M. Landsman, P.A., Rockville, Md. He is a Fellow of the National Academy of Elder Law Attorneys and a member of the NAELA Board of Directors, , and the NAELA Journal Editorial Board. 1 David L. McGuffey, Marmet Health Care Center v. Brown: Nursing Home Arbitration Agreements, 8 NAELA Journal 239 (2012). This note relies largely on Mr. McGuffey s extensive research, seeking only to extract from a deeply troubling result some strains of hope for Elder Law attorneys advising their clients in this area U.S. 132 S.Ct (2012). 3 McGuffey, supra n. 1, at 240, , and nn That history is ably reviewed in Suzanne Gallagher, Mandatory Arbitration Clauses in Nursing Home Admission Agreements: The Rights of Elders, 3 NAELA Journal 187, (2007). 5 Cf. Ark. Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 164 L. Ed. 2d 459,126 S. Ct (2006), also a unanimous liberal victory limiting Medicaid subrogation recovery to what a plaintiff actually recovered for past medical expenses. Whether that reading is correct may well be clarified soon, 1

2 2 NAELA Journal [Volume IX, Number 1 The Court in Marmet held that states could not limit application of federal law endorsing the use of arbitration clauses by prohibiting their use in a specific industry, nursing homes, or for a particular type of claim. The Court reaffirmed that federal policy in favor of contractual arbitration continued to preempt state tort law. 6 Yet the Court also reaffirmed that state contract law determines in the first instance whether a contract imposing binding arbitration is valid and enforceable. In doing so, Marmet provides valuable tools for avoiding mandatory arbitration. I. Federal Law Saves an Arbitration Clause Only if There Is a Contract Marmet began as three individual West Virginia personal injury actions brought by family members on behalf of injured residents or their estates. In each, the resident, through a family member, had agreed to arbitrate any dispute involving, inter alia, services provided under the contract, including injuries due to negligence. In each case, the defendant moved to dismiss and asked for an order compelling arbitration, relying on the Federal Arbitration Act (FAA). The FAA establishes arbitration as the favored method for settling disputes involving contracts in interstate commerce. 7 In each case, the plaintiff argued that the arbitration provision was unenforceable under a West Virginia law that prohibited arbitration clauses in nursing home contracts. 8 In two cases, trial courts granted the motions to dismiss; in the third, the trial court certified to its supreme court the question whether the West Virginia statute was preempted by the federal statute. The three cases present as compelling a collection of facts as one could imagine arguing against federal preemption and imposition of federal contract policy over state tort law. One of the Marmet plaintiffs, Clarence Brown, is illustrative. He was born with severe cerebral palsy and lived in his parents home until the death of the last surviving parent. He was then admitted to Marmet Health Care Center in 1996, at the age of The admissions agreement contained an arbitration clause. He lived at the facility for 11 years, but his guardian moved him out in May 2007 and he died a little over a year later. as the Court has just granted certiorari to one of the few lower court decisions actually doing what the Court said. E.M.A. v. Cansler, 674 F.3d 290 (4th Cir. 2012), cert. granted sub nom. Delia v. E.M.A., 2012 WL (U.S.) (2012). See Ron M. Landsman, Fourth Circuit in E.M.A. v. Cansler Rejects State and District Court Trend and Holds that Ahlborn Requires Hearings To Determine Medicaid Subrogation Claims, 8 NAELA Journal 251 (2012) S.Ct. at 1202; see also AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1747 (2011). 7 A written [contract] provision... to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C West Virginia Nursing Home Act, Section 15(c), W.Va. Code, 16-5C-15(c). One or more also argued that the contract provisions were unconscionable as a matter of common law, unenforceable as contracts of adhesion, or not executed by someone with authority to waive the resident s rights. Brown v. Genesis Healthcare Corp., 724 S.E.2d 250, (2011). Hindsight suggests other arguments not made. For example, in one of the cases, the admission agreement was signed by the resident s brother eight years after he was first admitted, suggesting a want of consideration. 9 The court provided no further details of Mr. Brown s earlier life, but most Elder Law practitioners have seen cases like this, where a disabled child lives at home with his parents until the death of the survivor of them with little or no preparation for what happens afterward; once the parents have died, the child is admitted to a nursing home and one of the siblings steps up to take over as guardian.

3 State Contract Law Provides Defenses to Spring 2013] Nursing Home Contract Arbitration Clauses 3 According to the wrongful death and survival actions filed by his estate and family, he suffered a laundry list of preventable injuries typical of long-term nursing home residents pressure sores, dehydration and malnutrition, contractures, aspiration pneumonia, and repeated infection. The West Virginia lower court held that the admissions agreement required arbitration of any claim arising from services provided under the admissions contract, including the plaintiffs personal injury claims. The West Virginia Supreme Court reversed. In a thoughtful and well-reasoned 39- page opinion covering a range of issues, the Court tackled the federal law issue and reviewed the FAA decisions with a careful eye to the underlying historical disputes in the Supreme Court decisions. It noted that the FAA was enacted in 1925 to reverse the then well-developed judicial hostility to arbitration clauses, but no more. States can legislate in the area, but they cannot selectively legislate against arbitration clauses. 10 In reviewing the history of the FAA in the commentary and the courts, the West Virginia Court noted in the kind of statement that invites a certiorari petition that the Supreme Court has steadily expanded the scope of the FAA since the 1980s... [c]ontrary to the intended purpose of the [] Act. 11 The Court made three distinct findings: 1) that the FAA preempted the state s arbitration-related statute; 2) that whether an arbitration clause is enforceable is nonetheless subject to state law respecting unconscionable contracts; and 3) that arbitration clauses in nursing home contracts are unconscionable. 12 The basis and scope of the third finding is what caught the Supreme Court s attention. The plaintiffs argued that arbitration clauses in nursing home contracts are unconscionable per se, which the Court accepted, if not in those terms. It came to that conclusion after reviewing the nursing home admission process, 13 the law relating to waivers of liability for negligence, and the closest analogy. The Court identified as relevant factors the authority of the signor to bind the resident, 14 the formatting of the agreement and the clarity of the arbitration clause, the admissions process, itself, and the fairness of the terms. The Court concluded that under West Virginia law it is unconscionable for a nursing facility to compel a resident by pre-event contract to agree to arbitrate a claim arising from negligence for services provided under that contract. 15 The liberal minority did not pursue a logical but given the Supreme Court s composition and history on the FAA losing argument that the FAA should be read S.E.2d 250 at Id. at 278. And it dismissed the Court s reasoning in prior cases as tendentious. Id. 12 Id. at The process of signing paperwork for medical care specifically, a contract for admission to a nursing home is often fraught with urgency, confusion, and stress. People seek medical care in a nursing home for long-term treatment to heal; they rarely view the admission process as an interstate commercial transaction with far-reaching legal consequences. Id. at 268; the process, the court noted, is often chaotic and panic-inducing, id. at The authority of the person signing the agreement to bind the resident would appear to be an independent contract question rather than merely a factor in unconscionability. Cf. Estate of Ruszala ex rel. Mizerak v. Brookdale Living Communities, Inc., 415 N.J. Super.App.Div. 272 (2010), with Owens v. National Health Corp., 263 S.W.3d 876 (Tenn. 2007). 15 Brown, 724 S.E.2d at 292.

4 4 NAELA Journal [Volume IX, Number 1 to leave state courts free to develop common law rules based on their extensive experience with a specific issue. Rather, the Court, in a peremptory per curiam opinion, swept together all state law that prohibits outright the arbitration of a particular type of claim and said such rules were displaced by the FAA. 16 The Court nonetheless remanded because it was not clear whether the West Virginia court s finding of unconscionability in this case was influenced by the invalid, categorical rule against predispute arbitration agreements. 17 The Court confirmed that the state contract law determined whether there was a contract at all. 18 Still, the direction to state and lower federal courts to pay attention to state law contract issues leaves nursing home residents and their advocates with more than a few arrows in their quivers. Therein are the planning opportunities for the conscientious Elder and Special Needs Law attorney. II. State Contract Law Can Still Protect Elder Law Clients By Denying Existence of a Contract State court litigants have successfully used that limitation on the FAA to protect consumers against overreaching businesses. In Brewer v. Missouri Title Loans, 19 the Court found the factors common in many nursing home contracts one-sided, non-negotiable, difficult to understand invalidated the title insurance contract that, if valid, would have required arbitration. As in Marmet, the consumer waived recourse to courts; the company did not. The Court there said the agreement was one no person in his senses and not under delusion would make. 20 Some state courts are even more pro-consumer. In Buraczynski v. Eyring, 21 the Supreme Court of Tennessee held a nursing home contract unenforceable as a contract of adhesion. The arbitration clause was a separate one-page document, with clear notice of the consequences of signing, revocable for 30 days after being signed, and which provided selection of an arbitrator by the arbitrators selected by each party. Nonetheless, a standard form offered by the party with far superior knowledge of the subject on a take it or leave it basis was enough to render it unconscionable or oppressive. 22 Buraczynski has been followed in a number of Tennessee nursing home cases not unlike those in Marmet. In Howell v. NHC Healthcare-Fort Sanders, Inc., 23 the agreement was signed by the resident s husband, who was illiterate, at the time of admission. The resident was too ill to return home but, the husband was told, she would not be admitted unless he signed the contract. Because of his illiteracy, a nursing home representative explained it, but not adequately. The husband did not know what arbitration was and did 16 Marmet, 132 S.Ct. at 1203, internal quotations removed. 17 Marmet, 132 S.Ct. at The Court limited, if it did not expressly overrule, Prima Point, which held that the parties were required to arbitrate the claim that the contract failed because of fraud in the inducement S.W. 3d 486 (Mo.S.Ct. 2012). 20 Id. at 495, citing AT&T Mobility LLC v. Concepcion, 131 S.Ct. at 1755, supra, the Supreme Court case that was the basis for the per curiam decision in Marmet S.W.2d 314 (Tenn. 1996). 22 Id. at S.W.3d 731 (Tenn.App. 2003).

5 State Contract Law Provides Defenses to Spring 2013] Nursing Home Contract Arbitration Clauses 5 not know he was giving up his wife s right to a jury. The Court also gave weight to the fact that the arbitration clause was buried in a lengthy document in the same size font as the entire agreement. A similar agreement was found unenforceable for the same reasons in Raiteri v. NHC Healthcare/Knoxville, Inc., 24 with the added fact that the person signing the agreement had no authority to bind the resident. The authority of the person signing the agreement to bind the resident is a common independent basis for assessing whether there is a binding agreement at all. In Duke v. Kindred Healthcare Operating, Inc., 25 a motion to compel arbitration was denied based on the court s finding that clear and convincing evidence established the incapacity of the principal at the time the agent s power of attorney was executed. 26 These cases, drawn largely from the prior critique of the Marmet decision, appear to be typical of the range of valid state court decisions rejecting arbitration clauses in the nursing home context. 27 III. Arrows in the Elder Lawyer s Quiver Given this legal landscape, Elder Law attorneys have more than a few options in advising clients regarding nursing home admission agreements. The opportunities begin at the estate planning stage long before the client has arrived at the nursing home admission office and do not end until trial. A. Document Power of Attorney and Health Care Proxy Drafting and Execution Both the financial power of attorney and the health care proxy, whatever its name in the respective states, 28 should be reviewed with the client to determine whether the agent or proxy should have the authority to consent to binding arbitration. 29 There might be some concern that by limiting the agent s power, a facility might deny admission or that agent might lack authority to negotiate effectively. 30 The issue raised by the limited scope of agency authority is not unconscionability as the West Virginia court considered it, but whether the facility s admission documents reflect an agreement. A purposeful limit on the agent s authority might not be given its full weight by a court if challenged by the nursing home. 31 Some nursing homes have extremely com Tenn.App. LEXIS 957 (Dec. 30, 2003); WL (2003) Tenn App. LEXIS 122 (Mar. 14, 2011), 2011 WL (2011). 26 On the other hand, Tennessee also rejected as a defense the lack of authority of a health care agent to agree to arbitration. Owens v. National Health Corp., 263 S.W.3d 876 (Tenn. 2007). Another court applying the clear and convincing evidence standard found the plaintiff trying to avoid being bound by an arbitration clause failed to carry the burden of proof. Sherrer v. Covenant Health and Rehab Of Picayune, 2012 U.S.Dist. LEXIS (S.D. Miss., Mar. 29, 2012). The court properly recognized the need to find whether there was a binding agreement under state law, but then gave the contract defenses short shrift. 27 See also Gallagher, supra n. 4, at (unconscionability), and at (signatory authority, capacity and fraud). 28 See Owens v. National Health Corporation, supra, n McGuffey, supra n That concern assumes the nursing home admissions director reads the client s documents with any more care than a client reads those of the facility. 31 Cf., Estate of Ruszala v. Brookdale Living Communities, Inc., supra, n. 14, at 823 (remand to determine scope of agent authority).

6 6 NAELA Journal [Volume IX, Number 1 petent litigation counsel. They could think of at least a few colorable reasons why a poor, defenseless nursing home just trying to make an honest buck 32 should not be bound by lengthy, complicated agency agreements with hidden limitations in same-size fonts tendered on a take-it-or-leave-it basis by aggressive Elder Law attorneys representing rapacious and litigious elderly and demented nursing home residents and their greedy children. It would be unwise to advise a client that a limit on an agent s authority is an absolute guarantee that no binding arbitration clause would ever be held to be effective. The cure might not always work, but it is still worth trying. B. Advice at the Time of, but Prior to, Admission The Elder Law attorney can advise the client on all issues presented at admission, but falling into two categories the terms of the agreement and whether there is (or will be) an agreement at all. Ironically, the very fact that an Elder Law attorney advises the client reduces the likelihood that he or she will have an argument that the agreement is unconscionable. On the other hand, to the extent that even reasonable requests for modification are rejected and the agreement is shown to be take it or leave it, the claim for unconscionability is clearer. 1. The Terms of the Agreement If given the opportunity prior to admission, the Elder Law attorney should review the arbitration clause and its consequences. Ask for appropriate modifications. 33 Case law and experience suggest the following points to raise with the nursing home and that the client consider asking for the following: Voluntary arbitration. There are many reasons why a resident might prefer mediation rather than litigation after an injury, though plainly this would not be as protective of the facility as mandatory arbitration. Reciprocal arbitration. If the resident cannot go to court over inadequate care, the nursing home might similarly be precluded from going to court over nonpayment or discharge. To be sure, the client is giving up a claim of substantially greater dollar value than the cost of services, but the latter is significantly more likely to be at issue than the former. Narrow application. The arbitration clause could exclude claims when there is a violation of federal or state standards, negligence (or gross negligence), or a death resulted. It is one thing for a nursing 32 See McGuffey, supra n. 1, at Cf. THI of N.M. v. Lovato, 2012 U.S. Dist. LEXIS (D. N.M. Mar. 22, 2012) ( while the circumstances surrounding Ms. Atencio s [the agent s] execution of the Arbitration Agreement reflect the inherently stressful nature of admitting a loved one into a nursing home, they do not establish procedural unconscionability... [The agent s] mere subjective feeling of not being free to decline arbitration terms [is not] enough to demonstrate procedural unconscionability ), cited and quoted in McGuffey, supra n. 1, at 246.

7 State Contract Law Provides Defenses to Spring 2013] Nursing Home Contract Arbitration Clauses 7 home admissions director to ask that the paperwork be completed, and something else to sit there and say to the relative that the facility will not be responsible for violating standards, or gross negligence, or causing death. Shared arbitration fees. The facility could share the filing fee, if any, or that the amount of the fee be added automatically to any award in favor of the resident. Arbitrator selection. The resident should be allowed to elect the form of arbitration or the arbitrator, or that the arbitrator be selected by agreement between arbitrators or representatives selected by each of the parties. Written decision. The arbitrator s decision should be written, address each question of law and fact reasonably presented, and be subject to judicial review for error of law, abuse of discretion, or lack of substantial evidence. The resident should not waive the right to a reasonable decision based on existing law and a fair finding of disputed facts. 2. Whether There Is a Contract with the Resident If the admission agreement is not executed by the competent resident him or herself, whether there is an agreement with the resident should turn in part on the authority of the person who signed the document. 34 The question of who should sign an admission agreement arises frequently because the person for whose benefit the contract is made is often not competent to enter into a contract. Agreeing to have someone admitted to a nursing home actually concerns at least three different kinds of authority: authority to consent to treatment for the resident, authority to use the resident s income or resources to pay for his or her care, and authority to execute a contract that binds the resident. The facility admissions director is probably competent about and concerned with the first two consent to treatment and ability to pay and less so binding execution. The Elder Law attorney s purpose at this point is to get the resident admitted without waiving any rights. The Elder Law attorney thus might seek to have the admission agreement signed by someone who lacks authority to execute a contract on behalf of the resident. The question is whether the signatory has authority to execute a contract on behalf of the resident and waive the resident s rights to a civil jury. If not, then the contract may be unenforceable. a. A Guardian of Property A guardian typically has all the delegable authority of his or her ward unless the order appointing him or her limits that authority, and his or her action executing an agreement requiring arbitration would likely be binding unless excluded. 34 These issues were correctly anticipated in Suzanne Gallagher, supra n. 8, at

8 8 NAELA Journal [Volume IX, Number 1 b. A Guardian of the Person or Others with Health Care Decision Authority The source of the medical decision-maker s authority will determine the specific authority respecting arbitration. Should the bare authority to make medical decisions, by force of that authority alone, extend to waiving rights as a condition of getting the services consented to? A guardian of the person typically has authority to consent to treatment, which necessarily entails subsidiary and related authority. For example, the guardian may have to authorize the disclosure of confidential information if required to obtain treatment and to consent to the admission to a health care facility. Absent a guardian, most state statutes now give that authority to agents under health care proxy documents or family members in order of closeness. There is no obvious reason why that authority should, standing alone, include authority to waive right to a jury trial. 35 c. An Agent Under a Health Care Proxy The agent s authority is defined by the document appointing him or her and it typically includes authority to consent to the admission to a health care facility. As with guardians of the person, there is no obvious reason why that should include (absent a specific provision) authority to waive the right to a jury trial. d. The Spouse and Other Relatives Under the common law, one spouse used to be obligated to pay for the necessities purchased by or provided the other but that is no longer the law. The spouse s signature may be useful for the other two purposes consent to treatment/admission and access to funds to the extent they are jointly owned. To the extent the healthy spouse lacks authority to access the sole funds of the resident to pay for his or her care, it is hard to see why that healthy spouse should be deemed to have authority to waive important rights. Adult children, siblings, and others should not have greater authority than a spouse, even if they can make medical decisions. 36 C. Post-Admission Admission Agreement The situation is, of course, vastly different for the person already resident in the facility. Failing to sign an admission contract is not a permissible ground for discharge under federal law. 37 Thus, an Elder Law attorney might advise his or her client to decline to execute any post-admission admission agreement, or to execute it only after deleting (or amending) the mandatory arbitration provision. On the other hand, until the resident qualifies for Medicaid, the nursing home s rights and privileges following discharge to a hospital for medical reasons turn on state law, and absence of a signed agreement might affect those rights. 35 See e.g. D.C. Code (a)(4) and (5) (powers of guardian include consent to treatment and access to information), but cf., id., (c)(5) (guardian cannot consent to the waiver of substantive or procedural rights... in any proceeding arising from an insanity acquittal ), which presents the question of whether specific exclusion of some powers supports the inference that others are implied. 36 Maryland, after the usual suspects health care agent, guardian, spouse or domestic partner, adult child, parent, then adult sibling recognizes as a health decision maker any friend or other relative who can state facts and circumstances showing regular contact... sufficient to be familiar with the patient s... personal beliefs. Md. Health Care-Gen., 5-605(a) and (3). 37 See 42 U.S.C. 1396r(c)(2)(A).

9 State Contract Law Provides Defenses to Spring 2013] Nursing Home Contract Arbitration Clauses 9 D. Litigation For the client stuck with such an agreement, the cases show that smart, aggressive lawyering can shift the grounds onto something more favorable. In the title insurance case noted above, 38 plaintiff brought in as expert witnesses three consumer lawyers whose collective testimony persuaded the Court that the arbitration provision was outlandish. IV. Conclusion The Supreme Court s rigid application of the Federal Arbitration Act is deeply unfortunate, and leaves Elder Law attorneys little room to negotiate the terms of arbitration clauses, making all more valuable a feel for those routes that are available. But Marmet leaves intact all of the state law approaches to attacking the formation of the contract, which gives the arbitration clause its power. Through a carefully drafted estate plan, thought about who signs at admission or after, Elder Law attorneys have a few options for maintaining their clients rights. 38 Brewer v. Missouri Title Loans, 364 S.W. 3d 486 (Mo.S.Ct. 2012).