Enforceability of Nursing Home Arbitration Agreements in Pennsylvania

By Victoria C. Scanlon, Esq.*

Arbitration is a favored method of resolving claims. It is often less expensive and more efficient than traditional litigation. It provides finality and, if agreed to, confidentiality—preventing a nursing home’s name from being blasted across the front page of a local paper or in a social media post, describing in detail all the horrible acts or failures that the facility or its employees are alleged to have committed, and protecting a nursing home’s ability to retain and attract new residents. However, not all signed arbitration agreements are enforceable. While Pennsylvania courts have strongly favored arbitration as a means of dispute resolution, the existence of an arbitration agreement and a liberal policy favoring arbitration does not mean that a court will rubber stamp an agreement and enforce arbitration. A claimant/plaintiff may ask a court to find that an arbitration agreement is invalid because either the language of the agreement is unconscionable or no longer valid. In addition, arbitration may not be permitted if the party who signed the agreement did not have authority to do so, or the dispute is beyond the scope of the agreement.

Do the Terms of an Agreement Unreasonably Favor the Drafter ir Is an Integral Provision No Longer Valid?

When determining the unconscionability of an agreement, the court will conduct a two-fold inquiry: (1) whether the contractual terms unreasonably favor the drafter of the agreement; and (2) whether there is no meaningful choice on the part of the other party regarding the acceptance of the provision. Recently, in MacPherson v. The Magee Memorial Hospital for Convalescense, 2014 Pa.Super. LEXIS 1781 (Pa.Super. 2014), the Pennsylvania Superior Court addressed whether an arbitration agreement was unconscionable and, therefore, unenforceable. (Subsequent to the submission of this article, the Superior Court granted reargument in MacPherson and withdrew its opinion. See, 2014 Pa.Super. LEXIS 2925).

Nevertheless, the MacPherson court held that the agreement was not unconscionable because: the agreement provided that each party pay their own fees and costs in preparing for arbitration; the agreement contained a conspicuous, large and bolded notification that the parties, by signing, were waiving the right to a trial before a judge or jury; at the top of the agreement, in underlined and bold type-face, the agreement stated that it was voluntary and that, if a resident refused to sign it, the resident would still be allowed to live in and receive services at the nursing home; the nursing home would pay for the arbitrators’ fees and costs; there were no caps or limits on damages other than those already imposed by state law; and the resident was permitted to rescind within 30 days.

The MacPherson court also addressed whether a provision that was no longer valid was integral to the agreement and, therefore, results in an unenforceable agreement. The agreement provided that the National Arbitration Forum (NAF) would administrate the arbitration. However, the NAF can no longer accept arbitration cases pursuant to a consent degree it entered with the Attorney General of Minnesota. Yes, check your agreement, does it include the use of NAF? In an earlier case, Stewart v. GGNSC-Canonsburg, L.P., 9 A.3d 215 (Pa.Super. 2010), the arbitration agreement included a forum selection clause designating the NAF and its procedures. The Stewart court held that the agreement was unenforceable because the provisions designating the NAF and its procedures were integral to the agreement and could not be enforced due to the unavailability of the NAF. The court found that it was an express intention to arbitrate exclusively before NAF. Also, the severability clause could not save the agreement because the court would be forced to rewrite the forum selection cause and devise a substitute forum and mode of arbitration for the parties.

In MacPherson, however, the agreement did not require exclusivity with the NAF. Rather, it contained a hierarchy with alternatives to NAF. The agreement provided that the arbitration would be administered by NAF, but that the parties could agree in writing to not select NAF, or, if NAF was unwilling or unable to serve as the administrator, the parties could agree upon another independent entity to serve as the administrator (unless the parties mutually agree to not have an administrator). The MacPherson court found the aforementioned language permissive and not mandatory and held that, in the absence of an exclusive forum-selection clause, the provisions in question were not integral to the agreement.

Who Has the Authority To Execute an Arbitration Agreement?

The answer is easy if a resident is an adult of sound mind. But what if you have a resident who has symptoms of or has been diagnosed with dementia of the Alzheimer’s type, mental illness, disorientation, confusion or some other condition that places a resident’s capacity to form a binding contract into question? Can you safely assume that a spouse or sibling has authority to execute an arbitration agreement? Simply, no. An arbitration agreement must be signed by a party with legal authority to enter the contract. If someone other than a resident signs the agreement, the agreement is valid and legally binding only if an agency relationship existed between them.

An agency relationship can be created in one of four ways: (1) express authority; (2) implied authority; (3) apparent authority; and (4) agency by estoppel. If a claimant/plaintiff challenges whether an agent had authority to execute the agreement on his/her behalf, it is the defendant nursing home that will have the burden of establishing an agency relationship.

Express authority is that authority directly granted by the principal to bind the principal in certain matters, i.e. power of attorney or legal guardian. However, make sure you obtain a valid power of attorney or proof of guardianship. Implied authority is when the acts of the agent are necessary, proper and usual in the exercise of the agent’s express authority.

Meanwhile, apparent authority exists where a principal, by words or conduct, leads a party with whom the alleged agent deals to believe the principal has granted the agent the authority he purports to exercise. A court will look to the actions of the principal, not the agent, in determining apparent authority of the agent. For example, a marital relationship alone does not grant a spouse with apparent authority. A court will look to the principal’s words or conduct at the time the agreement was executed to determine whether the principal granted the third party with authority to bind the principal’s interests.

Finally, authority by estoppel occurs when a principal fails to supervise the affairs of his agent and, thus, allows the agent to exercise authority not granted to him. If the principal fails to take reasonable measures to protect himself and third parties dealing with the agent from harm caused by the agent, then the principal may be estopped from denying the authority of the agent.

The Scope of the Agreement

This issue is more difficult than one may anticipate. If the dispute involves a claim for wrongful death, a key issue will be whether the decedent/resident has surviving beneficiaries under the Pennsylvania wrongful death statute. The wrongful death statute limits beneficiaries to the decedent’s spouse, children or parents. If the decedent has surviving beneficiaries, as limited by the wrongful death statute, then an action for wrongful death benefits belongs to the designated relatives and exists only for their benefit. Therefore, a wrongful death claim brought for the benefit of designated representatives may not be subject to an otherwise enforceable arbitration agreement.

For example, in Lipshutz v. St. Monica Manor, 2013 Phila. Ct. Com. Pl. LEXIS 396 (J. Bernstein, Nov. 12, 2013), the decedent’s daughter brought a survival and wrongful death claim. The decedent’s daughter, who had a power of attorney, executed an admission agreement that contained a mandatory arbitration clause. The court found that the plaintiff executed the agreement strictly, and only in her representative capacity, and that she did not affect her own right or the rights of the other beneficiaries to bring a wrongful death claim in a court of law. The court retained jurisdiction of the wrongful death claim and remanded the survival claim to arbitration.

A second example is in the MacPherson matter. There, a claim was brought by the decedent-resident’s brother, and the decedent did not have any surviving designated beneficiaries under the wrongful death statute. In that instance, a wrongful death claim may be brought solely for the benefit of the estate, and damages are limited to reasonable hospital, nursing, medical, and funeral expenses and expenses of administration necessitated by reason of injuries causing death. The MacPherson court held that the wrongful death claim brought for the benefit of the estate only was bound by an otherwise enforceable arbitration agreement that had been signed by the decedent.

In conclusion, draft your arbitration agreement carefully. Review the language of the agreement regularly, and be sure that the person signing the agreement has the authority to enter into the contract. Finally, stay tuned for what the Superior Court will decide about arbitration agreements upon reargument in MacPherson.

*Vicky is a shareholder in our Scranton, Pennsylvania office. She can be reached at 570.496.4652 or vcscanlon@mdwcg.com.

Defense Digest, Vol. 20, No. 4, December 2014

Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2014 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.