Pre-Dispute Arbitration Agreements are Valid and Must Be Upheld

While the Federal Arbitration Act encourages the use of an arbitration provision in a contract and encourages the use of arbitration as an inexpensive and relatively quick way to resolve disputes, much of the discussion surrounding the use of an arbitration agreement in a nursing home admission agreement is less favorable. Such agreements have been criticized as favoring the nursing home industry and asking elderly residents to give up rights they otherwise have, at a time in the life when they are most vulnerable.

The Supreme Court issued a ruling this past February that no state can impose additional requirements upon arbitration agreements that conflict with the Federal Arbitration Act (FAA).¹ In Marmet Health Care Center v. Brown², the U.S. Supreme Court considered West Virginia’s requirement that all claims for wrongful death or negligence submitted to arbitration, must be accompanied by a post-dispute arbitration agreement.  The West Virginia Supreme Court of Appeals had previously held that, “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home’s admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”³   The Supreme Court reiterated the federal policy in favor of arbitration as a dispute resolution tool.⁴  It also relied upon its recent ruling in AT&T Mobility LLC v. Concepcion⁵,  holding that “when a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” The Supreme Court struck down the West Virginia requirement of a post-dispute agreement to arbitrate, as a prerequisite to compel arbitration. 

The debate about post-dispute agreements to arbitrate is far from settled however.  Several major arbitration forums limit consumer arbitrations by refusing to handle them or by requiring a post-dispute agreement before they will accept an arbitration of a nursing home matter.  As an example, The National Arbitration Forum no longer accepts any arbitration by a commercial entity against a consumer, including a nursing home against its resident.  The American Arbitration Association requires this “post-dispute” agreement to arbitrate in a matter against a consumer.  Further, Congress is still considering what has been billed as the “Fairness in Arbitration Act,” which seeks to eliminate the use of arbitration agreements in the nursing home-resident relationship.⁶  

Notably, the arbitration agreements in the Marmet Health Care Center v. Brown line of cases contained provisions that exempted the collection of the balance due on the account from the requirements of the arbitration provision.  When drafting an agreement with consumers, it’s important to consider this type of exemption, in order to streamline the collection and litigation of past-due accounts and avoid the issues raised by the courts regarding arbitration in this context. 

While there may be benefits to using an arbitration agreement in general, the collection of a past due account should be exempted in order that the account may be collected quicker, more economically, and with less debate over the need for a post-dispute agreement to arbitrate.  With pre-existing arbitration agreements, providers should look to the rules of the specific forum to determine whether they will take the arbitration, and review the procedures of the forum to determine if a post-dispute agreement is required.  If post-dispute consent cannot be obtained, in some states, the resident will be deemed to have waived the right to arbitration by failing to raise it in state court litigation.  Additionally, if the Arbitration Agreement itself is waived or deemed invalid, in most cases the nursing home can proceed to obtain a judgment under the remaining terms of its admission agreement. 

While this is a very broad topic for an article of its own, keep in mind that all is not lost if the Arbitration Agreement cannot be enforced, which we will address in a follow-up advisory shortly.  In the meantime, if you have any questions about your facility’s use of arbitration provisions in your admission agreements, or about the case law detailed in this advisory, please contact our office.