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8 September 2022 / Andrew P. Condiles

Appellate Court's Refusal to Enforce a Nursing Home's Arbitration Agreement Provides Drafting and Presentation Guidance

Despite Pennsylvania courts’ tendencies to enforce arbitration agreements, the Pennsylvania Superior Court denied a nursing home’s attempt to compel arbitration, finding that the agreement was unconscionable. In Kohlman v. Grane Healthcare, Co., a decedent’s family brought litigation alleging wrongful death (among other claims) against the nursing home that had housed the decedent immediately before she died. The nursing home attempted to remove the case from the Court of Common Pleas by seeking to enforce an arbitration agreement that the decedent had signed. The decedent’s family objected, arguing that the agreement was void as it was unconscionable. 

The finding that an agreement is unconscionable requires a court to conclude that the agreement is both procedurally and substantively unconscionable.  Procedural unconscionability requires a showing by the party seeking to invalidate the contract that they lacked a meaningful choice when they signed it. Substantive unconscionability requires the challenging party to demonstrate that the terms of the agreement are excessively unfavorable to them. The more that one of these types of unconscionability exists, the less of the other that is required to find that the agreement is unconscionable and thus void.

Despite the nursing home’s low-pressure and straightforward presentation of the arbitration agreement, some of their seemingly innocuous actions and omissions weighed in favor of a finding of procedural unconscionability. As part of the admissions process, the nursing home’s admissions director presented the decedent with three forms, including the arbitration agreement. The admissions director made clear that signing the forms was not a condition of admission. As the decedent was blind, the nursing home’s admissions director testified that they read the admissions documents to the decedent; however, the court did not conclude that this was an undisputed fact. The nursing home’s efforts were insufficient to overcome the court’s concern that the decedent didn’t understand the arbitration agreement, given her visual impairment.

The admissions director testified that she didn’t tell the decedent that they could consult with an attorney or attempt to locate the decedent family members who accompanied her to the nursing home. In her deposition, the admissions director didn’t indicate that she gave the decedent a copy of the agreement or advised the decedent of her right to rescind the agreement. After examining the circumstances surrounding the presentation and signing of the arbitration agreement, the court found that the decedent couldn’t have been said to have had a meaningful choice in consenting to it. As such, the arbitration agreement was found to be procedurally unconscionable.

Kohlman made clear that it was not overturning prior case law, which found that arbitration agreements were not procedurally unconscionable. In explaining this point, the Superior Court highlighted the nursing home’s alleged shortcomings, noting that the decedent was not: 1) given the opportunity to understand the agreement (as the decedent could not simply read it herself), 2) reminded of her ability to consult a lawyer, or 3) made aware of her right to revoke the agreement. Put differently, the nursing home’s error was not the decision to present the agreement but in its presentation of the agreement.

The court’s analysis of the arbitration agreement’s substantive unconscionability focused exclusively on the allocation of costs between the parties. The arbitration agreement required the parties to evenly split all of the arbitration’s costs. As the decedent’s family would have had to bear half of the arbitration’s expenses without the decedent being made aware of this fact, the court found that the agreement was substantively unconscionable. 

In explaining that Kohlman is consistent with existing case law, which did not find arbitration agreements to be substantively unconscionable, the court noted the key differences in the fact patterns of the litigation. In one case, all of the costs of arbitration were evenly split, with the exception of the arbitrators’ fees. In another matter, all of the fees were evenly divided, but arbitration wasn’t compelled if the amount in controversy was under $12,000 and the challenging party didn’t assert that the cost of arbitration was an obstacle to proceeding with the litigation. Kohlman makes clear that an even split of all costs, regardless of the amount at stake, is a red line if the costs present a hurdle to a party. However, the ruling seemingly endorses the even division of non-arbitrator arbitration fees and even cost sharing in low-dollar litigation.

While Kohlman is an exception to the court’s usual practice of finding arbitration agreements to be enforceable, its reasoning provides guidance regarding the employment and viability of arbitration agreements. In highlighting the nursing home’s alleged errors when the arbitration agreement was presented to the incoming resident, the court outlines how parties can increase the likelihood that the agreement will be enforced. Kohlman suggests that forcing a new resident to pay for half of all arbitration costs makes enforcement less probable, while at the same time, the case reiterates the types of cost-sharing that remain viable. In short, with the proper presentation and appropriate cost sharing, arbitration agreements remain a viable option for litigants looking to keep matters out of Pennsylvania’s trial courts.  

Our team is constantly monitoring this case and its impact on Pennsylvania creditors. If you have any questions, please connect with attorney Andrew Condiles at any time.

This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.

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