Nursing home arbitration agreements, notwithstanding recent favorable treatment by the Ohio Supreme Court’s in Hayes v. Oakridge Home, 122 Ohio St. 3d 63, 2009-Ohio-2054, remain vulnerable to procedural conscionability (propriety of the agreement’s formation) and substantive conscionability (agreement’s commercial reasonability) challenges. This vulnerability was recently exposed in a decision by the 11th District (Lake County) Court of Appeals, Wascovich v. Personacare of Ohio, 190 Ohio App. 3d 619, 2010-Ohio-4513.
Richard J. Wascovich, Sr., while a resident at Personacare of Ohio (“Personacare”), died from complications arising from a fractured hip. Mr. Wascovich’s estate brought wrongful death and survival claims against Personacare, which filed a motion to stay the proceedings pending arbitration per the arbitration agreement that Mr. Wascovich had signed upon his admission. The trial court granted Personacare’s motion, finding that the agreement, although procedurally flawed, was nonetheless enforceable.
On appeal, 11th District overturned the trial court, ruling that the arbitration agreement suffered from both procedural and substantive shortcomings. With respect to plaintiff’s procedural conscionability challenge, the Court was persuaded by the following: Personacare, as compared to Mr. Wascovich – a 72-year-old retired truck driver with Alzheimer’s – had superior knowledge relating to business, contracts, and litigation; Personacare’s representative did not explain the consequences of signing the arbitration agreement since she herself admitted to not understanding how the agreement would affect Wascovich; and the agreement was adhesive in nature. Notably, plaintiff supported its procedural challenge with the affidavit of a former Personacare employee responsible for new resident admissions. This employee averred that she was not trained to read the contents of the arbitration agreement to new residents; she did not explain to new residents the implications of signing the arbitration agreement, and she was not trained to understand the differences between litigation and arbitration. She further averred that she did not advise residents that they could make changes to the arbitration agreement.
As for plaintiff’s substantive challenge, the Court noted that although the agreement contained a number of features that weighed against unconscionability – including a right to refuse signing, a 30-day revocation period, and the right to confer with legal counsel – they were outweighed by the indicia of substantive unconscionability. Most glaring was an “almost total lack of procedural protections,” including no evidence that Mr. Wascovich was lucid when he signed the agreement. The Court held that the burden was on Personacare “to produce something that reflects that they were dealing with a person who, at minimum, had the capacity to contract.” Absent such evidence, any substantive deficiency was, in the court’s view, fatal to enforceability. In this respect, the court found that the “main problem” with the substantive aspect of the agreement was that the “normal factors” favoring liability – economy and efficiency – did not apply to the agreement. Rather, the agreement required the parties to first submit their dispute to mediation. If a settlement was not reached at mediation, the dispute would go to binding arbitration. This two-part scenario was, according to the court, costly, time-consuming and contrary to the typical advantages associated with ADR. Accordingly, the Court overturned the trial court’s enforcement of the agreement.
There are several takeaways from Wascovich. First, while courts will continue to indulge a strong presumption in favor of arbitration, arbitration agreements remain susceptible to fact- driven conscionability challenges. The agreement in Wascovich was largely consistent in substance and content with agreements that courts have regularly upheld, excepting its mediation-before-arbitration provision. However, the agreement failed principally because plaintiff created a record of uncertainty as to Mr. Wascovich’s mental capacity to enter into the agreement – particularly one that Personacare’s own employee admitted to not fully comprehending. In this respect, nursing homes are wise to train admissions personnel to have a firm and complete grasp of the arbitration agreement they present to incoming residents. An agreement written in “plain English” would be advantageous in that regard. Additionally, administration personnel must ensure that the resident is lucid and cognizant of what s/he is signing. If not, the matter should be directed to family members and/or the resident’s power-of-attorney.
If you would like a copy of the Wascovich opinion, or have any questions concerning its implications, please do not hesitate to contact one of our Long Term Care Practice Group Members.
