Arbitration Clauses: Dispute Resolution Allies

Arbitration ClauseWe tend to fear that with which we are not familiar. Management companies and insurance claims managers often express unwillingness to enforce arbitration clauses in resident admission agreements (“Agreement”) because they are not familiar with the arbitration process and would prefer doing things the way they have always been done. I would like to change that response.

Arbitration clauses are agreements like any other agreement. The terms of the agreements are set by the facilities and accepted or rejected by the residents. Based on how courts enforce arbitration clauses, certain language should be included; however, whether to include an arbitration clause at all in an Agreement should not be questioned. Every facility should take advantage of and ensure availability of multiple avenues of dispute resolution.

Plaintiffs generally insist on litigation because they want to whip the jury into a frenzy over pressure ulcer photographs or low staff to resident ratios. In many states, juries erroneously view long term care facilities as places where people go to die because of poor care. Facilities should take advantage of the option of keeping a case from a jury. Availability of mediation or pre-trial negotiation may not always keep a case from a jury, as they are voluntary. Arbitration clauses are typically only voluntary at the time of signing the Agreement.

Plaintiffs do not usually insist on enforcement of arbitration clauses; thus, the facilities can either enforce or opt not to enforce the clauses. So, just because you have it does not mean you are obligated to use it. Significantly, if a facility initially does not enforce the clause, there will be a point of no return in the litigation after which the facility will be deemed to have waived the right to enforce arbitration. To avoid waiver of arbitration, a motion to compel arbitration should be the response to any complaint, and that motion should be decided before further litigation or discovery.

Facilities often receive “opt-out” letters informing the facilities that the plaintiff opts out of the arbitration clause pursuant to a state law. Generally, courts have found such laws to violate the Federal Arbitration Act (“FAA”), which specifies that arbitration clauses are valid and irrevocable, except upon such grounds as exist for revocation of any contract. 9 U.S.C. §2. If a state law permits nullification of arbitration clauses because they are arbitration clauses, then that law is trumped by the FAA and cannot be upheld. Marmet Health Care Center, Inc. v. Brown, 132 S.Ct. 1201 (2012).

When confronted with a motion to compel arbitration, plaintiffs usually wage two primary battles to prevent arbitration of their cases. They claim that the dispute is not arbitrable and that the arbitration clause violates contract law. Arbitrability of the claim will be covered in this blog post and contract claims will be covered in a separate blog post.

Arbitrability of a dispute is an evaluation of whether the claims are covered by the terms of the arbitration clause. That issue is usually decided by the court unless the arbitration clause specifically states that the arbitrability question shall be decided by an arbitrator or that the parties will follow rules of arbitration that require the arbitrator to decide arbitrability, such as the Commercial Rules of the American Arbitration Association. The overriding principle of FAA law is that the courts enforce the agreement of the parties. Thus, the arbitration clause should contain language that specifies who decides arbitrability and that requires arbitration of all foreseeable topics.

Drafting an arbitration clause to cover all disputes requires broad language to ensure the dispute is arbitrable. A broad definition of the realm of arbitrable disputes may include language such as “any and all controversy(ies) or claim(s)” and “all claims arising out of or related to the Resident’s stay, care, or treatment.” The point is that your arbitration clause must be one that will be applied to all disputes that arise.

We will discuss the contract-based challenges to arbitration clauses in the next blog. Stay tuned.

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