What's In A Word? N.C. Court of Appeals Invalidates Nursing Home Arbitration Clause Based on Language of the Agreement

by Poyner Spruill LLP

?Many nursing homes and assisted living communities commonly include arbitration agreements as part of their admission agreement and documents. Typically, these agreements require residents or their legal surrogates to arbitrate disputes with the facility rather than sue in court for damages, and these arguments can cover many types of disputes, including collection actions and medical negligence claims, among others.

Most of these agreements are “pre-dispute arbitration agreements,” meaning the parties to the arbitration agreement both agree, before any dispute has arisen, that if and when one does, they will submit it to arbitration in lieu of court proceedings to resolve their differences. A January 2013 decision by the NC Court of Appeals suggests that long term care providers using pre-dispute arbitration agreements should look closely at the language of these agreements to ensure that they can actually be implemented specifically and precisely as drafted; otherwise they might risk having a court refuse to enforce them.

In Crossman v. Life Care Centers of America, Inc., et al., a mentally competent resident was admitted to a Life Care facility and executed a pre-dispute arbitration agreement. The agreement specifically provided that any and all claims arising out of the care or treatment received by the resident at the facility would be submitted to binding arbitration “before a board of three arbitrators selected from the American Arbitration Association (AAA) and the arbitrators would apply the applicable rules of the AAA.”

However, the year before this agreement was signed, the AAA issued a policy statement saying it would no longer arbitrate claims between an individual patient and a health care provider under pre-dispute arbitration agreements but would only handle disputes involving post-dispute arbitration agreements. Subsequently, the resident died and his wife sued the facility for negligence, among other claims. When the facility moved to
compel arbitration, the wife resisted and sought to invalidate the arbitration agreement because, among other things, it could no longer be administered according to its terms because of the AAA position on pre-dispute arbitration agreements.

Both the trial court and the NC Court of Appeals agreed with the wife and refused to enforce the arbitration agreement. This case does not necessarily mean that NC courts now disfavor arbitration agreements. The court in its opinion noted NC’s strong public policy favoring arbitration over trials. However, the court in this case arguably engaged in hairsplitting in ruling against the facility, distinguishing this case from prior NC court opinions and refusing to enforce the arbitration agreement.

This case also follows a recent trend in many other states of disfavoring pre-dispute arbitration agreements. A growing number of courts around the country are finding these agreements “an unconscionable violation of public policy” and refusing to enforce them. Others, like the NC Court of Appeals in this case, have stopped short of refusing to enforce any pre-dispute arbitration agreement, instead holding the health care provider to a strict and literal reading of its arbitration agreement with patients.

So, what’s the lesson of this case? First, review your arbitration agreements carefully and periodically. Make sure the group you have designated as your arbitrator actually still exists and handles health care arbitration matters. From time to time, we’ve seen arbitration entities, public or private, either get out of the business altogether or limit their work to certain types of disputes. If the arbitration entity named in your agreement is no longer in business or no longer handling health care claims, for example, you could find yourself with an unenforceable arbitration agreement and headed to trial when a dispute arises. In such cases, you’ll need to amend and re-execute your arbitration agreement to ensure its enforceability, and there’s no guarantee your residents will agree to do so.

Second, in drafting these agreements, consider designating a process for selection of a backup arbitrator and corresponding procedures and rules governing the arbitration, just in case for some reason your primary arbitration entity no longer can or will handle the claim. This allows some flexibility for changed circumstances. Courts tend to uphold these agreements as long as there is sufficient specificity in the agreement’s terms. But as the Crossman case shows, overspecificity also creates the opportunity for a court to find the agreement unenforceable if any of the key designated elements of the agreement can no longer be applied or enforced.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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