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Nursing homes and arbitration agreements

A year ago, I wrote about the 8th District's decision in Hayes v. Oakridge Nursing Home, in which the court by 2-1 vote invalidated an arbitration clause in a nursing home contract between the home and a 94-year-old resident.  Although sympathetic to the result, I questioned the court's reasoning, especially in finding that the agreement was "substantively unconsionable" because it didn't provide for a jury trial or the recovery of attorney fees or punitive damages.  I concluded by saying,

I think the courts' heart is in the right place:  there is an inherent disparity in bargaining power between a consumer and a corporation, and that needs to be recognized.  The problem I have with the slapdash approach of coming to a conclusion and then developing the rationale to support it is that eventually this is all going to wind up in the Ohio Supreme Court's lap, and if that court has to go looking for a rationale, it's likely to look no farther than a pro-business reiteration of the "strong presumption in favor of arbitration." 

Last week, that's pretty much what happened:  In a 6-1 decision, the Ohio Supreme Court reversed and held that the arbitration agreement was valid, citing the "strong public policy favoring arbitration."

Actually, the result wasn't as bad as it could have been.  As I've explained before, the law on arbitration agreements is that the party seeking to invalidate one has to show that it is both substantively and procedurally unconscionable.  Substantive unconscionability goes to the unfairness of the terms, while procedural unconscionability goes to the unfairness of the bargaining process.  The 8th District's decision on the former was on exceedingly shaky grounds:  if you're going to hold that an arbitration agreement is unconscionable because it takes away your right to a jury trial, for example, then no agreement is going to survive scrutiny, because the whole point of arbitration is to avoid a jury trial. 

As for procedural unconscionability, the result was largely dictated by the fact that the plaintiffs hadn't developed a record in the lower court.  The plaintiffs never requested, and the trial court never held, an evidentiary hearing on the issue.  While the appellate opinion and Justice Pfeifer's dissent devote time to reciting the circumstances surrounding Hayes' signing of the arbitration agreement, all of that is taken from the briefs the plaintiffs filed in the trial and appellate courts.  Without all that "evidence," the issue really boiled down to the question of whether a 94-year-old was incapable of validly consenting to arbitration.

In the nursing home context, that's probably a closer call than the court gave it credit for being.   Justices Lanzinger and Lundberg Stratton concurred only in the judgment, and Lanzinger's opinion, and Justice Pfeifer's dissent, note a ground for substantive unconscionability not raised in the 8th's opinion:  the strong preference for protecting nursing home residents, as evidenced by the General Assembly's passage of RC Chapter 3721, which includes a nursing home residents "bill of rights."

One of the problems with the opinion is that it does little to analyze and clarify the law in this area.  As I've pointed out before, the mantra in arbitration cases is that the party seeking to avoid arbitration must provide a quantum of evidence that the clause is both substantively and procedurally unconscionable.  No explanation is ever offered as to exactly what "quantum" of evidence that is (prima facie?  preponderance?  clear and convincing?), nor why the party must show both.  If all of the claims of procedural unconscionability in Hayes' case had been demonstrated by evidence (Pfeifer's opinion gives a rundown of those), would the agreement have been saved by virtue of the fact that it wasn't substantively unconscionable?  Again, one looks in vain through the majority's opinion for any answer or explanation to those questions.

Actually, Pfeifer's dissent provides a compelling analysis of the latter question.  While he doesn't address the "quantum" question, he cites case law from other jurisdictions that view the two types of unconscionably not in isolation, but in comparison to one another:

The substantive/procedural analysis is more of a sliding scale than a true dichotomy. The harsher the clause, the less "bargaining naughtiness" that is required to establish unconscionability.

If you're a plaintiff seeking to avoid arbitration in these types of cases, that's language you should pounce on.

What's perhaps most disturbing about the majority opinion is that it pays no real heed to the recent evolution of arbitration agreements.  While such agreements used to be common in business contracts, they've become increasingly frequent in all manner of consumer contracts, from cell-phone subscriptions to car purchases.  It's one thing when two parties of relatively equal bargaining power agree to resolve any disputes through arbitration; it's another when such a provision is included on a take-it-or-leave-it basis in contracts between a huge corporation and an individual consumer.  For the most part, appellate courts which addressed arbitration clauses in such agreements have recognized the inherent inequality of the parties' bargaining positions.  You won't find any of that in the majority's opinion in Hayes.


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