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Torts: Unconscionability of Arbitration Clause in Nursing Home Contract

Posted by Ted A. Schmidt | Feb 23, 2017 | 0 Comments

Gullett v. Kindred Nursing Centers West, LLC, 758 Ariz. Adv. Rep. 12 (App. Div. II, February 15, 2017) (J. Staring)

AGREEMENT TO ARBITRATE NOT SUBSTANTIVELY UNCONSCIONABLE WHERE REASONABLE THOUGH LIMITED DISCOVERY ALLOWED AND WHERE BOTH PARTY'S ARE ALLOWED INPUT ON WHO WILL ARBITRATE; LIMITED DISCOVERY SHOULD BE ALLOWED TO DETERMINE IF AGREEMENT TO ARBITRATE WAS THE RESULT OF A FAIR MEETING OF THE MINDS

Plaintiff's father died in a nursing home owned by defendant Kindred Nursing Centers [Kindred] and he brought a lawsuit under the Arizona's Adult Protective Services Act [APSA], A.R.S. §§46-451 to 46-459 alleging the death was caused by the defendant's neglect and abuse. Kindred moved to compel arbitration pursuant to the nursing home contract and plaintiff opposed the motion claiming the agreement was substantively unconscionable if not procedurally unconscionable. Plaintiff asked for discovery and a hearing on the procedural unconscionability issue. The trial court granted Kindred's motion and the order was certified under rule 54(b) of the Arizona Rules of Civil Procedure. On appeal the Arizona Court of Appeals affirmed in part and reversed in part.

In determining whether a contract is substantively unconscionable, the court looks to see whether the contract terms are oppressively one-sided and imbalanced in affording rights, obligations and apportioning costs. The law favors alternative dispute resolution and arbitration clauses are construed liberally in favor of enforcement.

An arbitration clause may be found to be substantively unconscionable if  “the amount of permitted discovery is so low and the burden to obtain additional discovery so high that the litigant is effectively unable to vindicate their claim.” Here the contract allowed for 30 interrogatories, 30 requests for production, 10 requests for admission, six lay depositions and two expert depositions. The court held this was not an unconscionable limit on discovery.

Next, plaintiff argued the arbitration clause was unconscionable because it required the arbitration be conducted by a mostly captive organization that handled everything from opening claims to hiring and scheduling arbitrators from an “approved list” and was financially dependent on Kindred who paid its bills and provided most of its business. The court disagreed finding the  arbitration clause did require the organization to choose an impartial arbitrator and, by agreement of the parties another agency or arbitrator could be selected. Further, if the parties could not agree on an arbitrator, each side was permitted to choose one from the “approved list” with the two selected agreeing on a third.

The court then found that the agreement did not lack mutuality since both parties were required to litigate all claims and defenses by arbitration and neither party had the right to circumvent arbitration.

The plaintiff next claimed the trial court erred by refusing him the right to conduct discovery on the suspicion there might be procedural unconscionability in the formation of the contract. "Procedural unconscionability addresses the fairness of the bargaining process, including such concerns as ‘unfair surprise,' fine print clauses, mistakes or ignorance of important facts or other things that mean bargaining did not proceed as it should." Plaintiff claimed that because his father died he could not independently determine these issues.

"There seems to be little reason why litigants should be prevented from

establishing legitimate claims in actions in which the admissible facts are

to be found only in the files and minds of opposing parties. . .  Further,

“[a]lthough it is commonly said that the law favors arbitration, it is more

accurate to say that the law favors arbitration of disputes that the parties

have agreed to arbitrate”. . . . Accordingly, “a restricted inquiry into

factual issues will be necessary to properly evaluate whether there was a

meeting of the minds on the agreement to arbitrate, and the non-movant

must be given an opportunity to conduct limited discovery on the narrow

issue concerning the validity of the . . . agreement."

About the Author

Ted A. Schmidt

Ted's early career as a trial attorney began on the other side of the fence, in the offices of a major insurance defense firm. It was there that Ted acquired the experience, the skills and the special insight into defense strategy that have served him so well in the field of personal injury law. Notable among his successful verdicts was the landmark Sparks vs. Republic National Life Insurance Company case, a $4.5 million award to Ted's client. To this day, it is the defining case for insurance bad faith, and yet it is only one of several other multi-million dollar jury judgments won by Ted during his career. He is certified by the State Bar of Arizona as a specialist in "wrongful death and bodily injury litigation".

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