Court Rules Nursing Home’s Resident Arbitration Agreement is Enforceable
2008-0784. Hayes v. Oakridge Home, Slip Opinion No. 2009-Ohio-2054.
Cuyahoga App. No. 89400, 175 Ohio App.3d 334, 2008-Ohio-787. Judgment of the court of appeals reversed, and judgment of the trial court reinstated.
Moyer, C.J., and O'Connor, O'Donnell, and Cupp, JJ., concur.
Lundberg Stratton and Lanzinger, JJ., concur in judgment only.
Pfeifer, J., dissents.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2009/2009-Ohio-2054.pdf 
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(May 7, 2009) In a decision announced today, the Supreme Court of Ohio ruled that a voluntary arbitration agreement signed by a nursing home resident at the time of her admission that was not a precondition to admission is not rendered procedurally unconscionable solely by virtue of the resident’s age.
The Court’s lead opinion, authored by Justice Maureen O’Connor, also held that a voluntary arbitration agreement that is not a precondition to admission in which a nursing home resident gives up the rights to a jury trial and to seek punitive damages and recover attorney fees from the nursing home is not substantively unconscionable. Based on those findings, the Court reversed a ruling by the 8th District Court of Appeals that an arbitration agreement between a Cleveland-area nursing home and a former resident was both procedurally and substantively unconscionable, and therefore unenforceable.
The case involved a lawsuit filed against The Oakridge Home, a nursing home that provides inpatient care, by the estate of a deceased former resident, Florence Hayes. The complaint alleged that while Hayes was a resident at Oakridge, she suffered serious injuries in a fall from a wheelchair that was the result of negligence by the nursing home staff.
After the executor of Hayes’ estate filed suit in the Cuyahoga County Court of Common Pleas, Oakridge entered a motion seeking a stay of all court proceedings on the basis that, at the time of her admission to Oakridge, Hayes had signed a document in which she agreed that any civil claims she might assert against the home or its staff would be resolved by means of binding arbitration rather than through a lawsuit. The trial court found the arbitration agreement valid and enforceable, and stayed any further action in the lawsuit pending the outcome of binding arbitration.
Hayes’ estate appealed. On review, the 8th District Court of Appeals reversed the trial court’s ruling and remanded the case to the common pleas court for further proceedings in the lawsuit. In a 2-1 opinion, the appellate panel agreed with arguments by the estate that because of Hayes’ advanced age (95 at the time of her admission), the unequal positions of the parties and other factors, the arbitration agreement between Hayes and the nursing home was both substantively and procedurally unconscionable, and therefore was not enforceable.
Attorneys for Oakridge sought and were granted Supreme Court review of the 8th District’s ruling.
Writing for the majority in today’s decision, Justice O’Connor noted that both the General Assembly and Ohio courts have expressed a strong public policy favoring arbitration as a faster and less expensive alternative to litigating civil disputes that also reduces demands on overcrowded court dockets. “The General Assembly has endorsed the strong policy in favor of arbitration of disputes in R.C. 2711.01(A), which provides that an arbitration agreement ‘shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract,’” she wrote.
With regard to the legal ground of “unconscionability” cited by the 8th District as its basis for invalidating the arbitration agreement in this case, Justice O’Connor wrote: “Unconscionability includes both ‘an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’ ... The party asserting unconscionability of a contract bears the burden of proving that the agreement is both procedurally and substantively unconscionable.”
Citing this Court’s 2008 decision in Taylor Bldg. Corp of America v. Benfield, Justice O’Connor observed that in determining whether an arbitration agreement is procedurally unconscionable courts must consider the circumstances surrounding the contracting parties’ bargaining process, including such factors as the parties’ relative age, education, intelligence, business acumen and experience, who drafted the contract, whether alterations in the printed terms were possible, and whether there were alternative sources of supply for the goods in question.
In rejecting the 8th District’s conclusion that the arbitration agreement between Hayes and Oakridge was procedurally unconscionable, Justice O’Connor wrote: “(T)he court of appeals erroneously relied upon facts not in the record, a practice that the dissent has adopted as well. These purported facts include the following: (1) Hayes lacked any business or contract experience, (2) no one explained the terms of the agreement to Hayes, including the fact that she could alter the agreement, (3) the rescission clause was buried among a myriad of terms, and she was required to fill out numerous other forms at the same time, and (4) there were no alternative sources of supply because finding a quality nursing home is difficult.”
“The only facts in evidence in this case pertaining to procedural unconscionability are Hayes’s age and the terms contained in the agreement she signed. Contrary to the court of appeals’ and Hayes’s assertions, there is no evidence in the record regarding Hayes’s educational background, business acumen, or experience. As the party challenging the enforceability of the arbitration agreement, it was Hayes’s burden to come forward with evidence supporting her challenge. She did not satisfy that burden. ... The agreement clearly delineated in several places that it was voluntary and not a condition of her admission to Oakridge. ... Moreover, the arbitration agreement was a free-standing document and was not simply a clause obscured within a lengthy contract. Hayes’s age, in and of itself, is not a sufficient basis for finding the agreement procedurally unconscionable.”
Justice O’Connor also rejected the court of appeals’ finding that the Oakridge arbitration agreement was substantively unconscionable because signing it resulted in Hayes’ forfeiting her rights to a jury trial and to assert future claims against the nursing home for punitive damages and attorney fees.
She wrote: “An assessment of whether a contract is substantively unconscionable involves consideration of the terms of the agreement and whether they are commercially reasonable. ... The terms of the arbitration agreement between Hayes and Oakridge are commercially reasonable. ... (A)s this court noted in Taylor Bldg. waiver of the right to trial by jury is a necessary consequence of agreeing to have an arbitrator decide a dispute, and this aspect of an arbitration clause is not substantively unconscionable. ... We follow that holding today.
“The provisions in the agreement by which the parties waive their right to seek punitive damages and attorney fees are also commercially reasonable. Both parties must bear their own attorney fees and costs under the agreement, which is equitable to both parties. This provision is not one-sided or oppressive. ... Although the relinquishment of the right to seek punitive damages applies only to Hayes, that fact alone does not render the provision commercially unreasonable. ... By entering into the arbitration agreement, Oakridge also waived statutory legal rights that apply only to Oakridge. For example, Oakridge waived its legal right under R.C. 2323.42 to seek court costs and attorney fees. ... In addition, Oakridge also waived its legal right to pursue an action for filing a groundless complaint under R.C. 2323.51 and Civ.R. 11, which, if successful, could entitle Oakridge to recover expenses and attorney fees. Finally, Oakridge waived its right to seek a dismissal of Hayes’s action for failure to comply with Civ.R. 10(D)(2).”
“As outlined above, both parties relinquished legal rights by agreeing to arbitration. Hayes gave up her right to seek punitive damages, and Oakridge in turn gave up its right to seek legal costs, attorney fees, and an outright dismissal of the case. The critical factor herein is that Hayes voluntarily agreed to these terms and was not forced to agree. She had the opportunity to reject a waiver of punitive damages or any of the other terms. For all of the foregoing reasons, we find that terms in an arbitration agreement between a nursing home and its resident that eliminate the right to trial and the right to seek punitive damages and attorney fees are not substantively unconscionable.”
Justice O’Connor’s opinion was joined by Chief Justice Thomas J. Moyer and Justices Terrence O’Donnell and Robert R. Cupp. Justice Judith Ann Lanzinger entered a separate opinion, joined by Justice Evelyn Lundberg Stratton, in which she concurred with the majority in judgment only. Justice Paul E. Pfeifer dissented.
In his dissenting opinion, Justice Pfeifer stated that he would hold that “any nursing home preadmission arbitration agreement is unconscionable as a matter of public policy. Alternatively, I would hold that the specific agreements in this case were unconscionable as a matter of public policy. More narrowly, I would hold that the arbitration agreements in this case were both substantively and procedurally unconscionable.”
Justice Pfeifer noted that in enacting the Ohio Nursing Home Patients’ Bill Of Rights, the General Assembly enumerated 32 specific rights to which residents of such facilities are entitled, and also enumerated in the statute specific remedies that residents may use to protect those rights, including the right to sue in court and authorization to pursue punitive damages and recover their attorney fees from nursing home operators if violations are proved. He wrote: “The General Assembly has identified nursing-home residents as being particularly vulnerable and has instituted protections for them. The arbitration agreements in this case are one-sided and strip away statutory protections that the General Assembly has determined to be necessary for the welfare of residents. The General Assembly has spoken clearly as to the public policy of this state, and the agreements in this case just as clearly flaunt the will of the people. They are unconscionable and unenforceable as a matter of public policy.”
As for the procedural unconscionability of the arbitration agreement, Justice Pfeifer wrote that more factors were in play than just Hayes’s age: “[T]his case does not present the question of whether a 95-year-old should be free to enter into any contract. Instead, we are called upon to look at the unique circumstances surrounding the execution of the specific arbitration agreements involved in this case. Here, we have a 95-year-old woman in a fragile state, burdened with the emotions of entering a nursing home, inundated with paperwork and requests for her signature, who would have reason to believe that the documents she was executing were necessary for her admission into the facility, and who has been presented an overly rosy picture of the benefits of arbitration in a nonnegotiated contract that she never sought. All of these facts are in the record and briefs. That she was infirm and 95 years old is the least of the factors that make the arbitration agreements procedurally unconscionable.”
Justice Pfeifer concluded that the ramifications of the court’s decision would be far reaching: “The tactics employed by Oakridge and countenanced by the majority in this case are appalling. This court today provides a roadmap for nursing-home facilities to avoid the responsibilities of the Ohio Nursing Home Patients’ Bill of Rights. Is it really acceptable to shove an arbitration agreement under the nose of a 95-year-woman, newly arrived at the nursing home, as she goes through the signing frenzy of the admission process? Does the majority really believe that Florence Hayes knowingly and voluntarily gave up her statutory rights through a negotiation process?”
In her opinion, Justice Lanzinger concurred with the majority’s ruling that Hayes had not produced sufficient evidence to show that the arbitration agreements were procedurally unconscionable. “The record does not show by testimony, affidavit, or documentary evidence that appellee, when she signed the agreements, was mentally incompetent, or lacked the ability to read or write, or was confused over language in the agreement, or lacked business savvy, or was emotionally stressed,” wrote Justice Lanzinger. “The record does not show any evidence that the nursing-home representative refused to answer any of appellee’s questions, or denied her request to obtain an attorney, or rushed her through the terms of the agreement. In short, there is no evidence that anyone at the nursing home manipulated appellee into giving up important statutory rights. Speculation about the circumstances surrounding the signing of the agreements is not sufficient to show procedural unconscionability.”
Justice Lanzinger wrote further, however, to state her agreement with Justice Pfeifer’s analysis that the provisions in the Oakridge agreements are substantively unconscionable. “Because the General Assembly has granted special rights and remedies to those in appellee’s circumstances,” she wrote, “unless an arbitration clause specifically explains the rights and remedies to be affected by the arbitration agreement, it is substantively unconscionable.”
Noting that two bills recently introduced in the U.S. Congress would invalidate pre-dispute arbitration agreements between nursing homes and their residents, Justice Lanzinger concluded: “Not every dispute is arbitrable. This court has held as a matter of public policy that child custody disputes are not subject to arbitration. ... It may well be that the General Assembly will act at some point to expressly ban certain arbitration agreements in situations like this. Since it has not yet done so, appellee must prove both procedural and substantive unconscionability. Because appellee has not fulfilled the burden to show both, I reluctantly concur in the judgment of the court.”
Contacts
Dirk E. Riemenschneider, 216.621.5300, for the Oakridge Home.
Blake A. Dickson, 215.595.6500, for Executor Stephen Musser & Estate of Florence Hayes.