Arbitration Agreements Under Fire in New Jersey

By Sharon Campbell-Suplee, Esq.*

Long-term care facilities often utilize arbitration clauses in admission agreements with residents. Arbitration is beneficial for a number of reasons, such as reducing litigation costs and keeping disputes private. The use of arbitration can also have long-term benefits, including preventing a perception of a pattern of problems at any given facility. While arbitration agreements are historically judicially favored, recent case law in New Jersey proves they do not receive a warm welcome here in the current climate.

The Federal Arbitration Act (FAA), 9 U.S.C.A. Sec. 1-16, and the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to 32, which is nearly identical, both articulate policies that favor arbitration. However, recent rulings raise the question of whether the New Jersey courts are “anti-arbitration.” A number of recent cases have seen the courts reject arbitration agreements when they believe they are violative of the rights of consumers and employees. In New Jersey, the analysis focuses on an arbitration agreement as a waiver of rights and whether the language establishing the agreement is clear and unambiguous.

On a national level, as noted in a recent New York Times article published on February 22, 2016, “Pivotal Nursing Home Suit Raises a Simple Question: Who Signed the Contract?,” judges have consistently upheld arbitration clauses. In their research into the issue, the Times found that, regardless of whether the person signing the agreement understood its terms, the courts have determined that once the contract is signed, it is binding. As noted in the Times article, “For years, judges hearing elder-abuse cases rejected arguments that arbitration clauses in nursing home contracts were patently unfair because they were signed by people who did not understand them or perhaps even realize they existed.”

Through the passage of New Jersey Statute 30:13-8.1, the New Jersey legislature attempted to bar all admission agreements that require arbitration for nursing home or assisted living residents. In Ruszala v. Brookdale Living, 1 A.3d 806 (App. Div. 2010), the Appellate Division invalidated this statute, determining that it was preempted by the Federal Arbitration Act. However, the court noted that general contract law defenses were applicable to such agreements. In the Ruszala case, the court determined that the arbitration clause in the admission agreement at issue was a contract of adhesion and struck numerous provisions in the clause as unconscionable.

In 2014, the New Jersey Supreme Court decided the case of Atalese v. Legal Services, 99 A.3d 306 (N.J. 2014). This case has been repeatedly cited by New Jersey courts in support of rejection of arbitration agreements as invalid. In Atalese, the court determined that an arbitration provision had to clearly and unambiguously notify the consumer that they were waiving the right to seek relief in a court of law. At least seven recent cases have rejected arbitration agreements in New Jersey, citing Atalese and the “for clear and unambiguous language” requirement. Most recently, in March of 2016, a federal district court judge found an arbitration agreement in the owner’s manual of a Samsung Galaxy Gear S smartwatch invalid. The judge concluded that the clause was not conspicuously presented so that the purchaser knew, or reasonably should haven known of the legal rights they intended to surrender. She further concluded that the consumer did not have reasonable notice of the arbitration agreement.

In the case of nursing homes, enforcement of an arbitration argument can be even more difficult. One of the factors examined by the courts is the relative bargaining positions of the parties. The legislature in New Jersey, through the creation of the Nursing Home Act, has already determined that residents of nursing homes and assisted living centers are members of a vulnerable group entitled to special protection. See N.J.S.A. 30:12-1 – 17, Ruszala, 1 A.3d at 820-821.

Further, in the industry broadly, state regulators have become concerned due to the secretive nature of arbitration agreements. Recently, 16 attorneys general sent letters urging Medicare and Medicaid to deny money to nursing homes that use arbitration clauses. Moreover, the American Arbitration Association has refused to arbitrate health care cases between residents and facilities unless the parties agreed to arbitrate after the dispute arose.

Plaintiffs’ counsel have successfully been focusing on technical issues to attack arbitration clauses. In a case currently pending in Massachusetts that received some local notoriety, a resident of a facility was killed by her roommate. As is frequently the case, the son of the resident had signed the admission agreement, which contained an arbitration provision. The son filed suit on behalf of his mother, but the facility was initially successful in compelling the arbitration. Subsequently, counsel for the son argued that, at the time he signed the agreement, he was his mother’s health care proxy, not power of attorney, and could not legally bind his mother to arbitration. In 2014, a judge agreed, and the case is scheduled to be heard this month.

The plaintiffs’ bar have suggested this is their new line of attack on arbitration agreements. Given the message sent by the recent spate of cases in New Jersey striking down arbitration provisions, it is likely such an argument will be well-received here.

*Sharon is a shareholder who works in our Cherry Hill, New Jersey office. She can be reached at 856.414.6042 or scsuplee@mdwcg.com.

_{Defense Digest, Vol. 22, No. 2, June 2016}

_{Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}