March 21, 2012 – Wisconsinites wishing to challenge pre-dispute arbitration agreements in the context of nursing home admissions won’t be able to argue that such agreements violate public policy, under a recent decision by the U.S. Supreme Court.

Last month’s decision in Marmet Health Care Center Inc. v. Brown et al., 556 U.S. __ (2012), bars the public policy argument when potential nursing home residents, their family members, or representatives sign voluntary arbitration agreements and later claim personal injury or wrongful death against the nursing home.

While the decision does not prohibit challenges to pre-dispute arbitration agreements on other contract principles, Milwaukee personal injury attorney Jeff Pitman says Wisconsin citizens, and the attorneys who represent them, should be aware of the implications.

“The Marmet decision closes the door on plaintiffs who assert public policy to challenge pre-dispute arbitration agreements,” said Pitman, who practices nursing home neglect and abuse law with Pitman, Kyle, Sicula & Dentice S.C., Milwaukee. “So it’s even more important for folks to know that they are giving up a right to a jury trial when they sign arbitration agreements.”

Madison attorney Brian Purtell, who represents the interests of nursing homes, says that while arbitration agreements can help nursing homes reduce litigation expenses and avoid “runaway verdicts,” they also give residents alternatives to litigation that may take years to resolve.

“There’s an absolute benefit on both sides to have claims resolved expeditiously,” said Purtell, an attorney with Dewitt Ross & Stevens S.C., Madison, and legal counsel to the Wisconsin Center for Assisted Living and the Wisconsin Healthcare Association. “The Marmet case recognizes that people have the freedom to contract in these situations.”

Categorical prohibition of pre-dispute arbitration clauses not allowed 

The U.S Supreme Court in Marmet struck down a ruling by the Supreme Court of Appeals for West Virginia, which essentially upheld West Virginia’s Nursing Home Act. The Act stated that a nursing home cannot use written waivers to bar a resident’s right to commence a lawsuit.

The estates of three individuals in Marmet sued nursing homes with claims of negligence and wrongful death. In all three cases, a family member signed admission agreements with binding arbitration clauses. The plaintiffs sought to void the contracts on the grounds of public policy.

However, the Federal Arbitration Act (9 U.S.C. § 2) determines that written arbitration agreements in transactions involving interstate commerce are valid and enforceable, unless grounds exist in law or in equity for the revocation of the contract. In Marmet, there was no dispute the agreements were transactions in interstate commerce.

West Virginia’s high court acknowledged that the FAA controlled to allow arbitration agreements in nursing home admission contracts, but ruled that such clauses are per se unconscionable if adopted in pre-dispute agreements.

“Congress did not intend for arbitration agreements, adopted prior to an occurrence of negligence that results in personal injury or wrongful death … to be governed by the Federal Arbitration Act,” explained the West Virginia court, which held that such clauses are unenforceable as a matter of public policy under West Virginia law.

The U.S. Supreme Court overturned that decision, explaining that the FAA displaces state laws that prohibit outright arbitration of particular claims.

“West Virginia’s pre-dispute agreements to arbitrate personal injury or wrongful death claims against nursing homes is a categorical rule prohibiting arbitration of a particular type of claim, and that rule is contrary to the terms and coverage of the FAA,” a per curiam opinion explained.

However, the nation’s high court noted that its decision does not prevent a party from claiming that an arbitration clause is unconscionable or otherwise unenforceable based on state common law principles. Only “blanket” rules against such clauses are unlawful. 

Marmet and Wisconsin law

The Marmet decision does not change existing Wisconsin law. Under Wis. Stat. section 788.01, arbitration agreements are generally enforceable. In 2009, Wisconsin lawmakers introduced a bill (SB 673) that would have voided nursing home arbitration agreements on public policy grounds – just like the West Virginia law – but the bill did not pass.

Thus, the Marmet decision does not impact current Wisconsin law. It simply bars a future argument that arbitration agreements violate public policy. Wisconsin residents can still challenge arbitration agreements on other grounds, like unconsionability or duress.

Pitman says pre-dispute arbitration agreements in admission contracts are on the rise, and residents, or their family members, often sign them without knowing what they are giving up, or feel pressured by the admission process.

“Usually, people haven’t pre-planned for this. Their loved one gets sick and needs long-term care. People are freaked out, so there’s really not a lot of choice involved,” Pitman said. “They don’t want to cause problems during the admission process for fear of being turned away.”

But Pitman reminds people that nursing homes cannot condition admission on signing an arbitration agreement. If they did, such contracts could be construed as contracts of adhesion and deemed unenforceable, he says. “Residents have a right not to sign,” Pitman said.

If they do sign arbitration agreements, residents give up a right to have a jury decide issues based on negligence, wrongful death, or other claims. Generally, an arbitration panel will decide the claims, and other procedural issues governed by the agreement.

Pitman counsels clients not to sign them at all. Or, if granting powers through a durable power of attorney document, Pitman tells clients to include a provision that does not grant the power to sign pre-dispute arbitration agreements in nursing home admission contracts.

But Purtell reminds citizens that signing arbitration agreements doesn’t bar future claims, the arbitration option can keep liability insurance rates at bay, and claims can be decided without the expense and time delays associated with litigation.

“At the end of the day, if somebody is entitled to compensation, they are going to get it, whether through the court process or arbitration,” Purtell said. “Arbitration keeps litigation costs down while adding some certainty and expediency to the process for both sides.”

Purtell estimates that maybe one-third of nursing homes in Wisconsin use arbitration agreements, and the ones that do present it separately from the admission agreement and generally include a 30-day rescission period.

“People have a right to freely contract, and giving them an option to arbitrate recognizes that,” Purtell says. “These agreements aren’t thrust upon individuals without an opportunity to understand the significance, and if they were, that’s a basis to challenge them.”

Conclusion

The U.S. Supreme Court in Marmet forecloses the ability of Wisconsin residents to challenge pre-dispute arbitration agreements in nursing home admission contracts on the grounds of public policy. While the decision does not overrule current Wisconsin law, the decision makes it more important for citizens, and the lawyers who counsel them, to know their options.

By Joe Forward, Legal Writer, State Bar of Wisconsin