Nursing Home Agreements and Arbitration Clauses

By: Donna Russo, Esq.

Many nursing home agreements have clauses which attempt to limit the right to sue and the right to recover when a resident is injured due to negligent abuse and neglect.  These clauses are  commonly called an “arbitration clauses”.

Always read the agreements very carefully and do your best to strike out the arbitration clauses.   If you are executing the agreement under a durable power of attorney, consult with an elder law practitioner about limiting your powers when signing these types of agreements.

However, if you find that such an agreement was signed, not all is lost.  First, if the nursing home only accepts New Jersey residents and uses New Jersey vendors, New Jersey has a statute, N.J.S.A. 30:13-8.1, which declares such arbitration void as against public policy.

Most nursing homes are part of larger conglomerations which operate across state lines and use out of state vendors.  Therefore, federal law will apply.   In The Estate of Anna Ruszala v. Brookdale Living Communities, Inc., et. al. and Ida Azzaro v. Brookdale Living Communities et. als. (August 10, 2010), the Appellate Division ruled that the Federal Arbitration Act, which favors and allows arbitration, preempts the New Jersey statute.

The next question is whether the arbitration clause is enforceable.  In The Estate of Anna Ruszala v. Brookdale Living Communities, Inc., et. al. and Ida Azzaro v. Brookdale Living Communities et. als. (August 10, 2010), the Court found certain arbitration provisions to be unenforceable under the doctrine of substantive unconscionability.

In this case, the resident suffered significant injuries at the facility and later died as a result.  A lawsuit was filed alleging negligence and wrongful death against the nursing home.

The Appellate Division made several findings regarding these types of nursing home residency agreements:

  1. Residency agreements are contracts of adhesion which is the first step in the analysis of whether a contract, or any specific terms therein, should be deemed unenforceable based on policy considerations;
  2. The court looks to four factors: (a) the subject matter of the contract; (b) the parties’ relative bargaining positions; ©) the degree of economic compulsion motivating the ‘adhering party; and (d) the public interests affected by the contract.

The Appellate Division found  that there are  global characteristics that every potential nursing home resident shares: inability to continue to live in their homes due to ill health, advanced age, or both; and that the Legislature, in adopting the Nursing Home Responsibilities and Rights of Residents Act has identified nursing home residents as a vulnerable group of consumers, entitled to special protection against economic abuse, personal privacy abuse, the deprivation of their right to choose their own health care professionals, and an array of other abuses that speak to the core of human dignity; and the imbalance of resources that create relative inferiority in the bargaining position of nursing home residents.

The Appellate Division focused on the public interests affected by the nursing home agreement.  The Court concentrated on whether the effect of the arbitration clause provisions that significantly restrict discovery, limit compensatory damages and prohibit punitive damages shield the nursing home from compliance with the laws of the state. The Court found that the restrictions on discovery with limits on compensatory damages and outright prohibition of punitive damages form “an unconscionable wall of protection for nursing home operators seeking to escape the full measure of accountability for tortuous conduct that imperils a discrete group of vulnerable consumers.”   The Court held that these provisions in the arbitration clause of a residency agreement are void and unenforceable.  The Court severed the offensive provisions from the rest of the agreement.  The Court held that if the agreement was validly signed under a durable power of attorney that the case would not have a jury trial but must proceed by arbitration.  However, if there is a question as to whether a valid contract was formed, the case would proceed to a trial for a resolution of this issue.   If the trier of fact finds that a valid agreement was not formed then the case would proceed by a jury trial.