The enforceability of arbitration agreements between nursing homes and their residents is a fact-driven inquiry and implicates important policy considerations related to public safety that are not found in the typical dispute over an arbitration provision. Beyond these policy concerns, there are often sharp disputes over capacity and meeting of the minds when a nursing home seeks to enforce an arbitration clause against a resident. Still, familiar principles apply to the analysis in these settings, which often lead to a nursing home being unable to enforce such clauses. This article examines some of the basic principles needed to challenge a nursing home's efforts to enforce an arbitration agreement against a resident.

Basic Contract Principles Apply

In Atalese, the New Jersey Supreme Court affirmed the long held contract principle that “an agreement to arbitrate, like any other contract, must be the product of mutual assent as determined under customary principles of contract law.” Atalese v. U.S. Legal Services Group,

219 N.J. at 442 (emphasis added). It further reaffirmed that there can be no contract without “a meeting of the minds,” which requires that “the parties have an understanding of the terms to which they agreed.” Id. at 442. The court's reaffirmation of these basic contract principles is neither novel nor controversial. And these principles are readily applied in the nursing home context

Multiple cases involving the validity and enforceability of nursing home arbitration contracts echo Atalese's “meeting of the minds” requirement. In 2016, the Appellate Division stated that “State contract law should apply to ascertain whether the parties had a meeting of the minds when contracting and whether a party has ostensibly agreed to waive the right to trial by jury and has clearly and unambiguously consented to arbitration.” Kleine v. Emeritus at Emerson, Brea Emerson, at *4 (citing Atalese, 219 N.J. at 230, 242, 244). In 2017, the Appellate Division again held that there must be a “meeting of the minds between the parties to the agreement,” and that it is defendants' burden to make this showing by the preponderance of the evidence. Patterson v. Care One at Moorestown, 2017 N.J. Super. Unpub. LEXIS 423, *4 & *6-*7.

In Patterson, the trial court and Appellate Division closely examined whether the nursing home resident and the nursing home formed an arbitration contract. It carefully scrutinized the nursing home resident's capacity to contract by reference to her health conditions and determined that “multiple serious health issues” including the plaintiff-resident's “age, neurological deficit and lack of sophistication” impacted the resident's capacity to contract and whether there was a “meeting of the minds.” Id. at *5. Evaluating these factors, the Appellate Division affirmed the trial court's denial of the nursing home's motion to compel arbitration, finding that the judge correctly concluded “there was insufficient evidence of the meeting of the minds between Care One and Patterson” and that “the evidence supports the Trial Court's determination that there was never a meeting of the minds between the parties and, therefore, no enforceable agreement between the parties.” Id. at *11-*12.

Nursing Home Arbitration Agreements Are Contracts of Adhesion.

The United States Supreme Court in Marmet Health Care Center v. Brown, 565 U.S. 530 (2012), and the New Jersey Appellate Division in Ruszala v. Brookdale Living Communities, 415 N.J. Super. 272 (App. Div. 2010), held that the FAA pre-empts state laws that summarily prohibit arbitration. It is beyond dispute, however, that traditional state law contract defenses including unconscionability (procedural and substantive) may be invoked to invalidate an alleged arbitration contract. Ruszala, 415 N.J. Super. at 272, 299.

Ruszala is significant because it holds as a matter of law that a nursing home arbitration agreement, and the nursing home admission agreement itself, is a contract of adhesion. Addressing admission agreements in long-term care settings, the court emphatically stated: “We are satisfied that the residency agreements are contracts of adhesion.” Id. at 295 (emphasis added). It further mandates procedural and substantive unconscionability analyses that the court must conduct to determine the alleged arbitration contract's validity and enforceability. Id. at 300.

The Ruszala court remanded the case to the trial court because the insufficient record prevented the court from performing the required unconscionability analyses and determining whether the arbitration clause was an enforceable contract between the parties under New Jersey law. The court specifically cited the limited discovery record and requested that the trial court develop the facts and issues for resolution.

Marmet and Ruszala unequivocally stand for the proposition that a nursing home arbitration agreement must comply with applicable state contractual rules and precedent. The New Jersey Supreme Court confirmed this in Atalese v. U.S. Legal Services Group, 219 N.J. 430 (2014) stating: “[T]the FAA permits states to regulate … arbitration agreements under general contract principles, and a court may invalidate an arbitration clause upon such grounds as exist at law or in equity for the revocation of any contract.”

Our Supreme Court explains that: “[T]he determination that a contract is one of adhesion is the beginning, not the end, of the inquiry into whether a contract, or any specific term therein, should be deemed unenforceable based on the policy considerations.” Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006) (quoting Rudbart, infra, 127 N.J. at 354). The court must evaluate both the circumstances surrounding its execution for procedural unconscionability and the alleged arbitration contract's terms for substantive unconscionability. Ruszala at 300.

An agreement is a contract of adhesion if “presented on a take-it-or-leave-it basis, commonly in standardized printed form, without opportunity of the adhering party to negotiate except perhaps on a few particulars.” Rudbart v. North Jersey District Water Supply Comm'n, 127 N.J. 344, 353, cert. denied, 506 U.S. 871 (1992). Thus, when a form contract is a boilerplate document with no acknowledgment that the terms were negotiated between the parties, it is a contract of adhesion. The Appellate Division applied this reasoning in Ruszala, deciding that nursing home admission arbitration agreements are contracts of adhesion as a matter of law. Ruszala, 415 N.J. Super. at 275 & 295-96.

Public Policy Weighs Against Enforcing a Nursing Home's Arbitration Agreement with a Resident

Often, the “public interest” prong of the Rudbart factors, ensuring that nursing home admission contracts allow the elderly to receive care on fair terms without sacrificing their legal and constitutional rights to court access and trial by jury, supports invalidation of a nursing home's alleged arbitration contract. A plaintiff's complaint in a nursing home case should seek recovery pursuant to N.J.S.A. 30:13-1, et seq., entitled “an Act concerning the responsibilities of nursing homes and the rights of nursing home residents” (“the Act”), commonly known as the nursing home resident “bill of rights.” The Act's declared purpose is advancing the well-being of nursing home residents by defining their rights so they may be better asserted. A finding that “residents of nursing homes are all too often given inferior treatment” led to the residents' rights provisions in the Act at N.J.S.A. 30:13-5 and the detailed standards of care for all nursing homes. Senate Institutions, Health and Welfare Committee, Statement to Senate Bill No. 944 (June 4, 1976).

The Act includes a statutory private cause of action when a nursing home violates a nursing home's resident's rights. N.J.S.A. 30:13-8(a). It also includes a provision protecting the elderly from the exact type of arbitration contract defendants seek to enforce here. More specifically, N.J.S.A. 30:13-8.1 provides:

Any provision or clause waiving or limiting the right to sue for negligence or malpractice in any admission agreement or contract between a patient and a nursing home or assisted living facility licensed by the Department of Health and Senior Services pursuant to the provisions of P. L. 1971, c. 136 (C.26:2H-1 et seq.), whether executed prior to, on or after the effective date of this act, is hereby declared to be void as against public policy and wholly unenforceable, and shall not constitute a defense in any action, suit or proceeding.

While Marmet and the FAA pre-empt the strict enforcement of this part of the Act, it does not pre-empt protecting the resident's rights provisions enumerated in N.J.S.A. 30:13-5, and the expressed strong public policy requiring stringent protection of the elderly from nursing home arbitration agreements that our courts rule are contracts of adhesion. Anything less than a nursing home establishing the contract's legal formation and a knowing and voluntary waiver of the resident's constitutional right to trial by jury for injury and wrongful death (procedural unconscionability), mandates a finding that the parties did not form an enforceable arbitration contract. Where the alleged arbitration contract's terms do not fully protect the resident's rights and remedies (substantive unconscionability), the law and public policy also dictate that the contract be voided. Significantly, N.J.S.A. 30:13-5(m) includes explicit protection of the nursing home resident's constitutional rights—including the right to trial by jury. This resident's right provision exists to guarantee nursing home residents “[n]ot be deprived of any constitutional, civil or legal right solely by reason of admission to a nursing home.” This is precisely what a nursing home's alleged arbitration contract seeks to do and is procedurally unconscionable.

The debate over the propriety of arbitration agreements between nursing homes and their residents is not likely to be resolved with finality anytime soon. Recently, Obama-era revisions to the federal regulations governing nursing homes called for a complete ban on pre-dispute arbitration agreements between nursing homes and their residents. 81 Fed. Reg. at 68692–68695. But a federal court enjoined implementation of this provision as conflicting with the Federal Arbitration Act, and the CMS lacked authority to enact the prohibition. American Health Care Ass'n v. Burwell, 217 F. Supp. 3d. 921 (N.D. Miss. Nov. 7, 2016). The Trump administration has neither pursued an appeal nor is likely to engage in further rulemaking to pursue this objective.

Edward Grossi is an associate with Javerbaum Wurgaft Hicks Kahn Wikstrom & Sinins. He devotes his practice to litigating all types of business and personal disputes.