Arbitration Provision In Nursing Home Agreement Found To Be Unconscionable and Unenforceable

In the case of Kohlman v. Grane Health Care Company, No. 103 WDA 2021 (Pa. Super. July 5, 2022 Kunselman, J., King, J., and Collins, J.) (Op. by Collins, J.), the court affirmed a trial court’s overruling Preliminary Objections asserted by various Defendants that sought to compel arbitration of the claims asserted against them by the Plaintiffs.

This case arose out of medical malpractice claims related to treatment secured by the Plaintiff at a skilled nursing home.

The court noted that, in connection with her admission to the nursing home, the Plaintiff's decedent had signed a number of documents including an arbitration agreement.

After the Plaintiffs filed suit in the Court of Common Pleas, the Defendants filed Preliminary Objections seeking to compel arbitration. The trial court overruled the Defendant’s Preliminary Objections and this appeal resulted.

The appellate court agreed with the trial court that the terms of the arbitration agreement were unconscionable.

The court affirmed despite noting that both Pennsylvania and federal law impose a strong public policy in favor of enforcing arbitration agreements. 

The court also acknowledged that the enforcement of an arbitration agreement may be denied only where the party opposing arbitration proves that a contract defense that applies equally to non-arbitration contracts serves to invalidate the agreement to arbitrate.  In this matter, the contract defense of unconscionability of the contract terms was raised.

The Superior Court noted that, to invalidate or bar enforcement of a contract based on unconscionability, the party challenging the contract must show both an absence of meaningful choice, also referred to as procedural unconscionability, and that the contract terms that are unreasonably favorable to the other party, known as substantive unconscionability. 

The Superior Court additionally noted that procedural and substantive unconscionability are assessed under a sliding/scale approach, with a lesser degree of substantive unconscionability required where the procedural unconscionability is very high.

In this Kohlman case, the appellate court agreed with the trial court findings that the arbitration agreement was procedurally unconscionable because the decedent was in pain and was medicated at the time she signed the arbitration agreement, the decedent was alone when she was asked to sign the arbitration agreement, the decedent had no opportunity to read the arbitration agreement and was not given a copy to review prior to her signing the same, and where the provisions of the agreement were not otherwise fully read or explained to the decedent. The court therefore ruled that the process by which the decedent’s signature was obtained on the arbitration agreement denied the decedent a meaningful choice and, therefore, the arbitration agreement was found to be procedurally unconscionable.

The appellate court also agreed with the trial court finding that, on the issue of substantive unconscionability, the provision in the agreement requiring that the decedent pay one half of the cost of any arbitration, including one half of the arbitrator’s fees, was substantively unconscionable because it imposed additional expenses for bringing a claim that the decedent would not have to bear in a court action. The appellate court agreed that this term of the agreement unreasonably favored the nursing home and, therefore, was sufficient to satisfy the requirement of showing substantive unconscionability, particularly where, as here, the record, according to the appellate court, established that the decedent was not given full information regarding her choices or any opportunity to inform herself of what she was signing.

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Source: “Article “Nursing Home Can’t Enforce ‘Unconscionable’ Arbitration Clause and Wrongful Death Suit, P.A. Appeals Court Rules,” by Aleeza Furman. Pennsylvania Law Weekly (July 6, 2022).