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The Empire Strikes Back - Nursing Homes Enjoin Government's Rule Barring Arbitration Clauses in Agreements with Residents

The way to stop a runaway train is to push the brake. The way to stop a runaway horse is to pull the reins. The way to stop a runaway jury is to demand arbitration.

This September, the Centers for Medicare & Medicaid Services (CMS), which is part of the U.S. Department of Health and Human Services (HHS), issued a Rule intended to prohibit nursing homes and other long-term care facilities from using arbitration clauses in the agreements that residents sign on admission which would bar the residents from bringing lawsuits against these businesses, in favor of mandatory arbitration (the "Rule"). Now, Judge Michael P. Mills of the United States District Court for the Northern District of Mississippi has issued a preliminary injunction barring enforcement of the Rule, which was to go into effect on November 28, 2016. The case is American Health Care Association et al. v. Burwell, 16-CV-00233 (N.D. Miss. 2016).

There is no surprise that nursing homes are trying to avoid lawsuits. Juries sometimes award millions and even hundreds of millions of dollars in cases against nursing homes in cases involving bed sores or pressure ulcers developed while the resident is in their care. Here in New York, for example, plaintiffs can seek damages under two theories-a negligence theory and a "Public Health Law" theory-the latter of which can award attorneys' fees and punitive damages. These verdicts are settled or appealed but the potential for such awards is a daunting issue for the nursing home industry which is formidable but vulnerable to the idiosyncrasies of a local jury. An arbitrator could award a similarly large award, but such an award would be unlikely. Arbitrators are lawyers and their emotions are not likely to be enflamed like a jury listening to a plaintiff's lawyer dramatic summation laying out the suffering of the helpless resident in the care of the allegedly careless nursing home staff.

Arbitration clauses are found in all sorts of contracts involving consumers. Examples of some common, but relatively unknown arbitration agreements, include credit card agreements (which consumers are unlikely to read) and contracts involving stock brokers.

The Federal Arbitration Act, 9 U.S.C.A. §§ 1-16 (1999) ("FAA") sets forth the rule in Section 2 as follows:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. (emphasis added).

Commerce, as defined by the statute, "means commerce among the several States or with foreign nations, or any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation..." 9 U.S.C. § 1.

An arbitration clause in a nursing home agreement signed upon admission by a resident or someone authorized to sign for him or her fits squarely within the terms of the FAA. Once a clause is signed, there is little chance of taking a case to Court.

Case law reveals the courts' strong preference to compel arbitration following a determination that there was an underlying agreement between the parties to settle disputes by arbitration. Speaking to this inclination, the Supreme Court has written that "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute," arbitration is the appropriate vehicle for resolution of the dispute. AT&T Technologies v. Communications Workers, 475 U.S. 643, 650 (1986); Concourse Village, Inc. v. Local 32E, Service Employees Int'l Union, 822 F.2d 302, 304 (2d Cir. 1987), quoting United Steel Workers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). Moreover, the Supreme Court has stated that "any doubt as to whether a particular dispute is within the scope of the agreement is to be resolved in favor of arbitration." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983). See also S.A. Mineracao da Tindade-Samitri v. Utah Int'l, Inc., 745 F.2d 190 (2d Cir. 1984) in which the Second Circuit held that the federal policy in favor of arbitration "requires courts to construe arbitration clauses as broadly as possible." Id. at 194.

How can the government prevent private businesses like nursing homes and other long-term care facilities from using arbitration clauses in their agreements with residents? The answer is by withholding benefits from them if they insert such clauses in their agreements. The CMS rule provides that, if a nursing home or long-term care facility wants to accept Medicare or Medicaid, it will have to stop putting arbitration clauses in its agreements with residents.

Withholding Medicaid or Medicare is a big stick. Medicaid and Medicare are a large part of the budget of any nursing home or long-term care facility.

The battle lines are drawn. Private entities that take government funs versus government's desire to affect private contacts entered into by these entities. How does it turn out?

Stay tuned. We'll have more to say on the subject.

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