Arbitration: South Carolina's Top Court Refuses to Enforce Nursing Home Agreement (Web)

The controversial area of nursing home arbitrations received an airing last spring by the South Carolina Supreme Court, which rejected a nursing home’s argument that an arbitrator could be appointed, and the case arbitrated, where a patient contract specified a neutral that could no longer arbitrate the case.

The Court held that the agreement was unenforceable because of the arbitral forum's inability to act as the arbitrator where the forum’s appointment was a integral term of the agreement.  The South Carolina Court stopped short of ruling that Federal Arbitration Act Section 5 does not apply to cases where the parties have specified an exclusive arbitral forum that is no longer available.

Still, the South Carolina Court expressed agreement with a Second Circuit decision that ruled that Sec. 5 is inapplicable to cases where a specifically designated arbitrator becomes unavailable.

In Grant v. Magnolia Manor-Greenwood Inc.,  No. 26668, 2009 WL 1678204 (S.C. June 15, 2009)(available here), respondent James Grant--whose wife Lessie had died in Magnolia Manor-Greenwood nursing home, in Greenwood, S.C., nursing home–had signed an admission contract for his wife containing an arbitration agreement.

The arbitration provision stated that “pursuant to the Federal Arbitration Act, any action, dispute, claim or controversy of any kind . . . shall be resolved by binding arbitration administered by the National Health Lawyers Association.”

The association has rules for arbitrating health care liability claims.  But about a year after the admission contract was signed, the association, now known as the American Health Lawyers Association, amended its rules to exclude arbitration of claims where the injury occurred before the agreement was signed.

After Lessie Grant died after a fall, James Grant filed suit against Magnolia Manor for “survival,” wrongful death, and loss of consortium, according to the Court opinion.  Magnolia Manor then filed a motion to enforce the arbitration clause. Grant argued that the clause was no longer enforceable because the AHLA would not arbitrate the claim. Magnolia Manor then argued that FAA Section 5 allowed for a replacement arbitrator when the designated arbitrator becomes unavailable.

A South Carolina circuit court denied Magnolia Manor's motion to enforce because it found that the AHLA's appointment as an arbitrator was a material term of the contract.  The circuit court “declined to appoint a new arbitrator because ‘there would no longer be a meeting of the minds between the parties.’”

South Carolina’s Supreme Court, in a 5-0 opinion written by Chief Justice Jean Hoefer Toal, affirmed the lower court’s ruling.  The Court notes that that FAA Section 5 allows replacement arbitrators when there is a “lapse in the naming of an arbitrator.”  The opinion, however, expresses its agreement with courts that have ruled that Sec. 5 doesn’t apply when the parties have specified an exclusive arbitral forum that is no longer available.  See, e.g., In re Salomon Inc. S’holders’ Derivative Litig., 68 F.3d 554, 560 (2d Cir. 1995).

But the Court stopped short of backing that Sec. 5 interpretation, instead holding for James Grant by finding that the AHLA choice was integral to the contract.  That conclusion, the opinion notes, was reached because the AHLA policy “has implications that may substantially affect the substantive outcome of the resolution.”

The Court explained that since parties that select the AHLA as the arbitrator waive certain procedural rights, this selection reflects their intention to arbitrate exclusively in that forum.  Accordingly, the Court refused Magnolia Manor's motion to compel arbitration

Congress is taking a hard look at the fairness of patient-nursing home arbitration agreements.  The Fairness in Nursing Home Arbitration Act, currently is before a House Judiciary subcommittee, would ban mandatory arbitration in nursing home contracts–specifically, predispute agreements to arbitrate between a long-term care facility and a resident, or anyone
acting on the resident’s behalf   The bill, H.R. 1237, is sponsored by Rep. Linda T. Sanchez, D., Cal.

–Erika Myrill, CPR Intern