June 30, 2019

In its reported opinion filed on June 27, 2019, the Court of Special Appeals of Maryland (“Maryland Appellate Court”) held a nursing home arbitration agreement was unconscionable and therefore unenforceable.

Arbitration agreements that require the contracting parties to waive their right to a jury trial must be conspicuous and the provisions must be clear, concise, and comprehensive for the contracting parties. Enforceability of arbitration agreements contained within nursing home admission contracts executed by someone other than the patient will depend on whether the person who executed the contract on behalf of the patient was the patient’s authorized agent with the authority to enter into an arbitration agreement which includes the waiver of the patient’s rights to a jury trial. Absent actual or apparent agency with the authority to execute such an agreement, there can be no valid or enforceable arbitration agreement.

Agency relationships are created either explicitly from the principal’s express representations, whether oral or written, or implicitly through the principal’s acquiescence in or ratification of the agent’s actions taken on the principal’s behalf. Whether actual or apparent, an agent may not exceed the scope of authority created by the principal-agent relationship.

When determining if a principal-agent relationship existed between the party executing a nursing home admission contract and the patient to be admitted, in the absence of a written agency directive, the court must look to what representations the signing party made to the nursing home and whether it was objectively reasonable for the nursing home to have relied on those representations, without the need for the principal to later ratify the execution of the admission contract and consent to be bound by the arbitration agreement.

The Maryland Appellate Court held in the Maryland nursing home case it was deciding, “because the record does not support the trial court’s finding of apparent agency, the Estate is not bound by the arbitration provisions of the admission agreement.” Alternatively, the Maryland Appellate Court held, “the provisions of the admissions contract, and particularly the arbitration/jury trial waiver clauses, are overbearing, as between a sophisticated party and an unsophisticated party, in what is clearly a contract of adhesion. Thus, we conclude that the terms of the agreement are unenforceable as unconscionable.”

The Maryland Appellate Court stated: “Because we shall hold that the circuit court erred in finding Rankin to have been Mr. Charles’ agent, and therefore erred in ordering arbitration based on that finding, we shall reverse and remand the matter for further proceedings. Moreover, we find the arbitration provisions of the contract to be unconscionable and, therefore, unenforceable.” “Other than Rankin’s act of writing the word “agent” on the contract, there is little evidence that Mr. Charles had granted her the authority to make a health care decision on his behalf at the time she executed the admission contract, let alone one that also impacted his right to a trial.” “While there was a clear manifestation by Mr. Charles to grant Rankin the authority to make health care decisions on his behalf pursuant to the conditions of the advance directive, the record is equally clear that the advance directive was not operative at the time of the execution of the admission contract because Mr. Charles had not been certified as incompetent to make his own health care decisions, as required by its terms.” “Accordingly, we conclude that, absent actual or apparent agency with the authority to execute an admission contract that included a waiver of jury trial rights, there is no valid or enforceable arbitration agreement.”

The Maryland Appellate Court further stated: “there is evidence to support a conclusion that the provisions contained therein are so one-sided as to present an issue of unconscionability.” “There are two aspects of unconscionability – procedural and substantive – both of which must exist for a court to decline to enforce an arbitration provision.”

Procedural Unconscionability

Procedural unconscionability concerns the process of making a contract and includes such devices as the use of fine print and convoluted or unclear language, as well as deficiencies in the contract formation process, such as deception or a refusal to bargain over contract terms.

Substantive Unconscionability

Substantive unconscionability refers to contractual terms that are unreasonably or grossly favorable to the more powerful party and includes terms that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law. They are provisions that seek to negate the reasonable expectations of the nondrafting party, and terms unreasonably and unexpectedly harsh having nothing to do with central aspects of the transaction.

Contract Of Adhesion

The Maryland Appellate Court stated, “The language of the admission contract reveals either imprecise drafting, which is supported by the numerous errors contained throughout, or a deliberate attempt to mislead an inattentive reader. The Estate argues – and we agree – that the documents constitute a contract of adhesion. The Court of Appeals has defined a contract of adhesion as one “that is drafted unilaterally by the dominant party and then presented on a ‘take-it-or-leave-it’ basis to the weaker party who has no real opportunity to bargain about its terms” … The contract at issue was drafted by Brinton Woods and presented in standard form. As we shall note, an imbalance leans heavily in favor of the drafter … Procedural unconscionability is also evident from the format of the document and the location of the mediation and arbitration clauses within the contract. These two sections are simply numbered paragraphs that are presented in the same format as every other provision. Neither of these two sections contain any apparent emphasis by either bolded, underlined, or italicized language, as is apparent in other sections, denoting important provisions or concepts. The failure to highlight the binding nature of mediation and arbitration clauses or the significance of what the applicant is being compelled to waive, supports a finding of a procedural unconscionability.”

The Maryland Appellate Court continued: “The contract imposes an initial mediation requirement, prior to any issue being submitted to arbitration. In addition to failing to provide any criteria for selection of mediators or scheduling and timing details of a mediation, the provision fails to address the allocation of fees or costs associated with the mediation requirement. The contract then imposes a requirement that any issue left unresolved in mediation, must be submitted to arbitration. Moreover, the language of the arbitration clause lacks clarity and includes apparent conflicting provisions … We find those conflicting statements to create ambiguity. In nearly every instance we can imagine, Brinton Woods would be considered a sophisticated party and the patient an unsophisticated party. A reasonable person – particularly a lay person – would not easily understand his or her rights and responsibilities under the contract. Such errors and ambiguities likewise support a finding of procedural as well as substantive unconscionability.”

Source Marcia Rankin, et al. v. Brinton Woods of Frankfort, LLC, et al., No. 525, September Term, 2017.

If you or a loved one suffered injuries (or worse) while a resident of a nursing home in Maryland or in another U.S. state due to nursing home neglect, nursing home negligence, nursing home abuse, nursing home understaffing, or the nursing home failing to properly care for a vulnerable adult, you should promptly find a nursing home claim lawyer in Maryland or in your state who may investigate your nursing home claim for you and file a nursing home claim on your behalf or behalf of your loved one, if appropriate.

Click here to visit our website to be connected with Maryland medical malpractice attorneys (nursing home claim attorneys), or medical malpractice attorneys in your U.S. state, who may assist you with your nursing home claim, or call us toll-free in the United States at 800-295-3959.

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