This academic paper on arbitration agreements in nursing home admission contracts was written by Attorney David Brevda of Senior Justice Law Firm in July of 2018. This post was updated April 13, 2021.
If you have a legal issue arising out of a nursing home or assisted living facility arbitration agreement, contact our elder abuse attorneys now for a free consultation toll free at 888-375-9998.
Synopsis
In this paper, I will discuss the rapid increase in arbitration agreements appearing in admission contracts for nursing homes and assisted living facilities in the state of Florida. In Part I, I will provide background on elder abuse and the Long-Term Care Industry. In Part II, I will discuss the use of arbitration agreements and their inapplicability to facility admission agreements. In Part III, I will begin discussing Florida law concerning the use of arbitration agreements in admission contracts with unenforceable provisions for long-term care facilities, starting with companion Florida Supreme Court cases. In Part IV, I will show a series of lower court opinions eroding the precedential importance of the Supreme Court cases. In Part V, I will conclude and suggest how to fix this issue on a state and federal level.
Part I – Background
Elder Abuse
In 2001, the Minority Staff of the Special Investigations Division of the House Committee on Government Reform completed a study illustrating that nursing home abuse is a significant problem in the United States. Notably, the study found that around 33% of the facilities had at least one citation for elder abuse, at least 10% had citations for elder abuse that put the resident in immediate danger of death or serious injury and the increased reporting of citations was because of more stringent regulations that increased reporting requirements.[1]
As we proceed into the 21st century, the American population is changing. Notably, as the ‘baby boomer generation’ ages, a higher percentage of the population will be senior citizens.[2] This larger group will require better insurance systems for long-term care, likely including better funded government run programs such as Medicare and Medicaid.[3] Against this need, Republicans in Congress and the White House seem driven to cut Medicare and Medicaid[4] to cover for the large deficits created by tax cuts to benefit the wealthy.[5] Additionally, Republicans have agreed to a 10 year, $1.96 billion cut to skilled nursing facility funding.[6] The industry has openly stated that it will attempt to cover this funding gap by lobbying for more regulatory reductions[7] which has shown to be successful under Republican control of the government.[8]
This perfect storm of demographic changes, budget cuts and regulatory capture by the elder care industry will result in the abuse, neglect and wrongful death of seniors in skilled nursing facilities, assisted living facilities and other long term care facilities in the years to come.[9]
The Long-Term Care Services Industry
The Long-Term Care Services Industry is massive in the United States, consisting of around 67,000 facilities which serve an estimated nine million Americans and employs an estimated 1.5 million nursing employees.[10] In Florida, there are 683 licensed nursing homes with around 84,000 beds and 3,089 assisted living facilities with around 92,000 beds.[11] The majority of long-term care facilities’ revenue is from Medicare and Medicaid.[12] This reliance on Medicare and Medicaid payments[13] for revenue means that the nursing home industry has limited options to increase profitability for their owners.
Because Medicare/Medicaid is controlled by the government, aside from lying about acuity levels[14] and committing Medicare/Medicaid fraud[15], a nursing home’s best way to increase profits is to cut costs. The easiest way to accomplish this task is to understaff facilities, with a focus on lower waged staff, while claiming artificially inflated high acuity reimbursement rates from Medicare and Medicaid.[16] As a result of chronic understaffing, rampant abuse and neglect occurs.[17]
One drawback to this approach, from a profits perspective, is an increase in litigation liability related to an increase in facility acquired injuries due to understaffing and other cost cutting measures. Therefore, the threat (and successful incidence) of nursing home/assisted living facility negligence litigation undercuts the profits gained by understaffing. Among other unsavory techniques, facilities have been increasingly including arbitration agreements in admission contracts to lower the costs of litigation liability from neglect and abuse.[18] These arbitration agreements frequently contain caps on damages, one-sided procedural rules and other provisions that only benefit facilities.[19]
Part II – Arbitration Agreements
What are Arbitration Agreements and what is their purpose?
Arbitration agreements provide for parties to bypass the traditional court system to reach a conclusion on a civil dispute. Federal policy began favoring arbitration in 1925 with the passing of the Federal Arbitration Act[20] regardless of potential conflicts with Article III of the Constitution.[21] The policy for arbitration is clear – traditional litigation takes a significant amount of time and a significant amount of resources. An agreement to hear a case in front of a neutral arbitrator, with less rigorous procedure and discovery, should result in a quicker, cheaper option.
Conflict dispute efficacy should be measured beyond cost saving metrics – importantly, we must ask whether a neutral arbitrator can produce just results (or equivalently just results to those produced by a conventional civil court case). There are many concerns regarding the effectiveness of arbitration as a provider of justice. First, the notion of procedural fairness is put into question, as civic bodies and public laws put into place by our society are replaced by the language of a contract.[22] Second, there is a severe lacking of substantive review of the merits, as “there is no meaningful judicial oversight to ensure that arbitrators are applying the law”[23] and “arbitrators in most cases are not bound to follow the law, nor are their decisions appealable to a court of law for any but the most egregious of defects.”[24]
It is clear that arbitration is appropriate when the balancing of these factors provides an advantageous result for both parties. In fact, studies have shown that arbitration agreements are best when “they have been entered into knowingly and voluntarily”[25] by sophisticated parties who can tailor contractual dispute to their specific needs in a more efficient and effective manor ex ante than a one-size-fits-all civil court system.[26] Additionally, there are situations where it is advantageous for an individual to submit to arbitration. Namely, the specter of never-ending legal costs can dissuade legitimate lawsuits, and allow larger, wealthier defendants to outspend the plaintiff into an unfair settlement or dismissal of the case.[27]
Arbitration Agreements Are Inappropriate for Elder Abuse Lawsuits
Looking to the best conditions for arbitration, it could not be more obvious how inappropriate arbitration is for elder abuse lawsuits. First, there is a tremendous imbalance in sophistication between the parties. As stated above, two sophisticated parties can foresee, and contract for, the appropriate procedures and processes to ensure for just resolutions of conflict in arbitration that is more efficient and effective than a generic court process. For example, multinational shipping companies who are repeat players may be better suited to agree on risk of loss rules, late fees, and on how to process disputes on these rules ex ante. Additionally, these experienced parties have the ability to price any perceived benefit or detriment into a contract. In contrast, while a nursing home or assisted living facility is a repeat player, who frequently litigates such cases (and thus knows what rules or procedures will benefit them while hindering their opponents), a plaintiff in an elder neglect or abuse case has usually never sued a facility before, and is thus unfamiliar with litigation and the concept of arbitration.
Second, it is incredibly unlikely that the plaintiffs in an elder abuse case “knowingly” entered into the arbitration contract. Arbitration agreements are generally included amongst a sea of papers to be signed upon admission of a loved one in an emergent situation, often poorly explained[28], similar in font size, and sometimes on a take-it-or-leave-it basis.[29] They do not generally have the time to consider the implications of a hypothetical lawsuit that could occur months or years down the road. Instead, their primary goal as a layperson is to finalize anything in front of them to guarantee admittance for their loved one into a facility to begin rehabilitation or treatment as soon as possible. In contrast, long-term care companies employ a litany of lawyers, statisticians and consultants to prepare for the inevitable lawsuits that arise from the rampant abuse and neglect in their facilities, as those lawsuits have a significant effect on profitability.[30]
Third, any fears of mounting litigation costs causing a chilling effect on lawsuits do not apply to elder abuse litigation. Elder abuse plaintiff’s attorneys generally do not charge an hourly rate and instead operate on a contingency in any award provided to the client.[31] This means that, regardless of a plaintiff’s wealth, a massive defendant cannot outspend their opponent into submission. This relationship also has the benefit of encouraging attorneys to accept meritorious cases and deny questionable cases, as the attorneys’ profitability is tied with the success potential of a given case.[32]
Lastly, arbitration in elder abuse cases has a negative societal impact because arbitration provides no precedential value.[33] While this is not a significant issue with repeat players (who can take this knowledge and price such results into contracts), each elder abuse plaintiff is generally unsophisticated, and therefore prior reference points can be helpful.
The One-Sided Benefits of Arbitration Agreements for Long-Term Care Companies
Arbitration provides clear benefits to nursing homes and assisted living facilities subject to an elder abuse claim. First, jury awards are significantly higher than arbitration awards.[34] Second, the facilities “hold the pen” in contract formation, meaning they can tailor the terms of agreements to their advantage, and can adjust terms by jurisdiction to maximize their positions. This includes specifying an arbitrator that is friendly to the facility,[35] choosing a venue that is inconvenient for the plaintiff[36], and capping noneconomic damages, punitive damages and attorney’s fees.[37] Ironically, many agreements explicitly exclude the arbitration agreement from affecting claims a facility might bring against a resident, such as nonpayment.[38]
While the Center for Medicare and Medicaid Services (CMS) published a final rule on October 4, 2016 prohibiting facilities from including arbitration agreements in resident admission documents, the new Republican-run executive branch decided to reverse course on June 5, 2017, removing the prohibition.[39] Unsurprisingly, the appearance of arbitration agreements has gone up and many of these arbitration agreements contain provisions that are unenforceable and against public policy.[40] The arbitration agreements that contain such provisions have been challenged in Florida courts. We begin the analysis of current Florida law by discussing two companion cases decided on the same day by the Florida Supreme Court – Shotts and Gessa.
Part III – Florida Supreme Court Law on Arbitration Agreements in Long-Term Care Facilities’ Admission Contracts
Shotts v. OP Winter Haven, Inc., 86 So.3d 456 (Fla. 2011)
Shotts was a case from November 23, 2011 that considered the enforceability of an arbitration agreement that was signed upon admission to a nursing home facility. Gayle Shotts, as personal representative of the estate of Edward Clark was suing OP Winter Haven for alleged negligence and breach of fiduciary duties. OP Winter Have moved to compel arbitration, based on an agreement signed upon admission. Of note, the agreement included the following provisions:
“—The arbitration shall be conducted … in accordance with the American Health Lawyers Association (“AHLA”) Alternative Dispute Resolution Service Rules of Procedure for Arbitration….
—All fees of the arbitrators shall be borne equally between the parties.
—All matters relating the arbitration … shall remain confidential between the parties.
—[T]he parties expressly agree that this Agreement will be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1–16 (“FAA”).
—The parties agree that damages awarded, if any, in an arbitration conducted pursuant to this Binding Arbitration Agreement shall be determined in accordance with the provision of Florida law applicable to a comparable civil action, except that the parties acknowledge that the arbitrators shall have no authority to award punitive damages or any other damages not measured by the prevailing party’s actual damages….
—In the event that any portion of this Agreement will be determined to be invalid or unenforceable, the remainder of this agreement will be deemed to continue to be binding upon the parties hereby in the same manner as if the invalid or unenforceable provision were not a part of the Agreement.
—The execution of this Agreement is not a precondition to receiving medical treatment or for admission to the Facility.
—The resident has the right to seek legal counsel concerning this Agreement.”[41]
Shotts argued that the motion to compel arbitration was unenforceable because the agreement was unconscionable and the agreement violated public policy. The trial court granted the motion to compel arbitration and the district court affirmed that ruling. The Supreme Court split the Shotts case into a series of issues that were answered in turn: “(1) whether the court or the arbitrator must decide whether the arbitration agreement violates public policy; (2) whether the limitations of remedies provisions violate public policy; and (3) whether the limitations of remedies provisions are severable.”[42]
The first issue is settled in this case – it is for the court, not the arbitrator, to rule on whether an arbitration agreement is unenforceable on public policy grounds.[43] The Court previously, in Seifert, introduced three elements for consideration on a motion to compel arbitration, and required the court to consider them, not the arbitrator.[44] Florida courts have ruled that “the validity of [an] arbitration agreement is a question of law…[and therefore] the standard of review is de novo” and must be completed by a court.[45] The Court had come to this conclusion because, in essence, “whether an arbitration agreement violates public policy—is properly a matter of state contract law”.[46] Because this issue is well settled and has been applied in future cases[47], I will not explore it further in this paper.
The second issue was whether the limitation on remedies in the arbitration agreement was against public policy.[48] The court held that each of these limitations was in violation of public policy, because each “directly undermined specific statutory remedies created by the Legislature” of Florida.[49] The Court cites Blankfeld to illustrate how the rights provided by 400.022 and 400.023 are substantially affected by the requirement to arbitrate under AHLA rules.[50] The Court looks to Romano to illustrate that a limit on punitive damages is against public policy.[51]
The third issue deals with severability of unenforceable provisions. The analysis for this section is of high importance, because this is one of the issues where recent court cases have distinguished their facts from Shotts in order to allow for arbitration agreements to remain in force by knocking out unenforceable provisions.[52] The Court looked to prior case law to determine that a portion of a bilateral contract is severable only where “the illegal portion of the contract does not go to its essence, and where, with the illegal portion eliminated, there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other,.”[53]
The Court applied this reasoning to decide that the AHLA provision is not only unenforceable, but goes to the essence of the contract. The AHLA rules elevate the standard for proving “consequential, exemplary, incidental, punitive or special damages” requiring clear and convincing evidence.[54] The Court found this unenforceable provision goes to the essence of the agreement because severing this aspect would require a trial court to “rewrite the agreement and to add an entirely new set of procedural rules and burdens and standards, a job that the trial court is not tasked to do”.[55] Additionally, the Court reasoned that, absent this aspect of the agreement, it would be difficult to determine that “there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other….”[56]
Gessa v. Manor Care of Florida, Inc., 86 So.3d 484 (Fla. 2011)
Gessa, decided on the same day as Shotts, begins with a similar fact pattern. In Gessa, Angela Gessa’s daughter acted as her attorney-in-fact sign a series of admission documents for her mother. Those documents included an arbitration agreement that capped noneconomic damages at $250,000 and waived punitive damages. When she sued for neglect and abuse, Manor Care moved to compel arbitration.[57]
In conformity with the Shotts case, the court ruled that the limitation of liability aspect of the agreement was against public policy, the decision on whether it was against public policy should be reserved for the trial court and not an arbitrator, and the noneconomic cap and punitive waiver were not severable.
The arbitration agreement did not have a specific title, but did contain the warning that “THIS AGREEMENT CONTAINS A WAIVER OF STATUTORY RIGHTS. PLEASE READ CAREFULLY”. This aspect of the document was broken into two separate sections, Part A containing the Arbitration Provisions and Part B containing Limitation of Liability Provisions. Part A incorporated Part B by stating “The Limitation of Liability Provision[s] below [are] incorporated by reference into this Arbitration Agreement.”. Aside from the limitations on damages, the agreement augmented discovery rules by only allowing depositions of experts and treating physicians, thus preventing important depositions of other employees. Additionally, Part C added a withdrawal period, allowing each party to have three business days to cancel the agreement.[58]
This case, as a companion to Shotts, further develops a roadmap for understanding whether the aforementioned limitations are severable from an arbitration agreement. The Court in Gessa notes that Shotts only explicitly addressed non-severability due to the burden changes caused by the adoption of AHLA rules, and does not explicitly state whether a damages cap would be severable by itself.[59] Gessa explicitly states that a “limitation of liability provisions in the present case, which place a $250,000 cap on noneconomic damages and waive punitive damages, are not severable from the remainder of the agreement.”[60] The Court reasons that these damage limitations “constitute the financial heart of the agreement” because, together, they make the extent of liability in the agreement “reasonably foreseeable”.
Takeaways from Shotts and Gessa
Shotts and Gessa, taken together (as they are meant to be)[61] should stand for the following. First, we know that it is up to the court, not an arbitrator, to analyze an arbitration agreement for enforceability. We know that the following provisions are against public policy and thus unenforceable in the State of Florida: punitive damage caps[62], noneconomic damage caps[63] and changing burdens of proof in a nursing home negligence case under Chapter 400 of the Florida Statutes.[64] We know from Shotts that the burden of proof adjustment goes to the “very essence of the agreement” and is not severable from the rest of the agreement. While not discussed in Shotts, Gessa says that the provisions limiting liability are also not severable from the agreement. Shotts also establishes that the presence of a severability clause does not save the arbitration agreement if an illegal provision exists that goes to the essence of the agreement.[65]
Part IV – The Erosion of Shotts and Gessa Across Florida District Court of Appeals Cases
Estate of Deresh ex rel. Schneider v. FS Tenant Pool III Tr., 95 So. 3d 296 (Fla. Dist. Ct. App. 2012)
The Fourth District Court of Appeals began to deviate from Shotts and Gessa less than a year after they were decided in Estate of Deresh v. FS Tenant Pool III Trust. Deresh involved an estate led lawsuit against a nursing home alleging sexual assault, preventable falls, skin deterioration which lead to the decedents wrongful death. When the decedent was admitted to the facility, she entered into an arbitration agreement which included a prohibition on punitive or exemplary damages.[66] The agreement also contained a severability section stating “[i]f any provision of this Agreement is declared to be unlawful, invalid or unenforceable for any reason, then notwithstanding such unlawfulness, invalidity or unenforceability, the remaining terms and provisions of this Agreement shall remain in full force and effect.”[67] When the estate sued the facility, the nursing home moved to compel arbitration.
Applying the rulings of the aforementioned Supreme Court cases, one would logically come to the conclusion that the arbitration agreement should be disregarded. First, we know that a limitation on punitive damages is against public policy, and thus is not a valid provision[68]. Second, we know that punitive damage limitations “constitute the financial heart” of the agreement.[69] Third, we know that a contract is not severable if a clause goes to the essence of the agreement, even if a severability clause exists.[70] So a strict adherence to precedent would require the court to throw out the arbitration agreement.
The District Court of Appeals had a different understanding of the Supreme Court cases. The DCA held that “[n]either Shotts nor Gessa compels the conclusion that the punitive damages limitation cannot be severed from the arbitration agreement.” In Deresh, the Court reads Shotts and Gessa to be unrelated. The Court sees Shotts as representing that an arbitration agreement that affects burdens of proof is not severable, but believes that the silence as to punitive damages means that punitive damages alone would not be un-severable.[71] Since the Court sees the cases as unrelated, it then reasons that Gessa’s arbitration analysis did not apply here the ruling was based on the non-economic damages and punitive damages restrictions “when viewed jointly”.[72]
The Court in Deresh cabins un-severability for arbitration agreements. First, a provision is severable unless it requires a ‘drastic rewriting’ of the arbitration agreement.[73] Second, the Court makes a new, questionable distinction from Gessa that while a cap on non-economic damages and punitive damages jointly go to the financial heart of the agreement, a ban on punitive damages alone does not.[74] This is because, according to the Court, the “primary thrust” of the agreement is to “avoid costly and time-consuming litigation.”[75] I find this distinction unwarranted. The logic of Gessa is that the limitations on noneconomic damages and outright ban of punitive damages make the extent of liability “reasonably foreseeable”. In my opinion, it is the punitive damages ban that creates “reasonably foreseeable” results. Noneconomic damages, even when uncapped, can be estimated by a series of metrics.[76] In contrast, punitive damages are unpredictable and can lead to excessive results.[77]
Sarasota Facility Operations and Hochbaum
By 2017, multiple other cases across districts came down narrowing the concept of what illegal provisions go to the ‘essence of the contract’ and are thus not severable. In Sarasota Facility Operations, the arbitration agreement required three arbitrators from the National Arbitration Forum (NAF) and for the arbitration to be conducted in accordance with NAF procedures.[78] The issue was, the NAF had been dissolved by that point[79], making the terms of the arbitration agreement impossible to comply with. This was still upheld by the Second DCA.[80]
In Hochbaum, the Court again narrowed the applicability of the Gessa and Shotts standards. In this case, which was filed under Chapter 415 of the Florida Statutes[81], an arbitration agreement containing a prohibition on attorney’s fees (which was against the remedial nature of the statute)[82] was deemed severable from the rest of the agreement and thus was not invalidated.[83] The Court stated that this provision was severable because “[t]he provision does not require the arbitration to be conducted in accordance with certain rules, and it does not limit the compensatory or punitive damages that Hochbaum may recover in arbitration. Therefore, the offending provision is severable from each agreement because it does not go to the essence of the agreement.”[84] In effect, Hochbaum seems to suggest that the only possible provisions that go to the essence of the agreement (and thus are severable) are those contained in the Shotts and Gessa fact patterns.[85]
It should be noted that nowhere in Gessa nor Shotts does it suggest these are the only ways to go to the essence of the agreement to avoid severability. Instead they are examples of situations where provision against public policy go to essence of agreement, not an exclusive list. [86]
Obolensky v. Chatsworth at Wellington Green, LLC, 240 So. 3d 6, 7 (Fla. Dist. Ct. App. 2018)
If the prior cases were a gradual erosion of the holdings of Gessa and Shotts, Obolensky, decided in late February 2018 was a complete perversion of those cases. In Obolensky, the arbitration agreement included a series of unenforceable provision, including: “a limitation on discovery (providing that only experts may be deposed), a waiver of the right to appeal the arbitrator’s decision…a waiver of any right to recover attorney’s fees and costs.”[87] Additionally, and mirroring Gessa, a provision is included that states “non-economic damages are capped at $250,000, and punitive damages are not allowed.”[88]
Further, written in plain English, the essence of the agreement is laid out as follows:
“The parties’ decision to select arbitration is supported by the potential cost-effectiveness and time-savings offered by selecting arbitration, which may avoid the expense and delay of judicial resolution in the court system. The parties’ decision to select arbitration and to agree to a limitation of liability also are supported by the potential benefit of preserving the availability, viability and insurability of a long term care company for the elderly and disable[d] in Florida, by limiting such long term care company’s exposure to liability. With this Agreement, the Community is better able to offer its services and accommodations at a rate that is more affordable to you. In terms of the time-savings offered by selecting arbitration, selecting a quick method of resolution is potentially to your advantage.”[89]
Despite the fact that the agreement in Gessa was “worded and structured similarly to the contract in this case: Part A, ‘Arbitration Provisions’ and Part B, ‘Limitation of Liability Provision[s]’” and “the court determined that the restrictions on non-economic damages and prohibition of punitive damages were intended to make the extent of liability “reasonably foreseeable” and went to “the essence” of the agreement”, the DCA still managed to say these offensive provisions were severable. The Court takes the incorrect logic of Deresh and expands it, suggesting that Deresh stands for the proposition that the Supreme Court’s reasoning in Gessa only extends to cases without a severability clause.[90]
The Court concludes by ruling that the “’the true essence’ of the Admission and Alternative Dispute Resolution Agreements[91] was, as its name suggests, arbitration, and its financial heart was the reduced costs and time-saving benefits accompanying arbitration.” This is in direct conflict with Gessa, which had similar language and was ruled by the Supreme Court to go directly to financial heart of the agreement because the identical damage caps make the extent of liability in the agreement “reasonably foreseeable”.[92]
Where Are We Now?
After the aforementioned series of post-Supreme Court cases, a long-term care provider can place unenforceable language in an arbitration agreement requiring the employment of arbiters that do not exist[93] (in order to slow down the litigation) and a bar on punitive damages[94] (because only changing burdens of proof or dual non-compensatory damage caps and punitive caps are deemed to go to the essence of the agreement)[95] while not invalidating the agreement in full. Additionally, with the existence of a severability clause, a facility can basically include any unenforceable language, including the exact language of Gessa, and still maintain a functioning arbitration agreement.[96] In fact, the only way an arbitration agreement containing unenforceable clauses is thrown out with a severability clause is “[i]f the provision were to be severed, the trial court would be forced to rewrite the [arbitration] agreement and to add an entirely new set of procedural rules and burdens and standards, a job that the trial court is not tasked to do.”[97]
Politics plays a role in the enforceability, or non-enforceability, of nursing home arbitration agreements in Florida as well. Since the largest payor source for nursing homes is the federal government (via Medicare and Medicaid), the sitting President can greatly influence this policy. Under President Bush, we saw a proliferation of enforceable arbitration agreements. Under President Obama, CMS issued an official policy statement advising against nursing home arbitration agreements. Under President Trump, we witnessed that trend reverse, with CMS releasing a policy update favoring arbitration agreements in long term care facilities. Under President Biden in 2021, it is expected that Medicare and CMS will disfavor nursing home arbitration agreements.
Part V – Conclusion
In conclusion, it seems that the lower courts have continued to distinguish Shotts and Gessa over the years, eroding their importance. The effect of these decisions is to provide a clear roadmap for nursing homes, assisted living facilities and other long-term care providers on how to successfully sneak in arbitration agreements containing provisions against public policy upon a resident’s admission to their facility.[98]
As I argue above, on a purely legal basis (without considering the ethical or real-world implications of these arbitration agreements), a clearer understanding of Shotts and Gessa as interlinked opinions to be considered in tandem should prevent these arbitration agreements from being enforced. As explained in Section III, under the Supreme Court of Florida’s view, if an arbitration agreement includes a provision against public policy that either go to the “very essence of the agreement” or constitute “the financial heart of the agreement”, it is not severable and the whole arbitration agreement is unenforceable, regardless of the presence of a severability clause.[99] In my opinion, the later cases presented in Section IV create distinctions that simply do not exist, and contradict the clear understanding of Shotts and Gessa as written by the highest court in this state.[100]
Beyond this legal analysis, I believe the clear unfairness presented by arbitration agreements in long-term care residency contracts require legislative action. In his concurrence in Steihl[101], Judge Altenbernd eloquently stated the need for the Florida Legislature to make changes:
“There are now over thirty-five written appellate opinions in Florida addressing arbitration agreements between nursing home operators and their residents.[102] Unquestionably there are many appeals involving these agreements that have not resulted in written opinions and even more challenges at the trial court level that did not result in appeals. Arbitration was intended to create a speedy and economically efficient dispute resolution process for the residents of nursing homes. Instead, it has tended to create a round of time-consuming, expensive litigation prior to whatever dispute resolution method ultimately resolves the case. It is only human that the nursing home facilities have tended to create arbitration agreements that favor the nursing homes. In the case of the relationship between insurance companies and their insured Florida families, we have created regulations to level the playing field and protect the property rights of our families while recognizing the legitimate needs of the insurance companies. It seems to me that we have reached a point where the human rights of our senior citizens deserve no less. The judiciary is ill-equipped to provide that protection, but the Legislature could do so with ease.”
I agree with Judge Altenbernd’s words – the legislature should act to protect seniors from these predatory contracts. At minimum, the State should pass laws prohibiting any arbitration agreements containing unenforceable provisions against public policy. Additionally, they should make “take-it-or-leave-it” arbitration agreements unenforceable. If it is deemed necessary for arbitration agreements to exist, there should be more protections in place to level the playing field between the parties, such as: a neutral arbitrator appointed by a neutral party in the jurisdiction were the civil case would have been heard, an expedited timeline so defense counsel cannot purposefully slow down the process, a mandatory minimum 6-month withdrawal window (by either party) on the agreement to arbitrate from time of contract, standardized forms that separate the arbitration agreement from the other agreements with bolded, highlighted language notifying the signing party that they are giving up substantial rights and should contact an attorney to discuss them, etc.
In fact, as stated above, I believe arbitration agreements have no place in long-term facility because of the imbalance of sophistication between the parties, the lack of understanding on behalf of he resident, and the clear, one-sided benefits provided to the facilities in arbitration.[103] Since facilities are so reliant on Medicare and Medicaid funding[104], the best option would be for such funding to be conditioned on the non-existence of arbitration agreements in residency contracts.
Footnotes
[1] Abuse of Residents Is a Major Problem in U.S. Nursing Homes. U.S. House of Representatives, Washington, DC, Committee on Government Reform, Special Investigations Division, Minority Staff report prepared for Representative Henry A. Waxman (U.S. Gov’t Printing Office 2001).
[2] It is estimated that 1 in 5 Americans will be above the age of 65 by the year 2030. See Sandra L. Colby & Jennifer M. Ortman, Projections of the Size and Composition of the U.S. Population: 2014 to 2060, U.S. Census (March 2015)
[3] Currently, long-term care expenditures are around $123 Billion, consisting of 24% Medicare, 36% Medicaid, 36% out of pocket and 4% Private Insurance. See James R. Knickman & Emily K. Snell, The 2030 problem: Caring for Aging Baby Boomers, Health Services Research (August 2002), Increases in Medicaid are more cost effective in raising the quality of care for residents than “pro-competitive” policies. See Martin B. Hackmann, Incentivizing Better Quality of Care: The Role of Medicaid and Competition in the Nurisng Home Industry, (December 2017), http://www.nber.org/papers/w24133.pdf.
[4] Erica Werner, House GOP Plan Would Cut Medicare, Medicaid to Balance Budget, The Washington Post, (June 19, 2018).
[5] Andrew Taylor, Tax Cuts, Spending to Raise U.S. Deficit to $1 Trillion by 2020, CBO Analysis Shows, The Chicago Tribune (April 19, 2018), http://www.chicagotribune.com/news/nationworld/ct-analysis-tax-cut-deficit-20180409-story.html.
[6] Kimberly Marselas, $1.96 Billion Nursing Homes Cut Will Force Hard Look At Regulation, Payment, Experts Say, McKnights Long-Term Care News (February 12, 2018), https://www.mcknights.com/news/196-billion-nursing-homes-cut-will-force-hard-look-at-regulation-payment-experts-say/article/743611/.
[7] Id.
[8] Jordan Rau, Trump Administration Eases Nursing Home Fines in Victory for Industry, The N.Y. Times (December 24, 2017).
[9] Currently, nursing home and assisted living facility residents are prone to abuse or neglect. These numbers can be shocking – a study of Atlanta area facilities by the Atlanta Long-Term Care Ombudsman reported a whipping 95% of residents had suffered neglect or abuse, or had seen neglect or abuse first hand. Catherine Hawes, Elder Abuse in Residential Long-Term Care Settings: What is Known and What Information is Needed?, National Academic Press (US) (2003), https://www.ncbi.nlm.nih.gov/books/NBK98786/. This mistreatment could range from dropping, hitting, sexually abusing and forcibly restraining residents, to neglecting them by leaving residents “wet or soiled with feces; not being turned and positioned, which can lead to pressure ulcers; shutting off call lights without helping the resident seeking assistance; not receiving enough help at mealtimes; and residents who needed help with eating and drinking or not getting enough to eat or drink.” Id.
[10] Harris-Kojetin L, Sengupta M, Park-Lee E, et al., Long-term care providers and services users in the United States: Data from the National Study of Long-Term Care Providers, 2013–2014. National Center for Health Statistics. Vital
Health Stat 3(38), Center for Disease Control (2016)
[11] Facts About Long Term Care in Florida, Florida Health Care Association.
[12] Only 29% of nursing home revenues are from self-pay residents. See Value and nursing Home Profitability, Volume: 29 Issue: 3, 62-69
(August 1, 2016),
https://doi.org/10.1177/0951484816662491. On average, 47% of a states Medicaid’s long-term care dollars goes to nursing homes. See Philip Galewitz, Chasing Millions in Medicaid Dollars, Hospitals Buy Up Nursing Homes, The Washington Post (October 13, 2017), For Florida, long term care spending is broken down as follows: around 19% Medicare, around 60% Medicaid, around 40% private funds.
[13] Jordan Rau, Medicaid Cuts May Force Retirees Out of Nursing Homes,, The N.Y. Times (June 24, 2017)
[14] Tim Mullaney, Higher Acuity Residents Drove Skilled Nursing Home Bed Prices to Record Levels in 2013, Report Finds, McKnight’s Long-Term Care News (April 10, 2014) https://www.mcknights.com/news/higher-acuity-residents-drove-skilled-nursing-home-bed-prices-to-record-levels-in-2013-report-finds/article/342038/.
[15] This is a disturbingly common practice – in fact, in 2016, nursing homes and skilled nursing facilities accounted for a whopping $160 million in settlements and judgments for health care fraud. Recently, Philip Esformes set the record for the largest single criminal health care fraud case related to his 30 nursing homes and assisted living facilities. See Authorities: $1B Medicare Fraud Nursing Home Scam, 3 Charged, Fox News, (July 22, 2016) http://www.foxnews.com/us/2016/07/22/authorities-1b-medicare-fraud-nursing-home-scam-3-charged.html. Mr. Esformes edged out the prior record of $840 million set by Columbia/HCA when Rick Scott, the current governor of Florida, was CEO. HCA to Pay $840 Million in Criminal Fines and Civil Damages and Penalties. Largest Government Fraud Settlement in U.S. History, Department of Justice (December 14, 2000)
[16] A federal study determined that 9 out of 10 nursing homes are understaffed. Robert Pear, 9 Out of 10 Nursing Homes in U.S. Lack Adequate Staff, a Government Study Finds, The N.Y. Times, (February 18, 2002), https://www.nytimes.com/2002/02/18/us/9-of-10-nursing-homes-in-us-lack-adequate-staff-a-government-study-finds.html.
[17] The Senate Labor and Human Resources’ subcommittee on aging issued a staff report that identified the high cost of poor care and quantified the costs. The report quantified (in 1991 dollars) $3.26 billion to pay for incontinence care; $1.2-12 billion to treat preventable pressure ulcers; $746.5 million for hip fractures for 18,500 residents ($40,000 per person); and nearly $1 billion for hospitalizations. See Nursing Home Residents Rights: Has the Administration Set a Land Mine for the Landmark OBRA 1987 Nursing Home Reform Law?, Subcommittee on Aging, Senate Committee on Labor and Human Resources, 175-77, 102nd Cong., First Sess. (June 13, 1991).
[18] See California Advocates for Nursing Home Reform, Arbitration Agreements: Why They Should Be Prohibited in Admission Agreements (2004), (quoting a nursing home industry attorney: “The greatest appeal of arbitration for the provider is that this process takes the case out of the hands of the jury (whose biases we are all too familiar with) and entrusts it to a neutral arbitrator”); Kathleen Vickery, Building a Foundation of Trust, Provider, 26 (July 2003). (2003); Mike Cason, Nursing Homes Try Lawsuit Stoppers, Montgomery Advertiser, (September 22, 2002).
[19] See Infra Section III & Section IV.
[20] 9 U.S.C. Sections 1-16 (2000).
[21] Peter B. Rutledge, Arbitration and Article II, (workshop draft).
[22] See e.g. Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198, 203 n.4 (1956) saying that arbitration is unjust because the rules of evidence do not apply in an arbitration.
[23] Charles L. Knapp, Taking Contracts Private: The Quiet Revolution in Contract Law, 71 Fordham L. Rev. 761, 782-83 (2002).
[24] Jessica Silver-Greenberg & Michael Corkery, In Arbitration, a “Privatization of the Justice System,” N.Y. Times (Nov. 1, 2015), http://www.ny-times.com/2015/11/02/business/dealbook/in-arbitration-a-privatization-of-the-justice-system.html?_r=0; .
[25] Agreement to Waive or to Arbitrate Legal Claims: An Economic Analysis, 8 Sup. Ct. Econ. Rev. 209, 212 (2000).
[26] Thomas J. Stipanowich, Arbitration: The “New Litigation, 2010 U. Ill. L. Rev. 1, 51 (2010); Stephen J. Ware, Vacating Legally-Erroneous Arbitration Awards, 6 Y.B. on Arb. & Mediation 56, 92 (2014).
[27] See, e.g., Lewis L. Maltby, The Myth of Second-Class Justice: Resolving Employment Disputes in Arbitration, in How ADR Works 915, 926 (Norman Brand ed., 2002) (“The greatest strength of arbitration is that the average person can afford it.”).
[28] Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d 59, 61 (Fla. App. 2003), reh’g denied,
Manor Care, Inc. v. Romano, 874 So.2d 1192 (Fla. 2004) (the nursing home administrator herself did not understand the meaning of the arbitration agreement).
[29] E.g. Howell v. NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731, 735 (Tenn. Ct. App. 2003).
[30] For example, Genesis Healthcare, Inc., the nation’s largest “post-acute care providers” includes the following language as one of the top 10 risk factors affecting operations:
“Significant legal actions, which are commonplace in our industry, could subject us to increased operating costs, which would materially and adversely affect our results of operations, liquidity, financial condition and reputation.” 2017 10-K, Genesis Healthcare, Inc. (2018) (emphasis added).
[31] See, e.g., https://seniorjustice.com/ which provides for a free consultation and only collects fees if the plaintiff receives compensation.
[32] In contrast, an unsavory attorney being billed by the hour might take a questionable case to bilk fees from a client.
[33] Arbitrating Novel Legal Questions: A Recommendation for Reform, 105 Yale L J 1927 (1996) (“Scodro, Arbitrating Novel”); Case Note, Protecting Public Rights in Private Arbitration, 107 Yale L J 1157 (1998).
[34] Alan Bloom et. al., Alternative Dispute Resolution in Health Care, 16 Whittier L. Rev. 61, 76 (1995).
[35] Id., at 63, 84 (showing survey results state the premier reason for the use of arbitration by those in the medical industry was the assurance that the arbitrator or mediator had a background in the industry. “The key in arbitration is three things: 1) selection of the arbitrator, 2) selection of the arbitrator, and 3) selection of the arbitrator”.
[36] Northport Health Serv. v. Raidoja, 851 So. 2d 234, 235 (Fla. App. 2003) (a provision in a Florida nursing home’s arbitration agreement required the arbitration to take place out of state in Alabama).
[37] Infra Section III & Section IV, showing Florida cases with arbitration agreements featuring these.
[38] See National Senior Citizens Law Center, Ark., DHS Finds that Nursing Facility’s Mandatory Arbitration Agreement Violates Federal and State Nursing Facility Law (2003), http://www.nsclc.org/news/03/03/arkansas_ mandatory&uscore;arbitration.htm
[39] CMS Reverses Course on Arbitration Agreements, JD Supra (June 7, 2017) See also FN 7 and 8 for the Republican controlled government’s reduction in rules and regulations against long-term care facilities.
[40] See Infra Section III & Section IV.
[41] Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 460–61 (Fla. 2011) (emphasis added on at issue provisions in the contract).
[42] Id.
[43] Id. See also Seifert v. U.S. Home Corp., 750 So.2d 633 (Fla.1999), Global Travel Marketing, Inc. v. Shea, 908 So.2d 392 (Fla.2005).
[44] Seifert, 750 So.2d 633.
[45] Global Travel Marketing, Inc. v. Shea, 908 So.2d 392 (Fla.2005).
[46] Shotts, 86 So. 3d 456 at 469. See also Global Travel, 908 So.2d at 398 (“[R]ights of access to courts and trial by jury may be contractually relinquished [via an arbitration agreement], subject to defenses to contract enforcement including voidness for violation of the law or public policy, unconscionability, or lack of consideration.”); Powertel, 743 So.2d at 574 (“[T]he validity of an arbitration clause is … an issue of state contract law.”).
[47] See e.g., AMS Staff Leasing, Inc. v. Taylor, 158 So. 3d 682, 685 (Fla. Dist. Ct. App. 2015) and the cases in Section IV of this paper.
[48] The Court highlighted the following provisions as limitations of remedies: (1) “[t]he arbitration shall be conducted in accordance with the American Health Lawyers Association (‘AHLA’) Alternative Dispute Resolution Service Rules of Procedure for Arbitration”; and (2) “the arbitrators shall have no authority to award punitive damages.” Shotts, 86 So. 3d 456.
[49] See §§ 400.022, 400.023, Fla. Stat. (2003). Note that Section 400 covers nursing homes (OP Winter Haven is a nursing home) but the same logic should apply to assisted living facilities, which have similar rules under Chapter 429 of the Florida Statutes.
[50] Blankfeld, 902 So.2d at 298–99.
[51] Romano v. Manor Care, Inc., 861 So.2d 59 (Fla. 4th DCA 2003), “Sections 400.022 and 400.023 are remedial statutes, designed to protect nursing home residents. The Nursing Home Resident’s Rights Act, section 400.022, was originally enacted after a Dade County Grand Jury investigation of nursing homes revealed substantial elder abuse occurring in many nursing homes without any remedial action being taken. The law set up rights of residents, including the right to appropriate medical care, and requires nursing homes to make public statements of the rights and responsibilities of the residents. To enforce these rights, the legislature provided each resident with a cause of action for their violation…. The legislature also provided for the award of punitive damages for gross or flagrant conduct or conscious indifference to the rights of the resident. Moreover, there was no cap on pain and suffering damages in the statute.”
[52] See infra Section IV.
[53] Id. quoting Local No. 234 v. Henley & Beckwith, Inc., 66 So.2d 818, 821–22 (Fla.1953).
[54]Shotts, 86 So. 3d 456. at 476. This is in direct violation of the remedial language of section 400.022 and 400.023 of the Florida Statutes which require a preponderance of the evidence standard, making it unenforceable.
[55] Id.
[56] Quoting Local No. 234 v. Henley & Beckwith, Inc., 66 So.2d 818, 821–22 (Fla.1953).
[57] Gessa v. Manor Care of Florida, Inc., 86 So.3d 484 (Fla. 2011).
[58] Id.
[59] “This Court addressed a similar scenario in Shotts, where we held that one of the limitations of remedies provisions in that case—the provision called for the imposition of the AHLA rules—was not severable. Because it was unnecessary to do so, we did not address whether the second provision in that case—a waiver of punitive damages—was severable.” Id. At 489-90.
[60] Id.
[61] See FN 55. These cases were determined on the same day, and Gessa is filled with cross-references to Shotts. See also FN 59 which addresses the unaddressed punitive limitation.
[62] Shotts, 86 So. 3d 456. and Gessa, 86 So.3d 484.
[63] Gessa, 86 So.3d 484.
[64] Shotts, 86 So. 3d 456.
[65] Id.
[66] Estate of Deresh ex rel. Schneider v. FS Tenant Pool III Tr., 95 So. 3d 296, 298 (Fla. Dist. Ct. App. 2012).
[67] Id.
[68] Shotts, 86 So. 3d 456 and Gessa, 86 So.3d 484.
[69] Gessa, 86 So.3d 484.
[70] Shotts, 86 So. 3d 456.
[71] Deresh,, 95 So. 3d 296, discussing Shotts “Part of the Court’s severability analysis [In Shotts] is the notion that the parties would not have entered into a contract that did not contain the provision sought to be severed, a provision that went “to the very essence of the agreement.” Id. The Supreme Court did not discuss whether, if viewed alone, the prohibition on punitive damages in the arbitration was severable from the rest of the arbitration agreement.
[72] Deresh,, 95 So. 3d 296 – “Unlike the contract in Gessa, the agreement here allows an arbitration panel to award economic and non-economic damages without limit. The primary thrust of the agreement is “to avoid costly and time-consuming litigation.” Striking the punitive damages limitation would preserve the forum and the finder of fact so central to the agreement.”
[73] Deresh,, 95 So. 3d 296 – “unlike the situation in Shotts, where the invalidation of an organization’s procedural rules would have required a drastic rewriting of the arbitration agreement, here there is no similar interdependence between the punitive damages prohibition and the remaining clauses of the agreement. Refusing to sever the punitive damages limitation would cut out the heart of the agreement for a peripheral illegality.”
[74] “…the Court based its ruling on non-severability upon the combination of the two limitation-of-liability provisions, “when viewed jointly.” Id. at 490. Neither case stands for the proposition that an invalid punitive damages provision in an arbitration agreement, standing alone, is not severable because it goes to the heart of the agreement.” Id,
[75] Id.
[76] E.g. insurance companies will settle for less in certain jurisdictions over others. Seth J. Chandler, Reconsidering the Duty to Settle, 42 Drake L. Rev. 741, 782 (1993).
[77] See e.g. Trans Health Mgmt. Inc. v. Nunziata, 159 So. 3d 850, 855 (Fla. Dist. Ct. App. 2014).
[78] Sarasota Facility Operations, LLC v. Manning, 112 So. 3d 712, 714 (Fla. Dist. Ct. App. 2013).
[79] Brown v. ITT Consumer Financial Corp., 211 F.3d 1217, 1222 (11th Cir.2000), suggests that the NAF has been dissolved.
[80] Sarasota Facility, 112 So. 3d 712. Note that this ruling does not specify whether the inclusion of the defunct NAF rules is against public policy because the plaintiffs never argued that point – though it is heavily suggested that it would not invalidate the whole agreement. Id.
It is also worth considering how dubious this inclusion by the nursing home is. If one of the stated goals of arbitration, as often argued by proponents, is speed and effectiveness, this clause clearly shows that is not the primary concern. The NAF was dissolved as of 2000 see FN 74. The contract itself was signed on admission in November 24, 2009. See complaint John MANNING, as Power of Attorney for Dorothy Evans, Plaintiff, v. SARASOTA FACILITY OPERATIONS, LLC, a Foreign Limited Liability Company and Consulate Health Care, LLC, a Florida Limited Liability Company, Defendants., 2011 WL 10997878 (Fla.Cir.Ct.). This means that the facility had nine years of knowledge of the NAF being defunct and including language that would clearly slow down the process (as it would be impossible to choose an arbitrator without court intervention).
[81] Chapter 415 covers the Adult Protective Services Act which was enacted to “to provide for the detection and correction of abuse, neglect, and exploitation through social services and criminal investigations and to establish a program of protective services for all vulnerable adults in need of them.” Chapter 415 Fla. Stat.. Of importance, Section 415.1111 creates a civil cause for neglect against vulnerable adults and allows for attorney’s fees for the prevailing party, among the other usual compensatory awards. Chapter 415.1111 Fla. Stat.
[82] See FN 76.
[83] Hochbaum ex rel. Hochbaum v. Palm Garden of Winter Haven, LLC, 201 So. 3d 218, 220 (Fla. Dist. Ct. App. 2016).
[84] Id.
[85] See infra Part III.
[86] See generally, Shotts, 86 So. 3d 456. and Gessa, 86 So.3d 484.
[87] Obolensky v. Chatsworth at Wellington Green, LLC, 240 So. 3d 6, 7 (Fla. Dist. Ct. App. 2018).
[88] Id.
[89] Id. (emphasis added).
[90] Id.
[91] See the text accompanying FN 83.
[92] See Gessa, 86 So.3d 484.
[93] Sarasota Facility, 112 So. 3d 712,
[94] Deresh,, 95 So. 3d 296.
[95] Hochbaum ex rel. Hochbaum v. Palm Garden of Winter Haven, LLC, 201 So. 3d 218, 220 (Fla. Dist. Ct. App. 2016).
[96] Obolensky v. Chatsworth at Wellington Green, LLC, 240 So. 3d 6, 7 (Fla. Dist. Ct. App. 2018).
[97] Id. quoting Shotts, 86 So. 3d 456.
[98] See infra Section IV.
[99] See infra Section III.
[100] See infra Section IV.
[101] ManorCare Health Servs., Inc. v. Stiehl, 22 So. 3d 96, 104–05 (Fla. Dist. Ct. App. 2009) (Altenbernd, concurring). Note that this case was decided prior to Shotts and Gessa.
[102] Note, these 35 cases were as of 2009, there have been a significant amount since, see e.g. infra Section III, Section IV.
[103] See infra Section II.
[104] See infra Section I.
