Opinion
Civ. 1:21-cv-01270-CL
04-12-2022
ARTHUR LEWIS, personal Representative for the Estate of Mary Elizabeth Lewis, Plaintiff, v. KLAMATH FALLS MSL LLC, MSL COMMUNITY MANAGEMENT LLC, MBK SENIOR LIVING LLC, Defendants.
FINDINGS & RECOMMENDATION
MARK D. CLARKE UNITED STATES MAGISTRATE JUDGE
Arthur Lewis (“Plaintiff'), the personal representative for the Estate of Mary Elizabeth Lewis, brings this case against the defendants for the personal injuries and wrongful death of his mother, Mary Elizabeth Lewis (“Ms. Lewis”). This case comes before the Court on Defendants' Motion to Dismiss and Compel Arbitration (#11) and Amended Motion (#13). For the reasons set forth below, the Court recommends that Defendants' Motion to Dismiss and Compel Arbitration be DENIED.
BACKGROUND
On August 9, 2018, Plaintiff, as the Power of Attorney for his mother, Ms. Lewis, executed the Residential Care Facility Residence and Services Agreement (the “Resident Agreement”) with Defendants in order to admit Ms. Lewis to Defendants' residential care facility. Defendants run a 79-bed care facility in Klamath Falls, Oregon, that specializes in caring for patients with impaired memory and inability to live independently. Plaintiff alleges that Ms. Lewis was age 88 at the time of admission to the memory care unit, and that she needed the additional care that the facility could provide due to her severe vascular dementia.
Plaintiff alleges that Ms. Lewis was a fall risk on admission and that the facility was aware of her condition. Despite this knowledge, Plaintiff claims that Defendants failed to take steps to ameliorate the risk or prevent falls from occurring. Plaintiff alleges that Ms. Lewis fell at least eleven times while at Defendant's facility.
Included in the Resident Agreement was an arbitration agreement. Plaintiff asserts that he was not aware that he signed an arbitration agreement and that it was included in a stack of more than 110 pages of documents. The arbitration agreement (“Arbitration Agreement”) states in part that,
Plaintiff claims that the exact number of pages is currently unknown because the parties are still conducting discovery. The approximate number of pages ranges from 110 to 165 throughout the briefing.
any and all claims and disputes arising from or related to this Agreement or to Your residency, care or services at the Community, whether made against us or any other individual or entity, shall be resolved by submission to neutral, binding arbitration; except that any claim or dispute involving unlawful detainer proceedings (eviction) or any claims that are brought in small claims court shall not be subject to arbitration . . . Both parties give up their constitutional rights to have any such dispute decided in a court of law before a jury, and instead accept the use of arbitration. .Hoyt Decl. ¶ 4, Ex. 1,¶ 16-17.
The Arbitration Agreement further states that any arbitration shall be administered by the American Arbitration Association under the AAA Commercial Rules then in effect. Any arbitration would be conducted by a single arbitrator at an agreed upon location or at the facility, and the dispute would be governed by the laws of the State of Oregon. Id. at 17. The Arbitration Agreement contemplated the costs involved in the arbitration process, with the parties agreeing that “(t]he arbitrator's fee shall be shared equally by the parties. Each party shall bear its own costs and fees in connection with the arbitration.” Id. There was a signature line under the arbitration agreement, which Plaintiff initialed, and then another small paragraph informing Plaintiff that he has the “right to rescind Your agreement to arbitration within thirty (30) days from the Effective Date of this Agreement by making such rescission in a writing signed by You and delivered to us within thirty (30) days from the Effective Date of this Agreement.” Id. Defendants now seek to enforce this Arbitration Agreement.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”) applies to agreements in writing “involving commerce.” 9 U.S.C. § 2. Courts have treated nursing home residency agreements as agreements affecting interstate commerce and instrumentalities of commerce due to the contractual provisions requiring meals and medical supplies to its residents that more than likely involve interstate travel. Dean v. Heritage Healthcare of Ridgeway, LLC, 408 S.C. 371,381 (2014); Miller v. Cotter, 448 Mass. 671, 678 (2007) (using Summit Health v. Pinhas, 500 U.S. 322 (1991) to conclude that healthcare involves commerce under the FAA).
Under the FAA, the Court's inquiry regarding arbitration agreements is limited to a determination of two gateway issues: (1) whether there is a valid agreement to arbitrate; and (2) whether the agreement covers the dispute. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83, (2002). If the court finds a valid agreement covering the dispute, then the FAA requires the court to enforce the arbitration agreement in accordance with its terms. Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000). To evaluate the validity of an arbitration agreement, federal courts must “apply ordinary state-law principles that govern the formation of contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). See also Cir. City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002) (federal courts must apply the law of the forum state to determine whether an arbitration agreement is enforceable). States have the authority to regulate contracts, including arbitration clauses, under general contract law principles and those laws may invalidate an arbitration clause “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.
DISCUSSION
Under Oregon law, a contract is not valid if it is contrary to law or against public policy. Compton v. Compton, 187 Or.App. 142, 145 (2003). Such law and public policy “may be found in legislative enactments, administrative regulations, even in the constitution.” Id. Oregon Department of Human Services (“DHS”) is the state agency with authority to promulgate rules and regulations for licensed care facilities. ORS 443.450. DHS regulations bar contracts between licensed care facilities and a resident that waives or purports to waive the resident's rights. OAR 411-054-0027(1)(o) states,
(1) The facility must implement a residents' Bill of Rights. Each resident or the resident's designated representative must be given a copy of their rights and responsibilities prior to moving into the facility. The Bill of Rights must state that residents have the right:
(o) To be free of any written contract or agreement language with the facility that purports to waive their rights or the facility's liability for negligence;OAR 411-054-0027(1)(o). .
Defendants' Admission Agreement does contain a Residents' Bill of Rights and includes language that it “shall not be interpreted as a waiver of any resident right set forth in OAR 411-054-0027(1)(o).” Ex. 1, at 17. However, the Arbitration Agreement then explicitly waives Plaintiff's right to have disputes decided in a court of law before a jury. In fact, the Arbitration Agreement even uses the words “give up their constitutional rights ...” Defendants argue that the Agreement is not contrary to public policy because Oregon courts have found that parties may voluntarily agree to waive constitutional rights to a jury, as Plaintiff did here. However, the cases cited by Defendants to support this assertion do not involve residents at a care facility. The . plain language of the OAR cannot be anymore clear that a resident at a care facility, such as Defendant's, must be free of any written contract with the facility that purports to waive the resident's rights. Therefore, just as Defendants cannot contract away a resident's right to free speech or to vote, they cannot contract away a resident's right to have disputes heard in a court . of law before a jury.
Moreover, the Court finds the Arbitration Agreement to be unconscionable. Arbitration agreements may be found invalid due to unconscionability. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010). Unconscionability may be found as procedural deficiencies or substantive deficiencies, or often as a combination of both. Procedural unconscionability focuses on the circumstances or conditions of contract formation, such as unequal bargaining power, no opportunity for negotiation, or ambiguous terms. Bagley v. Mt. Bachelor. Inc., 356 Or. 543, 555 (2014). Substantive unconscionability, on the other hand, generally refers to the terms of the contract and focuses on whether the substantive terms contravene the public interest or public policy. Id. (citing Restatement § 208 comment a). To determine whether allegations of unconscionability are sufficient to invalidate a contract, courts frequently look to legislation for relevant indicia of public policy. Id. at 556. When relevant public policy is expressed in a statute or regulation, the issue is one of legislative intent. See Uhlmann v. Kin Daw, 97 Or 681, 689-90 (1920) (so stating). In that situation, the court must examine the statutory text and context to determine whether the legislature intended to invalidate the contract term at issue.
As explained above, the legislature expressed a clear intent to protect vulnerable individuals in resident care facilities from entering into contracts that may waive their rights. The plain language and context of OAR 41 l-054-0027(1)(o) is unambiguous. Not only did the Oregon Legislature find a need to impose special protections for those in long term care facilities, but Plaintiff cites to a joint report from the American Arbitration Association, American Bar Association, and the American Medical Association stating, “the Commission's unanimous view is that in disputes involving patients and/or plan subscribers, binding arbitration should be used only where the parties agree to same after the dispute arises.” In 2016, the Centers for Medicare and Medicaid Service (“CMS”) found “that requiring residents to sign predispute arbitration agreements is fundamentally unfair because, among other things, it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen.” Fed Reg, Vol. 81, No. 192, 68792 (2016). The Agency concluded that “pre-dispute arbitration clauses are, by their very nature, unconscionable.” Id. The associated rules were later challenged, and CMS has now adopted rules that support arbitration agreement entered into at the time of admission, so long as arbitration is not conditioned upon a resident's admission or for a resident to receive continued care. 42 C.F.R. § 483.70 (n). However, the Agency's formal findings were never withdrawn, and the Court may still consider agency findings when considering public policy. Due to these concerns over pre-dispute arbitration agreements on those in care facilities, coupled with the plain language of OAR 41 l-054-0027(1)(o), the Court finds that the Oregon Legislature intended to invalidate pre-dispute arbitration agreements for residents at care facilities such as Defendant's.
See Health Care Due Process Protocol, Final Report, Section X, B July 27, 1998, available at . https://adr.org/sites/default/files/document_repository/Healthcare-Due-Process-Protocol.pdf (last visited April 6, 2022).
Additionally, the Court finds the Arbitration Agreement to be unconscionable because it includes one-sided terms. Oregon Courts have found agreements to be substantively unconscionable for including one-sided terms that indicate an inequality of bargaining power and oppression. Gist, 305 Or.App. at 720 (citing Vasquez-Lopez, 210 Or.App. at 567 (2010)); see . also Livingston v. Metropolitan Pediatrics, LLC, 234 Or.App. 137, 152-53 (2010) (“Our inquiry focuses on whether there are ... one-sided or unreasonably unfair terms in the arbitration clause that render it substantively unconscionable.”). Here, the Arbitration Agreement provides an exception for disputes that would likely be brought only by Defendants. The relevant portion of the clause reads, “except that any claim or dispute involving unlawful detainer proceedings (eviction) or any claims that are brought in small claims court shall not be subject to arbitration.” Ex. 1, at 17. A claim for unlawful detainer under this contract would be brought only by Defendants. Small claims court actions would also most likely be brought by only Defendants, such as for collection of unpaid rent. Therefore, the exception in the Arbitration Agreement allows Defendants to litigate their claims in the forum of their choice, while Plaintiff must arbitrate any and all claims. This undermines Defendants' argument that the Arbitration Agreement binds the parties equally. Plaintiff has also pointed out that the Arbitration Agreement was obscured in a stack of approximately 165 pages of other paperwork, presented as a take-it-or-leave-it contract with no negotiation or discussion of terms, and that Plaintiff was not aware that he even signed an arbitration agreement. While the one-sided terms are the most concerning to the Court, the scenario in which the agreement was presented also indicates oppression. .
Therefore, the Court finds the Arbitration Agreement in this case to be unconscionable on the grounds that it is contrary to Oregon law and public policy, and because it includes one-sided terms that indicate an inequality of bargaining power and oppression.
RECOMMENDATION
For the reasons stated above, the Court recommends that Defendants' Motion to Dismiss and Compel Arbitration (#11, #13) be DENIED.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure Rule 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Report and Recommendation will be referred to a district judge. Objections to this Report and Recommendation, if any, are due fourteen (14) days from today's date. If objections are filed, any response to the objections is due fourteen (14) days from the date of the objections. See Fed.R.Civ.P. 72, 6.