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Is Your Arbitration Agreement Enforceable?

Posted on: April 6, 2017 By:

Health care providers may favor arbitration due to the perception that it is a faster, less expensive alternative to litigation. State and federal policy favors arbitration for the same reasons. Because of the strong public policy favoring arbitration, doubts as to whether a case is subject to arbitration are resolved in favor of arbitration. (Arbitration may also provide a desired level of confidentiality by preventing allegations from becoming a matter of public record in court.) Arbitration agreements, however, are subject to the same defenses to enforceability as any other contract.

A recent decision of the Arizona Court of Appeals provides guidance for evaluation of the enforceability of arbitration agreements. Gullett v. Kindred Nursing Centers West, LLC arose out of the plaintiff’s claims that a rehabilitation center had abused and neglected his father, who lived there for the last month of his life. After the complaint was filed, the defendant moved to compel arbitration pursuant to an agreement signed by the decedent upon admission. The plaintiff opposed arbitration, arguing that the agreement was substantively and procedurally unconscionable. After evaluating several aspects of the agreement, the Court held that the agreement was not substantively unconscionable, but remanded to the trial court for further proceedings regarding procedural unconscionability.

“Substantive unconscionability concerns the actual terms of the contract and examines the relative fairness of the obligations assumed.” Essentially, the terms of the arbitration agreement cannot be so one-sided as to oppress or unfairly surprise the patient or employee. The plaintiff in Gullett argued that the arbitration agreement was inappropriately one-sided for at least three reasons: (1) it did not provide sufficient discovery to allow plaintiff to prosecute his case; (2) it provided an inherently biased arbitrator; and (3) it lacked mutuality. The Court evaluated and rejected each of these arguments.

When a party agrees to arbitration, it may trade some procedures available in traditional litigation for simplicity, informality, and speed. Thus, while parties are entitled to enough discovery to effectively arbitrate their claims, discovery need not be unlimited or even equivalent to the amount allowed under the Rules of Civil Procedure. Discovery provisions in an arbitration agreement are only unconscionable if the amount of permitted discovery is so low and the burden to obtain additional discovery is so high that the litigant is not able to prosecute his claim. Accordingly, the Court upheld the arbitration agreement in Gullett, which provided discovery that was similar to, and in some cases broader than, the discovery allowed under the Arizona Rules of Civil Procedure.

As to alleged arbitrator bias, the Court acknowledged that an independent arbitrator is necessary for fair and effective dispute resolution. The Court rejected the plaintiff’s argument, however, that such independence was unavailable as a result of a clause in the agreement naming a particular entity that “may” provide arbitration services. The Court recognized that this language did not require the use of the named entity, and focused instead on the requirement that arbitration “be conducted by an independent impartial entity.”

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