Arbitration Agreement Found Unconscionable

Jul 27, 2022 10:30:00 AM



An arbitration agreement is a contract that states that the signors cannot sue each other in court. Rather, the remedy for any perceived wrongdoing on the part of the signors is arbitration. Arbitration is similar to mediation except that the former is binding upon the parties. Businesses oftentimes prefer arbitration to a court process as a way to keep litigation costs down and to keep the dispute confidential.

A court might not honor an arbitration agreement and allow a suit to proceed if there was fraud or if the agreement is unconscionable. An unconscionable agreement would be one that was unreasonably unfair, unjust, or oppressive to a signor.

In a case out of Pennsylvania, a court did find that an arbitration agreement was unconscionable. In this case, Debra was discharged from a hospital and was admitted into a nursing home for care and rehabilitation. The nursing home, Highland Park, had Debra sign an arbitration agreement as part of her admission paperwork. During the admission process, Debra told Highland Park that it was very important that her family be involved in decisions around her care. Debra did not suffer from dementia, but she did have problems with concentration. Debra was also blind in both eyes.

Debra died a few months thereafter and her daughter filed a negligence claim against Highland Park. Highland Park tried to enforce the arbitration agreement and such request was denied by the trial court. Highland Park appealed that order and the appeals court remanded the case to the trial court for further findings. The appeals court instructed the trial court to specifically address:

  • Debra’s physical and mental state at the time she signed the document
  • Whether Debra was alone
  • Whether the agreement was part of the admissions packet or a separate document
  • Whether the hospital sent Debra directly to Highland Part after her hospital discharge
  • Whether Debra knew she has a choice regarding where to receive treatment
  • Whether part of Debra’s motivation in choosing Highland Park was financial

The trial court once again analyzed the case and collected evidence. The trial court found that Debra was competent but was unwell and in severe pain when she signed the agreement. She was alone, was not given a chance to read the contract before signing, and was not given a copy after execution. The admissions director who was present at the signing did not read the agreement to Debra. Since Debra was transferred directly to Highland Park from the hospital, she was likely not aware that she could go somewhere else.

The trial court once again found the arbitration agreement unconscionable; Highland Park appealed and this is the instant case. The appeals court stated, “To invalidate or bar enforcement of a contract based on unconscionability, the party challenging the contract must show both an absence of meaningful choice, also referred to as procedural unconscionability, and contract terms that are unreasonably favorable to the other party, known as substantive unconscionability.” Highland Park argued that there must be both procedural unconscionability and substantive unconscionability to invalidate the agreement. The appeals court did not agree, stating, that the two forms of unconscionability are analyzed on a sliding-scale approach; both don’t need to be present in a case to lead to an unconscionability ruling. A lesser degree of substantive unconscionability is required in cases where procedural unconscionability is high. In the end, since the procedural unconscionability was very high in this case, Debra’s daughter was able to invalidate the arbitration agreement and proceed with her suit in a court of law.

Topics: legal news

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