The Superior Court of Pennsylvania (“Appellate Court”) decided in its opinion filed on January 27, 2017 that the trial court had erroneously determined that a nursing home resident lacked capacity to execute the nursing home arbitration agreement and that the nursing home arbitration agreement was unenforceable because it is substantively and procedurally unconscionable.
Standard Of Review
The Appellate Court stated that its review of a claim that the trial court improperly denied preliminary objections in the nature of a petition to compel arbitration is limited to determining whether the trial court’s findings are supported by substantial evidence and whether the trial court abused its discretion in denying the petition. As contract interpretation is a question of law, the Appellate Court’s review of the trial court’s decision is de novo and the Appellate Court’s scope is plenary.
Capacity To Execute Nursing Home Arbitration Agreement
Arbitration agreements are matters of contract and under Pennsylvania law, it is presumed that an adult is competent to enter into an agreement, and a signed document gives rise to the presumption that it accurately expresses the state of mind of the signing party. To rebut this presumption, the challenger must present evidence of mental incompetency which is clear, precise and convincing.
The Appellate Court stated that mere weakness of intellect resulting from sickness or old age is not legal grounds to set aside an executed contract if sufficient intelligence remains to comprehend the nature and character of the transaction, and no evidence of fraud, mutual mistake or undue influence is present. Failure of memory does not prove incapacity, unless it is total or so extended as to make incapacity practically certain. A testator may not be able at all times to recollect the names of persons or families of those with whom he has been intimately acquainted and yet his understanding of the ordinary transactions of his life may be sound.
The Appellate Court stated that its review of the record led it to the conclusion that there does not exist clear, precise and convincing evidence to support the trial court’s determination that the nursing home resident lacked capacity to enter into the arbitration agreement.
Unenforceable Because Arbitration Agreement Is Substantively And Procedurally Unconscionable?
The Appellate Court stated that when addressing the issue of whether there is a valid agreement to arbitrate, courts generally should apply ordinary state-law principles that govern the formation of contracts, but in doing so, must give due regard to the federal policy favoring arbitration.
Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. The party challenging the agreement bears the burden of proof.
An unconscionability analysis requires a two-fold determination: (1) that the contractual terms are unreasonably favorable to the drafter (“substantive unconscionability”), and (2) that there is no meaningful choice on the part of the other party regarding the acceptance of the provisions (“procedural unconscionability”). Courts have refused to hold contracts unconscionable simply because of a disparity of bargaining power between the two parties.
The Appellate Court held that the nursing home arbitration agreement in this case is neither procedurally nor substantively unconscionable, and that the trial court erred in refusing to enforce it on those grounds: “[i]n light of this finding, the liberal policy favoring arbitration, and our conclusion that the court erred in determining that Decedent lacked capacity to execute the agreement, we are compelled to remand the matter to the trial court for referral to arbitration.”
The Appellate Court also held that the Federal Arbitration Act’s (9 U.S.C. §§ 1-16) mandate in favor of enforcement of arbitration agreements preempts Rule 213(e) (which requires that wrongful death and survival claims be tried together) and requires bifurcation of wrongful death and survival actions.
Source Cardinal v. Kindred Healthcare, Inc., 2017 PA Super 19.
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