One-Sided Arbitration: How To Tell If A Company Expects To Hurt Or Cheat You

Every day, billions of dollars changes hands based on the myth that people actually read, and agree to, every word in every contract they’ve ever signed. Ever read your cell phone contract? Your cable contract? Judge Posner famously admitted that he didn’t read the contract that came with his home equity loan.

Truth is, who has the time or energy to scrutinize every line? And what power do you have to negotiate it? Try negotiating your cell phone contract some time. See if you can even find a person at the company with the authority to negotiate.

Decades ago, thoughtful jurists like federal Judge J. Skelly Wright and California Justice Mathew Tobriner analyzed the issue carefully in cases like Williams v. Walker-Thomas Furniture Co., 350 F. 2d 445, 449-450 (1965) and Steven v. Fidelity & Casualty Co. of New York, 58 Cal. 2d 862, 883, 377 P. 2d 284, 298 (1962) and came to sensible conclusions like Skelly Wright’s statement of the law of contracts of adhesion in Williams:

Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain. But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all of the terms. In such a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.

That was then, this is now. Now, when the United States Supreme Court thinks that might makes right, so much so that it routinely ignores constitutional limits on special interest legislation for copyright holders while vigorously enforcing the “free speech” rights of pharmaceutical companies to go fishing through your prescription medication records, it’s all just a question of how consumers, patients, employees, and family members will lose in front of the Supreme Court, not if they will. 

In Marmet Health Care Center, Inc. v. Brown, a Supreme Court case decided three weeks ago, three families sued nursing homes that had allegedly negligently cared for their loved ones, cause their deaths. Marmet Health Care, though, had cleverly tucked into the health care agreement “a clause requiring the parties to arbitrate all disputes, other than claims to collect late payments owed by the patient. The contracts included a provision holding the party filing the arbitration responsible for paying a filing fee in accordance with the Rules of the American Arbitration Association fee schedules.”

Did you catch the clever little trick there? It’s not that the nursing home is a fan of arbitration, or that they really think it’s faster or cheaper or more efficient or better for anyone. No, the nursing home knows arbitration is worse for whoever is bringing the claim, and so put a one-sided arbitration clause in there that requires the patients’ families always use arbitration while the nursing home itself can avail itself of the public courts.

Tellingly, the “per curiam” opinion of the United States Supreme Court didn’t have the guts to describe the clause properly, and so portrayed it as a generalized arbitration clause with a narrow exception for collections. Yet, “other than claims to collect late payments owed by the patient,” there’s no reason the nursing home would ever have to sue the patient or their family. Thus, every case filed by the nursing home goes into the public courts for a modest filing fee, while every case filed by the patients or their families alleging neglect by the nursing home goes into expensive arbitration.

In a fair legal system, the court would ask, like Skelly Wright used to ask, if the “terms of the contract are so unfair that enforcement should be withheld,” and would conclude that of course a one-sided arbitration clause is so unfair that a court should not enforce it. The Supreme Court of Appeals of West Virginia did that one better, looking to the big picture, and concluded:

As a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.

Contracts are a matter of state law. So are torts like negligence, personal injury, and wrongful death. So is the regulation of nursing homes.

But, might makes right, so the United States Supreme Court used the Federal Arbitration Act — which expressly allows states like West Virginia to invalidate arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” language routinely ignored by the Supreme Court — and overruled the West Virginia Supreme Court, thereby requiring the patently unfair clause be enforced. There used to be some ways to invalidate these pernicious clauses (for example, these methods), but it’s hard to say which of those still stand when the United States Supreme Court has essentially asserted that, regardless of state law, courts should make up reasons for plaintiffs to lose. There’s room for plaintiffs to maintain many of these arguments, but also room for hostile courts to deny those arguments.

Just over three years ago I wrote about “The Very Worst Contractual Provision To Which You Can Agree,” a clause in a franchise contract that required arbitration and allowed the franchisor to choose whomever it wanted to be the arbitrator, thereby guaranteeing that they would choose one of their friends and would win the case. As I wrote then, “anyone who demands they alone have the right to choose the arbitrator is trying to defraud you.

I think that, with the agreement at issue in Marmet Health Care Center, we have a clause to add as the second worst contractual provision: the one-sided arbitration agreement where you have to submit all your claims to arbitration but they keep all their claims in the court system. If someone wants to force you into arbitration while keeping their own claims in court, it’s because they expect to hurt, cheat, or sue you. 

There may be a solution. The Arbitration Fairness Act, if passed, would eliminate forced arbitration in the majority of cases where it matters. Call or send a letter to your Representatives and Senators and let them know what you think.

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  • Michael Carin

    I see this ruling as another weight in the collision course between baby boomers, who love to assert their rights, and tort reform, ironically another baby boomer initiative asserting/creating corporate rights. As more baby boomers require health care, statistics suggest a macaab reality in malpractice and nursing home neglect. Ironically, baby boomers largely created the legal environment which minimizes their pain, suffering and death.

    • http://www.litigationandtrial.com/ Max Kennerly

      An astute observation. It’s like how all of the post-Depression financial reforms put in place in the 1930s were rescinded in the 1990s by the first generation too young to remember what caused the Depression in the first place.

  • Michael Carin

    After reading more case law and articles on the legislative intent behind the FAA, I think this decision is horrible – but the “per curiam” truly illustrates the dark side of the Court. Predictably, Scalia and Thomas contradict earlier opinions. In Allied-Bruce Terminix v. Dobson, Scalia argues in a dissent that a prior expansion of the FAA involving the extensive preemptive effect outweighing the principles of stare decisis because any impaired reliance interests could be remedied via recision! Unreal, a state law remedy provides complete relief and outweighs preemption! Thomas steps ‘construction’ further – he argues that the FAA does not apply in state courts based upon a 35 year gap between the FAA and the first attempt to apply it to state courts. He also argues that even if section 2 of the FAA preempts state law, NO TEXTUAL BASIS exists for requiring state courts to enforce arbitration through specific enforcement! Where in the world is this language with Marmet? For all the huffing and puffing of judicial activism, aside from the insane state actors opinions this term, this truly takes the cake.

    • http://www.litigationandtrial.com/ Max Kennerly

      The Federal Arbitration Act opinions are among the worst examples of judicial activism. There is no rational way you can derive anything like our current case law from the actual text of the FAA.