Mary T. Kleine v. Emeritus at Emerson

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4453-14T3

MARY T. KLEINE,

Plaintiff-Appellant,

APPROVED FOR PUBLICATION

v.

June 9, 2016

EMERITUS AT EMERSON, BREA EMERSON,

LLC d/b/a EMERITUS AT EMERSON, APPELLATE DIVISION

and EMERITUS CORPORATION,

Defendants,

and

CARE ONE AT VALLEY, CARE ONE,

LLC, MILLENNIUM HEALTH CARE

CENTERS II, d/b/a CARE ONE

AT VALLEY, DES HOLDING CO.,

INC. and DES-C 2009 GRAT,

Defendants-Respondents.

________________________________________________________

Argued March 15, 2016 – Decided June 9, 2016

Before Judges Fisher, Rothstadt and Currier.

On appeal from the Superior Court of New

Jersey, Law Division, Bergen County, Docket

No. L-409-13.

Thomas S. Howard argued the cause for

appellant (Gartenberg Howard, LLP, attorneys;

Mr. Howard, on the brief).

Shane P. Simon argued the cause for

respondents (Buchanan Ingersoll & Rooney,

P.C., attorneys; David L. Gordon, Eric D.

Heicklen and Mr. Simon, of counsel and on

the brief).

The opinion of the court was delivered by

FISHER, P.J.A.D.

Plaintiff commenced this personal injury action against,

among others, defendant Care One at Valley,1 which operates a

nursing facility that moved to compel arbitration of plaintiff's

claims based on a clause contained in plaintiff's admission

agreement. Defendant apparently imposes on its patients an

obligation to arbitrate disputes because it can. The Federal

Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16, which the Supreme

Court of the United States broadly construes in favor of

arbitration, overrides all state policies and concerns,

including the Nursing Home Act's2 express prohibition against the

enforcement of such agreements, N.J.S.A. 30:13-8.1.3 See Marmet

1

Plaintiff actually named a number of defendants as being

responsible for this aspect of her personal injury claims,

namely: defendants Care One, LLC, Millennium Health Care Centers

II, d/b/a Care One at Valley, DES Holding Co., Inc., and DES-C

2009 GRAT (collectively, defendant).

2

N.J.S.A. 30:13-1 to -17.

3

N.J.S.A. 30:13-8.1 declares that "[a]ny provision or clause

waiving or limiting the right to sue for negligence or

malpractice in any admission agreement or contract between a

patient and a nursing home or assisted living facility . . .

whether executed prior to, on or after [January 12, 2002,] the

effective date of this act, is hereby declared to be void as

against public policy and wholly unenforceable, and shall not

constitute a defense in any action, suit or proceeding."

2 A-4453-14T3

Health Care Ctr., Inc. v. Brown, 565 U.S. __, __, 132 S. Ct.

1201, 1203, 182 L. Ed. 2d 42, 45 (2012) (holding that West

Virginia's similar nursing home statute, which prohibits

arbitration of personal injury and wrongful death suits, takes a

backseat to the FAA and the federal policy in favor of

arbitration); see also Estate of Ruszala v. Brookdale Living

Communities, Inc., 415 N.J. Super. 272, 292-93 (App. Div. 2010).4

Despite its broad interpretation of the FAA and its

supremacy over specific state policies and practices,5 the

Supreme Court has recognized the "fundamental principle that

arbitration is a matter of contract," Rent-A-Center, West, Inc.

v. Jackson, 561 U.S. 63, 130 S. Ct. 2772, 2776, 177 L. Ed. 2d

4

We must comply with Marmet, but we are not required to agree.

See Reinauer Realty Corp. v. Borough of Paramus, 34 N.J. 406,

415 (1961); Crespo v. Crespo, 408 N.J. Super. 25, 37 (App. Div.

2009), aff’d o.b., 201 N.J. 207 (2010). Although we willingly

embrace the concept of federal supremacy, we find it distressing

that invocation of the "liberal federal policy favoring

arbitration," see Moses H. Cone Mem. Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765,

785 (1983), in many cases has caused the forfeiture of important

rights because consumers and employees lack the bargaining power

to object to an arbitration clause's inclusion; citation of the

"liberal federal policy favoring arbitration" merely evokes the

old saying, "a good catchphrase can obscure fifty years of

analysis."

5

In recognizing that the Nursing Home Act's sensible bar on

compelled arbitration must give way to the FAA's long reach, we

see no impediment to the indirect enforcement of the policies

embedded in N.J.S.A. 30:13-8.1 through the state's licensing

power over such facilities.

3 A-4453-14T3

403, 410 (2010), thereby permitting application of state

contract law to ascertain whether the parties had a meeting of

the minds when contracting, and whether a party, who has

ostensibly agreed to waive the right to trial by jury, has

clearly and unambiguously consented to arbitration, Atalese v.

U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 442, 444 (2014),

cert. denied, __ U.S. __, 135 S. Ct. 2804, 192 L. Ed. 2d 847

(2015). In light of these principles, we turn to the specific

facts of this case.

Because the trial judge summarily granted defendant's

motion to compel arbitration and because our review of that

determination is de novo, we assume as true the factual

opposition presented by plaintiff in response to defendant's

motion. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520,

540 (1995). In opposition to the motion, Frank J. McMahon

asserted his then eighty-five-year-old sister, plaintiff Mary T.

Kleine, was "still suffering from the consequences of the trauma

she had endured" at a nursing facility operated by the other

defendants,6 when, through a power of attorney, he sought her

admission at defendant's facility. An individual in the

admissions office presented him with "a stack of papers, of

6

Defendants Emeritus At Emerson, Brea Emerson, LLC d/b/a

Emeritus at Emerison, and Emeritus Corporation (collectively,

Emerson).

4 A-4453-14T3

which the admission agreement was one of several" documents, and

he was told "to sign and initial wherever indicated." McMahon

was then "left alone to do so, without any further explanations

or instructions."

McMahon further asserted:

No one told me, and I did not notice, that

the agreement contained a waiver of my

sister's civil rights, including her right

to a jury trial and her right to appeal any

adverse decision to an appellate court. I

also was not told that my sister would have

to pay for one-half the cost of the

arbitration. In fact, the admission person

said nothing to me about the contents of the

agreement, except that I had to sign it for

my sister, and that I had to sign it right

away because my sister was being admitted to

that nursing home.

No one told me that I had a right to consult

with counsel before signing or that my

sister's admission to the facility was not

contingent upon my signing the agreement. If

I had understood that such a provision was

contained in the admission agreement, I

would have asked for an explanation so I

could understand what this provision meant.

If I had been told that by signing I would

not only give up her right to a jury trial,

but also would waive her right to appeal

from any decision, and that she would have

to pay for one-half the cost of any

proceeding to determine whether Care One was

negligent or caused her injury, I would

certainly have asked whether I was required

to agree as a condition of her admission,

and I would probably have spoken with an

attorney to fully understand the effect of

this agreement.

. . . .

5 A-4453-14T3

My sister's finances are very limited. She

is currently paying the cost of the

Allendale Nursing Home (about $5,000 per

month) from the proceeds of the sale of her

house in 2010, which funds should last her

another two years or so, so long as she does

not have any large unanticipated expenses.

Her only income is the $1,191 she receives

from Social Security. When her savings are

expended, she will have to apply for

Medicaid coverage.

My understanding is that qualified arbitrators

charge $400-500 or more per hour for their

services. If our case required 4-5 seven

hour days to present all the testimony and

documentary evidence, plus another day for

the arguments of counsel and the

arbitrator's consideration of the evidence,

the arbitrator's fees would range from

$14,000 — 18,000 and maybe more if more

hearing days are needed or the arbitrator

was more expensive, which means my sister

would have to pay $7,000 — 9,000 or more,

plus the cost of a transcript if we want to

obtain one, all with her limited resources.

Consequently, my sister could only afford to

pay for an arbitrator to hear the case if

she sacrificed her ability to pay for her

continued life at the assisted living

facility. I do not believe that is a choice

she should have to make — and I would not

have signed the admission agreement as

worded if I had been told that she would

have to pay that amount of money in order to

have her claims heard.

The trial judge was required to assume the truth of these sworn

statements and assume there was no meeting of the minds about

the arbitration of disputes.

6 A-4453-14T3

Defendant's arbitration clause provided in upper case and

bold lettering:

Any controversy or claim arising out of or

relating to this agreement and brought by

the resident, his/her personal representa-

tives, heirs, attorneys or the responsible

party shall be submitted to binding

arbitration by a single arbitrator selected

and administered pursuant to the commercial

arbitration rules of the American Arbitra-

tion Association. . . .[7] Any claimant

contemplated by this paragraph hereby waives

any and all rights to bring any such claim

or controversy in any manner not expressly

set forth in this paragraph, including, but

not limited to, the right to a jury trial.[8]

It is well-established that the party from whom an

arbitration clause has been extracted must "clearly and

unambiguously" agree to a waiver of the right to sue. Atalese,

supra, 219 N.J. at 443; see also Morgan v. Raymours Furniture

Co., 443 N.J. Super. 338, 343 (App. Div. 2016), certif. denied,

7

We have omitted a sentence that describes the impact of

applicable statutes of limitations because of its lack of

relevance here.

8

The contract's next separate provision, also in upper case and

bold lettering, states: "This agreement is a binding legal

document. The resident has read and understands the agreement

and acknowledges that, if so desired, the resident and/or [sic]

responsible party has been given the opportunity to consult with

legal counsel." It is difficult to imagine an infirm individual,

or his or her family member, is likely to delay admission while

taking the time to seek a legal opinion about the contract. Our

Legislature likely appreciated these realities — to which the

"liberal federal policy favoring arbitration" is blind — when

enacting N.J.S.A. 30:13-8.1.

7 A-4453-14T3

__ N.J. __ (Apr. 25, 2016). We agree the arbitration clause

unambiguously declares the resident's waiver of the right to

pursue a claim in any fashion other than as set forth, but other

aspects of the clause suggest it may be unconscionable.

For example, it is only the resident or the resident's

representative who is asked to waive the right to seek redress

in the courts; the clause's insistence on the utilization of

arbitration applies to "any controversy or claim arising out of

or relating to this agreement and brought by the resident [or

the resident's representatives9]" (emphasis added). If the use of

the word "and" were not sufficient to demonstrate the promise to

arbitrate was made only by the resident or her representatives,

certainly the clause's last sentence, which describes the waiver

of the right to pursue the claim or controversy in some manner

other than arbitration, is expressed only by "any claimant

contemplated by this paragraph," i.e., the resident or her

representatives. In short, only the plaintiff was bound;

defendant made no such promise, retaining for itself not only

the right to sue the resident or her representatives in any

court of competent jurisdiction but also the right to have its

own claims resolved by trial by jury.

9

These representatives are identified as "his/her personal

representatives, heirs, attorneys or the responsible party."

8 A-4453-14T3

As observed earlier, arbitrability was decided summarily.

At that stage, the judge was required to assume the truth of

McMahon's sworn statements and consider the language of the

agreement in the light most favorable to plaintiff. Brill,

supra, 142 N.J. at 540. Had the judge done so, the one-sided

waiver extracted by defendant, as well as an assumption of the

truth of McMahon's assertions about the manner in which the

contract was formed, would have required an evidentiary hearing

related to unconscionability. See, Muhammad v. Cnty. Bank of

Rehoboth Beach, 189 N.J. 1, 15 (2006), cert. denied, 549 U.S.

1338, 127 S. Ct. 2032, 167 L. Ed. 2d 763 (2007). If that was

all that was before us, we would remand for such an evidentiary

hearing and the judge's consideration of both procedural and

substantive unconscionability factors related to the contract.

See Sitogum Holdings, Inc. v. Ropes, 352 N.J. Super. 555, 564-66

(Ch. Div. 2002) (recognizing that procedural unconscionability

includes consideration of "a variety of inadequacies, such as

age, literacy, lack of sophistication, hidden or unduly complex

contract terms, bargaining tactics, and the particular setting

existing during the contract formation process," and substantive

unconscionability involves consideration of harsh or unfair one-

sided terms embedded in the contract). The application of our

common law unconscionability principles in this fashion would

9 A-4453-14T3

not create an obstacle inconsistent with FAA principles. See

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-40, 131 S.

Ct. 1740, 1746, 179 L. Ed. 2d 742, 751 (2011).

But we reverse because the arbitration process contemplated

by the clause in question was not available when the parties

executed their contract. In opposing the motion to compel

arbitration, plaintiff provided a certification, which

authenticated an attached AAA statement that unequivocally

expressed that, as of January 1, 2003, AAA would "no longer

accept the administration of cases involving individual patients

without a post-dispute agreement to arbitrate." Consequently,

when the parties contracted, their exclusive forum for

arbitration was no longer available; there being no agreement to

arbitrate in any other forum, arbitration could not be

compelled. In short, even assuming the clause was otherwise

enforceable and consented to by plaintiff, there was no meeting

of the minds as to an arbitral forum if AAA was not available.10

10

We are mindful defendant has argued the clause does not

require AAA arbitration, only that the arbitration be

administered pursuant to AAA's commercial arbitration rules; in

other words, defendant contends that the provision does not

limit the appointment of a substitute administrator so long as

that administrator applies AAA's commercial arbitration rules.

It is difficult to conclude that a reasonable reader of this

language — particularly one simultaneously contemplating the

placement of an elderly sister in a nursing home — would make

that fine distinction even if defendant's interpretation was

(continued)

10 A-4453-14T3

As Atalese instructs, the party from whom such a provision has

been extracted must be able to understand — from clear and

unambiguous language — both the rights that have been waived and

the rights that have taken their place. See Atalese, supra, 219

N.J. at 444; see also Khan v. Dell, Inc., 669 F.3d 350, 357-59

(3rd Cir. 2012) (Sloviter, J., dissenting). Because AAA was not

available to administer the arbitration of this dispute at the

time the contract was formed, or even at the time the trial

court ruled on the application,11 the judge mistakenly compelled

arbitration of plaintiff's personal injury claims against this

defendant.12

(continued)

plausible. Moreover, the forfeiture of legal rights and the

compelling of arbitration over objection is not a three-card

monte game. Atalese requires greater clarity and less ambiguity

in determining whether and how to enforce such a clause. We

reject the notion that a court must adopt defendant's strained

interpretation of the clause it alone drafted.

11

In its appendix, defendant provided a document purporting to

represent AAA's current position, which, if true, would suggest

AAA has a new-found willingness to administer such disputes.

The document is undated and was not appended to a statement

swearing to its authenticity or identifying when this alleged

change in policy occurred. We, accordingly, give this item no

consideration in concluding that arbitration could not be

compelled because the parties' exclusive forum was unavailable.

12

Compelling arbitration provides further complications.

Plaintiff alleges two separate acts of negligence against two

groups of defendants. Because of personal injuries allegedly

suffered in Emeritus's facility, plaintiff moved to defendant's

facility; she claims she was later injured as a result of

(continued)

11 A-4453-14T3

The April 21, 2015 order compelling arbitration is

reversed.13

(continued)

defendant's negligence. Although both facilities extracted

arbitration clauses when admitting plaintiff — we can only

wonder whether this is the industry standard despite what

N.J.S.A. 30:13-8.1 prohibits — in earlier proceedings a

different judge denied arbitration of plaintiff's claims against

Emeritus because Emeritus's provision required arbitration

administered by the National Arbitration Forum, which also does

not offer its services for any claim arising out of "any aspect

of healthcare." If the arbitration clause in question in this

appeal were to be enforced, plaintiff would be relegated to two

different fora and face the possibility of inconsistent results;

both those circumstances are inconsistent with New Jersey

policies and any modern thought on litigation and, indeed, would

run counter to the reasons that originally triggered our state

policy in favor of arbitration — the providing of "a speedy,

inexpensive, expeditious and perhaps less formal manner"

disposition of claims. See Carpenter v. Bloomer, 54 N.J. Super.

157, 162 (App. Div. 1959).

13

The motion judge never appointed a replacement of the

unavailable arbitral forum and never described what the parties

were to do next. The order merely "directed" plaintiff "to

arbitrate" with defendant and "dismissed" the "matter" from

"th[e] [c]ourt's jurisdiction." Even if the judge correctly

ruled, the claims against defendant should only have been

stayed, not dismissed. See N.J.S.A. 2A:23B-7(g).

12 A-4453-14T3