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by Andrew Flake

A case that has made its way up and down the Georgia appellate circuit, CL SNF, LLC et al. v. Fountain, has landed on remand, with a reminder about arbitration clause enforceability: In heavily regulated areas, with health care a prime example, regulation and statutes outside of the traditional FAA context may have substantial impact.

In Fountain, a nursing-home abuse case, the patient’s guardian signed the admission paperwork, including an agreement on behalf of the patient to arbitrate. Included in that agreement were provisions that “any and all claims or controversies…arising out or relating to” the various facility agreements, or care or services by the facility, or “any acts or omissions in connection with such care or services,” would be subject to arbitration.

On the first page, the arbitration agreement also recited that it was “voluntary,” and contained the bold-faced and capitalized statement that “EACH OF THE PARTIES IS WAIVING THE RIGHT TO A TRIAL BY JURY, AND INSTEAD, ANY DISPUTES BETWEEN THE PARTIES SHALL BE RESOLVED THROUGH BINDING ARBITRATION.”

Before the signature, the agreement also included a section labeled “Resident’s Understanding of Agreement,” reciting that “signing the agreement was not a precondition to admission or the furnishing of services to the resident by the facility,” and noting that “the resident had the right to seek legal counsel concerning the agreement, and the agreement could be revoked within 30 days of signature.”

For some readers, the reason for the prominent jury trial waiver language — avoiding a claim of procedural unconscionability — will be familiar. But what about the suggestion that signing the agreement was “voluntary” and not a “precondition to admission”?

Here’s where the regulatory piece comes in. The federal Medicaid Act, and in particular the regulations that implement it, have this prohibition:

“a nursing facility must not charge, solicit, accept, or receive, in addition to any amount otherwise required to be paid under the State plan, any gift, money, donation, or other consideration as a precondition of admission, expedited admission or continued stay in the facility”.

This provision reflects something of the prevailing winds at the federal level, with increasing scrutiny of certain kinds of arbitration clauses, especially those where there is a policy view that one party to the agreement (like a facility), has unequal bargaining power, and the resulting regulatory and congressional response. I would not be surprised to see similar requirements down the road for other areas of industry and commerce.

For the drafters of arbitration clauses, the takeaway here is that procedural authority beyond the Federal Arbitration Act, so long as it is not inconsistent, may contain particular and separate requirements for clause-enforcement. Depending on the location of the parties and their choice of law, review of those provisions, especially in areas with heavier regulation, like employment or healthcare, will therefore be important.

As a final note, a recent Supreme Court decision I wrote about in the blog, Morgan v. Sundance, gets a mention in this case, too. Morgan, you may remember, is an opinion that seems to recalibrate what it means to say we have a federal “policy in favor of arbitration.” When it was decided, the Fountain appeal was still pending, and the Guardian’s counsel filed a supplemental brief, hoping, I’m sure, for support in the effort to invalidate Clinch’s arbitration clause. The Court of Appeals, however, gave this effort a shug; it noted simply that what Morgan instructs, namely, putting arbitration agreements on the same footing as regular contracts,” was exactly what it was doing.

[The case is CL SNF, LLC et al. v. Fountain, Case No.  A20A0773 (filed June 21, 2022 in the Georgia Court of Appeals).