Bridgett Hill v. NHC Healthcare/Nashville, LLC ( 2008 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs June 5, 2007
BRIDGETT HILL, ET AL. v. NHC HEALTHCARE/NASHVILLE,
LLC, ET AL.
Appeal from the Circuit Court for Davidson County
No. 03C2808 Walter Kurtz, Judge
No. M2005-01818-COA-R3-CV - Filed April 30, 2008
The administrators of the estate of a woman who died after being transported by ambulance from
a nursing home to a hospital filed a wrongful death suit which named the nursing home and the
ambulance service as defendants. The nursing home responded with a motion to compel arbitration,
citing a provision in the admissions agreement which the decedent had signed, requiring both parties
to submit any disputes to arbitration and to waive their rights to jury trial. The trial court found the
arbitration clause to be unconscionable and denied the motion. The nursing home then filed a direct
appeal to this court pursuant to Tenn. Code Ann. § 29-5-319. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed
PATRICIA J. COTTRELL, J. delivered the opinion of the court. FRANK G. CLEMENT, JR., J. filed a
concurring opinion. WILLIAM B. CAIN , J., not participating.
John B. Curtis, Jr., Bruce D. Gill, Chattanooga, Tennessee, for the appellants, NHC
Healthcare/Nashville, LLC; and National Healthcare Corp.
Joseph K. Dughman, James W. Tiller, Nashville, Tennessee, for the appellees, Bridget Hill, and
Janece Wilson, as co-administratrices of the estate of Barbara Hill, deceased.
OPINION
I. A CONTRACT BETWEEN A PATIENT AND A NURSING HOME
Barbara Hill was a sixty year-old woman who suffered from a number of serious medical
conditions including congestive heart failure, chronic obstructive pulmonary disease, coronary artery
disease and hypertension. She developed pneumonia and was admitted to the hospital. Upon her
release from the hospital on May 28, 2003, she was referred to the defendant nursing home, operated
by defendant NHC Healthcare/Nashville, LLC (hereinafter “NHC”) for further treatment.
At NHC, Ms. Hill was given an “Admission and Financial Contract” to sign. Section H of
the thirteen page document was titled “Dispute Resolution Procedure.” Under its provisions, the
patient or her representative was allowed to submit any dispute with the nursing home to mediation.
In the event that mediation failed or the patient chose not to use that method of resolution, the
aggrieved party’s only avenue of recourse was binding arbitration, to be administered by either the
American Arbitration Association (AAA) or the American Health Lawyers Association (AHLA).1
A sentence in somewhat bolder letters than the rest of section H stated that “[b]y agreeing
to arbitration of all disputes, both parties are waiving a jury trial for all contract, tort, statutory,
regulatory or other claims.”2 At the bottom of the section was a box with bold letters containing the
words, “I am in total agreement with the arbitration procedures described above in Section H,
including the use where applicable of the AAA Defined ‘Consumer-Related Disputes.’ The
provisions of this Section H have been reviewed with me prior to my signature below.”
The box referenced above and the contract itself were signed by Barbara Hill, as well as by
her daughter, Janece Wilson on May 29, 2003. The nursing home representative John Houmes
signed the contract on the following day. Ms. Hill’s brother Larry Jordan added his signature to both
the box and the contract on June 4, 2003. Mr. Jordan served as Ms. Hill’s attorney in fact under a
power of attorney and a durable power of attorney for healthcare. However, the parties acknowledge
that Ms. Hill was competent at the time the contract was executed, so the additional signatures of
Ms. Wilson and Mr. Jordan have no legal significance in this appeal.
Barbara Hill was dependent on the continuous administration of oxygen when she was
admitted to the nursing home, and presumably was receiving oxygen at the time she signed the
contract. On June 4, 2003, she was released from NHC and went home to her family where she was
to receive home health care services. However, the following day she was admitted to the hospital
once again, with complaints of shortness of breath and pain in her feet and back.
Ms. Hill was discharged from the hospital on June 12, 2003, and was subsequently re-
admitted to the nursing home. Her treatment plan required further continuous administration of
oxygen twenty-four hours a day. Ms. Hill developed additional health complications at the nursing
1
The record shows the AAA announced that after January 1, 2003, it would no longer accept health care cases
involving individual patients without a post-dispute agreement to arbitrate. The AHLA announced that after January
1, 2004, it “. . . will only administer consumer health care liability claims if an agreement to arbitrate was entered into
in writing after the alleged injury occurred.”
2
At the hearing on the motion to compel arbitration, the plaintiffs’ attorney asserted that the language in
question on his copy of the contract was not in bold type. The trial court’s order observed that “[w]hile the waiver of
jury trial is set out in what appears to be a slightly blacker type color, it is certainly not emphasized, nor was it orally
explained.” Our examination of the contract confirms the trial court’s observations as to the appearance of the jury
waiver language.
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home, and on the morning of June 21, 2003, NHC called for the defendant Medic One ambulance
service to transport her to the emergency room.
When the Medic One emergency medical technician arrived at the nursing home, an NHC
nurse disconnected Ms. Hill’s oxygen. The EMT did not bring any oxygen to Ms. Hill’s room. As
he transported her from the third floor of the nursing home to the ambulance, she asked for oxygen,
and then began gasping for breath. Once in the ambulance, the EMT began administering oxygen
to Ms. Hill, but her condition worsened, and the EMT began Cardiopulmonary Resuscitation. She
arrived at the emergency room where doctors continued CPR, but without success. Ms. Hill was
pronounced dead at 11:45 a.m.
II. LEGAL PROCEEDINGS
Barbara Hill’s children filed a wrongful death complaint on October 8, 2003, naming NHC
and Medic One as defendants.3 They claimed that although NHC’s employees knew that Ms. Hill
was oxygen dependent, they disconnected her oxygen while she was still in her room, and they failed
to re-connect it despite their awareness that the Medic One EMT did not have oxygen to give her.
They further claimed that the NHC staff knew that the patient began having difficulty breathing as
she was being transported to the ambulance while still on their premises. They contended that both
defendants were negligent in failing to ensure that the patient had a continuing supply of oxygen,
and that as a result of that negligence “Barbara Hill died a slow, painful, and agonizing death that
was unnecessary.”
On November 19, 2003, NHC filed a motion to compel arbitration and stay proceedings,
accompanied by a memorandum of law and a copy of the Admission and Financial Contract. The
parties agreed to postpone argument on the motion until the completion of certain discovery. After
several depositions were taken, the defendant renewed its motion to compel arbitration. The trial
court conducted a hearing on the motion on June 23, 2005. At the conclusion of the hearing, the trial
court took the case under advisement. On July 1, 2005, the court issued a memorandum and order
denying the defendant’s motion.
In its order, the court discussed in detail the facts behind the execution of the Admission and
Financial Contract, and discussed two recent opinions by this court which involved similar facts:
Howell v. NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731 (Tenn. Ct. App. 2002) and Raiteri
v. NHC Healthcare/Knoxville, Inc., No. E2003-00068-COA-R9-CV, 2003 WL 23094413 (Tenn. Ct.
App. Dec. 30, 2003)(no Tenn R. App. P. 11 application filed). In both those cases, we found the
arbitration clauses at issue were unenforceable because they were unconscionable. The court
3
The issues currently before this court do not involve Medic One. Accordingly, when we make reference to
“the defendant” in this opinion, we mean NHC Healthcare only.
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reasoned that the similarities between those cases and the one before it compelled the same result.
This appeal followed.4
III. STANDARD OF REVIEW
When ruling on the appeal of a denial of a motion to compel arbitration, we must follow the
standard of review that applies to bench trials. Spann v. American Express Travel Related Services
Co., 224 S.W.3d 698, 706-07 (Tenn. Ct. App. 2006); Cabany v. Mayfield Rehabilitation and Special
Care Center, M2006-00594-COA-R3-CV, 2007 WL 3445550 at *3 (Tenn. Ct. App. Nov. 15, 2007)
(petition to rehear denied Nov. 27, 2007); Hubert v. Turnberry Homes, LLC, No.
M2005-00955-COA-R3-CV, 2006 WL 2843449, at *2 (Tenn Ct. App. Oct. 4, 2006) (no Tenn. R.
App. P. 11 application filed). Under that standard, review of the trial court's findings of fact are “de
novo upon the record of the trial court, accompanied by a presumption of the correctness of the
finding unless the preponderance of the evidence is otherwise.” Tenn. R. App. P. 13(d).
If the trial court has not made a specific finding of fact on a particular matter, we review the
record to determine where the preponderance of the evidence lies without employing a presumption
of correctness. Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn. 1997); Hardcastle v. Harris, 170
S.W.3d 67, 78-79 (Tenn. Ct. App. 2004). Questions of law are likewise reviewed de novo without
a presumption of correctness. Johnson v. Johnson, 37 S.W.3d 892, 894 (Tenn. 2001); Nutt v.
Champion Int'l Corp., 980 S.W.2d 365, 367 (Tenn. 1998); Union Carbide Corp. v. Huddleston, 854
S.W.2d 87, 91 (Tenn. 1993); Hicks v. Cox, 978 S.W.2d 544, 547 (Tenn. Ct. App. 1998).
IV. ISSUES PRESENTED
The issue in this appeal is whether the trial court erred in denying NHC's motion to compel
arbitration. On appeal, in asserting that the trial court did err, NHC makes several arguments: (1)
that the trial court should have applied the Federal Arbitration Act (“FAA”), which has a “potential
pre-emptive effect on contrary state law;” (2) that the trial herein mistakenly relied on two cases
from the Eastern Section of this court, and the reasoning of those cases was contrary to federal law
because the court applied a heightened scrutiny to the arbitration clause; (3) that an arbitration clause
in a contract for medical services is not unconscionable where it does not attempt to limit the
provider’s liability; (4) that arbitration itself is not oppressive, so agreements to arbitrate are not
unconscionable; (5) that, considering the facts of this case, the agreement herein is not
unconscionable and should be enforced; and (6) that the agreement is enforceable, despite the refusal
of the arbitration bodies referenced in the agreement to conduct the arbitration.
The plaintiffs address the issues raised by NHC, arguing that the FAA does not preclude
reliance on the earlier opinions from this court; that the trial court had sufficient grounds in law and
evidence to hold that the agreement was unenforceable; that there was a sufficient showing that
4
Tenn. Code Ann. § 29-5-319 allows a party to file a direct appeal to the Court of Appeals of a trial court’s
order denying an application to compel arbitration or granting an application to stay arbitration, without implicating the
requirement of a final order in the case as is set out in Tenn. R. App. P. 3.
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arbitration would have been cost prohibitive for the plaintiffs; and that the refusal of AAA and
AHLA to arbitrate this type of dispute made agreement unenforceable. The plaintiffs also argue that
the arbitration agreement is not enforceable because it violates Medicare and Medicaid law.
Our courts have recently considered the enforceability of an agreement to arbitrate disputes,
which necessarily includes a waiver of the right to a jury trial, in nursing home admission
agreements. While those cases involved several factual scenarios and raised various issues, many
of the issues raised in this case were also raised in other cases, and most were recently resolved by
the Tennessee Supreme Court.
On November 8, 2007, the Tennessee Supreme Court issued an opinion in the case of Owens
v. National Health Corporation et al, No. M2005-01272-SC-R11-CV, 2007 WL 3284669 (Tenn.
Nov. 8, 2007). Following the filing of a petition to rehear by NHC, the Court, by order entered
February 7, 2008, granted in part and denied in part the petition to rehear and filed a substitute
opinion that modified footnote 4 of its earlier opinion. Id., at * 12. We will, of course, refer to the
substituted opinion.5
V. THE HOLDINGS IN OWENS
A central issue in Owens was whether a durable power of attorney for healthcare authorized
an attorney-in-fact to bind a nursing home resident to arbitration and to waive her right to trial by
jury. Although that question is not at issue in the present case, the Supreme Court’s pronouncements
in Owens on other issues relating to the enforceability of the arbitration agreement included in
nursing home admission agreements are directly on point with the issues in this case.
The Owens case involved allegations of malpractice against a nursing home, and an
Admission and Financial Contract with an arbitration clause whose quoted portions are identical to
the language in the contract before us.6 With regard to arguments propounded by the parties in
Owens that are also raised in the case before us, we will discuss more fully below the Supreme
Court’s treatment of the issue of the application of federal or state law. The Court’s rulings on other
issues common to both Owens and the case before us can be dealt with more summarily.
First, the Court, following authority from other states, held that the arbitration agreement in
the nursing home contract did not violate either federal law or regulation governing the Medicaid
program because requiring the patient to agree to arbitrate does not constitute an additional fee or
other consideration as a precondition for admission. Owens, 2007 WL 3284669, at *9-10. The
5
For some weeks, the newer opinion appeared at 2007 WL 4877915. However, the substitution has now been
made, and the newer opinion appears, as the only opinion, at 2007 W L 3284669. The only differences from the
originally-filed opinion is an addition to footnote 4, not relevant herein, and a change in the placement of the footnotes
at the end after the order on petition to rehear.
6
While the exact relationship between the corporate defendant in Owens and the corporate defendant before
us is unclear, the similarities between their names and the contracts they used are obviously not the products of
coincidence alone. We also note that the same individuals are attorneys of record for the defendants in both cases.
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Court also rejected the plaintiff’s argument that pre-dispute arbitration agreements in nursing home
contracts are per se invalid as contrary to public policy. Id., at *10-11.
The contract in Owens included the same language as the contract herein stating that
arbitrations of disputes would be done by the American Arbitration Association or the American
Health Lawyers Association. Since neither of those organizations any longer conducts arbitrations
of health care claims in which the agreement to arbitrate pre-dates the dispute, the plaintiff in Owens
asserted that the contract was unenforceable. The plaintiff in this case makes the same argument.
In Owens, the Supreme Court rejected that argument on the basis that Tennessee Code Annotated
§ 29-5-304 provides that when an agreed-upon arbitrator is unavailable, the court may appoint an
arbitrator. Id., at *8. The Court also rejected the plaintiff’s claim that the specification of the two
arbitration organizations was a material term of the contract requiring failure of the contract if those
organizations are unavailable. Id.
This court is, of course, bound by the holdings of the Tennessee Supreme Court in Owens.
Consequently, we must reject the same arguments put forth herein.
VI. FEDERAL OR STATE LAW
NHC contends that the Federal Arbitration Act governs the arbitration provision at issue
because of the interstate nature of commerce conducted by NHC. It further argues that the FAA
prohibits state law treatment of agreements to arbitrate that is unequal to or more burdensome than
treatment of other types of contracts. According to NHC, the two cases relied on by the trial court
placed additional conditions on, or applied a heightened scrutiny to, arbitration agreements that are
not placed on other contracts.
The plaintiffs herein argue that the FAA and the Tennessee Arbitration Act are similar in the
relevant provisions, and the trial court found there was not much difference in the application of the
two statutes. In any event, both federal and state law allow courts to apply state law defenses to
contract enforcement of arbitration provisions and to decline to enforce such a provision “upon such
grounds as exist at law or inequity for the revocation of any contract.” Tenn. Code Ann. § 29-5-302;
Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (holding that generally applicable
contract defenses, including unconscionability, may be applied to invalidate arbitration agreements
without contravening the FAA). The trial court herein based its decision on the generally applicable
contract defense of unconscionability. Consequently, the unequal state law argument under the FAA
does not apply. We find no error in the trial court’s consideration of the defense of
unconscionability.
Although the defendant in the Owens case made the same FAA-based argument, the Supreme
Court did not resolve the issue, finding it unnecessary in light of the contract’s choice of law
provision. Owens, 2007 WL 3284669, at *4-5. That provision stated “[t]his agreement for binding
arbitration shall be governed by and interpreted in accordance with the laws of the State where the
Center is licensed.” The Owens court, relying on Volt Info Scis., Inc. v. Bd. of Trs. of Leland
Stanford Junior Univ., 489 U.S. 468, 109 S. Ct. 1248 (1989), held that parties to an arbitration
agreement are free to choose to have their agreement governed by a particular state’s arbitration act.
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Accordingly, the Court held that the case was governed by the Tennessee Uniform Arbitration Act
and not the FAA. Owens, 2007 WL 3284669, at *4-5.
The contract in the present case contains identical language to the choice of law provision
in Owens, quoted above, and the defendant does not dispute that it is licensed to do business in
Tennessee. Accordingly, we hold that the Tennessee Arbitration Act is to be applied herein.
The holdings in the Owens opinion resolve all the issues in this case except one: the question
of unconscionability.
VII. UNCONSCIONABILITY
Like its federal counterpart, Tennessee’s version of the Uniform Arbitration Act states that
“a provision in a written contract to submit to arbitration any controversy thereafter arising between
the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity
for the revocation of any contract.” Tenn. Code Ann. § 29-5-302(a). Consequently, when
determining whether there is a valid agreement to arbitrate, courts apply generally applicable state
law governing the formation of a contract. Taylor v. Butler, 142 S.W.3d 277, 284 (Tenn. 2004).
Applicable grounds for refusing to enforce a contract may include the defenses of laches, estoppel,
waiver, fraud, duress and unconscionability. Spann v. American Express, 224 S.W.3d 698, 711
(Tenn. Ct. App. 2006).
The defense of unconscionability was raised in Owens, but had been pretermitted in the trial
court by its ruling that the attorney-in-fact did not have authority to bind the patient to arbitration.
Consequently, the factual record on appeal was too limited to allow the Supreme Court to resolve
the issue of unconscionability, which requires an intensely fact-driven inquiry. Owens, 2007 WL
3284669, at *11.7 Nonetheless, the Court recognized the viability of unconscionability as a defense
to an agreement to arbitrate within a nursing home services contract and restated the well-known
principles:
A contract may be unconscionable if the provisions are so one-sided that the
contracting party is denied an opportunity for a meaningful choice. Haun v. King,
690 S.W.2d 869, 872 (Tenn. Ct. App. 1984) (quoting Brenner v. Little Red Sch.
House, Ltd., 302 N.C. 207, 274 S.E.2d 206, 210 (N.C. 1981)). In making that
determination, a court must consider all the facts and circumstances of a particular
case. Id. The scant factual record in this case does not disclose the circumstances
under which Daniel signed the arbitration agreement on behalf of King, including
whether the arbitration agreement was offered on a “take it or leave it basis.”
Buraczynski, 919 S.W.2d at 320; see generally Howell v. NHC Healthcare-Fort
7
Subsequent cases have also been remanded for development of the factual record. See, e.g., Raines v. National
Health Corporation, No. M2006-1280-COA-R3-CV, 2007 WL 4322063, at * 7-8 (Tenn. Ct. App. Dec. 6, 2007). In
Cabany, this court remanded for consideration of the question of whether the power of attorney was effective, but also
noted that the trial court could also address on remand the issue of whether the agreement was a “contract of adhesion.”
2007 WL 3445550, at n. 19.
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Sanders, Inc., 109 S.W.3d 731 (Tenn. Ct. App. 2003) (reviewing the trial court’s
findings of fact and holding that an arbitration provision in a nursing-home contract
was unconscionable and therefore unenforceable).
Owens, 2007 WL 3284669, at * 11.
Arbitration agreements between medical providers and patients are not per se void as against
public policy. Buraczynski v. Eyring, 919 S.W.2d 314 (Tenn. 1996). However,
. . . in general, courts are reluctant to enforce arbitration agreements between patients
and health care providers when the agreements are hidden within other types of
contracts and do not afford the patients an opportunity to question the terms or
purpose of the agreement. This is so particularly when the agreements require the
patient to choose between forever waiving the right to a trial by jury or foregoing
necessary medical treatment, and when the agreements give the health care provider
an unequal advantage in the arbitration process itself.
Buraczynski, 919 S.W.2d at 321.
The question of whether a contract provision, including a provision agreeing to arbitration,8
is unconscionable, is a question of law. Taylor, 142 S.W.3d at 284-85. However, in reaching a
decision on the question of unconscionability of a contract or provision, a court must consider the
circumstances surrounding the agreement and its execution, including the setting, the purpose, and
the effect. Taylor, 142 S.W.3d at 285 (quoting RESTATEMENT (SECOND ) OF CONTRACT § 208, cmt.
a (1981)). In the case before us, the trial court made findings of fact, which we find are supported
by the evidence. Those findings and the holdings based thereon are set out in the order:
The record in this case indicates that the deceased was 60 years old but that she was
under some mental and significant physical infirmity and under pressure of medical
circumstances to obtain admission at the nursing home. There is no indication here
that the resident was given an explanation of the terms or the purpose of the
arbitration agreement, nor that any special attention was given by the admissions
employee to the arbitration agreement. The deceased did not read the agreement, and
her daughter testified that the social worker did not discuss medication, arbitration,
or waiver of jury trial. The proof is that the agreement would not be altered by the
defendant and that the deceased had to sign the agreement as written in order to be
admitted. It was “take it or leave it.” The Court is further troubled by the fact that
the arbitration process can only be accessed, according to the agreement, by the
posting of monies by the plaintiff in excess of several thousand dollars. Furthermore,
there is no explanation of how arbitration works, and the admissions employee who
8
If a void or unenforceable agreement to arbitrate, incorporated into a larger agreement, is collateral to the
contractual matters or not part of the substance of the larger agreement, it is severable. Taylor, 142 S.W.3d at 287. An
arbitration agreement dealing only with remedies, which is generally all they deal with, is severable. Id.
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went over the contract with Ms. Hill was not even clear how arbitration worked.
While the waiver of jury trial is set out in what appears to be a slightly blacker type
color, it is certainly not emphasized, nor was it orally explained. Ms. Hill entered the
nursing home on May 29, 2003 and signed the agreement on that date. There was no
showing of any actual bargaining over the terms. The agreement called for
arbitration to be administrated either by the American Arbitration Association
(“AAA”) or the American Health Lawyer’s Association (“AHLA”). Interestingly,
the AAA had ceased to do arbitration of nursing home cases January 1, 2003. The
AHLA ceased providing this service January 1, 2004. both organizations were
concerned about the ‘controversial” nature of requiring nursing home residents to
enter into arbitration agreements. More specifically as relates to this case, however,
the AAA had ceased to do arbitration of these claims six months prior to Ms. Hill’s
entering into this agreement. Defendant offers no explanation as to why the AAA
remained in the agreement when the defendant knew or should have known that the
AAA would no longer provide an arbitrator. Since Ms. Hill is now deceased, it is not
possible to determine what effect the inclusion of the AAA had in any decision she
made, but the AAA is a highly respected organization; its inclusion in the contract
might have had some effect on her willingness to enter into an arbitration agreement.
As pointed out, the inclusion of the AAA was inappropriate as they had ceased to do
arbitration of these kinds of cases effective January 1, 2003.
The admissions contract herein containing the arbitration provision is a contract of adhesion.
It was a standard form contract drafted by the nursing home and was presented to the patient on a
take-it or leave-it basis. She clearly had no bargaining power, needed the care the nursing home
offered, and would not have been admitted if she did not sign. Thus, the contract meets the
definition of an adhesion contract set out in Buraczynski:
An adhesion contract has been defined as “a standardized contract form offered to
consumers of goods and services on essentially a ‘take it or leave it’ basis, without
affording the consumer a realistic opportunity to bargain and under such conditions
that the consumer cannot obtain the desired product or service except by acquiescing
to the form of the contract.” Professor Henderson has observed that “the essence of
an adhesion contract is that the bargaining position and leverage enable one party ‘to
select and control risks assumed under the contract.” Courts generally agree that
“[t]he distinctive feature of a contract of adhesion is that the weaker party has no
realistic choice as to its terms.”
Buraczynski, 919 S.W.2d at 320 (citations omitted).
The conclusion that the admissions contract herein was an adhesion contract does not,
however, end the inquiry. Contracts of adhesion are not favored and must be closely scrutinized to
determine if unconscionable or oppressive terms are imposed which prevent enforcement of the
agreement. Id. at 316. Nevertheless, such contracts are enforceable unless they are found to be
“beyond the reasonable expectations of an ordinary person, or oppressive or unconscionable.” Id.
at 320. A contract may be found to be unenforceable on grounds of unconscionability where the
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“inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and
where the terms are so oppressive that no reasonable person would make them on the one hand, and
no honest and fair person would accept them on the other.” Taylor, 142 S.W.3d at 285 (quoting
Haun, 690 S.W.2d at 872). “In determining whether a contract is unconscionable, a court must
consider all the facts and circumstances of a particular case. If the provisions are then viewed as so
one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract
should be found unconscionable.” Haun, 690 S.W.2d at 872.
The arbitration agreements at issue in Buraczynski, between an orthopedic surgeon and two
of his patients, were not contained within a hospital or clinic admission contract, but were separate
one-page documents which explained the meaning of the agreement to arbitrate and encouraged the
patient to discuss the agreement with the doctor. The statement that “by signing this contract you
are giving up your right to a jury or court trial” was in capital letter red type directly above the
signature line. The patients were given the right to revoke the agreements for any reason within
thirty days of their execution. The court found that the terms of the agreements did not give the
doctor an unfair advantage over the patient, and noted that, “[t]he agreements contain no buried
terms.” Buraczynski, 919 S.W.2d at 321.
After weighing those facts, the court concluded that the arbitration agreements at issue “can
not be construed as unconscionable, oppressive, or outside the reasonable expectations of the parties.
As such, the agreements, though contracts of adhesion, are enforceable.” Id. Significant, or even
“most important” to that conclusion was the Court’s determination, that “the agreements did not
change the doctor’s duty to use reasonable care in treating patients, nor limit liability for breach of
that duty, but merely shifted the disputes to a different forum.” Id. Accordingly, the Court
determined that the arbitration provisions in the agreements at issue could not be construed to be
unconscionable, oppressive, or outside the reasonable expectations of the parties. Id. As a result,
the agreements were enforceable. Id.
The facts of the case before us differ somewhat from those surrounding the agreements in
Buraczynski. Herein, the arbitration clause was not contained in a separate one-page document, but
was contained on pages 11 and 12 of the lengthy admissions contract. It is not at all clear that the
text indicating the patient’s surrender of her right to a jury trial was sufficiently distinct from the rest
of the contract to alert her to the fact that she was giving up such an important right. Section 3(a)
of the arbitration clause stated that the parties agreed that either of them could initiate a claim
pursuant to the AAA rules for “resolution of consumer-related disputes” but that “there are limits
to the dollar amounts which can be arbitrated pursuant to these rules.” The provision did not explain
what those limits were. This type of arbitration “consumer-related disputes,” is “based upon written
documents.” “All other disputes [presumably those exceeding the dollar limits of consumer-related
disputes and, perhaps, those that are not amenable to resolution by review of documents only] shall
be arbitrated in accordance with the AAA ‘Commercial Dispute Resolution Procedures.’” The
provision then referred to the AAA and the AHLA websites for information regarding those
procedures. There is nothing to indicate that the patient seeking admission to the nursing home is
given access to a computer and the opportunity to review those rules, even if the patient could
anticipate which type of dispute might arise and, therefore, which set of rules would apply.
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While the agreement stated that any “claim, controversy, dispute, or disagreement” not
resolved through optional mediation “shall be resolved by binding arbitration,” it contained no
explanation of binding arbitration, nor any language that would encourage the patient to ask
questions about the process. Unlike the agreement in Buraczynski, the arbitration provision herein
did not give the patient 30 days or any other period of time within which to withdraw consent to the
provision. As the trial court found, Ms. Hill was under “some mental and significant physical
infirmity and under pressure of medical circumstances to obtain admission at the nursing home.”
As the trial court also found, there was no proof that she was given an explanation of the terms or
the purpose of the arbitration agreement. The trial court summed up that “furthermore, there is no
explanation of how arbitration works, and the admissions employee who went over the contract with
Ms. Hill was not even clear how arbitration worked.”9
Based on the factual findings set out earlier, the trial court herein relied on two opinions from
this court, Howell v. NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731 (Tenn. Ct. App. 2003),
and Raiteri v. NHC Healthcare/Knoxville, Inc., No. E2003-00068-COA-R9-CV, 2003 WL 23094413(Tenn. Ct. App. Dec. 30, 2003) (no Tenn R. App. P. 11 application filed), quoting parts of those
opinions in its final order. The trial court held that the nursing home’s motion to compel arbitration
was “against the standards set forth in Howell and Raitieri” and found the agreement to arbitrate to
be unenforceable.
In Howell v. NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731, the plaintiff signed an
eleven page nursing home admission form on behalf of his wife, who had been discharged from the
hospital, but was too sick to return home. The arbitration provision was “buried” on page ten of the
agreement. The proof indicated that if the plaintiff had not signed the contract, his wife would not
have been admitted. Although the plaintiff could sign his name, he was unable to read or write, so
a nursing home employee explained the contract to him. She testified that she explained the dispute
resolution procedure, but she admitted that she did not explain that by signing the contract the
plaintiff was giving up his wife’s right to a jury trial. The plaintiff testified that he did not remember
anyone using the term arbitration, that he had never heard the term, that he did not know what it was,
and that it was not explained to him. His daughter, who was present at the execution of the
document testified that she did not remember hearing the words “arbitration,” “mediation,” or
“dispute resolution.”
Raiteri v. NHC Healthcare/Knoxville, Inc., 2003 WL 23094413, involved a 75 year old man
signing what appears to have been the same Admission and Financial Contract as was involved in
the Howell case so that his 77 year old wife could be admitted to the defendant nursing home.
9
Although M s. Hill signed the box containing the statement “[t]he provisions of this Section H have been
reviewed with me prior to my signature below,” there was no evidence that was actually the case. Her daughter testified
that Ms. Hill did not read it and that she (the daughter) only read the front pages dealing with costs. It is axiomatic that
a party may not be allowed to deny an obligation assumed under a signed contract by simply pleading that she did not
read or did not understand the contract. Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351, 359 (Tenn. Ct. App. 2001);
Giles v. Allstate Insurance Co., 871 S.W.2d 154, 157 (Tenn. Ct. App. 1993). Nonetheless, the facts and circumstances
surrounding the execution of an agreement are relevant to the question of its unconscionability.
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Unlike Mr. Howell, the husband in the Raiteri case could read, and the defendant’s admitting
coordinator testified that he had read the agreement. She also testified that she had explained the
agreement to him. The proof also showed that the husband was very upset and very confused after
he signed the agreement, that he was crying, and that he told his stepdaughter and his son that putting
his wife in the nursing home was his only choice because he was physically unable to take care of
her.
This court held in both cases that the agreement was unenforceable. We cited the difficult
circumstances under which the contracts were executed, the lack of meaningful choice for the
signatories, and the fact that the arbitration provisions were not contained in a stand-alone document.
In Howell, this court relied upon prior authority that required the party seeking to enforce an
arbitration agreement to show that the parties “actually bargained over the arbitration provision or
that it was a reasonable term considering the circumstances.” Howell, 109 S.W.3d at 734. The court
also found that since the waiver of a jury trial must generally be both knowing and clear, evidence
that the patient was informed that the agreement to arbitrate included a waiver of the right to a jury
trial was important. Id.10
In a recent post-Owen case, this court held that a disputed arbitration agreement in a nursing
home admission agreement was enforceable. In Philpot v. Tennessee Health Management, Inc., No.
M2006-01278-COA-R3-CV, 2007 WL 4340874 (Tenn. Ct. App. Dec. 12, 2007), the patient had
been a resident at one nursing home and wished to change to a different one after a brief stay at the
hospital. The patient’s son, who acted as her attorney-in-fact, claimed that it was urgent for him to
find a facility for his mother. The record showed, however, that the urgency “was due in principal
part to the plaintiff’s desire to attend to this matter during his lunch break.” Philpot, 2007 WL
4340874 at *6.
In Philpot, the plaintiff complained that the complex admissions packet he was presented
included many documents and that he did not realize he was giving up the right to a jury trial.
However, the arbitration agreement was in a separate two-page document titled in large bold letters
at the top of the page “JURY TRIAL WAIVER AND DISPUTE RESOLUTION
PROCEDURE.” The jury waiver provision itself was found in two separate places on the document
and was likewise displayed in bold capital letters in both places, while another section titled
BINDING ARBITRATION in bold letters set out the circumstances under which arbitration would
come into play. An employee of the nursing home explained the admissions documents to the
plaintiff, and the plaintiff did not argue that the agreement was unclear or that he was not given
10
We note that the Tennessee Supreme Court in Buraczynski held that the agreement to arbitrate and to waive
trial by jury could not be construed as “unconscionable, oppressive, or outside the reasonable expectations of the
parties.” Buraczynski, 919 S.W.2d at 321. We do not believe that the agreement to waive jury trial, which is
axiomatically a part of an agreement to arbitrate disputes, triggers a higher burden to show the agreement is enforceable.
To hold otherwise would violate the FAA because the courts would be treating arbitration agreements differently from
other types of contracts. See Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 103-107 (Ill. 2006) (discussing the issue
“knowing and voluntary waiver” of a right, in that case a statutory right, and the inconsistency of that standard with the
FAA).
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additional time to read the agreement or to ask questions. Further, it was uncontroverted that the
plaintiff was familiar with at least one other nursing home in the area.
In another post-Owen decision, Reagan v. Kindred Healthcare Operating, Inc., No. M2006-
02191-COA-R3-CV, 2007 WL 4523092 (Tenn. Ct. App. Dec. 20, 2007) (Tenn. R. App. P. 11
application filed Feb. 15, 2008), this court also found the arbitration agreement in a nursing home
admissions setting was enforceable. Central to this holding was the determination that the arbitration
agreement was not a contract of adhesion because it was clearly voluntary, and was explained as
voluntary, and was not a prerequisite to admission or services. Consequently, it was not a “take it
or leave it” situation, and the patient “was not forced to choose between forever waiving the right
to a jury trial or foregoing necessary medical treatment.” Reagan, 2007 WL 4523092, at *15.
Further, the arbitration agreement was not part of the admissions contract, but was a separate
standalone agreement, clearly marked, and clearly defining arbitration as including the waiver of the
rights to a trial (by a jury or a judge) and to an appeal. The patient was informed that any dispute
regarding her care would be settled through arbitration instead of in court and that she could revoke
her agreement within 30 days. Id. The court also found that the agreement did not change the duties
or liabilities between the parties, but “merely shifted disputes to a different forum.” Id. (citing
Buraczynski, 919 S.W.2d at 316).
Again, the facts in the case before us differ from those in Philpot and Reagan in some
meaningful ways. Some of the factors to be considered in a determination of unconscionability may
be described as substantive, while others are more procedural. The concept of unconscionability is
generally considered as including both unfairness in contract formation (procedural
unconscionability) and unfairness in the terms of the contract (substantive unconscionability).
Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965); E. Allan Farnsworth,
FARNSWORTH ON CONTRACTS § 4.28, at 555-56 (2d ed. 1998). While this court has noted that “[i]n
Tennessee we have tended to lump the two together” when defining unconscionability, Trinity
Indus., Inc. v. McKinnon Bridge Co., Inc., 77 S.W.3d 159, 171 (Tenn. Ct. App. 2001), we find the
two component description helpful in analyzing this case.
With regard to substantive unconscionability, our Supreme Court has determined that an
agreement to arbitrate, including one made in the context of the provision of medical services, is not
generally unconscionable when its provisions do not alter legal duties or limit liabilities and simply
provide an alternative forum for the resolution of disputes. Buraczynski, 919 S.W.2d at 321.
However, inequality in the provisions of such an agreement, where the agreement is an adhesion
contract, may result in a finding of unconscionability. Taylor, 142 S.W.3d at 286 (holding
unconscionable and unenforceable an arbitration provision that allowed the dealer who drafted the
agreement to retain judicial remedies beyond arbitration while limiting the customer’s remedies to
those available under the Arbitration Act). The question is whether the arbitration agreement is
unreasonably favorable to the drafter of the contract. Id.
In the case before us, the fairness of the arbitration provisions can be questioned in two
regards. The first involves the two types of arbitration described in the agreement. It is unclear to
us how a consumer/patient would know at signing which type would apply or the consequences of
the distinction (other than that the “consumer-related disputes” method involves only presentation
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of documents).11 Because it is unclear how the different types of arbitration would impact a
claimant, therefore making it difficult for us to determine whether the arbitration provisions favor
the nursing home, the lack of clarity to a patient asked to sign before admission to the facility is a
factor that is more properly considered in the procedural unconscionability analysis.
The second provision raising the question of whether the arbitration provision is
unreasonably favorable to the nursing home is the one identified by the trial court. Specifically, the
trial court was “troubled by the fact that the arbitration process can only be accessed, according to
the agreement, by the posting of monies by the plaintiff in excess of several thousand dollars.” The
arbitration provision states, in pertinent part:
The award of costs of the arbitration shall be determined by the arbitrator in
accordance with state law. The Administrative Fee and Arbitrator’s compensation
shall by initially advanced by the party requesting arbitration, but shall be allocated
on the ratio of final award to each party over the total award in the final Arbitration
Order.
In this appeal, NHC argues that the plaintiff had the burden of proving that the costs of
arbitration will likely exceed the costs of litigation, citing Cooper v. MRM Investment Co., 367 F.3d
493 (6th Cir. 2003), and Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351, 365 (Tenn. Ct. App. 2001),
and that the plaintiffs herein did not meet that burden. NHC asserts that there is insufficient proof
in this record to demonstrate the prohibitiveness of the initial costs to access the arbitration
procedure and that the trial court erred in relying on the evidence presented. NHC also argues that
the ability of the arbitrator to reallocate costs after arbitration makes the agreement enforceable
regardless of initial costs to the plaintiffs to access arbitration.
Federal courts, including the United States Supreme Court, have recognized that, in some
types of cases, an arbitration provision may not be enforceable if the costs of arbitration are
prohibitively expensive and thereby prevent vindication of a party’s rights. See Rosenberg v.
Bluecross Blueshield of Tennessee, 219 S.W.3d 892, 905-909 (Tenn. Ct. App. 2007) (discussing the
development of the law in the federal courts). The requirements for establishing unenforceability
were the primary subject of the developing case law. While those cases generally dealt with
underlying claims based on federal statutes, because our courts have relied on some of those
opinions, a brief discussion of them is helpful.
In Green Tree Financial Corp. - Alabama v. Randolph, 531 U.S. 79, 121 S. Ct. 513 (2000),
the United States Supreme Court recognized that the costs of arbitration could be large enough to
preclude a claimant from enforcing a right in the arbitral forum, making such an arbitration
agreement unenforceable. 121 S. Ct. at 522. However, the Court held that “when a party seeks to
invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive,
11
Apparently, claims over $75,000 were to be arbitrated under the commercial rules, including the fee schedule
for such claim s. It is certainly foreseeable that claims of negligence in the provision of medical care, especially
wrongful death claims, would exceed $75,000.
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that party bears the burden of showing the likelihood of incurring such costs.” Id. The court found
that the fact that agreement was silent as to the costs of arbitration was not sufficient to establish cost
prohibitiveness and that there was no proof that the cost of arbitration of the claim at issue would
be any greater than the cost of litigation. Id. Unless a plaintiff proves that the costs of arbitration
are prohibitively high, “the ‘risk’ that [the plaintiff] will be saddled with prohibitive costs is too
speculative to justify the invalidation of an arbitration agreement.” Id.
In Morrison v. Circuit City Stores, Inc., 317 F.3d 646 (6th Cir. 2003), the Sixth Circuit
explained that the Supreme Court had made “clear that statutory rights . . . may be subject to
mandatory arbitration only if the arbitral forum permits the effective vindication of those rights.”
Id. at 658 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28, 111 S. Ct. 1647 (1991)).
Consequently, a cost provision that effectively prevents vindication of a statutory right through
arbitration makes the arbitration agreement unenforceable. Id. In other words, the alternative to a
judicial forum, i.e., arbitration, must be accessible as well as effective. Id.
The court adopted a test for cost-prohibitiveness that deviated from a strict case-by-case
analysis and held that “potential litigants must be given an opportunity, prior to arbitration on the
merits, to demonstrate that the potential costs of arbitration are enough to deter them and similarly-
situated individuals from seeking to vindicate their federal statutory rights in the arbitral forum.”
Id. at 663. Essentially, the court determined that any cost provision, including one providing for
cost-splitting depending on the result of the arbitration, is unenforceable if it would have a “chilling
effect” that deterred enforcement of statutory rights. Id. at 661.
In Morrison, the court also reiterated that a court must evaluate the likely cost of arbitration
relative to the likely costs of litigation.12 The court found that the expenses of arbitration of some
claims, depending the type and amount, may “range from three to nearly fifty times the basic costs
of litigation in a judicial, rather than arbitral, forum.” Id. at 669. Additionally, the court cautioned
that courts should weigh the relative costs of litigation and arbitration “in a realistic manner” and that
the comparison must be made “from the perspective of the potential litigant,” meaning that the court
must “consider the decision-making process of these potential litigants.”13 Id. at 663-64.
Following its holdings in Morrison, in Cooper v. MRM Investment Co., 367 F.3d 493, the
Sixth Circuit held that up-front costs must be considered, because such costs are a primary factor in
a claimant deciding whether to pursue arbitration and, therefore, prohibitively high up-front costs
could serve to deter potential claimants from pursuing their claims. Id. at 511. Thus, up-front costs
12
The court also addressed the kind of proof that a party opposing arbitration should be required to produce,
stating that “requiring the plaintiff to come forward with concrete estimates of anticipated or expected arbitration costs
asks too much at this initial stage of the proceedings.” Id. at 660. Similarly, the effects or results of a cost-shifting
provision if the claimant is successful is also too difficult to prove at the stage where the claimant seeks to have the
arbitration provision set aside. Id.
13
In this analysis, the court would consider, not the financial resources of an individual plaintiff in detail, but
the relative income of similarly situated employees. Id. at 665.
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such as those required in the agreements before us should be considered, regardless of the potential
for later recoupment.14 Where costs to access the remedy provided in the agreement, i.e., arbitration,
are so high as to likely deter parties from seeking redress in that forum, an agreement to waive the
right to redress in the courts is unenforceable. Id. (citing Morrison, 317 F.3d at 664-65). The court
affirmed the trial court’s determination that the up- front costs in the agreement before it would deter
many employees from arbitrating their claims and stated that it had predicted, in Morrison, that
“many courts would regularly find arbitration costs too high” for certain potential litigants to pursue
vindication of their rights, rendering cost or cost-splitting provisions “unenforceable in many, if not
most, cases.” Cooper, 367 F.3d at 512 (citing Morrison, 317 F.3d at 665.)
Finally, in Stutler v. T.K. Contractors, Inc., 448 F.3d 343 (6th Cir. 2006), the Sixth Circuit
made it clear that its prior opinions in Morrison and Cooper, as well as the Supreme Court’s decision
in Randolph, were limited to situations where the underlying claim was based on federal statute, i.e.,
where federally statutorily created or protected rights were at stake. Id. at 345-46. Thus, the ground
for refusing to enforce arbitration clauses because of prohibitive costs was based upon the concept
that important rights created or protected by federal civil rights legislation should not be undermined
by agreements that made vindication of those rights unlikely due to costs. Id. at 346. Where no
federally protected interest is at stake, the enforceability of an arbitration agreement must be decided
under state contract defenses.15 Id.
A review of the cases from Randolph through Stutler confirms that those cases involved
claims based on federal statutory rights such as civil rights statutes prohibiting employment
discrimination. That review also demonstrates that the federal courts considered cost prohibitiveness
in this context as a separate ground, based in federal statute, for refusing to enforce an arbitration
agreement, independent from state-law-based unconscionability. The case before us involves claims
based in state negligence law, so costs to pursue arbitration are relevant, if at all, as one of the
considerations in the fact-based inquiry as to unconscionability.
Tennessee courts have issued several opinions since Stutler that deal, in part, with arguments
that an arbitration agreement is not enforceable because it is cost prohibitive. Although only one of
those cases specifically recognizes the Sixth Circuit’s holding that a challenge to the enforceability
of an arbitration agreement, when the underlying claim is not based on federal statute, must be
determined under generally applicable state law, see Rosenberg v. Bluecross Blueshield of Tenn.,
Inc., 219 S.W.3d at 908-909, all three of them treat the Pyburn v. Bill Heard Chevrolet case as
having established the law of this state regarding cost-prohibitiveness of arbitration. Rosenberg, 219
S.W.3d at 909; Chapman v. H&R Block Mortgage Corp., No. E2005-00082-COA-R3-CV, 2005 WL
14In fact, the Sixth Circuit said that only up front costs should be considered, and not the lower cost that may
result from cost-realignment after arbitration. Id. at 511. We note this holding is contradictory to the holding in Pyburn
v. Bill Heard Chevrolet, 63 S.W.3d 351, as will be discussed more fully later in this opinion.
15
Stutler involved state law claims for negligent misrepresentation, breach of contract, negligence, negligent
hiring, and unjust enrichment. The court held there was no basis in the FAA or otherwise for the federal district court
to pre-em pt state law regarding arbitration agreements and, in fact, that the Erie doctrine precluded use of federal
common law to invalidate an arbitration agreement where the underlying claims were based in state law. Id. at 347.
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3159774, at *8 (Tenn. Ct. App. Nov. 28, 2005); Flanary v. Carl Gregory Dodge of Johnson City,
LLC, No. E2004-00620-COA-R3CV, 2005 WL 1277850, at *4 (Tenn. Ct. App. May 31, 2005)
(perm. app. denied Dec. 5, 2005).
We do not disagree as to Pyburn’s relevance, but cannot conclude that it is controlling as to
the issues raised in this case. First, Pyburn’s holding regarding costs of arbitration was explicitly
based upon Green Tree Financial Corp.-Alabama v. Randolph, decided by the United States
Supreme Court in 2000. Consequently, the Pyburn court considered the prohibitive cost argument
as a separate ground for holding an arbitration agreement unenforceable and not as a factor relevant
to unconscionability. As Stutler later clarified, that independent ground does not apply where the
underlying claim is not based on a right created or protected by federal statute. Because the Pyburn
court did not examine cost provisions of an arbitration agreement using the standards for
unconscionability, its conclusions on such provisions are not determinative in an analysis using those
standards.
Second, Pyburn, issued in 2001, was decided before the Sixth Circuit’s holdings in Morrison
and Cooper. Consequently, it did not take into consideration the development in the federal law
regarding costs of arbitration as a deterrent to pursuing a claim. Therefore, we do not consider as
binding, as the final statement of Tennessee law on the question, or as determinative to the case
before us, some of the Pyburn conclusions regarding costs in arbitration provisions. We do not
disagree that the party seeking to invalidate an arbitration agreement on the ground that the costs are
too great has the burden of proving such costs. Pyburn, 63 S.W.3d at 363. We also do not disagree
that the costs of arbitration should be compared to the costs of litigation, Id., because an enforceable
agreement to arbitrate substitutes that forum for the judicial forum otherwise available to a claimant.
However, we disagree that a provision that allows costs to be shifted to the drafter of the arbitration
agreement if that party loses in the arbitration makes the agreement enforceable. Id.
Instead, we believe that up-front costs should be considered because the arbitration
agreement may unreasonably favor the drafter of the agreement since such high up-front costs will
deter the pursuit of claims. This is particularly true when the up-front costs of arbitration are
disproportionately high compared to the initial costs of instituting litigation. In such cases, the
drafter of the agreement stands to avoid litigation, because the other party has agreed not to pursue
it, and to avoid arbitration, because the costs are so high as to prohibit many claimants from pursuing
a remedy in that forum. Thus, we conclude that an agreement to arbitrate that places excessive costs
on the claimant as a precondition to arbitration may be unconscionable because of the inequality of
the bargain, the oppressiveness of the terms, or the one-sided advantage to the drafter.
Consequently, the costs to initiate or pursue arbitration of the wrongful death claim in the case before
us is a factor to be considered in determining whether the agreement to arbitrate is enforceable.
NHC’s argument that the proof in this record is insufficient is based upon the fact that the
plaintiffs’ proof regarding initial cost relied upon the rules and fee schedules of AAA and AHLA.
Since the proof also established that neither of those entities would conduct the type of arbitration
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involved herein, NHC asserts that costs tied to them were not relevant.16 We are unconvinced by this
argument. At the time the admissions agreement was accepted by the patient, NHC intended that
the schedules of AAA or AHLA would apply. As the drafter of the agreement, and presumably with
superior knowledge as to the arbitration provisions, NHC cannot deny the relevancy of the costs
identified by it in the agreement. See Morrison, 317 F.3d at 676-77 (stating that “[b]ecause the
employer drafted the agreement, the employer is saddled with the consequences of the provision as
drafted”). Further, we agree with the Morrison court’s discussion of the type of proof as to projected
costs that a potential litigant can offer at this early stage of a dispute.17 Proof of costs calculated
according to the agreement that NHC is trying to enforce is relevant and is sufficient to raise the
issue of cost prohibitiveness, particularly when there was no proof that these costs were higher than
or significantly different from costs of arbitration by other entities.
The proof shows that the likely costs to simply initiate an arbitration under the agreement are
very high, perhaps reaching $18,000. We, like the trial court, find this troubling. The cost to initiate
litigation would be considerably less. The arbitration agreement, an adhesion contract, is of a
distinct benefit to its drafter, NHC, if its cost provisions serve to deter claims. A party who has been
damaged by the actions of NHC cannot seek redress in the courts if the arbitration agreement is
enforced, but may, due to expense that would not accompany the initiation of litigation, be precluded
from seeking relief in the arbitral forum. We do not disagree that a party who was fully informed
of the potential costs, having weighed all the risks and benefits, may agree to arbitrate disputes, as
many businesses have done. However, in the situation where the arbitration agreement is a contract
of adhesion and there is no proof that the claimant had any information upon which to make a fully
informed choice, or that any other meaningful choice was available, benefit to the drafter calls into
question the enforcement of the agreement.
As to the question of procedural unconscionability, some of the circumstances relevant to
determining whether an agreement is a contract of adhesion are also relevant to the question of
whether the agreement was fairly entered into. In addition, the prominence and clarity of the
questioned provision should be considered. In the case before us, the agreement to arbitrate and
waive the right to judicial determination of any dispute was contained within a multi-page agreement
for admission to the nursing home, unlike cases where the arbitration agreement was a separate,
clearly identified document. The provision in the case before us did not explain arbitration in any
detail, and no such explanation was otherwise offered. The provisions are less than clear in several
particulars, and certainly did not place a patient on notice that large fees might be required as a
prerequisite to pursuing any claim against the nursing home.
In this case, the patient was discharged from the hospital but was not well enough to return
home, and her need for nursing home services was immediate. Multiple serious medical conditions
made her oxygen-dependent. Mr. Houmes testified that Ms. Hill would not have admitted to the
16
NHC’s brief asserts that the trial court “erred in relying upon the Plaintiffs’ evidence of costs related to
arbitration as being prohibitively expensive considering the unavailability of the forums cited for proof.”
17
Adding to the uncertainty in this case is the fact that no other arbitrator or entity has been identified.
-18-
nursing home if she did not sign everywhere the contract required. Ms. Hill lacked bargaining
power. Neither Ms. Hill nor her children were given time after admission to seek clarification of the
arbitration provision, such as determining the amount of up-front costs, or to later revoke agreement
to the arbitration provision.
As set out earlier, the question of unconscionability requires courts to consider all the facts
relating to a contract’s purpose and effect as well as to the setting in which it was signed. One
particular fact may not be the determinative factor; instead, it is the overall situation that must be
considered. Under all the facts and circumstances of this case, we agree with the trial court that the
arbitration provision was unconscionable and should not be enforced.
-19-
VIII.
The order of the trial court is affirmed. We remand this case to the Circuit Court of Davidson
County for any further proceedings necessary. Tax the costs on appeal to the appellants, NHC
Healthcare/Nashville, LLC and National Healthcare Corp.
____________________________________
PATRICIA J. COTTRELL, JUDGE
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