Introduction:

 

In Fosler v. Midwest Care Center II, Inc., 398 Ill.App.3d 563 (2d Dist. 2009) (modified upon denial of rehearing, March 1, 2010), the Appellate Court considered the question whether a binding arbitration agreement between a resident and her nursing home contained in a nursing home admission contract is invalidated by provisions in the Illinois Nursing Home Care Act (NHCA) guaranteeing a right to a jury trial.  The NHCA states that a party to a claim brought under the Act "shall be entitled to a trial by jury and any waiver of the right to a trial by jury, whether oral or in writing, prior to the commencement of an action, shall be null and void, and without legal force or effect." 210 ILCS 45/3-607 (2010).  The decision in Fosler is important because the court held for the first time that the NHCA did not invalidate arbitration agreements between a resident and a nursing home, and the Federal Arbitration Act(FAA) preempted the anti-waiver provisions of the NHCA.   

 

The Fosler court determined that a conflict existed between the FAA and the NHCA, because the FAA permits and favors arbitration agreements while the NHCA invalidates them as a matter of public policy.  When such a conflict exists, the Supremacy Clause of the United States Constitution and the doctrine of federal preemption provide that the state law shall be preempted by the federal legislation.  Fosler, 398 Ill.App.3d at 567-568, citing, Southland Corp. v. Keating, 465 U.S.1, 10-11, 104 S. Ct. 852, 858 (1984).  Moreover, the FAA preempts any state based statutory, regulatory, or decisional law which places any greater hurdle to the enforcement of contracts for arbitration than for contracts generally.  

 

The United States Supreme Court, however, has stated there

 

CARTER I:

 

The nursing home defendant in Carter I successfully petitioned the Illinois Supreme Court for review of the Appellate Court decision citing a conflict between the appellate courts in Carter and Fosler.  In Carter I, the Illinois Supreme Court issued a written opinion agreeing with the Fosler analysis.  See, Carter v. SSC Odin Operating Co., LLC, 237 Ill.2d 30, (2010).  The Supreme Court undertook an analysis of the anti-waiver provisions/public policy set forth in the Nursing Home Care Act and of the purpose and history of the Federal Arbitration Act including the federal policy set forth in several United States Supreme Court decisions that the enforcement of private arbitration agreements places the FAA in conflict with state laws requiring litigants to be provided a right to a jury trial in certain types of actions.  The Supreme Court reversed the Appellate Court in Carter holding that the anti-waiver provisions of the NHCA were the functional equivalent of anti-arbitration legislation, which is preempted by the FAA and Supreme Court precedent.  Carter, 237 Ill.2d at 38-49.  The Supreme Court also concluded that the anti-waiver provisions of the NHCA were not "grounds which exist at law or in equity for the revocation of any contract," and amounted to a law disfavoring arbitration which the FAA specifically prohibits and preempts.  However, in Carter I, the Supreme Court did not address the general contract defenses raised against the arbitration agreement, and instead remanded the case to the Appellate Court for consideration of the remaining issues. 

 

CARTER II:

 

In Carter v. SSC Odin Operating Co., LLC (Carter II), 2012 IL 113204 (2012), the Illinois Supreme Court addressed those remaining issues.  On remand in Carter I, the Fifth District Appellate Court again affirmed the trial court's refusal to compel arbitration.  The Appellate Court looked to general contract defenses applicable to all contracts and held that the nursing home's promise to arbitrate was illusory, and therefore, the arbitration agreement was unenforceable for lack of mutuality of obligation.  The Appellate Court also held that even if the arbitration agreement was enforceable, plaintiff could not be compelled to arbitrate the wrongful death claim because plaintiff did not sign the arbitration agreement in her individual capacity but signed the agreement only as the decedent's (resident's) legal representative.

 

In Carter II, the Supreme Court stated that the FAA was enacted "to reverse the longstanding judicial hostility to arbitration agreements" and "to place arbitration agreements upon the same footing as other contracts."  The Court reaffirmed that under the FAA savings clause, an arbitration agreement may be invalidated by a state law contract defense of general applicability, such as fraud, duress, or unconscionability, without contravening the FAA, but an arbitration agreement may not be invalidated by a state law applicable only to arbitration agreements.  The Court then reversed the Appellate Court's decision that the state law contract defense of mutuality of obligation invalidated the arbitration agreement.  The Court held that principles of contract law do not require an equivalent exchange of obligation or equivalence in the values exchanged by each of the contracting parties.  Therefore, the Court held that the nursing home's (Odin's) promise was not illusory because it promised to pay the arbitration fees and to pay limited attorney's fees of the resident.  The Court concluded that the plaintiff's promise to arbitrate, even if not met with a reciprocal promise to arbitrate by defendant, was nonetheless supported by consideration, and therefore, the arbitration agreement was enforceable and the state law contract defense of lack of mutuality of obligation was not available under the facts of the case.

 

In light of the Supreme Court's holding the arbitration agreement was enforceable as to the Survival Act claims for negligence and statutory violations pursuant to the Nursing Home Care Act, the court addressed the question whether the plaintiff was required to arbitrate the wrongful death claim.  Although the Supreme Court held Carter could be compelled to arbitrate the survival action, she could not be compelled to arbitrate her wrongful death action because she did not sign the arbitration agreement.  The Court explained that plaintiff (Carter) had signed the arbitration agreement as the resident's legal representative, and not in her individual capacity or on her own behalf as a potential wrongful death plaintiff.  The Supreme Court held that plaintiff, as a non-party to the arbitration agreement, could not be compelled to arbitrate the wrongful death claim.  The court found that the allegation of violation of the Nursing Home Care Act under the Survival Act is a claim that accrued to the decedent prior to her death and was brought for the benefit of the decedent's estate, and therefore, plaintiff was bound to arbitrate that claim.  For purposes of the wrongful death action, however, the court found that plaintiff was not acting in the decedent's stead, and the wrongful death action did not accrue until death and was not brought for the benefit of the decedent's estate, but for the next of kin who were the true parties in interest.  Plaintiff, as the decedent's personal representative in the wrongful death action, was merely a nominal party, effectively filing suit as a statutory trustee on behalf of the next of kin.  The Supreme Court held that because plaintiff was not prosecuting the wrongful death claim on behalf of the decedent, plaintiff was not bound by the decedent's agreement to arbitrate for purposes of the wrongful death cause of action.

 

Conclusion:

 

These decisions by the Illinois Appellate Court and by the Illinois Supreme Court are important decisions regarding the applicability and validity of binding arbitration agreements in nursing home cases.  While Carter I focused on the public policy argument and held that the anti-waiver provisions in the Nursing Home Care Act were preempted by the FAA and unenforceable because they disfavored arbitration which is prohibited by the FAA, Carter II focused on principles of general contract law like consideration, mutuality of obligation, capacity, and authority.  Therefore, if long term care providers carefully draft their arbitration agreements, this should limit the amount of discretion the courts have to refuse to enforce arbitration provisions.  A long term care provider interested in enforcing its arbitration agreements should ensure the agreement is based on a valid enforceable contract. 

 [1] Kominiarek Bresler Harvick & Gudmundson, LLC represented the nursing home defendant in the trial court and for the appeal in Fosler v. Midwest Care Center II, creating new case law in Illinois that binding arbitration clauses in nursing home admission contracts are enforceable. (C. Thomas Hendrix and Michael R. Webber)