The state Supreme Court recently held that arbitration agreements that include a clause specifically designating the National Arbitration Forum as sole arbitrator are invalid.  In Wert v. Manorcare of Carlisle PA, LLC,[1] Evonne Wert, on behalf of the decedent, signed an arbitration agreement along with admission paperwork upon admission to Golden Living Center.  Following the decedent’s death, her daughter brought a medical malpractice claim against the nursing home alleging abuse and neglect inflicted upon the decedent throughout her stay, which eventually resulted in her death.  Golden Living Center filed preliminary objections seeking to enforce the arbitration agreement; however, the trial court overruled the preliminary objections finding that the agreement was unenforceable because it relied, in part, on the National Arbitration Forum (NAF) Code procedures, which were void at the time with respect to consumer arbitration disputes.  Golden Living Center appealed the decision arguing that the NAF provision was not integral to the agreement at issue.  In reviewing the testimony, the Superior Court found that the arbitration agreement was signed under the belief that all the paperwork needed to be signed in order for the decedent to obtain treatment and care.  Therefore, the Superior Court found that the NAF provision was an integral to the agreement and affirmed the trial court’s ruling.  Golden Living Center filed a petition for allowance of appeal to the Pennsylvania Supreme Court, which was granted.

On appeal, Golden Living Center argued that the NAF provision of the agreement was ancillary and severable based upon the plain text of the agreement, terms and policy guidelines of the Federal Arbitration Act, and testimony of the plaintiff.  They further argued that while the agreement merely agreed to the NAF code of procedure, it did not make the participation of the NAF forum itself essential, i.e., the arbitration could be conducted in any forum, by an agreed upon arbitrator, so long as the NAF code of procedure mandated the proceedings.  Further, Golden Living Center argued that the Federal Arbitration Act (FAA), which was incorporated into the agreement, should have been invoked to appoint a replacement arbitrator.

Ms. Wert argued that the NAF provision of the agreement was essential to the agreement because, by its own terms, only the NAF can administer its rules and procedures, therefore making NAF the sole forum of arbitrations under the agreement.  She further argued that the FAA section referenced by Golden Living Center is limited to the appointment of an alternative arbitrator, not an alternative arbitration forum and cannot supersede the terms of the agreement.

Justice Stevens wrote the opinion for a plurality of the court.  The Court first found that Ms. Wert’s testimony regarding her understanding of the agreement was irrelevant as her failure to read the agreement did not implicate the importance of its NAF provision.  The court found that, “premising the integrality of a contractual term on the subjective understanding of a far less sophisticated non-drafting party is ill-advised public policy that would further distort an already lopsided balance of power.”[2]  Further, the court noted that a non-drafting party could not use her failure to read as a means of disavowing an otherwise valid arbitration agreement.[3]  The court held that because the agreement did not make the NAF’s availability non-essential by specifically varying the terms of the agreement to appoint a replacement arbitrator should there be a lapse in naming an arbitrator, the FAA did not apply to do the same.  Further, the court found the agreement unambiguous and, by its own terms, specified that the NAF must administer its code unless the parties agreed to the contrary, which the they did not do in this case.  Therefore, the court affirmed the Superior Court’s ruling and remanded for further proceedings.

Justice Eakin wrote a dissenting opinion in which he found that the NAF’s Code of Procedure could have been applied in this case as it is still in existence even though the NAF no longer accepted arbitrations.  He found that, even if the NAF provision was found to be unenforceable, the remainder of the agreement should have been enforced and the parties should have been bound to arbitrate the underlying lawsuit by an agreed upon arbitrator applying the NAF Code.

Justice Baer also wrote a dissenting opinion stating that the court’s holding was contrary to the plain language of the agreement, which provided that disputes be adjudicated in binding arbitration, not in the court system.  Like Justice Eakin, Justice Baer found that the agreement to arbitration in accordance with the NAF Code of Procedure was valid, even without the NAF’s availability to serve as arbitrator.

The court’s ruling further subjects nursing home arbitration agreements to scrutiny and indicates a necessity for clear and unambiguous language in order for courts to enforce such agreements against non-drafting parties.

[1] 2015 WL 6499141 (Pa. 2015).

[2] Id. at 8.

[3] Id.