Nursing Home Litigation Affected by Appellate Court Ruling
The Illinois Appellate Court recently ruled in Carter v SSC Odin that the Illinois Nursing Home Care Act (the Illinois Act) provided a defense to an arbitration clause in a nursing home contract. This decision greatly impacts the nursing home industry as courts may begin denying arbitration in cases involving nursing home care.
Background of the Case
In the Carter case, a woman died while a resident at Odin’s nursing home. The special administrator of her estate filed a lawsuit against the nursing home under the Illinois Act. Prior to being admitted as a resident, the woman had entered into an agreement to arbitrate any claim arising from the care provided by the nursing home. Arbitration agreements are common in nursing home contracts.
Odin filed a motion asking the trial court to compel arbitration, citing to the arbitration agreement. The court denied the motion, ruling the Illinois Act barred waivers of jury trials by residents of nursing homes. Odin appealed, arguing the Federal Arbitration Act (FAA)–the law the arbitration agreement stated the arbitration was to be governed by–took away the power of the states to deny arbitration agreements.
The Federal Arbitration Act
Congress passed the FAA in the 1920’s to counter state laws barring arbitration agreements. By passing the FAA, Congress used its power to regulate commerce and took away the states’ power to deny enforcement of arbitration agreements. The FAA established a nationwide policy for liberally enforcing arbitration agreements. For the FAA to apply to an arbitration agreement, two requirements must be met: (1) there is a written contract evidencing a transaction in interstate commerce; and (2) the contract is not subject to a defense available to the enforcement of all contracts generally.
State law governs the defenses available to all contracts generally. These defenses include–but are not limited to–fraud, duress, unconscionability, lack of mutuality, and lack of consideration. These defenses are available to contracts no matter the type of transaction.
Carter Court’s Reasoning
The Appellate Court determined the arbitration agreement was subject to a defense all contracts face: being against public policy.
Statutes represent the policy of the state. The Illinois Act voids agreements in nursing home contracts to waive jury trials. An arbitration agreement does waive a jury trial, but the Illinois Act does not specifically mention arbitration. The court reasoned this statute would void agreements to resolve disputes by a bench trial as well as by arbitration. The court concluded this is a public policy defense to all contracts generally; not just to arbitration agreements. The court, therefore, denied the enforcement of the arbitration agreement.
Analysis of the Carter Decision
This decision is disappointing for all those involved with the defense of nursing home litigation. The court easily could have determined, as other states’ highest courts have, that the FAA took away Illinois’ power to void the arbitration clause in this case. The Nursing Home Act applies only to contracts involving nursing home care, not all contracts generally. As such, a defense to a contract between a residential facility and a resident is not a defense that applies generally to all contracts, but rather, applies only to this particular variety of agreement. As a result, the FAA would seem to require Illinois to enforce the arbitration agreement in this case.
Odin has asked the Illinois Supreme Court to hear the appeal from the Appellate Court. On behalf of a client, Quinn, Johnston, Henderson & Pretorius has filed a brief as a friend of the court in support of Odin’s position. Hopefully, the Supreme Court will agree to hear the case and reverse the Appellate Court.
Originally published in the Fall 2008 edition of Quinn Quarterly.