NC Court of Appeals Finds That The AAA’s Policy Against Arbitrating Certain Healthcare Disputes Prevents Enforcement of Arbitration Agreement in Wrongful Death Case

            The U.S. Supreme Court recently has reinforced in Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012) and AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) that the Federal Arbitration Act (“FAA”) prohibits states from categorically excluding certain types of claims from arbitration.  However, companies still may have to contend with the policies of private organizations like the American Arbitration Association (“AAA”) that administer arbitrations and place categorical restrictions on the types of cases they will administer.  In Concepcion, the court stated that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”  131 S.Ct. at 1747.  In Marmet, the Supreme Court relied upon Concepcion to enforce an arbitration agreement despite a West Virginia rule which categorically prohibited the arbitration of personal injury and wrongful death claims.  Yet, in Crossman v. Life Care Centers of America, Inc., No. 12-702, (N.C. Ct. App.  Jan. 15, 2013), the North Carolina Court of Appeals held that an arbitration agreement was “unenforceable as impossible to perform” because the AAA refuses to administer and arbitrate the wrongful death dispute pursuant to its healthcare arbitration policy.  The difference between Marmet and Crossman – the parties in Crossman were facing AAA policy instead of a state law.

            The AAA Healthcare PolicySince January 1, 2003, the AAA has refused to arbitrate any healthcare disputes involving individual patients unless the arbitration agreement is signed after a dispute arises.  You can find a link to a copy of the AAA Healthcare Policy Statement on the AAA’s healthcare ADR information page.  The policy includes a statement that “[d]istinguishing a patient undergoing health care treatment from other situations involving an individual, AAA has determined that they will continue to administer pre-dispute agreements to arbitrate in all areas outside of the health care field, as long as there are appropriate due process safeguards as defined by the courts.”  The AAA’s determination that individuals undergoing health care treatment are distinguishable from all other individuals seems similar to the type of state policy determinations supporting the state laws that the Supreme Court has rejected in its recent FAA preemption jurisprudence.  The AAA policy, however, can render an arbitration agreement unenforceable according to the NC Court of Appeals.

            Lessons from CrossmanIn Crossman, the wife of the deceased patient filed a wrongful death claim in court against the facility where her husband resided and was under medical care.  Upon admission to the facility, the husband had signed an arbitration agreement that required the arbitration of all claims arising out of his care and treatment at the facility before a panel of three arbitrators selected from the [AAA]” who would apply the applicable rules of the AAA.  The trial court denied the defendants’ motion to compel arbitration based on the conclusion that the arbitration agreement was unenforceable because (1) it was impossible to perform due to a failure in its material terms based on the AAA’s healthcare arbitration policy, and (2) arbitration agreements signed by decedents do not bind wrongful death beneficiaries.  The Court of Appeals upheld the trial court’s decision, reasoning that:

By requiring the selection of AAA arbitrators, the Agreement sought to employ an organization that refuses to be so employed. This requirement constitutes an integral and material provision of the Agreement. Accordingly, we hold that the Agreement is unenforceable as impossible to perform.

Having found the agreement impossible to perform, the court declined to consider whether the wife was bound by the decedent husband’s arbitration agreement.

            Two primary factors were detrimental to the company in Crossman: the arbitration agreement with the deceased patient (1) was signed prior to any dispute and (2) it required the arbitration of all disputes by AAA arbitrators.  In another recent case, the NC Court of Appeals upheld a pre-dispute arbitration agreement in a healthcare matter because, while the agreement stated that “[t]he arbitration proceeding shall be conducted before one neutral arbitrator selected in accordance with the rules of the AAA,” the court determined that this did not require that the arbitration be conducted by a AAA arbitrator. See Westmoreland v. High Point Healthcare Inc., __ N.C. App. __, 721 S.E.2d 712 (2012).  Crossman and Westmoreland indicate that, by drafting an agreement without a requirement to use AAA arbitrators, companies may still enforce pre-dispute arbitration agreements in healthcare contracts and obtain the benefit of selecting an arbitrator pursuant to the AAA rules.  But, companies will need to weigh the pros and cons of leaving the pool from which arbitrators will be selected open for determination at a later date.

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