After a rather lengthy, albeit unintentional hiatus, we are back and looking at a topic previously explored but apparently recurring: whether arbitration clauses in certain consumer contracts are enforceable.
In the recent case of Akilah Wofford, et al. v. Edwards & Sons Funeral Home, Inc., et al., the Court of Appeals said no. The case turned on the discussions had and paperwork signed over a two day period following the death of Ms. Wofford's father. Three days after her father died, Ms. Wofford began making the funeral arrangements with Edwards & Sons Funeral Home which included embalming, ordering a casket, and the general cost of the funeral home's services. Ms. Wofford signed a document titled "Statement of Funeral Goods and Services" that day too. The following day, Ms. Wofford was asked to return and complete the final paperwork, which she did. Unlike the first day's documents, however, the final paperwork included a clear, all capital letters, and bold notice of an arbitration clause directly above Ms. Wofford's signature line. However, the notice referenced a "part 3" containing the actual arbitration clause, which was never given to Ms. Wofford.
Eventually a dispute arose, Ms. Wofford sued, and Edwards & Sons moved to compel arbitration. Sadly, the dispute dealt with Ms. Wofford's class action claims involving the alleged improper handling of human remains at the cemetery. The Court of Appeals noted that although arbitration clauses are enforceable and favored in Tennessee, parties "cannot be forced to arbitrate claims that they did not agree to arbitrate." On the record before it, the Court concluded that Ms. Wofford didn't agree to arbitrate her claims and thus, the clause was unenforceable. The Court found that the signed notice referencing the actual arbitration clause in part 3 without giving part 3 to Ms. Wofford was not enough. The Court went even further, however, and found that the particular contract was a contract of adhesion (i.e. Ms. Wofford had no realistic chance to negotiate its terms differently in light of the multiple day signing period) and that the arbitration clause was unconscionable.
Several important items can be learned from this case including not just what the contract says, but how it's presented and under what time period. Also, clients in emotionally taxing situations such as funeral home service providers, should be especially mindful of these issues.
Arbitration and Nursing Home Admittance Agreements
Last week we looked at the perils of not having a well-crafted estate plan in place. This week we examine a component of a well-crafted estate plan - a health care power of attorney - in light of a nursing home admittance, and why fully understanding both sets of documents is crucial.
In the recent case of Bockelman, et al. v. GGNSC Gallatin Brandywood, LLC, et al., Mrs. Wilson appointed her daughter, Billy Bockelman, to serve as her health care agent. The specific power of attorney that Ms. Wilson signed only triggered the health care agency when Ms. Wilson could no longer make health care decisions on her own. In 2010, a physician declared that Ms. Wilson lacked mental capacity.
Thereafter, Ms. Bockelman admitted her mother to a nursing home where she executed all of the admission forms as her mother's health care agent. One such form was an agreement which stated that any disputes with the nursing home must be arbitrated.
Ms. Wilson subsequently died and her daughter filed a lawsuit for several claims, essentially asserting that the nursing home was negligent. The nursing home moved to compel arbitration, which Ms. Brockelman opposed. In opposition, she testified that she didn't read the papers she signed, that her mother in fact had capacity, which rendered the health care power of attorney ineffective, and that the arbitration agreement was not a health care decision which she had the power make as her mother's agent.
Both the trial court and the court of appeals disagreed and found that the arbitration agreement, as part of the nursing home admittance packet, was a health care decision, even though it was not a prerequisite for admission. Further, the court reasoned that the arbitration agreement was not unconscionable, and hence, it was enforceable.
In practice, arbitration agreements appear in numerous contracts clients likely see daily. They can be either effective or completely ineffective depending on the circumstances. Further, arbitration may not be desirable in every situation, yet often clients will include arbitration agreements in their contracts without really considering all of the pros and cons of it and whether such a clause actually fits the transaction, let alone is enforceable. Finally, regarding the health care power of attorney, having such a form in place is a great first step, but clients should understand how and when to properly use it.
Arbitration Clause Found Unenforceable
A recent Tennessee Court of Appeals case, Capps v. Adams Wholesale Co., Inc., found that an arbitration agreement contained within a decking manufacturer’s limited warranty was unenforceable as there was no meeting of the minds between the purchaser/homeowner and the manufacturer – despite the fact that “similar arbitration agreements had been upheld” in other cases. Six months after installation of the deck, the decking started to fail. The homeowner sought to replace the material directly from the manufacturer pre-suit; however, the manufacturer refused to do so, stating the complaints were merely cosmetic.
Without the manufacturer’s cooperation, the homeowner filed a lawsuit in the Greene County Chancery Court. In response, the manufacturer moved to dismiss the lawsuit and compel arbitration based on the mandatory arbitration clause in the limited warranty. The decking was sold without any documentation about the warranty or arbitration clause other than a small written notice with each decking bundle stating that the product was subject to a limited lifetime warranty and that the customer could obtain a copy by either calling the provided 1-800-number or visiting the manufacturer’s website. The manufacturer never gave the homeowner a copy of the limited warranty until after the homeowner requested replacement of the defective product.
The trial court denied the manufacturer’s motion to dismiss and the Court of Appeals affirmed. The Court reasoned that although the homeowner was not required to sign off on the arbitration clause or even to read it for it to be enforceable, the homeowner was never given notice of the arbitration clause prior to taking delivery of the decking material and thus never had a chance to refuse acceptance of the product. As such, the Court found the arbitration clause unenforceable due to the lack of mutual assent of the terms. The Court noted that its holding was limited to the specific fact pattern before it.
Warranties, both express and implied, are often the subject of litigation. In a situation like the one reviewed, the corporate defendant attempted to avoid a trial in a county court and instead force the homeowner into a private arbitration forum. Arbitration, however, may not be the most desirable forum, whether from a consumer’s or a manufacturer’s viewpoint. In deciding whether to incorporate a mandatory arbitration clause in a contract – whether for services or manufacturing – significant thought must be given to the risks and benefits of such a clause. Additionally, before a lawsuit is filed, it is important to determine whether an arbitration clause may apply as they often exist in both consumer and commercial contracts and are routinely enforced by courts.
Capps v. Adams Wholesale Co., No. E201401882COAR3CV, 2015 WL 2445970, at *3 (Tenn. Ct. App. May 21, 2015).