Tuesday, December 05, 2006, 3:17 PM

Arbitration Clause Not Unconscionable

In Raper v. Oliver House, LLC, decided today, the COA reversed a trial court order which had held an arbitration agreement unconscionable. The case is significant because unconscionability challenges to arbitration agreements have been mounting in recent years and have met some success in the courts of other States. In fact, as discussed below, a significant case on unconscionability is now pending in the NC SCT.

Today's case is a wrongful death action against an assisted living facility on behalf of a deceased resident. The facility moved to compel arbitration. The arbitration clause was in a Residency & Services Admission Agreement. The decedent himself had never signed that agreement (his signature line was blank), but it was signed by the plaintiff, a relative of his who had power of attorney and who ultimately the executrix of his estate. It was a standardized form agreement which plaintiff had to sign to admit dededent to the facility. She signed as decedent's "responsible party." The arbitration clause requires binding arbitration in Hickory, about 200 miles from the Wendell-based facility, and it has a "loser pays" provision (allowing the prevailing party to recover costs and attorneys' fees).

Plaintiff opposed the motion to compel arbitration, contending that the arbitration agreement was unconscionable and thus unenforceable. Judge Ronald Stephens agreed. He concluded, among other things, that the agreement was a standardized form agreement used by the nursing home; that there was no independent negotiation between the parties on the terms of the agreement, including the arbitration clause therein; that there was not a mutual agreement or understanding as to the terms of the arbitration agreement; that there was inequity in bargaining power; and that the agreement related to a matter of substantial public interest (long-term care for the elderly).

The COA reversed, with Judge Tyson writing for the court. As for the trial court's findings that there was no negotiation over the terms, mutual agreement, or equality of bargaining power, the COA held that these findings weren't supported by compentent evidence because the agreement itself stated that plaintiff "voluntarily enter[s] into this agreement with the Facility." With regard to the trial court's determination that the arbitration clause deals with a matter of substantial importance (long-term care for the elderly), the COA said this was not based on competent evidence and couldn't trump the strong public policy in favor of arbitration. The fact that it was a standarized form was not dispositive. The COA emphasized that the arbitration clause was in bold type directly above the signature line.

The COA thus reversed the trial court and remanded for entry of an order granting the facility's motion to compel arbitration.

This case follows on the heels of another recent decision (in June) by Judge Tyson which reversed an order of Judge Stephens declaring an arbitration clause unconscionable. That case, Tillman v. Commercial Credit Loans, Inc., involved an arbitration clause in mortgage loan agreements. The COA held 2-1 that the clause was not unenforceable for precluding class actions or posing a risk of prohibitive arbitration costs. That case is now pending in the NC SCT based on the dissent in the COA. Briefing just closed, and the case will be argued in February 2007. It is a very important case, particularly on the enforceability of class action waivers in arbitration agreements. We'll be sure to follow it closely.

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