Lewis v. Klamath Falls MSL LLC

• Docket Number: Civ. 1:21-cv-01270-CL
• Decision Date: 12 April 2022
• Parties: ARTHUR LEWIS, personal Representative for the Estate of Mary Elizabeth Lewis, Plaintiff, v. KLAMATH FALLS MSL LLC, MSL COMMUNITY MANAGEMENT LLC, MBK SENIOR LIVING LLC, Defendants.
• Court: U.S. District Court — District of Oregon

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ARTHUR LEWIS, personal Representative for the Estate of Mary Elizabeth Lewis, Plaintiff, v. KLAMATH FALLS MSL LLC, MSL COMMUNITY MANAGEMENT LLC, MBK SENIOR LIVING LLC, Defendants.

Civ. No. 1:21-cv-01270-CL

United States District Court, D. Oregon, Medford Division

April 12, 2022

FINDINGS & RECOMMENDATION

MARK D. CLARKE UNITED STATES MAGISTRATE JUDGE

Arthur Lewis (“Plaintiff'), the personal representative for the Estate of Mary Elizabeth Lewis, brings this case against the defendants for the personal injuries and wrongful death of his mother, Mary Elizabeth Lewis (“Ms Lewis”). This case comes before the Court on Defendants' Motion to Dismiss and Compel Arbitration (#11) and Amended Motion (#13). For the reasons set forth below, the Court recommends that Defendants' Motion to Dismiss and Compel Arbitration be DENIED.

BACKGROUND

On August 9, 2018, Plaintiff, as the Power of Attorney for his mother, Ms. Lewis, executed the Residential Care Facility Residence and Services Agreement (the “Resident Agreement”) with Defendants in order to admit Ms. Lewis to Defendants' residential care facility. Defendants run a 79-bed care facility in Klamath Falls, Oregon, that specializes in caring for patients with impaired memory and inability to live independently. Plaintiff alleges that Ms Lewis was age 88 at the time of admission to the memory care unit, and that she needed the additional care that the facility could provide due to her severe vascular dementia.

Plaintiff alleges that Ms. Lewis was a fall risk on admission and that the facility was aware of her condition. Despite this knowledge, Plaintiff claims that Defendants failed to take steps to ameliorate the risk or prevent falls from occurring. Plaintiff alleges that Ms. Lewis fell at least eleven times while at Defendant's facility.

Included in the Resident Agreement was an arbitration agreement. Plaintiff asserts that he was not aware that he signed an arbitration agreement and that it was included in a stack of more than 110 pages^[1] of documents. The arbitration agreement (“Arbitration Agreement”) states in part that,

any and all claims and disputes arising from or related to this Agreement or to Your residency, care or services at the Community, whether made against us or any other individual or entity, shall be resolved by submission to neutral, binding arbitration; except that any claim or dispute involving unlawful detainer proceedings (eviction) or any claims that are brought in small claims court shall not be subject to arbitration . . . Both parties give up their constitutional rights to have any such dispute decided in a court of law before a jury, and instead accept the use of arbitration. .

Hoyt Decl. ¶ 4, Ex. 1,¶ 16-17.

The Arbitration Agreement further states that any arbitration shall be administered by the American Arbitration Association under the AAA Commercial Rules then in effect. Any arbitration would be conducted by a single arbitrator at an agreed upon location or at the facility, and the dispute would be governed by the laws of the State of Oregon. Id. at 17. The Arbitration Agreement contemplated the costs involved in the arbitration process, with the parties agreeing that “(t]he arbitrator's fee shall be shared equally by the parties. Each party shall bear its own costs and fees in connection with the arbitration.” Id. There was a signature line under the arbitration agreement, which Plaintiff initialed, and then another small paragraph informing Plaintiff that he has the “right to rescind Your agreement to arbitration within thirty (30) days from the Effective Date of this Agreement by making such rescission in a writing signed by You and delivered to us within thirty (30) days from the Effective Date of this Agreement.” Id. Defendants now seek to enforce this Arbitration Agreement.

LEGAL STANDARD

The Federal Arbitration Act (“FAA”) applies to agreements in writing “involving commerce.” 9 U.S.C. § 2. Courts have treated nursing home residency agreements as agreements affecting interstate commerce and instrumentalities of commerce due to the contractual provisions requiring meals and medical supplies to its residents that more than likely involve interstate travel. Dean v. Heritage Healthcare of Ridgeway, LLC, 408 S.C. 371,381 (2014); Miller v. Cotter, 448 Mass 671, 678 (2007) (using Summit Health v. Pinhas, 500 U.S. 322 (1991) to conclude that healthcare involves commerce under the FAA).

Under the FAA, the Court's inquiry regarding arbitration agreements is limited to a determination of two gateway issues: (1) whether there is a valid agreement to arbitrate and (2) whether the agreement covers the dispute. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83, (2002). If the court finds a valid agreement covering the dispute, then the FAA requires the court to enforce the arbitration agreement in accordance with its terms. Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000). To evaluate the validity of an arbitration agreement, federal courts must “apply ordinary state-law principles that govern the formation of contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). See also Cir. City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002) (federal courts must apply the law of the forum state to determine whether an arbitration agreement is enforceable). States have the authority to regulate contracts, including arbitration clauses, under general contract law principles and those laws may invalidate an arbitration clause “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

DISCUSSION

Under Oregon law, a contract is not valid if it is contrary to law or against public policy. Compton v. Compton, 187 Or.App. 142, 145 (2003). Such law and public policy “may be found in legislative enactments, administrative regulations, even in the constitution.” Id. Oregon Department of Human Services (“DHS”) is the state agency with authority to promulgate rules and regulations for licensed care facilities. ORS 443.450. DHS regulations bar contracts between licensed care facilities and a resident that waives or purports to waive the resident's rights. OAR 411-054-0027(1)(o) states,

(1) The facility must implement a residents' Bill of Rights. Each resident or the resident's designated representative must be given a copy of their rights and responsibilities prior to moving into the facility. The Bill of Rights must state that residents have the right:

(o) To be free of any written contract or agreement language with the facility that purports to waive their rights or the facility's liability for negligence;

OAR 411-054-0027(1)(o). .

Defendants' Admission Agreement does contain a Residents' Bill of Rights and includes language that it “shall not be interpreted as a waiver of any resident right set forth in OAR 411-054-0027(1)(o).” Ex. 1, at 17. However, the Arbitration Agreement then explicitly waives Plaintiff's right to have disputes decided in a court of law before a jury. In fact, the Arbitration Agreement even uses the words “give up their constitutional rights ...” Defendants argue that the Agreement is not contrary to public policy because Oregon courts have found that parties may voluntarily agree to waive constitutional rights to a jury as Plaintiff did here. However, the cases cited by Defendants to support this assertion do not involve residents at a care facility. The . plain language of the OAR cannot be anymore clear that a resident at a care facility, such as Defendant's, must be free of any written contract with the facility that purports to waive the resident's rights. Therefore, just as Defendants cannot contract away a resident's right to free speech or to vote, they cannot contract away a resident's right to have disputes heard in a court . of law before a jury.

Moreover the Court finds the Arbitration Agreement to be unconscionable. Arbitration agreements may be found invalid due to unconscionability. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010). Unconscionability may be found as procedural deficiencies or substantive deficiencies, or often as a combination of both. Procedural unconscionability focuses on the circumstances or conditions of contract formation, such as unequal bargaining power, no opportunity for negotiation, or ambiguous terms. Bagley v. Mt. Bachelor. Inc., 356 Or. 543, 555 (2014). Substantive unconscionability, on the other hand, generally refers to the terms of the contract and focuses on whether the substantive terms contravene the public interest or public policy. Id. (citing Restatement § 208 comment a). To determine whether allegations of unconscionability are sufficient to invalidate a contract, courts frequently look to legislation for relevant indicia of public policy. Id. at 556. When relevant public policy is expressed in a statute or regulation, the issue is one of ...