Arkansas Supreme Court Narrows Loophole Used to Invalidate Arbitration Agreements 

In the past, Arkansas courts have utilized a contract element called “mutuality of obligation” to invalidate nursing home arbitration agreements. Under this precedent, arbitration agreements lacked mutuality of obligation because the agreements did not impose identical obligations on the nursing home and the resident or their families.

On April 9, 2020, however, the Arkansas Supreme Court in Jorja Trading, Inc. v. Willis, 2020 Ark. 133, stated that mutuality of obligation merely requires the terms of the agreement to bind both parties. Mutuality of obligation does not, however, require every provision within a contract to impose bilateral, i.e., identical, rights and obligations between contracting parties.

The Jorja Trading case involved a vehicle installment-sales contract that waived class action lawsuits and reserved the right to self-help remedies like repossession. The Washington County Circuit Court and the Arkansas Court of Appeals invalidated the arbitration agreement because the financer could not bring a class action claim against the vehicle purchaser, and the vehicle purchaser did not have any self-help remedies against the financer.

The Arkansas Supreme Court reversed. The Federal Arbitration Act (“FAA”) places arbitration agreements on equal footing with all other contracts, and arbitration agreements can only be invalidated under general contract law. The Arkansas Supreme Court stated that it does not require every obligation in a contract to be identical, i.e., agreements may impose different obligations on each party. Requiring only arbitration agreements to impose identical obligations would violate the FAA by holding arbitration agreements to a more stringent standard than other contracts.

As a result of this important new decision, we are hopeful that nursing home arbitration agreements that include language waiving class or collective actions could be enforceable in the future. Nonetheless, facilities should carefully consider other arbitration agreement terms. For example, while such an agreement likely may legitimately exclude disputes that would fall under the jurisdiction of a small claims court, agreements that require arbitration only of claims that meet a certain dollar threshold will likely lack the requisite mutuality of obligation.  Robinson Nursing & Rehab. Ctr., LLC v. Phillips, 2019 Ark. 305. Further litigation would be required to demonstrate that Robinson Nursing & Rehab. violates the FAA.

However, Jorja Trading, Inc. v. Willis does not affect the most frequent problems nursing homes encounter when enforcing arbitration agreements, such as ensuring that the correct person signs or that a resident has capacity to sign.  Additionally, CMS’s ban of arbitration agreements as a condition of admission to a long-term care facility remains effective as of today.

Indeed, this is a good outcome for the future of nursing facility arbitration agreements. We are certainly able to assist anyone needing review or development of arbitration policies and contracts.

Please contact us if you have any questions or if you would like assistance with this or other matters.