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Arbitration Clause is Held Unenforceable in Case with Rehabilitation Center

I discussed in my prior blog post about Do Not Sign Your Rights Away that Arbitration Clauses can be held enforceable in some agreements involving Nursing Homes. In a recent case out of Arkansas with a Rehabilitation Center the Rehabilitation Center moved the court to enforce the Arbitration Clause. The Court of Appeals held, and the Supreme Court affirmed, in this case that the Arbitration Clause was invalid due to a lack of mutual assent since both parties to the agreement had not signed the Arbitration Clause.

In the case I discussed in my prior blog post about Not Signing Your Rights Away the issue in that case was that the Arbitration Clause addressed financial issues and not issues of negligence and since, in that case, the issue was negligence and not a financial issue, the Arbitration Clause was held unenforceable.

I am an Arbitrator, and a Mediator, and I firmly believe that there is a place in our judicial system, and that this place is firmly rooted from the past, for both Arbitration and Mediation. The point that must be considered in all contracts and in Arbitration provisions is whether or not the party entering into such a contract fully understands the implications of an Arbitration Clause or provision and that if the clause suggests Binding Arbitration that the parties have now waived their rights to a full judicial system for the adjudication of disputes.

If a party fully understands that a Binding Arbitration Clause does, in effect, waive that party’s right to full adjudication in a court of law of a dispute and enters into the agreement understanding, knowing, appreciating, and agreeing with the premise that Arbitration can be an effective method of resolving a dispute, or the kind of dispute that is outlined in such a provision, then I think that a Binding Arbitration Clause should be upheld. Parties should be able to enter into any type of agreement with any provisions that the parties both agree to and fully understand hence there is a meeting of the minds, which is a necessary element to a valid contract and any provision thereof.

If, on the other side, any party enters into an agreement with a Binding Arbitration Clause that does not fully appreciate or understand the legal implications of such a provision, then the clause can be challenged, and is often challenged. Courts can still be reluctant, however, to undue a contract and will enforce Arbitration provisions, binding and non-binding, so a party should not rely upon this as a defense to an Arbitration provision if later that party realizes that a full adjudication of a dispute may be more favorable for that party or if a party does not like the result that Arbitration brings under a certain set of circumstances. So, as I have stated before, be aware of these provisions and understand the implications of entering into such contracts.

Many of us unknowingly have entered into such contracts if we were to pick up our insurance policies, for example, and read all the language we may very well find out that we have agreed to binding arbitration. I have seen that often in my law practice in homeowners warranties as a prime example of a time when homeowners realize after the fact that they have agreed to an arbitration provision, and when they realize that this is their only recourse against a builder they become very upset with this prospect.

Again, I do believe that Alternative Dispute Resolution (ADR) as both Arbitration and Mediation can be very effective ways to resolve disputes between parties. I also believe that one party, if not fully prepared for these consequences, can be left at a disadvantage under certain circumstances that can not always be thought of at the forefront but happen after the fact, where a full adjudication process, or at least access thereto, may be deemed a more appropriate solution with ADR entering the picture at some time within that adjudication process and not as the only process to resolve the dispute.

In our judicial system we have very carefully crafted rules to protect parties and put everyone on an even playing field and when this is respected, our judicial system, and ADR, are very effective ways to resolve disputes fairly and equitably and not leaving one party at a distinct disadvantage.

So, the take away from these cases is to know what you are signing and understand that an Arbitration Provision, especially a Binding Arbitration Provision (i.e. one that leaves you no other process except the process of Arbitration to resolve a dispute with no right to appeal to a court or to adjudicate in any other fashion), should be entered into with caution.

At Julie A. Rice, Attorney at Law, & Affiliates, we understand these consequences so if you are faced with this dilemma you can Contact Us for your free consultation anytime and we are here to assist you.