Update on Arbitration Clauses in Medical Malpractice Cases

By: Paul J. Giancola and Claudia E. Stedman, Snell & Wilmer

Healthcare providers and counsel frequently view arbitration agreements as more efficient and more cost-effective alternatives to litigation—and indeed, in many circumstances, this form of alternative dispute resolution can be a critical tool in managing costs and helping parties reach a compromise more efficiently. Recent Arizona case law on arbitration clauses in the context of medical malpractice cases serves as a reminder of the issues that counsel should be mindful of in drafting these contractual provisions for their healthcare clients.

Heaphy v. Willow Canyon Healthcare, Inc.

On May 18, 2021, the Arizona Court of Appeals ruled in Heaphy v. Willow Canyon Healthcare, Inc. that a wife acting in the capacity of her husband’s healthcare power of attorney (HPOA) did not have authority to bind her husband or his estate to an optional arbitration agreement when admitting him to a nursing home when the wife failed to indicate that she was the legal representative or agent. 251 Ariz. 358, 491 P.3d 1165 (Ct. App. 2021).

By way of background, in 2012, Charles Heaphy appointed his wife, Shirley Heaphy, as his HPOA. In 2017, Ms. Heaphy admitted her husband to Pueblo Springs Rehabilitation Center—a skilled nursing and rehabilitation center. The contract that Mrs. Heaphy signed with the facility included an optional arbitration agreement, asked for the signature of a “Legal Representative or Agent,” and “directed an agent signing in that capacity to also execute on the same page a separate ‘Acknowledge of Legal Representative or Agent.’” Id. at 1167. Mrs. Heaphy signed her husband’s name on the resident line and signed her own name on the adjacent signature line. She did not sign as the legal representative or the acknowledgment. Mr. Heaphy passed away a few weeks after he was admitted to Pueblo Springs.

In 2019, Mrs. Heaphy, acting in her capacity as personal representative of Mr. Heaphy’s estate and on behalf of all statutory beneficiaries (Plaintiff), sued Willow Canyon Healthcare—the owner of Pueblo Springs—and the doctor who treated Mr. Heaphy. Mrs. Heaphy alleged elder abuse, negligence, negligent hiring and supervision, and wrongful death. Id. at 1167-68.

Willow Canyon filed a motion to compel arbitration based on the contract with the skilled nursing facility that Mrs. Heaphy filled out when her husband was admitted. Plaintiff argued, however, that the contract was not enforceable because it was unconscionable, and that Mrs. Heaphy lacked authority to bind either the estate or the beneficiaries. The trial court denied the motion to compel arbitration, but held an evidentiary hearing to assess whether Mrs. Heaphy had the authority to sign the contract with Willow Canyon as her husband’s agent. The trial court held that the estate’s claims were not subject to the arbitration clause in the agreement with Willow Canyon because though Mrs. Heaphy was HPOA, she was not authorized to sign the contract on her husband’s behalf, and that it was procedurally unconscionable under the circumstances.

Willow Canyon appealed the trial court’s decision, arguing that Mrs. Heaphy had actual authority, either express or implied, to sign the agreement and, even if she lacked such authority, she should be equitably estopped from denying such authority, the agreement was not unconscionable, and the Federal Arbitration Act (FAA) preempted Arizona case law “holding that an arbitration agreement cannot bind non-signatories.” Id. at 1168.

The Arizona Court of Appeals stated that it was required to defer to the trial court’s factual findings absent clear error. Therefore, the Court affirmed the trial court’s decision to deny Willow Canyon’s motion to compel arbitration for the following reasons:

First, on the issue of express actual authority, the Court examined the plain language of the HPOA and found that it authorized Mrs. Heaphy to have full authority to make decisions regarding healthcare, but only limited authority “to seek damages from a healthcare provider for its failure to comply with Charles’s refusal of treatment or his wishes . . . .” Id. at 1169. Further, because the arbitration clause was optional and “not required for Charles to be admitted into Pueblo Springs, it was not a healthcare decision as contemplated by the HPOA.” Id.

Second, the Court found that Mrs. Heaphy lacked implied actual authority to bind her husband’s estate because the HPOA did not “expand the scope of her authority such as to encompass the optional” arbitration agreement.” Id. at 1170.

Third, the Court found that the elements of equitable estoppel were not met because, among other things, Mrs. Heaphy’s signing of the optional arbitration agreement “did not represent that she had authority to bind Charles and his estate, particularly when she did not sign the line provided for the ‘Legal Representative or Agent’ and the related acknowledgement on that page.” Id.

Fourth, the Court determined that the trial court’s decision was consistent with both Arizona law and the FAA and that the arbitration agreement was unenforceable because Mrs. Heaphy lacked authority to enter into it on behalf of her husband. Id. at 1171.

In summary, the Court of Appeals found that an HPOA is limited in scope and does not confer the legal authority for the HPOA to waive legal right such as trial by jury. In contrast, an appropriately drafted power of attorney and signed arbitration provision likely would have conferred the appropriate legal authority to require that Mr. Heaphy and his estate arbitrate. A potentially open question, but likely derivative of the first question is whether the beneficiaries would also be bound by the agreement to arbitrate.

Considerations for Arbitration Clauses in the Context of Medical Malpractice

The current legal landscape is such that courts will try to enforce binding, pre-dispute arbitration agreements, even in the medical malpractice context. While there is strong public policy favoring arbitration agreements, there are common pitfalls that drafters of such agreements should watch out for.  

Drafting Considerations & Unconscionability

From a practical standpoint, it is important to consider the sometime overlooked drafting and structure of arbitration clauses. In the context of medical malpractice claims, courts balance the public policy and efficiency considerations of arbitration agreements against the fact that patients or their caregivers may fail to comprehend what legal rights they are relinquishing by signing an arbitration agreement. Therefore, courts scrutinize arbitration provisions more closely than they would in a commercial context. Courts look at both substantive (overly oppressive terms or unduly harsh to one party) and procedural (the process for entering into the agreement) unconscionability.

An unconscionability claim can be successfully argued if an arbitration provision is unduly one-sided or makes medical care contingent on agreeing to arbitrate. In Gullett v. Kindred Nursing Centers West, LLC, the nursing center moved to compel arbitration pursuant to the contract between it and the Plaintiff. 241 Ariz. 532 (Ct. App. 2017). The Plaintiff opposed the motion, arguing that the arbitration agreement was substantively unconscionable if not procedurally unconscionable. Id. at 535. In evaluating whether the arbitration agreement was substantively unconscionable, the Court considered whether the “amount of permitted discovery is so low and the burden to obtain additional discovery so high that the litigant is effectively unable to vindicate their claim.” Id. at 536.

In Gullet, the Court found that because the arbitration agreement allowed for “30 interrogatories, 30 requests for production, 10 requests for admission, six lay depositions and two expert depositions,” the agreement was not substantially unconscionable. Id. at 537. The Court likewise disagreed with the Plaintiff on the procedural unconscionability claim, finding that because the arbitration agreement required the parties to find an impartial arbitrator or select from an approved list, there was mutuality and the agreement was fair. Id. at 539.

When writing an arbitration agreement, drafters should consider writing the provision out in bold type or capitalized letters to focus the signor’s attention and highlight the particular language so that the patient is put on notice that they are giving up certain legal rights. In the case of a particularly voluminous contract—as in the Heaphy case where the entire contract with the skilled nursing facility was almost 60 pages long—drafters may want to consider having the arbitration provisions set off in an entirely separate document from the rest of the agreement. Additionally, using plain, simple language is important in defending against a potential claim that the contract is unenforceable because the patient did not understand what he or she was signing.  

Simply because a contract is one of adhesion does not make it automatically unenforceable. However, courts will consider “take it or leave it” agreements in light of whether the patient “knowingly consented to the clause and what the patient’s reasonable expectations of signing that provision were.” Broemmer v. Abortion Serv’s of Phoenix, Ltd., 173 Ariz. 148, 152 (1992). For this reason, when drafting an arbitration agreement, counsel may also want to include language clearly indicating that signing is an arbitration agreement is voluntary and that a patient’s medical care will not be contingent on whether they agree to arbitrate or not.

Drafting considerations go hand-in-hand with upholding the enforceability of an arbitration agreement. To avoid a claim that a contract is unconscionable, counsel and providers should evaluate the patient’s expectations and ensure that the patient has knowingly consented to the agreement. Patients should be informed of the arbitration agreement prior to consenting to the medical treatment or procedure. Terms that limit discovery or limit recovery of damages should likely be omitted. Finally, counsel should frequently review the terms of the arbitration agreement and update the language as necessary.