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Stonerise Healthcare, LLC v. Oats

Stonerise Healthcare, LLC v. Oats

Case No. 
19-0215
Opinion Date: 
6/16/2020
Opinion Author: 
Memorandum Opinion
Decision 
Reversed
Vote: 
3-2
Facts 

Respondent is Susan K. Oats, whose mother was hospitalized in November, 2015, and then transported to Petitioner’s nursing home.  Respondent was presented with an admission packet containing 97 pages.  Respondent alleges that she was in a state of “chaos” at the time because of worry for her mother’s health and lengthy work hours.  The packet included what Respondent described as a hand-crafted arbitration agreement.  The agreement had the following features: (1) a “loser pays” provision giving the arbitrator power to assess fees and costs, including attorney fees, against the losing party; (2) a confidentiality provision that allegedly gave Petitioner--as a “repeat player” in arbitration circles--access to “a wealth of knowledge and precedent from previous arbitration proceedings”; (3) language selecting NAF as the arbitrator even though it was notoriously anti-consumer; and (4) language that effectively shortened the statute of limitations.

Petitioner moved to dismiss, citing the arbitration language in the admission agreement.  Respondent opposed the motion and argued that the agreement was both procedurally and substantively unconscionable. The trial court agreed.  Petitioner appeals from the trial court’s order denying Petitioner’s motion to dismiss. 

Issue 

Did the trial court err by finding that the arbitration agreement was unconscionable and, therefore, unenforceable?

Analysis 

This may be the most interesting memorandum opinion of the term.  The Supreme Court reversed on a 3-2 vote, concluding that the arbitration agreement was not unconscionable.  Justice Hutchison filed a separate opinion criticizing the jury for upholding the “loser pays” provision.  Justice Workman agreed with Justice Hutchison, but concentrated on an issue that was not addressed by the Court’s opinion—i.e., is an arbitration agreement enforceable against wrongful death beneficiaries who did not sign it and who received no benefit from it?

With respect to procedural unconsionability, the Court focused almost entirely on language indicating that arbitration “[was] not a condition of admission or to continued residence in the facility.”  Similarly, the agreement contained a right to rescind the party’s consent to arbitration, providing “an explicit, numbered, three-step, clearly worded explanation of this right of rescission as well as the ramifications of failure to rescind.”  In light of these facts, the lower court’s finding that the agreement was procedurally unconscionable was reversed.

The Court next considered the issue of substantive unconscionability.   Unfortunately, the opinion does not address all the provisions cited by the trial court in support of its substantive unconscionability finding nor does it deal with them thoroughly.  With respect to the “loser pays” provision, the Court noted that fee-shifting exists in certain kinds of cases, and that giving the arbitrator power to award fees was “similar to this Court’s recognition that circuit courts are vested with similar discretion in proceedings litigated in their tribunals.”

Justice Hutchison concurred in part and dissented in part.  Though he had no qualms with ordering the case to arbitration, Justice Hutchison was adamant that “the ‘loser pays’ provision in this contract is grossly unconscionable to unsuspecting individuals such as [Respondent].”  The language in the arbitration agreement was not consistent with our general fee-shifting law, which limits fee awards to situations involving bad faith.  Instead, “the arbitrator may award fees and costs simply because one party loses the case, even if the losing party has acted in the best of faith.” Consequently, he would have found the “loser pays” provision to be unconscionable, but would have enforced the remainder of the arbitration agreement.

Dissenting, Justice Workman stated that the issue of whether the arbitration clause was unconscionable was moot because “an arbitration clause is not enforceable against the heirs, distributees and/or beneficiaries in a wrongful death action.”  Wrongful death claims belong to the beneficiaries themselves, not to the decedent or the estate. Because the beneficiaries did not sign the agreement to arbitrate, they cannot be bound by it.  Furthermore, as a matter of general contract law, the beneficiaries could not in any way bound by the agreement to which they were not a party and from which they did not receive any benefit.  Finally, Justice Workman expressed her belief that enforcing the arbitration clause under these circumstances would amount to a constitutional violation—depriving the beneficiaries of due process under W.Va. Const. art. III, §10 and the right to open courts under W.Va. Const. art. III, §17.

Commentary 

The outcome of this case is not a good sign for West Virginia consumers.  Even the outrageous “loser pays” provision of the agreement was found to be valid and enforceable, leaving Respondent open to the possibility of a case-ending, soul-crushing award of attorney fees.  That is, of course, exactly why Petitioner included the language in the first place.  Who would want to arbitrate when the risks are so incredibly high?

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