Factual and procedural background
Brandon Nelson was a 26-year-old engineering graduate who developed acute psychosis in Jan. 2018. He told a police officer friend that he needed to borrow a handgun to kill himself because he felt evil and animal-like. The friend called the police, and Brandon was placed on a psychiatric hold for 72 hours in an inpatient psychiatric facility. He was subsequently treated for six weeks, first in Pasadena at Las Encinas Mental Hospital (LEMH) and subsequently in Laguna Beach at Mission Hospital. The hospital records at LEMH noted that Brandon was delusional, paranoid, believed he was being recorded, was fearful, and was considered gravely disabled. LEMH discharged him on Feb. 23rd. He was then admitted to Mission Hospital three days later on Feb. 26 on a new psychiatric hold after he again threatened to commit suicide. Brandon signed a durable power of attorney (POA) on Feb. 27, granting his father, Allen Nelson, power of attorney to handle Brandon’s financial affairs and personal care, including the ability to use Brandon’s resources for placement in a residential care or skilled nursing facility.
Mission Hospital completed a certification review on March 1 and found that Brandon was still gravely disabled and in danger of self-harm and recommended that his hold be extended for 14 days. However, he was discharged from Mission Hospital on March 7. On March 6, one doctor found that Brandon required ongoing inpatient care. On March 7, however, a second doctor found that he should be released to the care of his parents so that they could find a residential placement with appropriate licensing to handle his psychiatric needs. Instead of notifying his parents, Mission Hospital instead released him to the care of Sovereign Health of San Clemente, a dual diagnosis and sober living facility that was not licensed to provide the type of care Brandon required.
Upon his arrival at Sovereign Health, Brandon signed an arbitration agreement as a part of his intake paperwork. The Sovereign employee who did his intake testified that she didn’t recall doing it but also testified that Brandon was agitated, so she requested that he be seen by a licensed clinician. He was seen by a licensed clinical social worker on the evening of March 7, and she performed a biopsychosocial assessment and found that he came without his psychotropic medication, which was precipitating his crisis. The assessment stated that he had been without his psychotropic medication for 24 hours and also noted that Brandon was experiencing auditory hallucinations, thought that people on television were talking to him, and knew that his thinking was impaired. She stated that he was lying in a fetal position and howling. He also yelled for the voices in his head to stop telling him negative things. She wrote that his symptoms decreased after he took his medication. The social worker wrote that he needed to be supervised 24 hours per day because of his high risk of decompensation without medication.
The following day, Sovereign waited until 6:20 pm to give Brandon his medication while they waited for his prescription to be transferred to one of Sovereign’s own pharmacies. At 7 pm, Brandon again began screaming. However, the facility allowed him to return to his room unsupervised at 7:45 pm, where he hung himself from a sprinkler with the drawstring from his pants.
Brandon’s parents, Allen and Rose Nelson, filed a lawsuit against Sovereign for wrongful death. They also included causes of action on Brandon’s behalf for negligence, dependent adult neglect or abuse, negligence per se, fraud, and negligent misrepresentation. Sovereign filed a motion to compel arbitration based on the arbitration agreement that Brandon allegedly signed. The motion was denied. The court found that the defendant had not properly authenticated Brandon’s signature and that the agreement was unconscionable and unenforceable. Sovereign filed an appeal.
Issue: Whether the trial court erred when it denied Sovereign’s motion to compel arbitration?
Sovereign argued that the trial court erred when it denied Sovereign’s motion to compel arbitration and in its finding that Sovereign had not properly authenticated Brandon’s signature. It also argued that an arbitrator instead of a court should have decided the preliminary matters, including the case’s arbitrability.
Rule: The party arguing for arbitration must prove the agreement existed, and the party opposing arbitration must present evidence of a defense such as its unconscionability.
The California Arbitration Act is meant to ensure that arbitration agreements are enforced according to their terms. However, the party moving to compel arbitration must present evidence showing an arbitration agreement exists by a preponderance of the evidence. The party opposing a motion to arbitrate must then present evidence showing that the agreement is unconscionable or that another defense applies.
Parties can agree for an arbitrator to resolve their disputes over preliminary matters instead of the court when a motion to compel arbitration is filed or agree to delegate the authority to determine an arbitration agreement’s enforceability to an arbitrator. Sovereign argued that the arbitration agreement purportedly signed by Brandon included a delegation clause, so the court should not have determined whether the agreement was enforceable and should have instead granted the motion to compel arbitration. Under California law, there is a presumption that the arbitrability of an agreement should be initially determined by the court unless there is clear language agreeing for the decision to be delegated to an arbitrator.
Sovereign also argued that the Federal Arbitration Act applied instead of the California Arbitration Act and said that its agreement with Brandon involved interstate commerce. The defendant relied on the testimony of the intake worker, who testified that Sovereign obtained supplies and food from out-of-state vendors for the use of its residents. The appeals court noted that there is little difference between the FAA and the CAA since both presume that the arbitrability of an agreement should be initially decided by a court unless the parties clearly and unmistakably agreed to delegate the duty to an arbitrator. Sovereign argued that the parties implicitly agreed to delegate the determination of the scope and enforceability of the arbitration agreement by a statement that said that the parties desired to have disputes resolved by an arbitrator.
The Court of Appeal found that this was not clear and unmistakable and did not mention the determination of arbitrability. Sovereign also argued that the rules of the American Arbitration Association (AAA) should apply but admitted that those rules had not been given to Brandon at the time the contract was signed even though the agreement stated that they were incorporated by reference. It argued that the AAA rules would bind Brandon and his parents to arbitrate the arbitrability of the contract. However, Sovereign did not present any precedent holding that a reference to those rules would bind a party who was unsophisticated. The Court of Appeal found that the trial court judge did not err by making the decision about arbitrability.
Next, the court considered whether the agreement was unconscionable and unenforceable. The court noted that unconscionability includes both procedural and substantive components. Determining whether a contract is procedurally unconscionable involves considering whether the bargaining parties were roughly equal or if they instead were unequal, making the contract a contract of adhesion.
A contract is substantively unconscionable when it is substantially unfair and oppressive to the party that did not draft it. A court cannot refuse to enforce an agreement unless it finds that it is both procedurally and substantively unconscionable. The Court of Appeal found that the contract was a contract of adhesion and that there was no evidence that Brandon had equal bargaining power. It noted that Brandon was not provided a copy of the AAA rules, which amounted to oppression and a surprise. The court also noted that the biopsychosocial assessment indicated that Brandon had an impaired mental state, so it would be unlikely he would have been able to understand or comprehended what he signed because he was a mentally impaired dependent adult. The Court of Appeal thus found that it was procedurally unconscionable.
It next considered whether the agreement was also substantively unconscionable, which occurs when an agreement is unfairly one-sided. The Court of Appeal pointed out that the arbitration agreement expressly waived Brandon’s right to sue Sovereign for anything related to his stay while the agreement did not waive Sovereign’s ability to sue Brandon. The release also waived Sovereign’s liability for any negligence that might occur, including dependent abuse or neglect. The waivers also purportedly extended to the rights of third parties to pursue claims against Sovereign or hold the company liable for negligence and that Brandon agreed to reimburse the company for any legal fees and costs it might have to pay to defend itself against a third-party claim related to his stay. The Court of Appeal found that the arbitration agreement was unconscionable and unenforceable.
The Court of Appeal affirmed the trial court’s ruling and returned the case for further proceedings. It also awarded the plaintiffs their costs on appeal.
Consult an injury attorney
If your loved one was forced to sign an arbitration agreement when he or she entered a nursing home or residential care facility that purported to waive his or her rights to pursue claims against the facility for dependent adult abuse or neglect, you should speak to an attorney if your loved one was abused or neglected in the facility. Contact the Steven M. Sweat, Personal Injury Lawyers, APC for a free case evaluation by calling 866-966-5240.