Arbitration Agreement Found Unconscionable Due To Pressure To Sign And Confidentiality Requirement

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Jan 29, 2024

Sally Ann Haydon, a 74 year-old with dementia, lived at the Elegance at Dublin, a residential care facility for elderly.

Before moving to the facility, Haydon signed a Residence and Care Agreement that included an arbitration provision.  The clause was in the middle of a document that was over 40 pages long, which included the agreement, several appendices and other materials.  The arbitration clause was the last of over 20 unrelated “miscellaneous” provisions at the end of the agreement.

The clause had its own signature block, immediately followed by a signature block for the agreement as a whole.  Neither signature block was clearly identified or set off from the surrounding text.  Both signature blocks included multiple signature lines (for example, for two residents, a resident representative, and/or a facility representative).

The arbitration clause stated that the person signing agreed to resolve all claims and disputes by arbitration, required the parties to bear their own costs and fees, and required confidentiality.  Residents could withdraw from the clause by providing 30 days written notice.

In March 2023, Haydon sued the facility under the Elder Abuse Act for negligence, assault, and battery, alleging that she was assaulted by a caregiver and that the facility failed to provide for her safety.

The facility moved to compel arbitration.  Haydon, in opposition, claimed she lacked capacity to agree to arbitration and that the provision was unconscionable.  Haydon’s daughter explained that she communicated with the facility on her mother’s behalf throughout the admission process and gave notice in October 2022 that her mother had a cognitive disorder and aphasia (a loss of ability to understand or express speech).  According to Haydon’s daughter, the facility salesperson pushed to finalize Haydon’s admission before leaving the facility to take another job and made clear that if Haydon signed up with him, she would get a better rate.  This was important because Haydon lived on a fixed income and had no retirement savings.  Haydon’s daughter stated that no one at the facility explained the agreement, including the arbitration clause, to Haydon, and no one from the facility was with Haydon when she signed it.

For an arbitration agreement to be unenforceable, it must be both procedurally and substantively unconscionable.  Procedural unconscionability addresses the circumstances of contract negotiation and formation.  Substantive unconscionability pertains to the fairness of an agreement’s actual terms to assess whether they are overly harsh or one-sided.

The trial court found that the arbitration agreement was unconscionable, due to the length of the agreement, the pressure to sign it, and the difficult-to-understand drafting and formatting.  The trial court reasoned that the arbitration clause was a small 8- or 10-point single-spaced text and the multiple signature blocks were confusing.  The facility appealed.

On appeal, the facility argued that the agreement was not procedurally unconscionable, because there was no oppression (i.e., no lack of negotiation and meaningful choice) and no surprise (i.e., the provision was not hidden).

The Court of Appeals disagreed with the facility.  The Court of Appeals found there was oppression based on the explanation from Haydon’s daughter that her mother was under enormous pressure to sign due to her declining condition, her limited financial resources, and the facility’s contingent discount.  The Court of Appeals found there was surprise due to the long, dense agreement, interspersed with several confusing signature blocks, some of which Haydon filled out incorrectly.  The Court took issue that the arbitration provision was not presented in a separate document or even separate section.

The facility further argued that the arbitration agreement was not procedurally unconscionable because signing was not a condition of admission and there was a 30-day opt-out provision.  The Court of Appeals concluded that Haydon did not have an authentically informed choice to reject the arbitration clause given its confusing presentation, the failure of anyone at the facility to explain the opt-out procedure to her, and the temporal and financial pressure she experienced in her vulnerable state.

The facility argued that the clause was not substantively unconscionable, which arises when a contract imposes unduly harsh or one-sided results.  In determining whether the clause is substantively unconscionable, courts often look to whether the agreement meets a minimum level of fairness.  Here, the Court of Appeals determined the confidentiality provision was not fair because it would restrict Haydon from gathering information to resolve the dispute and it would discourage other individuals from bringing similar claims.  The Court of Appeals also found that the provision requiring the parties to bear their own costs and fees was unconscionable because it was unaffordable for Haydon, creating a deterrent effect to bringing a claim.

The Court of Appeals upheld the trial court’s ruling and found the agreement was unconscionable.

Note: This case is critical for two reasons.  First, it shows that those signing arbitration agreements should not be pressured into signing and should be given ample time to consider and understand the terms of the agreement.  Second, it establishes that confidentiality provisions in arbitration agreements may be struck down if it discourages potential plaintiffs from bringing cases.

Haydon v. Elegance at Dublin (2023) ___Cal.App.5th___ [2023 Cal. App. LEXIS 971].)

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