Issue # 4:2, February 2016

Compulsory Arbitration Clause in Nursing Home Agreements: The NAF Saga Continues

Courtyard Gardens Health and Rehabilitation, LLC v. Arnold, — S.W.3d — (Ark. 2016)

As I reported a year ago, the National Arbitration Forum (NAF) was a designated arbitrator in thousands of nursing home agreements. When a nursing home resident complained about medical malpractice or other mistreatment, her complaint had to be arbitrated before NAF and according to NAF’s rules. If the resident or her successors were to sue the nursing home in court, the court would have to stay the proceeding and compel arbitration, as mandated by Section 2 of the Federal Arbitration Act (FAA) that deems written arbitration agreements “valid, irrevocable, and enforceable.”

Six and a half years ago, things have changed dramatically. In July 2009, the Minnesota Attorney General filed a complaint against NAF and related entities, accusing them of violations of the Minnesota Prevention of Consumer Fraud Act. The complaint alleged that NAF held itself out to the public as an independent arbitration company, while at the same time working against consumers’ interests and that it “earns revenue when it convinces companies to place mandatory predispute arbitration agreements in their customer agreements and then to appoint the Forum to arbitrate any future disputes.” Shortly thereafter, the parties entered into a consent judgment under which NAF agreed that it would not administer, process, or participate in any consumer arbitration filed on or after July 24, 2009.

Based on caselaw, I estimated that this judgment effectively annulled the arbitration clause in thousands of agreements between nursing homes and residents. See, e.g., Riley v. Extendicare Health Facilities, Inc., 826 N.W.2d 398 (Wis.App. 2012); Estate of Cooper v. Evangelical Lutheran Good Samaritan Soc., 2013 WL 4526274 (N.M.App. 2013); Miller v. GGNSC Atlanta, 746 S.E.2d 680 (Ga.App. 2013); Sunbridge Retirement Care Associates v. Smith, 757 S.E.2d 157 (Ga.App. 2014).

Against this estimation, the Arkansas Supreme Court has recently ruled that the arbitration clause in nursing home agreements is enforceable conditional on the substitution of NAF by a different arbitrator. The new arbitrator, the Court held, will decide the parties’ dispute by applying the NAF procedural code for arbitration. Courtyard Gardens Health and Rehabilitation, LLC v. Arnold, — S.W.3d — (Ark. 2016).

The Court based that decision on the severability doctrine of contract law, on the public policy that favors arbitration, and on the Supreme Court’s requirement that arbitration agreements be placed “on equal footing with all other contracts” (DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463, 468 (2015)). Under these rules—it explained—the plaintiffs had to establish that arbitration was completely impossible, but they failed to do so.

This decision fails to take into account the purpose underlying the NAF arbitration clause. When the nursing home had the resident and his/her family sign the residency agreement, it knew well that the chosen arbitrator was going to be biased in its favor. For that reason, the Court ought to have voided the entire arbitration clause on unconscionability grounds, instead of salvaging it in the NAF-free format. See FAA, s. 2, that authorizes state courts to set aside arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” and the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011), that FAA “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability [as opposed to] defenses that apply only to arbitration.”

Malpractice, Apologies and the Statute of Limitations in Federally Qualified Health Centers

Blanche v. United States, 811 F.3d 953 (7th Cir. 2016)

Two months ago, the Seventh Circuit has delivered another important decision with regard to medical malpractice actions filed against federally qualified health centers. Blanche v. United States, 811 F.3d 953 (7th Cir. 2016). See also Arteaga v. United States, 711 F.3d 828 (7th Cir. 2013), and Sanchez v. United States, 740 F.3d 47 (1st Cir. 2014), discussed here.

Such actions can only be filed in federal courts pursuant to the Federal Tort Claims Act (FTCA), but patients and – worse – their attorneys are often unaware of this fact. As a result, by the time they properly file a suit, the FTCA’s two-year limitations period expires and the patient’s cause of action against the United States becomes time barred. See 28 U.S.C. § 2401(b). I call this problem “FTCA’s Trap for the Unwary.” To salvage the suit, the patient can petition for equitable tolling, but her chances of being granted equitable tolling are slim (in courts that still interpret the FTCA’s limitations provision as jurisdictional, those chances do not even exist).

In the case at bar, the plaintiff delivered a macrosomic baby that weighed 11.7 pounds and developed Erb’s Palsy: weakness of the arm resulting from an injury to the nerves surrounding the shoulder. Shortly after delivering the baby, the plaintiff suspected that something was wrong in the prenatal care she received from her doctors at a federally qualified health center. She and her lawyers, however, wasted valuable time on filing and prosecuting a medical malpractice suit in a state court. By the time the plaintiff reached the federal court – the only court that could adjudicate her suit pursuant to FTCA – the suit was time barred.

The court denied the plaintiff’s plea for equitable tolling and the Seventh Circuit affirmed that decision.

The Circuit explained that “medical malpractice claims do not accrue when the plaintiff knows that her injury was caused by a doctor. Rather, the accrual date is when the plaintiff has enough information to suspect, or a reasonable person would suspect, that the injury “had a doctor-related cause” (the “injury notice”). The Circuit further explained that “Regardless of [the plaintiff’s] subjective beliefs, a reasonable person under the circumstances would have had enough information to inquire further into whether [her doctor] caused [her daughter’s] injury” (citing, inter alia, United States v. Kubrick, 444 U.S. 111, 123 (1979)).

The Circuit also rejected the plaintiff’s argument that “she was prevented from filing her complaint on time because the Health Center did not reveal its federal status.” The Circuit reasoned in this connection that the plaintiff presented “no evidence that the Health Center made any attempt to conceal its federal status.” Moreover, according to the Circuit, “it appears that the plaintiff’s lawyers did not adequately research into whether the Health Center was federally affiliated.” As explained in Arteaga, 711 F.3d at 834, there is a government operated website identifying all health centers that receive federal funds and thus can only be sued under the FTCA. See http://findahealthcenter.hrsa.gov/. Hence, “Members of the medical malpractice bar should know enough to consult the website when approached by a prospective client.”

As in Arteaga, this new decision suggests that the plaintiff may now be able to sue her lawyers for attorney malpractice.

As part of this decision, the Circuit properly rejected the government’s argument that the doctor’s apology about the outcome of the treatment has created an “injury notice” for purposes of the statute of limitations. This apology, held the Circuit, indicated no acknowledgment of guilt. Moreover, “a doctor expressing his sympathy for a new mother who had just endured a painful delivery that resulted in an injured child should not be construed as a confession of malpractice. This is exactly the sort of “ghoulish consequence” that our circuit has long sought to prevent.” (citing Drazan v. United States, 762 F.2d 56, 59 (7th Cir. 1985), and E.Y. ex rel. Wallace v. United States, 758 F.3d 861, 867 (7th Cir. 2014) (“[T]he law should not encourage patients to assume their doctors are responsible for negative outcomes, let alone penalize patients who do not turn on their doctors at the first sign of trouble.”).

Misconceptions about the Admissibility Rules for Medical Malpractice Experts

Elher v. Misra, — N.W.2d — 2016 WL 483425 (Mich. 2016)

Expert witnesses testifying in medical malpractice cases focus on three issues: negligence, causation and damage. Experts testifying about a physician’s negligence are fact witnesses, whose role is twofold. First, they must identify the profession’s practices, protocols and customs that the physician ought to have followed in treating the patient. Second, they must identify the physician’s deviation from or compliance with those practices, protocols and customs. See Alex Stein, Toward a Theory of Medical Malpractice, 97 Iowa L. Rev. 1201, 1209-13 (2012).

Such experts do not testify about findings generated through application of scientific methods. For that reason, Federal Rule of Evidence 702 and its state equivalents do not apply. These rules, guided by the Daubert doctrine, only apply to experts testifying about damage and causation, and the same is true about state rules guided by Frye (See Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993); Frye v. United States 293 F. 1013 (D.C. Cir. 1923)).

In Elher v. Misra, — N.W.2d — 2016 WL 483425 (Mich. 2016), the Michigan Supreme Court applied the Daubert multifactor test (incorporated in Michigan Rule of Evidence 702) to disqualify an expert who came to identify the medical profession’s standard of conduct.

This test requires the trial court to examine the following:

(a) Whether the opinion and its basis have been subjected to scientific testing and replication.

(b) Whether the opinion and its basis have been subjected to peer review publication.

(c) The existence and maintenance of generally accepted standards governing the application and interpretation of a methodology or technique and whether the opinion and its basis are consistent with those standards.

(d) The known or potential error rate of the opinion and its basis.

(e) The degree to which the opinion and its basis are generally accepted within the relevant expert community. As used in this subdivision, “relevant expert community” means individuals who are knowledgeable in the field of study and are gainfully employed applying that knowledge on the free market.

(f) Whether the basis for the opinion is reliable and whether experts in that field would rely on the same basis to reach the type of opinion being proffered.

(g) Whether the opinion or methodology is relied upon by experts outside of the context of litigation.

This test does not apply to fact witnesses testifying about professional standards of conduct, and its use by the Michigan Supreme Court was wrong. Happily, this decision was a harmless error because the disqualified expert failed to identify the accepted standard and even admitted that “he knew of no one that shared his opinion.”

The Scope of the Peer Review Privilege

State ex rel. Wheeling Hosp., Inc. v. Wilson, — S.E.2d — (W.Va. 2016)

West Virginia’s Supreme Court of Appeals has recently delineated the scope of the physicians’ peer review privilege that protects the confidentiality of any information created exclusively for or by peer reviewers. This broad privilege has an important limitation: information, documents, and records ordinarily privileged become unprotected and accessible by third parties when (1) they are “otherwise available from original sources” or when (2) “an individual [has given] a valid waiver authorizing the release of the contents of his file pertaining to his own acts or omissions.” W. Va. Code § 30–3C–3 (1980).

The Court clarified in connection with this limitation that “where documents sought to be discovered are used in the peer review process but either the document, itself, or the information contained therein, is available from an original source extraneous to the peer review process, such material is discoverable from the original source, itself, but not from the review organization that has used it in its deliberations.”