July 12, 2018, Trial News
False representation voids forced arbitration agreement, Nebraska high court holds
The Nebraska Supreme Court has held that a forced arbitration agreement is invalid when a party’s signature is obtained through fraudulent misrepresentation. Attorneys who handle nursing home cases expect the decision will have a significant impact, especially following the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis.
The Nebraska Supreme Court has held that a forced arbitration agreement is invalid when a party’s signature is obtained through a fraudulent misrepresentation. (Cullinane v. Beverly Enterprises-Nebraska, Inc., 2018 WL 2994349 (Neb. June 15, 2018).) Attorneys who handle nursing home cases expect the decision will have a significant impact, especially following the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis.
In September 2010, Eugene Cullinane and his wife, Helen Cullinane, were admitted to Golden Living Center-Valhaven (GLCV) in Valley, Neb. The admission documents included a forced arbitration agreement, which Eugene signed on Helen’s behalf. After she died at the facility in 2015, their son, Thomas, filed a wrongful death action against GLCV on behalf of her estate.
GLCV filed a motion to dismiss or compel arbitration under the Federal Arbitration Act (FAA). While neither party disputed that Eugene had signed the agreement and had the authority to bind Helen and her estate, Thomas argued that the agreement was invalid because Eugene’s signature had been obtained through fraud.
Thomas was present when Eugene signed the agreement and the other admission documents. He and Eugene submitted affidavits stating that a facility staff member had presented Eugene with a stack of documents and informed him that these were standard forms that had to be signed before Eugene and Helen could be admitted. Eugene and Thomas specified that, despite the fact that the top of the arbitration agreement stated in large, bold font that signing it was optional and not a condition of admission, at no time did the staff member share this information or inform them that Eugene was waiving any legal rights. In fact, the Cullinanes said, the staff member kept the documents together in one stack and merely flipped up the bottom half of each page that Eugene needed to sign. The lower court denied the defendant’s motion, and GLCV appealed.
The Nebraska Supreme Court found that the agreement fell under the scope of the FAA. The court also ruled that it—and not an arbitrator—had the authority to determine whether arbitration applied because, among other reasons, the claim at issue involved the formation of the agreement itself.
While parties generally cannot avoid the terms of a contract they signed but did not read, that is not true when a party is fraudulently induced into signing, the court observed. Under Nebraska law, fraudulent misrepresentation occurs when a false representation is made, the speaker knows it to be false or speaks recklessly without knowing the truth, the speaker intends the plaintiff to rely on the representation, the plaintiff does rely on it, and the plaintiff suffers injuries as a result.
Referencing Eugene’s and Thomas’s affidavits, the court affirmed, concluding that the evidence supported the lower court’s ruling that a fraudulent misrepresentation had occurred. A GLCV agent had falsely stated that Eugene was required to sign the agreement for Helen to be admitted, the staff member spoke recklessly or knew that the statement was false, the agent intended Eugene to rely on this representation, Eugene relied on it, and Helen’s estate was injured as a result because the agreement precluded a wrongful death lawsuit.
“This decision will have a significant impact on nursing home residents,” said Omaha attorney Shayla Reed, who represents the plaintiff. “My hope is that this Nebraska Supreme Court decision will deter nursing home staff from engaging in the widespread practice of burying an optional arbitration agreement in a stack of paperwork and falsely describing the documents as ‘standard admission forms.’ The court’s analysis can also be applied to other settings in which consumers are directed to sign documents that ‘must be signed’ but that actually contain optional arbitration agreements. This decision is a good reminder that when faced with motions to compel arbitration, attorneys should first focus on common law defenses to contract formation before embarking on the uphill battle over preemption and the FAA.”
Public Justice Executive Director Paul Bland of Washington, D.C., who handles disputes over forced arbitration, noted that this decision “honors and gives meaning to the well-established rule that arbitration should only be ordered when the parties agreed to it. In this case, the court found strong evidence showing that the plaintiffs had not chosen arbitration, and its decision not to force arbitration is right in line with the law.”
Bland noted that Cullinane comes as courts, legislatures, and executives across the country grapple with how to respond to this issue and the U.S. Supreme Court’s Epic Systems Corp. v. Lewis decision, which Trial News previously reported. As one example, Bland cited a recent Executive Order from Washington Governor Jay Inslee that directs state agencies to seek contracts with employers who do not require employees to sign forced arbitration agreements or class action waivers. “The Order makes clear that, when considering with whom it will do business, the state is not interested in working with corporations that force their workers to arbitrate cases involving discrimination, sexual harassment, or violation of wage-and-hour laws. Hopefully the state’s strong leadership will send a message that Washington corporations shouldn’t try to strip their workers of important rights.”