By Fredrick P. Niemann, Esq. a New Jersey Discharge from a Nursing Home Attorney

A New Jersey Court has voided specific portions of long term care agreement requiring arbitration of disputes. The court noted that general contract law defenses, such as fraud, duress and unconscionability can be invoked to invalidate an arbitration agreement without contravening 2 of the provisions of Federal Law under the Federal Arbitration Act (FAA). The court determined that long term agreements are contracts of adhesion and thus subject to a procedural and substantive unconscionability analysis. The court turned its attention to substantive unconscionability.

The unconscionability issue in this matter centered on the limitation of discovery, the limitation of compensatory damages to a seemingly low figure, and the outright prohibition of punitive damages. In determining whether these restrictions ran counter to New Jersey’s public policy, the court decided that, the restrictions on discovery, limits on compensatory damages, and outright prohibition on punitive damages were an unconscionable wall of protection for nursing home operators seeking to escape the full measure of accountability for tortuous conduct that imperiled a discrete group of vulnerable customers. This is precisely the evil the legislature sought to enjoy by passing N.J.S.A. 30;13-8.1. The court then held that such provisions contained in an arbitration clause of the residency agreement are void and unenforceable under the doctrine of substantive unconscionability.

Thus, while the court held that the FAA pre-empted N.J.S.A. 30L13-8.1, it nevertheless relied heavily upon the public policy behind the New Jersey statute to void certain terms of the agreement as “unconscionable”. Subsequent opinions by the U.S. Supreme Court have cast doubt on that approach.

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