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In granting a nursing home’s motion to compel arbitration, a federal court in Washington rejected an unconscionability challenge to the arbitration agreement, explaining that the signatory’s initials weighed against any finding of procedural unconscionability and that the arbitrator would have authority to sever any offending provisions.
In Olson v. Alterra Healthcare Corp. , No. C08-5506FDB, 2008 WL 4379056 (W.D. Wash. Sept. 23, 2008), Larry Olson, on behalf of his mother Lorraine, signed a nursing home residency contract that contained an arbitration agreement with Alterra Healthcare. When signing the contract, Larry separately initialed as having read and understood several different provisions, including the arbitration agreement.
Larry later sued Alterra for breach of contract, intentional infliction of emotional distress, and violation of the Vulnerable Adult Statute. Alterra moved to compel arbitration pursuant to the arbitration agreement. Larry opposed, arguing that the contract was unconscionable for several reasons, including because the contract limited important statutory rights, and also because it required the nursing home resident to pay half of the arbitration costs.
The Court rejected Larry’s arguments and granted Alterra’s motion to compel arbitration. First, the Court noted that the contract contained a severability provision. Thus, the Court held that if the arbitrator found any parts of the contracts invalid, the arbitrator could sever those provisions and the rest of the contract would remain enforceable.
Second, the Court held that the arbitration agreement did not preclude any important statutory remedies, as Larry had argued; rather, the agreement expressly permitted Larry to pursue claims for “tort or breach of statutory duties.” And to the extent that some of the contract’s provisions conflicted with the arbitration agreement, the Court held that the arbitrator could strike the conflicting provisions.
Finally, the Court held that there was no procedural unconscionability in this case. The Court pointed out that Larry had initialed as having read and understood several different provisions of the contract, including the arbitration agreement. Accordingly, the Court held that “[s]omething more is surely required for these provisions to be set aside, otherwise, the initials indicating that one has read and understood something become meaningless.”
Regarding several other arguments set forth by Larry, the Court held that the arbitrator could hear and resolve those claims, including a claim that the fee-splitting provision made arbitration prohibitively expensive, and a claim that a limitation of liability provision in the contract was unconscionable. Consequently, the Court granted Alterra’s motion to compel arbitration.
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