Nursing Home Cannot Compel Arbitration Under Unclear Contract, Third District Rules

Our Illinois arbitration attorneys noted an appellate decision reminding parties to arbitration contracts to ensure that their language is clear as to what exactly should be arbitrated. In Peterson v. Residential Alternatives of Illinois, No. 3-09-0743 (Ill. 3rd June 7, 2010), Rachel Peterson, as the administrator of the estate of Jacob H. Terhorst, sued Terhorst’s former nursing home. Terhorst died at a home run by Residential Alternatives of Illinois, and the estate had sued the nursing home company for wrongful death and violations of the Illinois Nursing Home Care Act. The home succeeded in compelling arbitration at the trial court level, but the Third District Court of Appeal reversed, saying the language of the arbitration agreement was unclear.

Terhorst was 92 when he entered Hawthorne Manor in Peoria. He was a resident from Nov. 29, 2006 to June 2, 2007, the day of his death. On Jan. 7, 2009, his estate’s executor, Ann Bonono, filed a lawsuit against Hawthorne Manor’s parent company, Residential Alternatives. That claim alleged that Residential Alternatives failed to provide adequate care to Terhorst and neglected and abused him, resulting in injuries, pain, mental anguish, financial costs and eventually, his death. It sought more than $100,000 for wrongful death and violations of the Nursing Home Care Act. The defendant filed an answer to plaintiff’s complaint.

But less than a month later, the defendant also moved to dismiss the claim and compel arbitration. In support, it included a contract and a separate arbitration agreement, both dated Nov. 29, 2006 and signed by legal representatives for the company and for Terhorst. Neither document mentioned the other, and the contract indicated that it contained seven pages, all seven of which were the contract itself. The arbitration agreement stated that “any and all disputes arising hereunder shall be submitted to binding arbitration and not to a court for determination.” The next paragraph stated that in the event that a dispute was determined not covered by the agreement, the parties agreed that the dispute should be heard by a judge rather than a jury, and that the prevailing party had the right to recover its costs.

In response to the defendant’s motion to compel arbitration, the plaintiff argued that no enforceable agreement existed; that the defendant had waived its right to arbitration by answering the complaint; and that Illinois public policy is against waiving any rights under the Nursing Home Care Act. Ultimately, the trial court agreed with the defendant that the arbitration agreement controlled the dispute and sent the case to arbitration. This appeal followed. During its pendency, plaintiff Rachel Peterson was granted leave to replace plaintiff Ann Bonomo.

On appeal, the plaintiff argued that the arbitration agreement was unenforceable; that it was void pursuant to the Act, caselaw and public policy; that the defendant had waived its rights; and that the wrongful death claim should not be arbitrated because its plaintiffs were not parties to the agreement. The Third noted that there was no dispute over the contract. However, the defendant argued that it and the arbitration agreement should be considered one unified document, whereas the plaintiff argued that they should be considered separate documents.

Caselaw shows that some courts have chosen to interpret separate documents executed on the same day by the same people as the same document, the court noted. However, it said, these were documents that referred to or expressly incorporated other documents. Furthermore, the court said, it is well established in Illinois law that parties may not incorporate one agreement into another without expressly indicating an intention to do so, and there is a presumption against interpreting contracts in a way that adds conditions that could easily have been explicitly added in writing. In this case, the Third said, the parties could easily have added an arbitration agreement to the contract itself, but they did not — in fact, the seven-page contract states that it is complete within those seven pages. The court found that this choice was deliberate and consistent with case law, so it rejected the argument that both documents should be considered one document.

Next, the Third looked at whether the arbitration agreement itself creates an independent contractual obligation to arbitrate all controversies arising out of the nursing home care. The court concluded that it could not interpret the agreement that way. The agreement called for arbitration with this language: “Without limiting any rights set forth in other provisions of this AGREEMENT, any and all disputes arising hereunder shall be submitted to binding arbitration and not to a court for determination.” This is circular language, the court said, and it does not reference the nursing home care contract at all. A later reference to “any other document signed or initialed in connection with this AGREEMENT” also does not adequately indicate any intention to connect with the contract. For that reason, the court wrote, it cannot agree that the two documents should be treated as one. Thus, the court found that the case should not go to arbitration because the nursing home contract was not subject to the arbitration agreement. The trial court’s decision was reversed.

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