Philadelphia Trial Court Finds Nursing Home Arbitration Agreement Unenforceable Due to Resident’s Lack of Capacity

Arbitration agreements executed during the nursing home admission process can provide an important mechanism for resolving disputes outside of court, but their enforceability may depend on whether the resident had the capacity to understand and agree to their terms. A recent Philadelphia Court of Common Pleas decision highlights the potential challenges facilities may face when contemporaneous medical records raise questions about a resident’s cognitive capacity at the time an arbitration agreement is executed.

In Blackshear v. Providence Operator, LLC, the Philadelphia Court of Common Pleas declined to enforce an Alternative Dispute Resolution (ADR) Agreement that nursing home defendants contended required the plaintiff-decedent’s negligence claims to proceed in binding arbitration. The decedent allegedly signed the agreement upon admission to the facility. The court concluded that the plaintiff overcame the presumption of contractual competency by clear and convincing evidence and established that the decedent lacked the capacity to understand the agreement’s terms when he signed it.

The court specifically relied on contemporaneous medical records, including the decedent’s low BIMS score, cognitive communication deficit, difficulty recalling simple words, and inability to answer basic orientation questions. It considered the BIMS score together with the broader evidence of cognitive functioning. The court also distinguished MacPherson v. Magee Memorial Hospital for Convalescence, in which the Pennsylvania Superior Court ultimately directed the parties to arbitration. Among other distinctions, the MacPherson record involved a 54-year-old resident with no history of dementia or mental illness, and the plaintiff did not challenge the decedent’s capacity to execute the arbitration agreement. The Blackshear decision is presently on appeal to the Superior Court following the facility’s timely appeal. Accordingly, the decision’s treatment of contractual capacity in the nursing-home arbitration context remains subject to further appellate review.

Practical Implications for Nursing Home Operators

The decision highlights the importance of documenting a resident’s ability to understand an ADR or arbitration agreement at the time the agreement is executed. A routine cognitive assessment, standing alone, may not provide the complete evidentiary record necessary to establish contractual capacity if contemporaneous medical records contain other indications of cognitive impairment. Facilities may therefore wish to review their admission and contracting procedures to determine whether they adequately document the circumstances surrounding execution of ADR agreements, particularly when a resident’s medical record reflects cognitive impairment. Appropriate documentation may include contemporaneous observations concerning the resident’s ability to understand the nature and significance of the agreement, the voluntary nature of the decision, and any involvement by an authorized representative.

If affirmed by the Superior Court, this decision will likely embolden plaintiffs’ counsel in nursing home litigation to more aggressively challenge ADR agreements at the onset of litigation and prompt discovery disputes over capacity before the case even proceeds on the merits, effectively frontloading litigation costs for facilities seeking to compel arbitration. Facilities should therefore preserve relevant admission, assessment, and contracting records and ensure that personnel involved in the admission process understand the importance of documenting the execution process.