Scott Woodward v. Emeritus Corporation

FILED

FEBRUARY 9, 2016

In the Office of the Clerk of Court

W A State Court of Appeals, Division III

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DIVISION THREE

SCOTT WOODWARD, as the Personal )
Representative of the ESTATE OF ) No. 32880-5-III
VIRGINIA MAY WOODWARD, SCOTT )
WOODWARD, in his individual capacity, )
and CHRISTINE WOODWARD, in her )
individual capacity, )
) PUBLISHED OPINION
Respondents, )
)
v. )
)
EMERITUS CORPORATION, a )

Washington corporation, BROOKDALE )

SENIOR LIVING COMMUNITIES, )

INC., a Delaware corporation, FATIMAH )

A WAD and JOHN DOE A WAD, a )

marital community, MINDY ROSS and )

JOHN DOE ROSS, a marital communitY, )

JOHN AND JANE DOES 1-10, )

)

Appellants. )

SIDDOWAY, C.J. Emeritus Corporation, its affiliate, and two employees appeal

the denial of their motion to compel arbitration of claims for negligence and violation of

Washington's Vulnerable Adult Statute (RCW 74.34.200) brought against them by Scott
No. 32880-5-III

Woodward v. Emeritus Corp.

Woodward, as personal representative of the estate of his late mother, Virginia May

Woodward. Acting as his mother's attorney-in-fact, Mr. Woodward had signed a

predispute arbitration agreement with Emeritus at the time he signed other agreements

providing for Ms. Woodward's residence and care at Richland Gardens, an assisted living

facility owned and operated by Emeritus.

Emeritus drafted the operative language of the parties' agreement that

"[a]rbitrations shall be administered in accordance with the procedures in effect for

consumer arbitration adopted by the American Arbitration Association [AAA]." Clerk's

Papers (CP) at 45. The relevant procedures adopted by the AAA contemplate that the

AAA will administer the arbitration, and that a threshold procedural step will be for the

AAA to review the agreement of the parties in order to determine whether it substantially

and materially complies with the AAA's due process standards. Ifit does not, the AAA

will decline to administer the arbitration and "either party may choose to submit its

dispute to the appropriate court for resolution." CP at 321.

The AAA can be expected to decline to administer arbitration of the dispute

between the estate and Emeritus and its codefendants (hereafter collectively "Emeritus").

While Emeritus argues that the parties' arbitration can be administered by someone else,

the plain language of the AAA's Consumer Arbitration Rules (unmodified in this respect

by the parties' agreement) requires AAA administration-evidently so that the AAA can

apply the fast and simple procedure provided by the consumer rules to only those cases

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I Woodward v. Emeritus Corp.

I for which the rules will provide due process. Where the AAA decides that due process is

i
not assured, the rules explicitly provide that a party may litigate.

I The court did not err in denying the motion to compel arbitration, which would

have been futile given the undisputed expectation that the AAA would decline to

administer arbitration of the estate's claims. Alternatively, we find the agreement

substantively unconscionable given the nature of the claims. We affirm.

FACTS AND PROCEDURAL BACKGROUND

In 2012, Scott Woodward, acting as the attorney-in-fact of his mother, Virginia

Woodward, signed paperwork providing for his mother's admission, residence and care

at Richland Gardens, an assisted living facility owned and operated by Emeritus

Corporation. Among the admissions paperwork signed by Scotti was a predispute

arbitration agreement.

Within Virginia's first four months' residence at Richland Gardens, she was twice

dropped when being moved by a staff member executing a "one-person assist," contrary

to a personal care plan for Virginia that required "two-person assists" whenever she was

being moved. When dropped the second time, Virginia broke her hip. She died three

Because we refer to three members of the Woodward family, we use their first
I
names for the convenience of the reader. We intend no disrespect.

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No. 32880-5-III

Woodward v. Emeritus Corp.

months later. 2 Her death certificate lists the broken hip as a contributing cause of death.

Christine Woodward, Virginia's daughter, and Scott, individually and as the

personal representative of his mother's estate, filed suit against Emeritus. The estate

asserted claims for negligence and for elder abuse in violation of Washington's

Vulnerable Adult Statute, RCW 74.34.200. Scott and Christine asserted claims for

wrongful death.

Emeritus filed a motion to compel arbitration of the estate's claims, relying on the

predispute arbitration agreement signed by Scott. 3 The estate responded by moving for

an evidentiary hearing on the motion to compel arbitration, followed up by a

memorandum and declarations opposing arbitration.

The arbitration agreement executed by Scott is a two-page stand-alone document

titled "Agreement to Resolve Disputes by Binding Arbitration." CP at 45. It provides

that if a dispute between the parties cannot be resolved through a grievance procedure,

then, "unless expressly prohibited by applicable law," the following "shall be resolved

exclusively by binding arbitration and not by lawsuit or resort to the judicial process":

2 Thesefacts are alleged in the Amended Complaint and are not denied in the
Answer. See CP at 9-11 ~~ 16-24, CP at 241-43 ~~ 16-24 ("Ms. Woodward's chart and
medical records speak for themselves").
3 Emeritus moved to compel arbitration of Scott's wrongful death claim as well,
but has since abandoned its argument that Scott is required by the agreement to arbitrate
his claim.

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No. 32880-5-111
Woodward v. Emeritus Corp.

I,
i any action, dispute, claim or controversy of any kind, whether in contract or
in tort, statutory or common law, personal injury, property damage, legal or
t equitable or otherwise, arising out of the provision of assisted living
services, healthcare services, or any other goods or services provided under

i
I
the terms of any agreement between the Parties, including disputes
involving the scope of this Arbitration Agreement, or any other dispute
involving acts or omissions that cause damage or injury to either Party,

I
except for matters involving evictions.

I

I
ld.

Section 3 of the agreement, captioned "Arbitration Procedure," provides that

"[a]rbitrations shall be administered in accordance with the procedures in effect for

consumer arbitration adopted by the American Arbitration Association." ld. The section

then dictates the process for selection of the arbitrator, the location of the arbitration,

applicable law, responsibility for the arbitrator's fee and legal expenses, and the right to

enter the arbitration award as a judgment.

The estate did not dispute that Scott executed the arbitration agreement as

Virginia's authorized attorney-in-fact, that it was thereby an agreement of the estate, or

that the negligence and vulnerable adult claims asserted by the estate fell within the broad

scope of disputes covered by the agreement. It argued that the arbitration agreement was

unenforceable because it was both substantively and procedurally unconscionable. It

contended that the agreement was substantively unconscionable because it required each

side to pay one-half of the cost of the arbitrator, for each side to bear its own attorney

fees, and because it bound Virginia to arbitration procedures that were inappropriate for

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Woodward v. Emeritus Corp.
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i the type of dispute that later arose. It argued that the agreement was procedurally
II
unconscionable because it contained internally contradictory provisions and had been
•I

I presented for execution under circumstances amounting to fraud in the execution.

I
Finally, the estate argued that it would be futile for the court to compel arbitration

because the AAA would decline to administer its claims as a consumer arbitration.

A supporting declaration from Scott asserted he signed the arbitration agreement

during an hour-long intake meeting with the executive director of Richland Gardens,

Mindy Ross, during which she went over more than a dozen forms. He described their

discussion of the arbitration agreement as follows:

As to the arbitration agreement, 1 did not know what arbitration was so 1
asked Mindy what arbitration meant.
Mindy told me that if "we had an issue that might have legalities
involved, then we would work it out face-to-face."
Mindy then brought up the example [of a disagreement between the
Woodwards and Virginia's prior assisted living center that had prompted
the move to Richland Gardens] as an example of when this would be
applicable.
Based on this explanation, I signed the arbitration agreement under
the power of attorney for my mom.

Id. (paragraph numbers omitted).

Ms. Ross had a different version of the circumstances under which the agreement

was signed. Her declaration stated that during the admission process, Scott had executed

the arbitration agreement, and that "[p]rior to signing, I asked Mr. Woodward ifhe had

any questions or concerns regarding the Arbitration Agreement, and he stated that he did

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Woodward v. Emeritus Corp.

not." CP at 38. She also pointed out that the arbitration agreement includes an '" opt out

provision'" under which it may be revoked by written notice delivered to Richland

Gardens by certified mail within 15 days of signature and that Emeritus's business

records contained no revocation of the agreement. Id.

A hearing on the cross motions for an evidentiary hearing and to compel

I arbitration was held on October 24. Although Emeritus had opposed the motion for an

evidentiary hearing, the trial court informed the parties' lawyers at the outset of the

I
i
hearing that "I really only ... need argument on the motion to compel arbitration. That

I will probably resolve the other." Report of Proceedings (RP) at 3. After hearing

I argument, the trial court summarily denied the motion to compel arbitration, stating, "I'm

not going to compel arbitration, I don't think it's appropriate." RP at 19. Emeritus
I
appeals.
I

ANALYSIS

We can affirm the trial court's order denying the motion to compel arbitration on

any basis supported by the record. LaMon v. Butler, 112 Wn.2d 193,200-01,770 P.2d

1027 (1989). Of the many issues raised in the parties' briefs on appeal, we find two to be

dispositive.

First, it was foreseeable and is undisputed that the AAA would decline to

administer the parties' dispute as a consumer arbitration, in which event its Consumer

Arbitration Rules permit the estate to pursue its claims in court. Under the

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Woodward v. Emeritus Corp.
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I circumstances, an order compelling arbitration would be futile. Second, and

alternatively, we find the agreement to arbitrate to be substantively unconscionable given

the nature of the estate's claims.

We begin with an overview of the Consumer Arbitration Rules and the parties'

agreement, next address applicable federal and state law including the standard of review,

and then tum to the two alternative bases on which we affirm the trial court.

I
I. The AAA Consumer Arbitration Rules and the Parties' Agreement

I The provision of the parties' arbitration agreement that governs the procedure to

I
be followed in arbitrating any dispute states in its entirety:

Arbitration Procedure. Arbitrations shall be administered in accordance
with the procedures in effect for consumer arbitration adopted by the
American Arbitration Association. Arbitrations shall be conducted by a
single arbitrator agreed to by the Parties. If the Parties cannot agree upon
an arbitrator, each Party shall select a nominator, who must be engaged in
the practice of professional arbitration. The two nominators shall appoint a
third arbitrator who will act as the single arbitrator.

Arbitrations will be held at an agreed upon location, or in the absence of
such agreement, at the Community. The dispute will be governed by the
laws of the state in which the Community is located. The arbitrator's fee
shall be shared equally by the Parties. Each Party shall be responsible for
its own legal fees. Any award by the arbitrator may be entered as a
judgment in any court having jurisdiction.

CP at 45-46.

Emeritus moved to compel arbitration in October 2014. At that time, the

"procedures in effect for consumer arbitration adopted by the American Arbitration

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Woodward v. Emeritus Corp.

Association" were the AAA's Consumer Arbitration Rules ("the Rules") as amended and

effective September 1,2014. CP at 45,231-37. Since the parties filed only partial copies

of the Rules, we rely hereafter on the complete set of the Rules available at https:llwww.

adr.org/aaalShowProperty?nodeId=/UCM/ADRSTAGE2021425&revision=latestreleased

(last visited on January 14,2016).

The first of the Rules, R-l, governs when they will be applied by the AAA. At

R-l(a), (3) and (4), the Rules provide that if the parties have entered into a "consumer

agreement" within the meaning ofthe Rules, the AAA will treat the Rules as a part of

their arbitration agreement when the parties have provided for arbitration by the AAA

and either did not specify a particular set of rules or specified a different set of rules. In

making an independent determination of which of its rules should apply to a dispute, the

AAA applies the Rules only to disputes arising under a "consumer agreement," which the

Rules define as

an agreement between an individual consumer and a business where the
business has a standardized, systematic application of arbitration clauses
with customers and where the terms and conditions of the purchase of
standardized, consumable goods or services are non-negotiable or primarily
non-negotiable in most or all of its terms, conditions, features, or choices.
The product or service must be for personal or household use.

R-l at 9. The Rules list the following contracts as examples of agreements that typically

meet the criteria for a consumer agreement: credit card agreements, telecommunications

agreements, leases; automobile and manufactured home purchases, finance agreements;

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Woodward v. Emeritus Corp.

home inspection contracts, pest control services; moving and storage contracts,

warranties~ legal funding, health and fitness club membership agreements~ travel services,

insurance policies, and private school enrollment agreements. R-l at 9-10.

II Examples of contracts that "typically do not meet the criteria for application of

these Rules~ should the contract contain an arbitration provision, include, but are not
1
I limited to": home construction and remodeling contracts, real estate purchase and sale

II agreements, condominium or homeowner association by-laws, business insurance

policies, commercial loan and lease agreements, and commercial guaranty agreements.
I
~ R-I at 10.
I

I Emeritus does not contend that a contract under which it provides assisted living

services to an elderly patient under an individualized personal care plan falls within the

I AAA's definition ofa "consumer agreement." But it points out that just because the

I! AAA might not view an agreement as a "consumer agreement" within the meaning of the

Rules does not mean that parties cannot select the Rules as those that will govern

arbitration of future disputes under a different sort of agreement. R-I(a) provides that:

The parties shall have made these Consumer Arbitration Rules ("Rules") a
part of their arbitration agreement whenever they have provided for
arbitration by the American Arbitration Association ("AAA"), and
1) have specified that these Consumer Arbitration Rules shall apply.

R-l(a) at 9 (alterations in original). '" If the parties to a contract clearly and

unequivocally incorporate by reference into their contract some other document, that

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document becomes part of their contract.'" Nail v. Consolo Res. Health Care Fund I, 155

Wn. App. 227, 232, 229 P.3d 885 (2010) (quoting Satomi Owners Ass 'n V. Satomi, LLC,

167 Wn.2d 781,801,225 P.3d 213 (2009)). The parties' agreement in this case

effectively incorporates the Rules by reference, thereby making them a part of the parties'

contract. Whether the estate can successfully resist enforcement of the parties' contract

on the basis of substantive unconscionability is a different issue, which we address later

in the opinion.

The Rules presumptively provide for extremely limited discovery: "If any party

asks or if the arbitrator decides on his or her own ... the arbitrator may direct (1) specific

documents and other information to be shared between the consumer and business, and

(2) that the consumer and business identify the witnesses, if any, they plan to have testify

at the hearing." R-22(a) at 20. Exhibits are required to be shared between the parties at

least five business days before the hearing, unless the arbitrator sets a different exchange

date. R-22(b) at 20. Otherwise, R-22(c) provides:

No other exchange of information beyond what is provided for in section
(a) above is contemplated under these Rules, unless an arbitrator

determines further information exchange is needed to provide for a

fundamentally fair process.

R-22(c) at 20. This provision is subject to the general command of the rule that the

arbitrator "keep[] in mind that arbitration must remain a fast and economical process."

R-22(a) at 20.

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The Rules limit motion practice. Dispositive motions may be filed only if the

arbitrator determines that the moving party has shown substantial cause that the motion is

likely to succeed. R-33 at 2S. Nondispositive motions may only be filed with the

arbitrator's permission after the party first presents the issue in a conference call. R-24

at 2l. The hearing of the arbitration "generally will not exceed one day," with an

exception if "good cause" is shown. R-32(d) at 24.

Unlike other commonly used rules promulgated by the AAA that compensate

arbitrators at their stated rates, the Rules dictate an arbitrator compensation rate of $1 ,SOO

per day. Compare R-S(a) at 14 ("[a]rbitrators serving under these Rules shall be

compensated at a rate established by the AAA") and Rules at 34 (Costs of Arbitration,

establishing $1,SOO per day as the rate) with the AAA's Commercial Arbitration Rules

and Mediation Procedures,4 R-SS(a) at 30 (an arbitrator shall be compensated at a rate

consistent with his or her stated rate of compensation); the AAA's Construction Industry

Arbitration Rules and Mediation Procedures,S R-S7(a) at 36 (same); the AAA's

4 https:llwww.adr.org/aaalShowProperty?nodeId=IUCMlADRSTG_004103&
revision=latestreleased (rules amended and effective October 1,2013) (last visited Jan.
14,2016).
5 https:llwww.adr.org/aaalShowProperty?nodeId=IUCMlADRSTG_004219&
revision=latestreleased (rules amended and effective July 1, 20 IS) (last visited Jan. 14,
2016).

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Employment Arbitration Rules and Mediation Procedure,6 Rule 44 at 30 (an arbitrator

shall charge a rate consistent with his or her stated rate of compensation, subject to AAA

involvement in setting an appropriate rate in the event of disagreement); and the AAA

Labor Arbitration Rules,7 Arbitrator Compensation provision, at 20 (arbitrator

compensation shall be in accordance with the fee structure disclosed in the arbitrator's

profile).

Apparently to safeguard against misuse of the simplified, expedited, and thereby

inexpensive procedure for consumer disputes that they make available, the Rules

explicitly provide that the AAA will administer a consumer dispute only if "the AAA

reviews the parties' arbitration agreement and if the AAA determines the agreement

substantially and materially complies with the due process standards of these Rules and

the Consumer Due Process Protocol." R-l(d) at 10 (alteration in original). If, upon

review, a business's agreement does not meet those standards, "either party may choose

to submit its dispute to the appropriate court for resolution." ld.

It is unclear which of the Rules the AAA views as creating material due process

standards. But Emeritus's agreement modifies the Rules in only two respects that we

6 https://www.adr.org/aaaJShowProperty?nodeId=IUCMlADRSTG_ 004362&
revision=latestreleased (rules amended and effective November 1,2009; fee schedule
amended and effective Jan.I, 2016) (last visited Jan. 14,2016).
7 https://www.adr.org/aaaJShowProperty?nodeId=IUCMlADRSTAGE20 12805&
revision=latestreleased (rules amended and effective July 1,2013; fee schedule amended
and effective March 15,2015) (last visited Jan. 14,2016).

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No. 32880-5-III

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believe the AAA might view as having material implications. First, under the Rules, the

business is to bear all of the costs of arbitration (filing fee, hearing fee, and arbitrator

compensation) unless the consumer initiates the arbitration, in which case the consumer

is responsible for only a $200 filing fee. R-4 and R-5(c) at 13-14 (both incorporating the

"Costs of Arbitration" section beginning on page 33 of the Rules). Emeritus's

agreement, by contrast, provides that "[t]he arbitrator's fee shall be shared equally by the

Parties." CP at 46. 8

Second, under the Rules, "[t]he arbitrator may grant any remedy, relief, or

outcome that the parties could have received in court, including awards of attorney's fees

and costs, in accordance with the law(s) that applies to the case." R-44(a) at 28. In the

case of the estate's vulnerable adult claim, that could include recovery of its attorney fees

and costs. RCW 74.34.200(3). Emeritus's agreement, by contrast, provides, "Each party

shall be responsible for its own legal fees." CP at 46.

It is also unclear which provisions of the Consumer Due Process Protocol the

AAA would regard as creating material standards in determining whether it will

administer a consumer arbitration. Among those that we believe might be of concern in

this case are the requirement of Principle 2 of the protocol that

8 The estate has abandoned any argument on appeal that the arbitrator fee-sharing
term is substantively unconscionable.

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1

II [p ]roviders of goods or services should undertake reasonable
measures to provide Consumers with full and accurate information
regarding Consumer ADR Programs. At the time the Consumer contracts
for goods or services, such measures should include ... reasonable means
by which Consumers may obtain additional information regarding the ADR

I Program.

CP at 329. A related requirement of Principle 11 of the protocol provides:
J

I Consumers should be given:

I a. clear and adequate notice of the arbitration provision and its
I consequences, including a statement of its mandatory or
optional character; [and]
b. reasonable access to information regarding the arbitration
process, including basic distinctions between arbitration and

I court proceedings, related costs, and advice as to where they
may obtain more complete information regarding arbitration
procedures and arbitrator rosters.

CP at 331.

Finally, the AAA has a longstanding policy, adopted in 2003 and grounded in due

process concerns, that it will not administer healthcare arbitrations between individual

patients and healthcare service providers that relate to medical services, such as

negligence and medical malpractice disputes, unless all parties agree to submit the matter

to arbitration after the dispute arises. See AAA Healthcare Policy Statement, 9 The

policy is reflected in the AAA's Healthcare Due Process Protocol (Final Report July 27,

https:llwww.adr.orglcs/idcplg?IdcService=GET_FILE&dDocName= ADR
9
STAGE2024674&RevisionSelectionMethod=LatestReleased (last visited Jan. 15,2016).

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II 1998),10 which was developed in conjunction with the American Bar Association, the

II

American Medical Association, and the Commission on Health Care Dispute Resolution.

It contains those entities' unanimous recommendation that "[i]n disputes involving

patients, binding forms of dispute resolution should be used only where the parties agree
f

I
to do so after a dispute arises." Protocol at I.

While we lack the particular criteria applied by the AAA in conducting its due

I process review, the procedure that it follows is clearly set forth in the Rules. R-l (d)

I provides:

The AAA will accept cases after the AAA reviews the parties' arbitration

agreement and if the AAA determines the agreement substantially and
materially complies with the due process standards of these Rules and the
Consumer Due Process Protocol.

R-l(d) at 10 (alteration in original).

R-12 provides a process for advance review of arbitration provisions in consumer

agreements. If a business's arbitration provision is approved through the advance review

process, the business will be included in a publicly accessible Consumer Clause Registry

as a business whose consumer disputes the AAA will administer. If a business has not

10https:llwww.adr.orglcs/idcplg?IdcService=GET_FILE&dDocName=
ADRSTAGE2025859&RevisionSelectionMethod=LatestReleased (final report July 27,
1998) (last visited Jan. 15, 2016).

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obtained advance review and a consumer arbitration is then filed with the AAA, the

Rules provide that

the AAA will conduct an expedited review at that time. Along with any
other filing fees that are owed for that case, the business also will be
responsible for paying the nonrefundable review and Registry fee
(including any fee for expedited review at the time of filing) for this initial
review, which is detailed in the Costs of Arbitration section found at the
end of these Rules. The AAA will decline to administer consumer
arbitrations arising out of that arbitration agreement if the business declines
to pay the review and Registry fee.

R-12 at 16.

II. Applicable Law and Standard ofReview

Under the Federal Arbitration Act (FAA), 9 U.S.c. §§ 1-16,11 arbitration

agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at

law or in equity for the revocation of any contract." 9 U.S.c. § 2. Washington's

arbitration law contains a nearly identical provision. See also RCW 7.04A.060(l) ("An

agreement contained in a record to submit to arbitration any existing or subsequent

controversy arising between the parties to the agreement is valid, enforceable, and

irrevocable except upon a ground that exists at law or in equity for the revocation of

contract."). "[B]oth state and federal law strongly favor arbitration and require all

11 The parties' arbitration agreement provides that it "shall be governed by and
interpreted under the [FAA]." CP at 46. It provides that "the dispute will be governed by
the laws of the state in which [Emeritus at Richland Gardens] is located." ld. (emphasis
added).

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presumptions to be made in favor of arbitration." Gandee v. LDL Freedom Enters., Inc.,

176 Wn.2d 598, 603, 293 P.3d 1197 (2013) (citing Zuver v. Airtouch Commc 'ns, Inc.,

153 Wn.2d 293,301, 103 P.3d 753 (2004».

"Although federal and state courts presume arbitrability, 'generally applicable

I
I
contract defenses, such as fraud, duress, or unconscionability may be applied to

invalidate arbitration agreements without contravening [9 U.S.C.] § 2. ", Adler v. Fred

I Lind Manor, 153 Wn.2d 331, 342,103 P.3d 773 (2004) (quoting Doctor 's Assocs., Inc.

Casarotto, 517 U.S. 681,687,116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996». In
v.

Washington, either substantive or procedural unconscionability is sufficient to invalidate

acontract. Gandee, 176 Wn.2dat603 (citing Adler, 153 Wn.2dat347).

'" Substantive unconscionability involves those cases where a clause or term in the

contract is alleged to be one-sided or overly harsh.'" Zuver, 153 Wn.2d at 303 (quoting

Schroeder v. Fageol Motors, Inc., 86 Wn.2d 256,260,544 P.2d 20 (1975»; Torgerson v.

One Lincoln Tower, LLC, 166 Wn.2d 510,519,210 P.3d 318 (2009). "Procedural

unconscionability is 'the lack of a meaningful choice, considering all the circumstances

surrounding the transaction including [t]he manner in which the contract was entered,

whether the party had a reasonable opportunity to understand the terms of the contract,

and whether the important terms [were] hidden in a maze of fine print.'" Adler, 153

Wn.2d at 345 (alterations in original) (internal quotation marks omitted) (quoting Nelson

v. McGoldrick, 127 Wn.2d 124,131,896 P.2d 1258 (1995».

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Woodward v. Emeritus Corp.

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I "Severance is the usual remedy for substantively unconscionable terms, but where

such terms 'pervade' an arbitration agreement, [this court] 'refuse[s] to sever those

provisions and declare[s] the entire agreement void.'" Gandee, 176 Wn.2d at 603

I (quoting Adler, 153 Wn.2d at 358). Stated differently, when severance will "significantly

alter both the tone of the arbitration clause and the nature of the arbitration contemplated

I

by the clause," the appropriate remedy is to invalidate the entire agreement. Id. at 607.

When a motion to compel arbitration is not resolved by trial and fact finding by

the court, the appropriate standard of review is de novo. Neuson v. Macy's Dep 't Stores,

Inc., 160 Wn. App. 786, 792-93, 249 PJd 1054 (2011). The party opposing arbitration

bears the burden of showing that the agreement is not enforceable. Gandee, 176 Wn.2d

at 602-03. 12

12 The estate asks us to construe the trial court's ruling as based in part on implicit
fact-finding. It argues that in resisting its motion for an evidentiary hearing, Emeritus
conceded Scott's version of the circumstances under which the arbitration agreement was
signed or, in any event, invited the court to make factual findings on the basis of the
parties'declarations. It argues the court's ruling reflects an implicit finding of procedural
unconscionability that we should review for substantial evidence in the written
submissions.
We reject the estate's characterization' of Emeritus's position in the trial court.
Emeritus argued that because Scott could not justifiably rely on Ms. Ross's alleged
representation as a matter oflaw, no evidentiary hearing was necessary. There is no
indication that the trial court engaged in fact finding in denying the motion to compel
arbitration nor would it have been proper for it to resolve disputed material facts on the
basis of declarations. Inany event, since we do not base our decision on the estate's
argument of fraud in the execution, the dispute proves to be moot.

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Woodward v. Emeritus Corp.

III. The Trial Court Properly Refused to Compel Arbitration

A. Futility
i
i In the trial court and on appeal, the estate has argued that in applying the Rules,

the AAA or the arbitrator will necessarily decline to administer arbitration of its dispute

I with Emeritus and will permit it to pursue its claims in court. It contends that for us to

reverse the trial court and compel arbitration will be futile. Br. of Resp't at 43. For its

part, Emeritus concedes that the AAA will be "prevent[ed]" from administering the

parties' arbitration by the 2003 Healthcare Policy Statement. Reply Br. at 15. At oral

argument, Emeritus's counsel reported that it has not yet submitted a demand for

arbitration to the AAA.13

According to Emeritus, the AAA's foreseeable refusal to administer an arbitration

under the parties' agreement is not an obstacle to arbitration, because "the Agreement

requires that the arbitration be administered 'in accordance with' AAA' s rules-not that

it be administered by AAA." Id. According to Emeritus, "this Court and numerous other

courts have held that the inability of AAA to administer health care disputes will not

invalidate an arbitration agreement nor will it preclude the parties' chosen arbitrator from

using AAA's rules." Id.

13 Wash. Court of Appeals oral argument, Woodwardv. Emeritus Corp., No.
32880-5-III (Sept. 10, 2015) at 21 min., 7 sec. through 21 min., 20 sec. (on file with the
court).

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Woodward v. Emeritus Corp.

There are two facets to Emeritus's argument that the AAA need not administer the

arbitration: an argument that AAA administration is not required by the parties'

agreement, and an argument that if an agreed administration fails, the courts have

statutory authority to substitute another process.

We address the contract-based argument first. Emeritus relies on Gandee, in

which a debt adjustment business, LDL, sought to enforce an arbitration agreement that

provided, '" All disputes or claims between the parties related to this Agreement shall be

submitted to binding arbitration in accordance with the rules of [the] American

Arbitration Association within 30 days from the dispute date or claim.'" 176 Wn.2d at

602 (alteration in original). In response to the consumer's argument that the arbitration

agreement was substantively unconscionable based on the cost of arbitrating through the

AAA, LDL argued that its clause "does not require arbitration with the AAA but only

that the rules of the AAA be followed." Id. at 605. While the court responded, "This

assertion appears correct," it then quickly rejected LDL's attempted rebuttal of the

consumer's evidence, since LDL failed to present any evidence of the cost of an

alternative forum. Id.

The statement, "This assertion appears correct," is dicta. It addressed an assertion

that was not disputed in the Supreme Court and that bore on an argument that was easily

rejected on other grounds. The court did not engage in any examination of whichever

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Woodward v. Emeritus Corp.

AAA rules applied. There is also no suggestion that the case involved the Rules at issue

in this case.

Provisions of the Rules directly contradict Emeritus's argument that the parties'

dispute need not be administered by the AAA. R-l(b) provides that "[w]hen parties

agree to arbitrate under these Rules, or when they provide for arbitration by the AAA and

an arbitration is initiated under these Rules, they thereby authorize the AAA to administer

the arbitration." (Emphasis added.) While the Rules provide that the consumer and the

business may agree to change the Rules, "they must agree in writing." R-l(c) at 10.

Nothing in Emeritus's agreement changes the AAA's authorized administration of the

arbitration under R-1(c) by withholding administration authority from the AAA.

The parties' agreement does not provide for administration by someone other than

the AAA. When asked at oral argument of the appeal who would be the administrator if

not the AAA, Emeritus's counsel suggested that the arbitrator could serve as the

administrator. 14 But the parties' agreement says nothing that amounts to "the arbitrator

shall also serve as administrator." Under the Rules, the "administrator" and the

"arbitrator" are distinct and have different responsibilities. The Glossary of Terms

appearing at the end of the Rules define them separately, providing, in part, that "[t]he

Wash. Court of Appeals oral argument, Woodward v. Emeritus Corp., No.
14
32880-5-III (Sept. 10,2015) at 28 min., 21 sec. through 29 min., 00 sec (on file with the
court).

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No. 32880-5-II1

Woodward v. Emeritus Corp.

Administrator's role is to manage the administrative aspects of the arbitration," while

arbitrators "are neutral and independent decision makers who are not employees of the

administrator." Rules at 39-:-40. Emeritus is the author of the agreement, which, if

ambiguous, must be construed against it. Mendez v. Palm Harbor Homes, Inc., III Wn.

App. 446, 459, 45 P.3d 594 (2002). To contend that the arbitrator will serve as both

arbitrator and administrator is to read something into the agreement for which there is no

textual support whatsoever. The AAA is the only administrator contemplated by the

parties' agreement and its incorporated Rules.

And whoever serves as administrator, the parties' arbitration will not be

"administered in accordance with the procedures in effect for consumer arbitration

adopted by the [AAA]," CP at 45, unless that administrator reviews whether Emeritus's

arbitration agreement substantially and materially complies with the due process

standards of the Rules and the Consumer Due Process Protocol-failing which,

administration under the Rules should be declined and the parties should be permitted to

submit the dispute to court. R-I(d) at 10. The parties' agreement does not waive due

process review. Again, to change the Rules' requirement for due process review, the

"[parties] must agree in writing." R-l(c) at 10.

F or the second facet of its argument-that if the AAA declines to administer, the

court may substitute another administrator-Emeritus relies on Nail, 155 Wn. App. 227.

The parties in that case had agreed that their arbitrators "shall apply the applicable rules

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No. 32880-5-III

Woodward v. Emeritus Corp.

of procedure of the AAA." Id. at 230. It is evident that Nail did not involve the AAA's

consumer rules. IS This court held that under the agreement at issue in that case, "the

method of choosing arbitrators was specified," but "the agreement did not require

exclusive AAA administration." Id. at 230. Because the method of selecting arbitrators

failed, the court applied RCW 7.04A.110(1), which authorizes a court to appoint a

substitute arbitrator when the appointed arbitrator fails or is unable to act. 16

This case is distinguishable because the Rules incorporated in the agreement

between Emeritus and the estate (and thereby a part of their agreement) dictate a different

result. In promulgating the Rules, which create a simplified, expedient, and inexpensive

process for the resolution of consumer disputes, the AAA included a process by which it

could protect consumers from being subjected to unsuitable rules where an agreement

substantially and materially violated its due process standards. And it explicitly provided

what would happen if it found a due process-offending agreement to arbitrate:

IS The decision states that the parties' agreement "did not require exclusive AAA
administration," whereas the Rules do; the decision also states, "Notably, AAA did not
legislate its policy statement into a specified rule of procedure, whereas the AAA did
legislate a due process review process into the Rules. Nail, 155 Wn. App. at 234;
compare R-l(b) at 10 (authorizing the AAA to administer the arbitration) and R-l(d) at
10 (providing for AAA' s due process review).
16 Also at issue in Nail was whether the AAA's 2003 Healthcare Policy Statement
was a "rule of procedure" of the AAA, such that the arbitrators would be bound to apply
it and reject any arbitration agreement that was not a postdispute arbitration agreement.
This court held that the policy statement was not a "rule of procedure." Id. at 234.

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I
I No. 32880-5-III
i Woodward v. Emeritus Corp.

I Should the AAA decline to administer an arbitration, either party may

II choose to submit its dispute to the appropriate court for resolution.

R-l(d) at 10 (emphasis added). This is not an instance in which the arbitration method

II failed, leaving the parties without any agreed substitute process for resolving their

I dispute. This is an instance in which the Rules expressly provide that if the AAA
i
I concludes that arbitration will not afford due process, then either party is free to litigate.

I Where freedom to litigate was the agreed alternative, the trial court properly denied the

motion to compel arbitration.

B. Substantive unconscionability

I Alternatively, we hold that the agreement is substantively unconscionable as

applied to the estate's negligence and vulnerable adult claims. When arbitration is

resisted on the basis of unconscionability, '" [t]he existence of an unconscionable bargain

is a question of law for the courts.'" Mendez, 111 Wn. App. at 458 (quoting Nelson, 127

Wn.2d at 131). It is an issue that courts approach both in law and equity, exercising the

power to prevent enforcement of a legal right when to do so would be inequitable under

the circumstances. ld. at 460 (citing Thisius v. Sealander, 26 Wn.2d 810, 818, 175 P.2d

619 (1946)).

First, the arbitration agreement provides that, "[ e]ach party shall be responsible for

. its own legal fees." CP at 46. Washington cases hold that such a provision is

substantively unconscionable when it effectively undermines a plaintiffs statutory

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 1
J
!l
I
i
!
j
j No. 32880-5-III
I Woodward v. Emeritus Corp.

I entitlement to an award of attorney fees. Adler, 153 Wn.2d at 355. It would effectively
I undercut the estate's right to attorney fees ifit prevails on its claim asserted under RCW
I
i 74.34.200(3). Emeritus does not explicitly concede that the attorney fees term is
~
I unconscionable, but it suggests that it should be severed.

I Second, while the parties were free to contract for arbitration under the Rules, the

Rules are inherently unsuited to the nature and complexity of the estate's claims.
I Emeritus cites Gilmer v. Interstate/Johnson Lane Corp., in which the Supreme Court

I
!
observed that "by agreeing to arbitrate, a party 'trades the procedures and opportunity for

review of the courtroom for the simplicity, informality, and expedition of arbitration.'"

500 U.S. 20, 31, IllS. Ct. 1647, 114 L. Ed. 2d 26 (1991) (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S. Ct. 3346, 87 L. Ed. 2d

444 (1985)). But while some arbitral limitations on the procedures and opportunities that

would be available in "the courtroom" are to be expected and do not result in an

agreement that is overly harsh, others can-and the Rules, as applied to healthcare

personal injury claims, do.

The Rules were designed for simple business disputes: they presume that the

arbitration will be completed in one day, that the only discovery to be ordered will be

specific documents and information directed by the arbitrator along with witness

identification, and that it will be sufficient for the parties to exchange exhibits five days

26

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I
I No. 32880-5-III

Woodward v. Emeritus Corp.

iI before the hearing. They cap the arbitrator's compensation at $1,500 per day-for an

eight hour hearing day, that is less than $200 per hour.

The estate supported its argument that these procedures were inappropriate with

two declarations, the first being that of Lesley Ann Clement, a California lawyer who

prepared the declaration in support of an award of fees and costs against Emeritus in an

unrelated action. While much of her declaration is irrelevant, it does establish her

considerable experience with elder abuse litigation and describes relevant discovery

needs when pursuing claims such as the estate's:

[I]t is crucial to uncover the "why" of the neglect-that is, the underlying
factors and policies that led to the client's injury and/or death. This
requires multiple rounds of written discovery and depositions (necessitating
motions to compel) to investigate the facility's staffing, training,
supervision, and budgeting, among other things .... [T]here is often
extremely high turnover among care giving staff at long-term care facilities.
Learning details about the facility's operations during the client's stay is
not a simple matter of serving deposition notices; rather, former staff must
be located, interviewed and/or subpoenaed.

CP at 339. It also asserts that in Ms. Clement's litigation against Emeritus, "Plaintiffs

were forced to file at least fourteen successful motions to compel, and were awarded

more than $16,000 in sanctions." CP at 341. While this does not suggest that Emeritus

would resist reasonable discovery in this Washington dispute nor reflect in any way on its

Washington lawyers, it is evidence that a California court recognized that the opportunity

for adequate discovery is important in an elder abuse action.

27

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J

II No. 32880-5-III
Woodward v. Emeritus Corp.

The estate also submitted the declaration of a Kennewick lawyer, Francois

Forgette, who had "regularly served as a mediator or arbitrator in civil disputes since

approximately 1995." CP at 381. He testified that his stated rate as an arbitrator is $325

to $350 per hour, and expressed the opinion, based on his experience as an arbitrator in

the Tri-Cities and the Central Washington region, that

the proposal of a flat arbitrator's fee of $1 ,500 per day ... is likely
unreasonable and is less likely to result in the selection of a mutually
agreeable and qualified arbitrator. This would particularly hold true where
the case at issue is neither routine, nor simple. The flat fee arrangement
described appears only suitable for small collection or other such civil
disputes. An experienced and qualified arbitrator is unlikely to consent to
such a flat fee arrangement if the matter is likely complex, will require
extended prep or a long hearing, or will take careful consideration to
complete and draft the decision.

CP at 381.

Emeritus's response is that the arbitrator can reject the presumptions about the

amount of discovery and the length of the hearing and even 'jettison [the] rules

altogether." Br. of Appellant at 15 (citing Rule R-l (e) at 11, under which, if the AAA

makes the decision to apply the consumer rules, either party may object, and "the

arbitrator shall have the authority to make the final decision on which AAA rules wili

apply"). But the fact remains that the Rules to which the parties agreed, and the

presumptions and standards that the Rules provide-that the process remain "fast and

economical," R-22 at 20; that more than minimal discovery be ordered only if "needed to

provide a fundamentally fair process," R-22(c) at 20; and that a hearing extend beyond a

28

No. 32880-5-III

Woodward v. Emeritus Corp.

day only for "good cause," R-32( d) at 24~are unsuitable for the types of claims asserted

by the estate, as the AAA itself recognizes. And it is not enough to argue, as Emeritus

does, that it will be equally disadvantaged by the limitations of the Rules. It is

foreseeable that most ofthe relevant evidence is in the possession of Emeritus and its

present and past employees, not the estate. And the estate bears the burden of proof.

Emeritus also argues that the $1,500 daily fee for the arbitrator only "applies to

AAA-administered arbitrations, for arbitrators appointed from AAA's National Roster."

Reply Br. at 15. Nothing in the parties' agreement or the Rules supports that assertion.

The Rules contemplate arbitrators might or might not be appointed from the AAA's

national roster-they allow parties to identifY their own arbitrator or agree on a process

for identifYing an arbitrator that does not rely on the roster. R-16(a) at 18. Whether the

arbitrators are appointed from the AAA's national roster or not, the Rules provide that

"[a]rbitrators serving under these Rules shall be compensated at a rate established by the

AAA" and "be paid in accordance with the Costs of Arbitration section found at the end

of these Rules." R-5(a), (c) at 14. The Costs of Arbitration section provides at its

paragraph (ii) at 34, "Arbitrators serving on a case with an in-person or telephonic

hearing will receive compensation at a rate of $1500 per day." No distinction is made in

any of these provisions between national roster arbitrators or privately-selected

arbitrators. Nowhere do the rules provide that an arbitrator can be paid at his or her

stated rate.

29
 No. 32880-5-III

Woodward v. Emeritus Corp.

Considering all, it is understandable why the AAA reserved the authority under

the Rules to decline administration and leave the parties to litigate. Inappropriate terms

pervade the Rules as applied to the estate's claims, in addition to the substantively

unconscionable attorney fee's provision. For this additional reason, arbitration should

not be compelled.

Affirmed.

WE CONCUR:

~~~
CJ
. B wn,1. I

j

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