### FILED FEBRUARY 9, 2016 In the Office ofthe ClerkofCourt W A StateCourtofAppeals, Division III

INTHE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION THREE

SCOTTWOODWARD, as thePersonal ) Representative oftheESTATE OF ) VIRGINIAMAYWOODWARD, SCOTT ) WOODWARD, in his individual capacity, ) and CHRISTINE WOODWARD, in her ) individual capacity, ) ) Respondents, ) ) v. ) ) EMERITUS CORPORATION, a ) Washington corporation, BROOKDALE ) SENIORLIVING COMMUNITIES, ) INC., a Delawarecorporation, FATIMAH ) AWAD andJOHNDOEAWAD, a ) marital community, MINDYROSS and ) JOHNDOEROSS, a marital communitY, ) JOHNANDJANE DOES 1-10, ) ) Appellants. ) No. 32880-5-III

PUBLISHED OPINION

SIDDOWAY, C.J. Emeritus Corporation, its affiliate, and two employees appeal the denial oftheirmotion to compel arbitration ofclaims for negligence and violation of Washington's Vulnerable Adult Statute (RCW 74.34.200) brought against themby ScottNo. 32880-5-III Woodwardv. Emeritus Corp. Woodward, as personal representative ofthe estate ofhis late mother, Virginia May Woodward. Acting as his mother's attorney-in-fact, Mr. Woodward had signed a predispute arbitration agreementwith 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 ofthe parties' agreement that "[a]rbitrations shall be administered in accordance with the procedures in effect for

consumer arbitration adopted bythe American Arbitration Association [AAA]." Clerk's Papers (CP) at 45. The relevant procedures adopted by the AAA contemplate thatthe AAA will administerthe arbitration, andthat a thresholdprocedural step will be for the AAA to reviewthe agreement ofthe parties in orderto determine whether it substantially and materially complies with the AAA's due process standards. Ifitdoes not, the AAA will decline to administer the arbitration and "eitherparty may choose to submit its dispute to the appropriate court for resolution." CP at 321. The AAA canbe expectedto decline to administer arbitration ofthe dispute between the estate and Emeritus and its codefendants (hereafter collectively "Emeritus"). While Emeritus argues thattheparties' arbitration can be administered by someone else, the plain language ofthe AAA's ConsumerArbitration Rules (unmodified in this respect by the parties' agreement) requires AAA administration-evidently so thatthe AAA can apply the fast and simple procedure provided by the consumer rules to only those cases 2

# i

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# I 

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# 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, whichwould have been futile given the undisputed expectation that the AAAwould decline to administer arbitration ofthe estate's claims. Alternatively, we find the agreement substantively unconscionable given the nature ofthe claims. We affirm. FACTS AND PROCEDURAL BACKGROUND In 2012, Scott Woodward, acting as the attorney-in-fact ofhis mother, Virginia Woodward, signed paperwork providing for his mother's admission, residence and care atRichland Gardens, an assisted living facility owned and operated by Emeritus Corporation. Amongthe admissions paperwork signedby 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 staffmember executing a "one-person assist," contrary to a personal careplan for Virginia that required "two-person assists" whenever she was being moved. When dropped the second time, Virginia broke her hip. She died three

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



### 3No. 32880-5-III Woodwardv. Emeritus Corp.

months later.2 Her death certificate lists the broken hip as a contributing cause ofdeath. Christine Woodward, Virginia's daughter, and Scott, individually and as the personal representative ofhis mother's estate, filed suit against Emeritus. The estate asserted claims for negligence and for elder abuse in violation ofWashington's Vulnerable Adult Statute, RCW 74.34.200. Scott and Christine asserted claims for wrongful death. Emeritus filed a motionto compel arbitration ofthe estate's claims, relying on the predispute arbitration agreement signedby 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 "Agreementto Resolve Disputes by BindingArbitration." CP at 45. Itprovides that ifa dispute betweenthe parties cannot be resolved through a grievanceprocedure, then, "unless expressly prohibited by applicable law," the following "shall be resolved exclusively bybinding arbitration and not by lawsuit orresort to thejudicialprocess":

2These facts 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"). 3Emeritus moved to compel arbitration ofScott's wrongful death claim as well, buthas since abandoned its argument that Scott is required bythe agreement to arbitrate his claim.

4

# I No. 32880-5-111 Woodwardv. Emeritus Corp. I 

## I ,**~** any action, dispute, claim or controversy ofany kind, whether in contract or 

### i in tort, statutory or common law, personal injury, property damage, legal or 

## t 

# i equitable or otherwise, arising out ofthe provision ofassisted living services, healthcare services, or any other goods or servicesprovided under the terms ofany agreement between the Parties, including disputes involving the scope ofthis Arbitration Agreement, or any other dispute I 

# I involving acts or omissions that cause damage or injury to either Party, except for matters involving evictions. 

# I ld. I Section 3 ofthe 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 ofthe arbitrator, the location ofthe arbitration, applicable law, responsibility for the arbitrator's fee and legal expenses, andthe right to enter the arbitration award as ajudgment. The estate did not dispute that Scott executed the arbitration agreement as Virginia's authorized attorney-in-fact, that it was thereby an agreement ofthe estate, or that the negligence and vulnerable adult claims asserted by the estate fell within the broad scope ofdisputes covered bythe agreement. It argued that the arbitration agreement was unenforceable because it was both substantively and procedurally unconscionable. It contended thatthe agreement was substantively unconscionable because it required each side to pay one-halfofthe cost ofthe arbitrator, for each side to bear its own attorney fees, and because it bound Virginia to arbitration procedures that were inappropriate for


### 5

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# I i No. 32880-5-111 

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# I i**~** the type ofdispute that later arose. It argued that the agreementwas procedurally 

## I unconscionablebecause 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 courtto compel arbitration because the AAA would decline to administer its claims as a consumer arbitration. A supporting declaration from Scott asserted he signedthe arbitration agreement during an hour-long intake meeting with the executive director ofRichland Gardens, Mindy Ross, during which she went over more than a dozen forms. He described their discussion ofthe arbitration agreement as follows: As to the arbitration agreement, 1did not know what arbitration was so 1 asked Mindy what arbitration meant. Mindy told me that if"we had an issue that mighthave legalities involved, then we would work it out face-to-face." Mindy thenbrought up the example [ofa disagreement betweenthe Woodwards and Virginia's prior assisted living centerthat had prompted the move to Richland Gardens] as an example ofwhen this wouldbe applicable. Based onthis explanation, I signedthe arbitration agreement under the powerofattorney for my mom. 

### Id. (paragraph numbers omitted). Ms. Ross had a differentversion ofthe circumstances under which the agreement

was signed. Her declaration stated that during the admissionprocess, Scott had executed the arbitration agreement, and that "[p]riorto signing, I askedMr. Woodward ifhe had any questions orconcerns regarding the Arbitration Agreement, and he stated thathe did

6No. 32880-5-111 Woodward

### v. Emeritus Corp.

not." CP at 38. She also pointed out that the arbitration agreement includes an '"optout provision'" underwhich it may be revoked by written notice delivered to Richland Gardens by certified mail within 15 days ofsignature and that Emeritus's business records contained no revocation ofthe agreement. 

### Id. 

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

# I hearing that "Ireally only

...need argument on the motion to compel arbitration. That 

### i 

# I will probably resolve the other." Report ofProceedings (RP) at 3. Afterhearing 

# I argument, the trial court summarily denied the motion to compel arbitration, stating, "I'm not goingto compel arbitration, I don't think it's appropriate." RP at 19. Emeritus 

# I appeals. 

# I ANALYSIS We can affirm the trial court's orderdenying the motion to compel arbitration on any basis supported by the record. LaMon v. Butler, 112 Wn.2d 193,200-01,770P.2d 1027 (1989). Ofthe 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 theparties' dispute as a consumer arbitration, in which event its Consumer Arbitration Rules permitthe estate to pursue its claims in court. Under the 7

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# I I Woodward v. Emeritus Corp. 

# 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 ofthe estate's claims. We begin with an overview ofthe Consumer Arbitration Rules and theparties' agreement, next address applicable federal and state law including the standard ofreview, 

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

### I. TheAAA ConsumerArbitrationRules andthe Parties'Agreement 

# I The provision ofthe 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 conductedby a single arbitrator agreed to by the Parties. Ifthe Parties cannot agree upon an arbitrator, eachParty shall select a nominator, who mustbe engaged in the practice ofprofessional arbitration. The two nominators shall appoint a third arbitratorwho 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 ofthe state in which the Community is located. The arbitrator's fee shall be shared equally by the Parties. EachParty shall be responsible for its own legal fees. Any award by the arbitrator may be entered as a judgmentin any court havingjurisdiction. 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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Association" were the AAA's ConsumerArbitration Rules ("the Rules") as amended and effective September 1,2014. CP at45,231-37. Since the parties filed onlypartial copies ofthe Rules, werely hereafter on the complete set ofthe Rules available at https:llwww

. adr.org/aaalShowProperty?nodeId=/UCM/ADRSTAGE2021425&revision=latestreleased (last visited on January 14,2016). The first ofthe Rules, R-l, governs when they will be applied by the AAA. At R-l(a), (3) and (4), the Rules providethat iftheparties have entered into a "consumer agreement" within the meaning oftheRules, the AAA will treatthe Rules as a part of their arbitration agreement when the parties haveprovided for arbitration bythe AAA and either did not specify a particular set ofrules or specified a different set ofrules. In making an independent determination ofwhich ofits 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 wherethe business has a standardized, systematic application ofarbitration clauses with customers and where the terms and conditions ofthe purchase of standardized, consumable goods or services are non-negotiable orprimarily non-negotiable in most or all ofits terms, conditions, features, orchoices. Theproduct or service must be for personal or household use. R-l at9. The Rules list the following contracts as examples ofagreements that typically meet the criteria for a consumer agreement: credit card agreements, telecommunications agreements, leases; automobile and manufactured home purchases, finance agreements;

9No. 32880-5-111 Woodwardv. Emeritus Corp.

home inspection contracts, pestcontrol 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. 

# I Examples ofcontracts that "typically do not meet the criteria for application of these**Rules~** should the contract contain an arbitration provision, include, but are not 

# I 1 

# I limited to": home construction and remodeling contracts, real estate purchase and sale 

# I agreements, condominium orhomeowner association by-laws, business insurance 

# I policies, commercial loan and lease agreements, and commercial guaranty agreements. 

# I**~** R-I at 10. I 

# I Emeritus does not contend that a contract underwhich 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 thatjustbecause the 

# I AAA might not view an agreement as a "consumer agreement" within the meaning ofthe ! Rules does not mean that parties cannot select the Rules as those that will govern arbitration offuture disputes under a different sort ofagreement. R-I(a)provides that: The parties shall have made these ConsumerArbitrationRules ("Rules") a part oftheir arbitration agreement whenever they have provided for arbitration by the American Arbitration Association ("AAA"), and 1) have specified that these ConsumerArbitrationRules shall apply. R-l(a) at 9 (alterations in original). '"Ifthe parties to a contract clearly and unequivocally incorporate by reference into their contract some otherdocument, that

10No. 32880-5-III Woodward v. Emeritus Corp.

document becomespart oftheir contract.'" Nail v. Consolo Res. Health Care FundI, 155 Wn. App. 227, 232, 229 P.3d 885 (2010) (quoting Satomi OwnersAss '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 oftheparties' contract. Whether the estate can successfully resist enforcement ofthe parties' contract

on the basis ofsubstantive unconscionability is a different issue, which we address later in the opinion. The Rules presumptivelyprovide for extremely limited discovery: "Ifany party asks or ifthe arbitrator decides on his orher own ... the arbitrator may direct (1) specific documents and otherinformation to be shared betweenthe consumer and business, and (2) that the consumer and business identify the witnesses, ifany, 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 ofinformation 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 ofthe rule that the arbitrator "keep[] in mind that arbitration must remain a fast and economical process." R-22(a) at 20.

11No. 32880-S-II1 Woodwardv. Emeritus Corp.

The Rules limit motion practice. Dispositive motions may be filed only ifthe arbitrator determines thatthe moving party has shown substantial cause thatthe 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 ofthe 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 promulgatedbythe AAA that compensate arbitrators at their stated rates, the Rules dictate an arbitrator compensationrate of$1 ,SOO per day. Compare R-S(a) at 14 ("[a]rbitrators serving underthese Rules shall be compensated at a rate established bythe AAA") andRules at 34 (Costs ofArbitration, 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 compensatedat a rate consistent with his orher statedrate ofcompensation); the AAA's Construction Industry Arbitration Rules and Mediation Procedures,S R-S7(a) at 36 (same); the AAA's

4https:llwww.adr.org/aaalShowProperty?nodeId=IUCMlADRSTG_ 004103& revision=latestreleased (rules amended and effective October 1,2013) (lastvisited Jan. 14,2016). 5https:llwww.adr.org/aaalShowProperty?nodeId=IUCMlADRSTG

_004219& revision=latestreleased (rules amended and effective July 

### 1, 20IS) (lastvisited Jan. 14, 2016).

12No. 32880-5-III Woodwardv. Emeritus Corp. EmploymentArbitration Rules and Mediation Procedure,6 Rule 44 at 30 (an arbitrator shall charge a rate consistent with his orher statedrate ofcompensation, subject to AAA involvement in setting an appropriate rate in the event ofdisagreement); 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 ofthe simplified, expedited, and thereby inexpensive procedure for consumer disputes that they make available, the Rules explicitlyprovide that the AAA will administer a consumer dispute only if"the AAA reviews the parties' arbitration agreement and ifthe AAA determines the agreement substantially and materially complies with the due process standards ofthese Rules and the ConsumerDueProcess Protocol." R-l(d) at 10 (alteration in original). If, upon review, a business's agreement does not meet those standards, "eitherparty may choose to submit its dispute to the appropriate court for resolution." 

### ld. Itis unclear which ofthe Rules the AAA views as creating material dueprocess standards. ButEmeritus's agreement modifies the Rules in only two respects that we

6https://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). 7https://www.adr.org/aaaJShowProperty?nodeId=IUCMlADRST AGE2012805& revision=latestreleased (rules amended and effective July 1,2013; fee schedule amended and effectiveMarch 15,2015) (last visited Jan. 14,2016). 13No. 32880-5-III Woodwardv. Emeritus Corp.

believethe AAA might view as having material implications. First, underthe Rules, the business is to bear all ofthe costs ofarbitration (filing fee, hearing fee, and arbitrator compensation) unless the consumerinitiates 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 ofArbitration" section beginning onpage 33 ofthe 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, underthe Rules, "[t]he arbitrator may grant any remedy, relief, or outcome that the parties couldhave received in court, including awards ofattorney's fees and costs, in accordance with the law(s) that applies to the case." R-44(a) at 28. Inthe

case ofthe estate's vulnerable adult claim, that could include recovery ofits attorney fees and costs. RCW 74.34.200(3). Emeritus's agreement, by contrast, provides, "Eachparty shall be responsible for its own legal fees." CP at 46. Itis also unclearwhich provisions ofthe ConsumerDue Process Protocolthe AAA would regard as creating material standards in determining whether it will administer a consumer arbitration. Amongthose thatwe believe mightbe ofconcern in this case are the requirement ofPrinciple 2 oftheprotocol that

8The estate has abandoned any argument on appeal that the arbitrator fee-sharing term is substantively unconscionable. 14

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## t 

# I 

# I 1 [p]roviders ofgoods or services should undertake reasonable measures to provide Consumers with full and accurate information regarding ConsumerADRPrograms. At the time the Consumer contracts 

# I for goods or services, such measures should include

...reasonable means by which Consumers may obtain additional information regarding the ADR Program. CP at 329. A related requirement ofPrinciple 11 ofthe protocol provides: J 

### I Consumers should be given: 

# I a. clear and adequate notice ofthe arbitration provision and its 

# I consequences, including a statement ofits mandatory or optional character; [and] 

# I b. reasonable access to information regarding the arbitration process, including basic distinctions between arbitration and courtproceedings, related costs, and advice as to where they may obtain more complete information regarding arbitration procedures and arbitratorrosters. CP at 331. Finally, the 

### AAAhas a longstanding policy, adopted in 2003 and grounded in due process concerns, that it will not administerhealthcare arbitrations between individual patients and healthcare serviceproviders that relate to medical services, such as negligence and medical malpractice disputes, unless all parties agree to submitthe matter to arbitration after the dispute arises. See AAA Healthcare PolicyStatement, 9 The policy is reflected in the AAA'sHealthcare Due ProcessProtocol (Final Report July 27,

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

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

# I 1998),10 which was developed in conjunction with the American BarAssociation, the 

# I 

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

# I Itcontains those entities' unanimous recommendation that "[i]n disputes involving patients, binding forms ofdispute resolution should be used only where the parties agree 

### f 

# I to do so after a dispute arises." Protocol at I. While we lackthe 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: TheAAAwill accept cases after the AAAreviews the parties' arbitration agreement and ifthe AAA determines the agreement substantially and materially complies withthe due process standards ofthese Rules and the ConsumerDue Process Protocol. R-l(d) at 10 (alteration in original). R-12 provides a process for advancereview ofarbitration provisions in consumer agreements. Ifa 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. Ifa business has not

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

16No. 32880-5-111 Woodwardv. Emeritus Corp.

obtained advance review and a consumer arbitration is then filed with the AAA, the Rules provide that the AAA will conduct an expedited review atthattime. Along with any otherfiling 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 atthe time offiling) for this initial review, which is detailed in the Costs ofArbitration section found atthe end ofthese Rules. The AAAwill decline to administer consumer arbitrations arising out ofthat arbitration agreement ifthe business declines to pay the review and Registry fee. R-12 at 16. II. ApplicableLaw andStandardof Review Underthe 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 ofany 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 submitto arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable exceptupon 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 Theparties' arbitration agreementprovides that it "shall be governed by and interpreted underthe [FAA]." CP at 46. Itprovides that "the dispute will be governed by the laws ofthe state in which [Emeritus at Richland Gardens] is located." 

### ld. (emphasis added). 17No. 32880-5-111 Woodwardv. Emeritus Corp. presumptions to be made in favor ofarbitration." Gandee v. LDLFreedom Enters., Inc., 176 Wn.2d 598, 603, 293 P.3d 1197 (2013) (citingZuver 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 contract defenses, such as fraud, duress, or unconscionability may be applied to 

## I 

# I invalidate arbitration agreements without contravening [9 U.S.C.] 

### § 2.", Adlerv. Fred LindManor, 153 Wn.2d 331, 342,103 P.3d 773 (2004) (quotingDoctor 'sAssocs., Inc. v. Casarotto, 517 U.S. 681,687,116 S. Ct. 1652, 134 L. Ed. 2d902 (1996». In Washington, either substantive orprocedural unconscionability is sufficient to invalidate acontract. Gandee, 176 Wn.2dat603 (citingAdler, 153 Wn.2dat347). '" Substantive unconscionability involves those cases where a clause orterm in the contract is alleged to be one-sided oroverly harsh.'" Zuver, 153 Wn.2d at 303 (quoting Schroeder v. FageolMotors, Inc., 86 Wn.2d 256,260,544 P.2d 20 (1975»; Torgerson v. One Lincoln Tower, LLC, 166 Wn.2d 510,519,210P.3d 318 (2009). "Procedural unconscionability is 'the lack ofa meaningful choice, considering all the circumstances surrounding the transaction including [t]he manner in which the contract was entered, whetherthe party had a reasonable opportunity to understand the terms ofthe contract, and whether the important terms [were] hidden in a maze offine print.'" Adler, 153 Wn.2d at 345 (alterations in original) (internal quotation marks omitted) (quotingNelson

v. McGoldrick, 127 Wn.2d 124,131,896P.2d 1258 (1995». 18

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# i**~** 

# 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 (quotingAdler, 153 Wn.2d at 358). Stated differently, when severance will "significantly alter both the tone ofthe arbitration clause and the nature ofthe 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 notresolved by trial and fact finding by the court, the appropriate standard ofreview 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 ofshowing thatthe 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. Itargues that in resisting its motion for an evidentiary hearing, Emeritus conceded Scott's version ofthe circumstances under which the arbitration agreement was signed or, in any event, invited the courtto make factual findings on the basis ofthe parties'declarations. It argues the court'sruling reflects an implicit finding ofprocedural unconscionability that we should review for substantial evidence in the written submissions. We rejectthe estate's characterization'ofEmeritus's position in thetrial court. Emeritus argued thatbecause Scott could notjustifiably 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 denyingthe motion to compel arbitration nor would it have been properfor it to resolve disputed material facts on the basis ofdeclarations. Inany event, since we do notbase our decision on the estate's argument offraud in the execution, the dispute proves to be moot. 19No. 32880-5-III Woodward

### v. Emeritus Corp.

III. The Trial CourtProperlyRefusedto CompelArbitration A. Futility 

# i 

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

# I the AAA orthe arbitratorwill necessarily decline to administer arbitration ofits dispute 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. ofResp't at 43. For its part, Emeritus concedes that the AAAwill 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 'inaccordance with' AAA's rules-notthat it be administered by AAA." Id. According to Emeritus, "this Court and numerous other courts have held that the inability ofAAA 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 ofAppeals 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). 20No. 32880-5-111 Woodward

### v. Emeritus Corp.

There are two facets to Emeritus's argument that the AAA need not administerthe arbitration: an argument that AAA administration is not required by the parties' agreement, and an argument that ifan agreed administration fails, the courts have statutory authority to substitute anotherprocess. We address the contract-based argument first. Emeritus relies on Gandee, in which a debt adjustment business, LDL, sought to enforce an arbitration agreementthat provided, '" All disputes orclaims betweenthe 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 thatthe arbitration agreement was substantively unconscionable based on the cost ofarbitrating through the AAA, LDL argued that its clause "does not require arbitration with the AAA but only that the rules ofthe AAA be followed." Id. at 605. While the court responded, "This assertion appears correct," it then quickly rejected LDL's attempted rebuttal ofthe consumer's evidence, since LDL failed to present any evidence ofthe cost ofan alternative forum. Id. The statement, "This assertion appears correct," is dicta. Itaddressed an assertion that was notdisputed 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 ofwhichever

21No. 32880-5-III Woodwardv. Emeritus Corp.

AAArules applied. There is also no suggestion that the case involved the Rules at issue in this case. Provisions ofthe Rules directly contradict Emeritus's argumentthat the parties' dispute need not be administered by the AAA. R-l(b)provides that "[w]henparties agree to arbitrate under these Rules, orwhen they provide for arbitration by the AAA and

an arbitration is initiated under these Rules, they thereby authorize theAAA 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 ofthe arbitration underR-1(c) by withholding administration authority from the AAA. Theparties' agreement does notprovide for administration by someone other than the AAA. When asked at oral argument ofthe appeal who would be the administrator if notthe AAA, Emeritus's counsel suggested thatthe arbitrator could serve as the administrator. 14 Butthe 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 ofTerms appearing at the end ofthe Rules define them separately, providing, inpart, that "[t]he

14 Wash. Court ofAppeals oral argument, Woodwardv. Emeritus Corp., No. 32880-5-III (Sept. 10,2015) at 28 min., 21 sec. through 29 min., 00 sec (on file with the court). 22No. 32880-5-II1 Woodward

### v. Emeritus Corp.

Administrator's role is to manage the administrative aspects ofthe arbitration," while arbitrators "areneutral and independent decision makers who are not employees ofthe administrator." Rules at 39-:-40. Emeritus is the author ofthe agreement, which, if ambiguous, must be construed against it. Mendez v. Palm HarborHomes, Inc., III Wn. App. 446, 459, 45 P.3d 594 (2002). To contendthatthe arbitrator will serve as both arbitrator and administrator is to read something into the agreement for which there is no textual supportwhatsoever. TheAAA is the only administrator contemplated bythe parties' agreement and its incorporated Rules. And whoever serves as administrator, the parties' arbitrationwill notbe "administeredin accordance with the procedures in effect for consumer arbitration adopted by the [AAA]," CP at45, unless that administratorreviews whetherEmeritus's arbitration agreement substantially and materially complies with the dueprocess standards ofthe Rules and the ConsumerDue Process Protocol-failing which, administration underthe Rules should be declined andthe parties should bepermittedto submitthe dispute to court. R-I(d) at 10. Theparties' agreement does not waive due process review. Again, to changethe Rules' requirement for dueprocessreview, the "[parties] must agree in writing." R-l(c) at 10. Forthe second facet ofits argument-that ifthe AAA declines to administer, the court may substitute another administrator-Emeritus relies onNail, 155 Wn. App. 227. Theparties in that case had agreed that their arbitrators "shall apply the applicable rules 23No. 32880-5-III Woodward

### v. Emeritus Corp.

ofprocedure ofthe AAA." Id. at 230. Itis evident thatNail did not involve the AAA's

consumerrules. IS This court held that under the agreement at issue in that case, "the method ofchoosing arbitrators was specified," but "the agreement did notrequire exclusive AAA administration." Id. at 230. Becausethe method ofselecting 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 oftheir agreement) dictate a different result. Inpromulgating the Rules, which create a simplified, expedient, and inexpensive process for the resolution ofconsumer disputes, the AAA included a process by which it couldprotect consumers from being subjected to unsuitable rules where an agreement substantially and materially violated its due process standards. And itexplicitlyprovided what would happen ifit found a due process-offending agreement to arbitrate:

IS The decision states that the parties' agreement "didnot require exclusive AAA administration," whereas the Rules do; the decision also states, "Notably, AAA did not legislate its policy statement into a specified rule ofprocedure, 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 AAAto administer the arbitration) andR-l(d) at 10 (providing for AAA's due process review). 16 Also at issue inNail was whetherthe AAA's 2003 Healthcare PolicyStatement was a "rule ofprocedure" ofthe 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 ofprocedure." Id. at 234. 24

# I i I 

## I No. 32880-5-III 

# I i Woodward v. Emeritus Corp. 

# I 

# I Should the AAA decline to administer an arbitration, eitherparty may choose to submit its dispute to the appropriate court for resolution. 

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

# I failed, leaving the parties without any agreed substituteprocess for resolving their 

# I I dispute. This is an instance in which the Rules expressly provide that ifthe 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 courtproperly 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 ofunconscionability, '" [t]heexistence ofan unconscionable bargain is a question oflaw for the courts.'" Mendez, 111 Wn. App. at 458 (quotingNelson, 127 Wn.2d at 131). It is an issue that courts approach both in law and equity, exercising the power to prevent enforcement ofa 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 agreementprovides 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 aplaintiffs statutory

25

# 1 J !l 

### I 

## i ! j j No. 32880-5-III Woodwardv. Emeritus Corp. 

# I 

# I 

# I entitlement to an award ofattorney fees. Adler, 153 Wn.2d at 355. Itwould effectively 

# I undercut the estate's rightto attorney fees ifitprevails on its claim asserted under RCW 74.34.200(3). Emeritus does not explicitly concede thatthe attorney fees term is 

### i**~** 

## 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 

# I Rules are inherently unsuited to the nature and complexity ofthe estate's claims. 

# I Emeritus cites Gilmer v. Interstate/Johnson Lane Corp., in which the Supreme Court

! observed that "by agreeing to arbitrate, a party 'trades the procedures and opportunity for review ofthe courtroom for the simplicity, informality, and expedition ofarbitration.'" 500 U.S. 20, 31, IllS. Ct. 1647, 114 L. Ed. 2d 26 (1991) (quoting MitsubishiMotors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S. Ct. 3346, 87 L.Ed. 2d 444 (1985)). Butwhile some arbitral limitations on the procedures and opportunities that would be available in "the courtroom" are to be expected and do notresult in an agreement that is overly harsh, others can-andthe 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 orderedwill be specific documents and information directed by the arbitrator along with witness identification, and that it will be sufficient for theparties to exchange exhibits five days

26

# t



# , 

# I 

# I No. 32880-5-III Woodwardv. Emeritus Corp. 

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

# I eight hour hearing day, that is less than $200 perhour. The estate supported its argument thatthese procedures were inappropriate with two declarations, the first being that ofLesley Ann Clement, a California lawyerwho preparedthe declaration in support ofan award offees and costs againstEmeritus in an unrelated action. While much ofher declaration is irrelevant, it does establishher 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" ofthe neglect-that is, the underlying factors andpolicies that ledto the client's injury and/or death. This requires multiple rounds ofwritten discovery and depositions (necessitating motions to compel) to investigate the facility's staffing, training, supervision, andbudgeting, among other things

.... [T]here is often extremely high turnover among caregiving staffat long-term care facilities. Learning details about the facility's operations during the client's stay is not a simple matter ofserving deposition notices; rather, former staffmust 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 thatEmeritus would resist reasonable discovery in this Washington dispute norreflect in any way on its Washington lawyers, it is evidence that a California courtrecognized that the opportunity for adequate discovery is important in an elder abuse action.



### 27

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# I No. 32880-5-III 

# I Woodwardv. Emeritus Corp.

The estate also submitted the declaration ofa 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 statedrate as an arbitrator is $325 to $350 perhour, and expressed the opinion, based on his experience as an arbitrator in the Tri-Cities and the Central Washington region, that theproposal ofa flat arbitrator's fee of$1 ,500 per day

... is likely unreasonable and is less likely to result in the selection ofa mutually agreeable and qualified arbitrator. This would particularly hold true where the case at issue is neitherroutine, nor simple. The flatfee arrangement described appears only suitable for small collection or other such civil disputes. 

### An experienced and qualified arbitrator is unlikely to consentto such a flat fee arrangement ifthe matter is likely complex, will require extended prep or a long hearing, orwill 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 ofdiscovery and the length ofthe hearing and even 'jettison [the] rules altogether." Br. ofAppellant at 15 (citing Rule R-l(e) at 11, under which, ifthe AAA makes the decision to apply the consumer rules, eitherparty may object, and "the arbitrator shall have the authority to make the final decision on which AAA rules wili apply"). Butthe fact remains that the Rules to which the parties agreed, and the presumptions and standards that the Rules provide-thatthe process remain "fast and economical," R-22 at 20; that more than minimal discovery be ordered only if"neededto provide a fundamentally fair process," R-22(c) at 20; and that a hearing extend beyond a 28No. 32880-5-III Woodwardv. Emeritus Corp. day only for "good cause,"R-32(d) at**24~are** unsuitable for the types ofclaims asserted by the estate, as the AAA itselfrecognizes. And it is not enough to argue, as Emeritus does, that it will be equally disadvantaged by the limitations ofthe Rules. Itis foreseeable that most oftherelevant evidence is in the possession ofEmeritus and its present and pastemployees, not the estate. And the estate bears the burden ofproof. Emeritus also argues thatthe $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 orthe Rules supports that assertion. The Rules contemplate arbitrators might ormight not be appointed from the AAA's national roster-they allow parties to identifY their own arbitrator or agree on aprocess for identifYing an arbitrator that does notrely on the roster. R-16(a) at 18. Whetherthe arbitrators are appointed from the AAA'snational roster ornot, the Rules provide that "[a]rbitrators serving underthese Rules shall be compensated at a rate established by the AAA" and "bepaid in accordance withthe Costs ofArbitration section found at the end ofthese Rules." R-5(a), (c) at 14. The Costs ofArbitration section provides at its paragraph (ii) at 34, "Arbitrators serving on a case with an in-person ortelephonic hearing will receive compensation at arate of$1500 per day." No distinction is made in any ofthese provisions between national roster arbitrators orprivately-selected arbitrators. Nowhere do the rules provide that an arbitrator canbepaid at his orher stated rate. 29No. 32880-5-III Woodwardv. Emeritus Corp. Considering all, it is understandable why the AAAreserved the authority under the Rules to decline administration and leave the parties to litigate. Inappropriate terms pervadethe Rules as applied to the estate's claims, in addition to the substantively unconscionable attorney fee's provision. Forthis additional reason, arbitration should not be compelled. Affirmed.

WE CONCUR:

# ~~~ . B wn,1. I

# CJ

j

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