Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Estate of Ruszala v. Brookdale Living Communities

August 10, 2010


On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket Nos. L-1582-07 and L-3340-07.

The opinion of the court was delivered by: Fuentes, J.A.D.



Argued (A-4403-08T1) February 9, 2010

Submitted (A-4404-08T1) February 9, 2010

Before Judges Skillman, Fuentes, and Gilroy.

These back-to-back appeals, consolidated for the purpose of this opinion, require us to determine the enforceability of arbitration provisions in nursing home contracts. Specifically, we must decide whether § 2 of the Federal Arbitration Act (FAA), 9 U.S.C.A. § 2, which declares arbitration provisions in contracts "valid, irrevocable, and enforceable," preempts the public policy of this State as expressed by the Legislature in N.J.S.A. 30:13-8.1, one of the key components of the "Nursing Home Responsibilities and Rights of Residents" act (the Act). N.J.S.A. 30:13-8.1 renders void and unenforceable "[a]ny provision or clause waiving or limiting the right to sue . . . between a patient and a nursing home."

Although not dispositive of this controversy, this question pits our State's laws protecting the elderly and infirm against a national policy favoring arbitration as an alternative forum for resolving civil disputes. Ultimately, we diffuse this tension by both respecting the supremacy of federal law while relying on well-established principles of contract law to declare certain provisions of the arbitration agreements unenforceable under the doctrine of substantive unconscionability.

These abstract considerations are played out in the real life tribulations of two elderly residents as they struggled to arrange for the care necessary to end their lives with compassion and dignity. The two plaintiffs, Ida Azzaro and Marie Mizerak, each signed residency agreements with two New Jersey assisted living facilities operated by Alterra Healthcare Corporation (Alterra), which is owned by Brookdale Living Communities, Inc. (Brookdale), both out-of-state companies. Ms. Azzaro signed the agreement on behalf of her husband, Pasquale Azzaro; Mizerak signed for Anna Ruszala, for whom she had power of attorney. Each resident suffered significant injuries at their facility and later died as a result. Plaintiffs brought suits sounding in negligence and wrongful death against Alterra, Brookdale, and other individuals associated with the ownership and operation of these facilities.

Both of the contracts signed by plaintiffs contain identical arbitration and limitation of liability provisions. The arbitration provisions require that all claims, except eviction proceedings, be resolved through binding arbitration. Other sections of the arbitration and limitation of liability clauses significantly restrict discovery, limit compensatory damages, and prohibit punitive damages.

These cases came before the trial court on defendants' motions to compel binding arbitration. The trial court initially denied defendants' motion without prejudice and directed the parties to conduct limited discovery on the issue of the enforceability of the arbitration provisions.

Defendants renewed their motions to compel arbitration at the end of this limited discovery period. The court denied defendants' motions without an evidentiary hearing, finding three legally independent grounds for not enforcing the arbitration provisions: (1) the arbitration provisions were void as against public policy under N.J.S.A. 30:13-8.1; (2) the FAA is not applicable because the transactions between the parties did not involve interstate commerce; and (3) even if N.J.S.A. 30:13-8.1 is preempted by the FAA, the arbitration agreements are part of a consumer contract of adhesion and the particular limitations and prohibitions contained therein are unenforceable under the common law defense of unconscionability.

By leave granted, defendants now appeal arguing that the trial court erred when it found that the FAA does not preempt the anti-arbitration provision in N.J.S.A. 30:13-8.1, that there is insufficient evidence to support the trial court's conclusion that these residency agreements are contracts of adhesion, and that the provisions restricting discovery, setting caps on compensatory damages, and precluding punitive damages are not unconscionable. Alternatively, defendants contend that if the clauses are unconscionable, the remedy should be the severance of the particular provisions, not invalidation of the entire arbitration agreement.

We now consolidate these two appeals because they share a common core of legal issues. After reviewing the record developed before the trial court, we reverse the court's finding that the FAA is inapplicable to the arbitration agreements at issue. We are satisfied that the FAA preempts the anti-arbitration provision in N.J.S.A. 30:13-8.1. The economic activities performed by these nursing facilities in servicing the residency contracts "involve" interstate commerce. We affirm, however, the trial court's determination that some of the arbitration provisions in the residency agreements signed by plaintiffs are unenforceable based on the doctrine of substantive unconscionability. These residency agreements were contracts of adhesion as they were presented on a "take-it-or-leave-it" basis, evidencing indicia of procedural unconscionability as discussed by the court in Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006), cert. denied, 549 U.S. 1338, 127 S.Ct. 2032, 167 L.Ed. 2d 763 (2007). However, the limited record before us is insufficient to demonstrate a level of procedural unconscionability that would invalidate the parties' arbitration agreement. This paucity of evidence, however, does not affect our ability to review these provisions under the doctrine of substantive unconscionability, id. at 16, using the factors identified by the Court in Rudbart v. North Jersey District Water Supply Commission, 127 N.J. 344, 356, cert. denied, 506 U.S. 871, 113 S.Ct. 203, 121 L.Ed. 2d 145 (1992). Applying these principles to the arbitration provisions in question, we are satisfied that the discovery restrictions, limitations on compensation for non-economic damages, and the outright preclusion of punitive damages are substantively unconscionable. Therefore, we strike these offending provisions and remand the Ruszala matter to arbitration. Finally, we remand the Azzaro matter to the trial court to determine whether a valid contract was formed between the parties.

The following facts will inform our discussion of these legal issues.


Sterling House of Florence (Sterling House) and Clare Bridge of Westhampton (Clare Bridge) are assisted living facilities managed by Alterra, a Delaware corporation with its principal place of business in Milwaukee, Wisconsin. Brookdale owns Alterra and is also a Delaware corporation. Brookdale's principal place of business is in Chicago, Illinois.

Sterling House and Clare Bridge purchase supplies, such as food, medicine, and medical equipment, "primarily from out-of-state vendors" through "mail, electronic mail, telephone[,] and facsimile transmissions."*fn1 These facilities' vendors include: "the Sysco Corporation of Texas; Medline of Illinois; and Direct Supply of Wisconsin." Both facilities "accept out-of-state residents," and Alterra "accepts Medicaid waiver payments on behalf [of] residents" of both Sterling House and Clare Bridge.

Ten percent of Sterling House residents and eleven percent of Clare Bridge residents are eligible for Medicaid.*fn2

Anna Ruszala

On or about January 21, 2002, eighty-five-year-old Anna Ruszala became a resident at Sterling House. From the start of her residency and continuing for approximately two and one-half years, there was no evidence that she, or anyone acting on her behalf, executed a formal residency agreement with Sterling House.

Sometime before April 2004, Ruszala executed a power of attorney designating Marie Mizerak*fn3 as her attorney in fact. Mizerak entered into a residency agreement on Ruszala's behalf on April 28, 2004, with an effective date of April 1, 2004. According to an affidavit executed by Alterra's Vice President for Legal, Ruszala received a "loyalty discount" in part for agreeing to the arbitration and limited liability provisions in the 2004 residency agreement.*fn4

Ruszala resided at Sterling House until July 11, 2006, when she was taken to Virtua Hospital in Marlton, New Jersey. By 2006, Ruszala was no longer ambulatory and "slept in a 'special bed' [that] was lowered to protect her from potential injury[-inducing] falls."

The details of the incident that led to her hospitalization are not clear. The initial reports indicate that Ruszala fell from a two-foot high bed. The hospital records, however, reflect possible geriatric abuse. Ruszala died ten days after her admission to Virtua Hospital; she was ninety-three years old.

Pasquale Azzaro

On December 8, 2005, Ida Azzaro entered into a residency agreement with Alterra to admit her husband Pasquale Azzaro to the Clare Bridge assisted living facility. Mr. Azzaro resided at Clare Bridge from December 9, 2005, until January 1, 2006; he died three days later on January 4, 2006.

In an affidavit submitted to the trial court in opposition to defendants' motion to compel arbitration, Ms. Azzaro indicated that she and her husband first met with a representative of Alterra one week before her husband's admission into Clare Bridge. According to Ms. Azzaro, "the purpose of this visit was [for the Alterra representative] to explain the benefits of the facility and how it would be able to meet the needs of my husband." The meeting lasted approximately one hour.

According to Ms. Azzaro, Alterra's representative did not explain the legal implications of the residency agreement or suggest that she seek independent legal advice before signing it. Ms. Azzaro's affidavit contains the following allegations concerning Alterra's efforts to inform her and her husband about the limitations embodied in the arbitration provisions:

We were never advised that we should seek legal counsel to review the Agreement prior to signing it, nor were we in any way cautioned that the agreement included language that may limit my husband's legal rights or require that claims against the facility be pursued in an arbitration forum rather than a court of law. Certainly, had such a comment or reference been made, I would have asked follow-up questions and we would have sought the advice of our attorney. I would never have knowingly signed an agreement waiving legal rights of my husband nor[,] in my opinion[,] would he have signed such a document. At no point in time, either on that day or at any time while my husband was a resident at the facility, were we advised that it would be important to review this document and/or have its provisions evaluated by an attorney. Had we know that this facility required my husband to waive legal rights as part of admission, I am certain we would have found another facility for my husband to reside.

I do recall that the representative from the facility advised that, as a resident at the facility, my husband had legal rights under New Jersey's laws and that the facility made it a priority to see that those rights were not violated. We were pleased and encouraged to hear that fact. We relied upon that representation in our decision making process to choose this facility.

It was my understanding that this document was a form document that was part of the admission process and that it could not be changed in any way.

It was never explained to me or my husband at any time by any representative of the facility what an arbitration clause means or even what the word arbitration means. I do not recall the word "arbitration" being mentioned in any context whatsoever.

Based on the facility representative's representations to me, I did not have any expectation or understand that any document that I was signing could in any way prevent me or my husband from asserting claims for abuse and/or neglect in a court of law if such a claim ever arose.

Although Ms. Azzaro signed the residency agreement as a "responsible party," she emphatically denied ever having had power of attorney over her husband's affairs, or at any time representing herself as having such authority. She claimed that she signed the residency agreement because the representative of Alterra told her that her signature was required "as an ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.