Over the past decade, the Supreme Court has continually emphasized the supremacy of the Federal Arbitration Act (FAA) over conflicting state law. It did so again, nearly unanimously, in a case called Kindred Nursing Centers Ltd v. Clark, et al., which the Court decided on May 15, 2017. The case serves as a reminder that courts are required to enforce agreements to arbitrate under the FAA, and that state legislation or public policies that attempt to single out arbitration for scrutiny are improper.
Three patients died while under the care of nursing home rehabilitation centers in Kentucky. At the time of their admittance to the facilities, each had signed a form that gave certain power-of-attorney abilities to a family member.
Each family member, in turn, signed documents that included a mandatory arbitration provision. While each case was slightly different, the language of the admittance agreement that each family member signed included a provision that “[a]ny and all claims or controversies arising out of or in any way relating to… the Resident’s stay at the Facility” would be resolved through “binding arbitration” rather than a lawsuit.
When the patients died, the family members sued the respective facilities on behalf of the estates of the former patients, claiming that the facilities failed to provide care at a professional level, alleging professional negligence among other causes of action.
Not surprisingly, the nursing homes filed motions to compel arbitration based upon the clauses. The trial courts denied those motions, however, noting that the deceased patients never specifically indicated their willingness to submit claims of this nature to arbitration.
The nursing homes appealed, but the Kentucky Supreme Court agreed. That court, the highest in the state, articulated a test that the principals (the patients) should not be required to waive their right to trial “without a clear and convincing manifestation of the principal's intention to do so.” Because none of the power-of-attorney forms signed by the patients explicitly discussed the ability of the family members to enter into pre-dispute arbitration agreements, the Kentucky Supreme Court agreed with the trial courts and affirmed the denial of the motions to compel arbitration.
The case involves complex, and perhaps philosophical, questions about when parties can meaningfully relinquish their rights to litigate in court, particularly given the unique bargaining power that nursing homes have in dealing with elderly or sick patients seeking their services.
The U.S. Supreme Court decided to review the decision of the Kentucky Supreme Court. In a 7-1 opinion by Justice Elena Kagan, the Court reversed the Kentucky decision and decided that the disputes with the nursing homes must be resolved through binding arbitration. The decision focused on the language and application of the FAA.
Under federal law (9 U.S.C. § 2), any “written provision … evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction… or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable….” The Court noted that the FAA “preempts any state rule discriminating on its face against arbitration…. [or] any rule that covertly accomplishes the same objective by disfavoring contracts.”
The Court held that the Kentucky Supreme Court had done just that. The “clear-statement rule, in just that way, fails to put arbitration agreements on an equal plane with other contracts.” It instead attempted to single out the arbitration provision signed by the family members with power-of-attorney for special, suspect treatment. This, Justice Kagan wrote, violates the FAA.
The lone dissenter was Justice Clarence Thomas. Justice Thomas has long believed that the FAA should not apply in state court proceedings at all. Instead, he believes that the statute’s history and text indicate that it should apply only to proceedings brought in federal courts. In other words, as a matter of federalism, each state should have the ability to make its own determinations with respect to the enforcement of arbitration agreements. Here, that would mean allowing Kentucky to void the arbitration agreements with the nursing homes.
The original purpose of the FAA was to ensure that individual states and judges would honor arbitration agreements and awards. Congress sought to give teeth to the arbitration process, and ensure that parties could rely on arbitration as a mechanism for dispute resolution. Consequently, the Supreme Court has voided state laws and state public policies that have attempted to undermine the strength of arbitration agreements. This situation in Kentucky—a judicial doctrine that would have voided the arbitration agreement in the contract—was precisely such a situation. As many in the legal community expected, the Court upheld the arbitration agreement.