May 24, 2017

The Supreme Court Still Favors Arbitration

Client Alert
Jeff Smith

Reversing in part, vacating in part, and remanding to the Kentucky Supreme Court, the United States Supreme Court continues to favor arbitration. On May 15, 2017, the Court ruled that a nursing home can enforce arbitration agreements signed by persons with power of attorney over nursing home residents in the consolidated cases of Kindred Nursing Centers v. Clark et al. The ruling strikes an impactful blow to the plaintiffs’ bar.

In 2015, the Kentucky Supreme Court consolidated three separate cases: Kindred Nursing Ctrs. Ltd. P’ship v. Clark (“Clark”); Extendicare Homes, Inc. v. Whisman (“Whisman”); Kindred Nursing Ctrs. Ltd. P’ship v. Wellner (“Wellner”). Family members of three residents filed claims against several nursing homes alleging facts that triggered the arbitration clause contained in their admission contracts. The state court invalidated two of the arbitration agreements because the language used in the power of attorney failed to grant authority to execute arbitration agreements, but invalidated all three reasoning that Kentucky’s Constitution gave each resident a “divine God-given right” to a jury trial. The court then carved out a “clear-statement” rule whereby an agent must have express permission from the principal to enter into arbitration agreements on the principal’s behalf. Defendant Kindred Nursing Centers appealed two of the cases to the United States Supreme Court.

In a 7-1 decision released May 15, 2017 , the Supreme Court rejected Kentucky’s “clear statement” rule as preempted by the Federal Arbitration Act (“FAA”), which preempts overt and covert discrimination against arbitration. The court also noted that the new rule was barred by AT&T Mobility LLC v. Concepcion, which prohibits the adoption of legal rules “hinging on the primary characteristics of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial.” Simply put, the rule “fail[ed] to put arbitration agreements on an equal plane with other contracts.” After rejecting the state court’s rule, the Supreme Court reversed the Clark decision relying upon the state court’s prior reasoning that the language used in the power of attorney was sufficient to authorize the execution of an arbitration agreement. However, the Court vacated and remanded the Wellner case to the state court for a determination of whether the power of attorney language alone would invalidate the arbitration agreement.

The battle over nursing home arbitration agreements is far from over and the plaintiffs’ bar is not likely to retreat from this recent judicial setback—especially in light of recent indications that the Centers for Medicare & Medicaid Services (CMS) may reverse its ban on arbitration agreements, discussed here. Wasting no time, the plaintiffs’ bar has already signaled a new wave of tactics to defeat arbitration agreements. Expect to see more claims seeking to strike these agreements based on the “limited scope” of the power of attorney. This will require nursing home facilities to take precision-like stock of the language used in each individual grant. Others are positing that the FAA does not apply to wrongful death/personal injury claims, an argument not addressed in the Supreme Court’s ruling. The plaintiffs’ bar will also likely continue to raise capacity arguments in relation to the execution of the power of attorney.

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