SCOTUS Overturns Kentucky Supreme Court in Nursing Home Arbitration Case

The Supreme Court of the United States has reversed the Kentucky Supreme Court’s decision in a nursing home arbitration dispute.  Kindred Nursing Centers Limited Partnership v. Clark, No. 16-32, (May 15, 2017), initially consisted of three separate cases where a family member who held the power of attorney for an individual who was being admitted to a Kentucky nursing home signed a pre-dispute binding arbitration agreement as part of the admission documents.  In each case, the family member later brought individual personal injury and wrongful death lawsuits against the nursing home where their loved one resided claiming the poor care that was provided by the facility directly resulted in the resident’s death.  In response to the three lawsuits, each respective nursing home filed a motion to compel arbitration based on the various agreements that were signed by the family members upon the decedents’ admission to the skilled care facilities.  In all three cases, the nursing home’s motion was denied.

The three lawsuits eventually made it to the Kentucky Supreme Court where they were consolidated into a single interlocutory appeal. With regard to two of the cases, the Kentucky Supreme Court ultimately held “the authority to enter into a pre-dispute arbitration agreement was not among the powers granted to respective attorney-in-fact and, therefore the arbitration agreements were not formed with the assent of the party to be bound thereby.”

The Kentucky high court continued:

We further conclude that without a clear and convincing manifestation of the principal’s intention to do so, we will not infer the delegation to an agent of the authority to waive a fundamental personal right so constitutionally revered as the “ancient mode of trial by jury.” Consequently, because none of the power-of-attorney instruments involved in these cases provide a manifestation of the principal’s intent to delegate that power to his agent, we conclude that the agent was not so authorized, and that the principal’s assent to the waiver was never validly obtained. Accordingly, we deny the motions for interlocutory relief. In so doing, we affirm the orders of the Court of Appeals.

The nursing homes next sought review of the Kentucky court’s decision by the U.S. Supreme Court.  The question presented on appeal to the nation’s high court was:

Whether the Federal Arbitration Act pre-empts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.

Last week, a seven-member Supreme Court majority overturned the Kentucky court’s decision.  According to the U.S. high court:

The FAA makes arbitration agreements “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.  That statutory provision establishes an equal treatment principle: A court may invalidate an arbitration agreement based on “generally applicable contract defenses” like fraud or unconscionability, but not on legal rules that “apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 339 (2011). The FAA thus preempts any state rule discriminating on its face against arbitration—for example, a “law prohibit[ing] outright the arbitration of a particular type of claim.”  Id., at 341.  And not only that: The Act also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements. In Concepcion, for example, we described a hypothetical state law declaring unenforceable any contract that “disallow[ed] an ultimate disposition [of a dispute] by a jury.” Id., at 342.  Such a law might avoid referring to arbitration by name; but still, we explained, it would “rely on the uniqueness of an agreement to arbitrate as [its] basis”— and thereby violate the FAA. Id., at 341 (quoting Perry v. Thomas, 482 U. S. 483, 493, n. 9 (1987)).

The Kentucky Supreme Court’s clear-statement rule, in just that way, fails to put arbitration agreements on an equal plane with other contracts.  By the court’s own account, that rule (like the one Concepcion posited) serves to safeguard a person’s “right to access the courts and to trial by jury.”  478 S. W. 3d, at 327; see supra, at 3–4. In ringing terms, the court affirmed the jury right’s unsurpassed standing in the State Constitution: The framers, the court explained, recognized “that right and that right alone as a divine God-given right” when they made it “the only thing” that must be “‘held sacred’” and “‘inviolate.’”  478 S. W. 3d, at 328–329 (quoting Ky. Const. §7).  So it was that the court required an explicit statement before an attorney-in-fact, even if possessing broad delegated powers, could relinquish that right on another’s behalf. See 478 S. W. 3d, at 331 (“We say only that an agent’s authority to waive his principal’s constitutional right to access the courts and to trial by jury must be clearly expressed by the principal”).  And so it was that the court did exactly what Concepcion barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial. See 563 U. S., at 341–342; see also 478 S. W. 3d, at 353 (Abramson, J., dissenting) (noting that the jury-trial right at the core of “the majority’s new rule” is “the one right that just happens to be correlative to the right to arbitrate” (emphasis deleted)).  Such a rule is too tailor-made to arbitration agreements— subjecting them, by virtue of their defining trait, to uncommon barriers—to survive the FAA’s edict against singling out those contracts for disfavored treatment.

The U.S. Supreme Court also dismissed the relatives’ argument that the Federal Arbitration Act did not apply to contract formation before reversing the Kentucky Supreme Court’s opinion in part, vacating the court’s decision in part, and remanding the case.

Justice Gorsuch did not participate in the court’s decision and Justice Thomas offered a brief dissent based on his belief that the FAA “does not apply to proceedings in state courts.”

Hat tip to Liz Kramer at ArbitrationNation!