Texas Supreme Court Holds FAA Preempts Texas Law in Nursing Home Dispute

On Friday, the Supreme Court of Texas ruled that Section 74.451 of the Texas Civil Practices and Remedies Code was preempted by the Federal Arbitration Act (“FAA”). In Fredricksburg Care Co., L.P. v. Perez, No. 13-0573 (March 6, 2015), a Texas nursing home sought review by the Texas high court after the Fourth Court of Appeals in San Antonio denied its motion to compel arbitration in a wrongful death lawsuit that was filed against the facility. The issue presented in the case was:

The Federal Arbitration Act preempts state laws which restrict arbitration agreements. The McCarran-Ferguson Act protects state insurance regulations from unintended federal law preemption. Is Texas Civil Practice and Remedies Code, Section 74.451—which restricts arbitration between healthcare providers and patients—an insurance regulation?

Although an arbitral agreement the nursing home entered into with the decedent did not comply with the requirements of the Texas Medical Liability Act, the facility claimed the state law was preempted and the dispute was subject to arbitration under the FAA. The deceased woman’s family countered that the Texas law is an insurance statute that is protected from preemption by the McCarran-Ferguson Act (“MFA”).

After reviewing the legislative purpose behind Section 74.451, the Texas Supreme Court found that the law was not an insurance regulation. According to the court, Section 74.451 was not “aimed at protecting or regulating the performance of a contract of insurance—either between the health care provider and its malpractice insurer, or the patient and its insurer.” Instead, the court stated Section 74.451 was created to govern the relationship between medical providers and patients. Because the MFA did not save Section 74.451, the Supreme Court of Texas held that the law was preempted by the FAA and reversed the San Antonio court’s order denying the nursing home’s motion to compel arbitration.

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