Dallas Court of Appeals Holds Arbitration Provision Unenforceable in Nursing Home Contract

The Dallas Court of Appeals has held the mandatory notice requirements set forth in Section 74.451 of the Texas Civil Practice and Remedies Code rendered an arbitration provision unenforceable where the McCarran-Ferguson Act (MFA), 15 U.S.C. § 1012(b), preempted the Federal Arbitration Act (FAA).

In In re Sthran, No. 05-10-01176-CV (October 29, 2010), Etta Sthran (relator) sued Forest Lane Healthcare Center and THI of Texas at Forest Lane, LLC (Forest Lane), a nursing home, for “negligent acts and omissions” which caused damages to her husband during his lifetime and “were a proximate cause of his death.” Prior to the decedent’s admittance to Forest Lane, however, relator signed a contract which required that any future disputes between the parties be resolved through binding arbitration. Forest Lane filed a motion to compel arbitration citing the contract provision signed by relator. After the trial court ordered relator’s claims for her individual damages which were not derivative of her husband’s claims to arbitration, relator sought a writ of mandamus.

Relator argued that the arbitration provision in the contract was unenforceable because it failed to satisfy mandatory notice requirements set forth in Section 74.451 of the Texas Civil Practice and Remedies Code. Section 74.451 states, in relevant part:

(a) No physician, professional association of physicians, or other health care provider shall request or require a patient or prospective patient to execute an agreement to arbitrate a health care liability claim unless the form of agreement delivered to the patient contains a written notice in 10-point boldface type clearly and conspicuously stating:

UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN ATTORNEY.

Forest Lane did not allege that the contract complied with Section 74.451 nor that relator’s claims were not “health care liability” claims. Instead, Forest Lane responded by stating the FAA preempted Section 74.451. According to the court, the MFA:

will prevent a federal statute from preempting a state statute if (1) the federal statute at issue does not specifically relate to the “business of insurance,” (2) the state law was enacted for “the purpose of regulating the business of insurance,” and (3) the federal statute operates to “invalidate, impair, or supersede” the state law.

After distinguishing the case from Doctor’s Associates, Inc.v. Casarotto, 517 U.S. 681 (1996), the court concluded “…without deciding that the FAA could preempt the notice requirement of section 74.451… the MFA reverse preempts the FAA with regard to such notice requirement in this case.”

The Dallas court also determined the relator had no adequate remedy by appeal because:

it is not clear that any fees and expenses incurred as a result of arbitration will be recoverable. Further, because this case is one of those “rare cases” when legislative mandates might be construed to conflict, mandamus will “preserve important substantive and procedural rights from impairment and loss, [and] allow the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments.”

Finally, the court dismissed Forest Lane’s argument that relator’s petition for mandamus was untimely since Forest Lane failed to demonstrate a detrimental change in position.

Because the mandatory notice requirements set forth in Section 74.451 rendered the arbitration provision unenforceable and relator had no adequate remedy by appeal, the Dallas Court of Appeals ordered the trial court to vacate its order compelling arbitration.

Disputing has discussed reverse preemption in the past here, here and here.

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