The Supreme Court and President Trump Agree -- Nursing Homes Plaintiffs May Be Required to Arbitrate
A provision in a contract providing for care of a resident in a nursing home may require the parties to arbitrate any dispute over injuries suffered by the resident at the nursing home. In Kindred Nursing Centers Ltd. P'ship v. Clark, 137 S. Ct. 1421 (2017), the Supreme Court ended any doubts as to the enforceability of arbitration clauses in these contracts.
The relevant section of the Federal Arbitration Act (FAA) provides:
"A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, 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, save upon such grounds as exist at law or in equity for the revocation of any contract." (emphasis added).
Various state courts sought to render arbitration clauses unenforceable on state law grounds. The United States Supreme Court made it absolutely clear that state courts may not render arbitration provisions unenforceable by asserting that the provision requiring arbitration is unenforceable under state law.
For example, in Atalese v. U.S. Legal Servs. Group, 99 A.3d 306 (N.J. 2014), the New Jersey Supreme Court found an arbitration clause invalid because, by construing the arbitration clause as a waiver of the right to trial by jury, and holding clear and unambiguous language is needed to waive the right to trial by jury. Similarly, arguing that the clause is unenforceable under a state constitution or as lacking mutuality or any other basic contract defense is not allowed. Alltel Corp. v. Rosenow, 2014 Ark. 375, 2014 WL 4656609 (Ark. 2014) (finding the clause invalid for lack of mutuality).
In Kindred Nursing Centers Ltd. P'ship v. Clark, the Supreme Court's decision was unequivocal on this subject.
"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, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). The FAA thus preempts any state rule discriminating on its face against arbitration-for example, a "law prohibiting outright the arbitration of a particular type of claim." Id., at 341, 131 S.Ct. 1740. 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, 131 S.Ct. 1740. 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. 137 S. Ct. 1421, 1426 (2017),"
This decision should come as no surprise. The Supreme Court has always given the Federal Arbitration Act a broad interpretation in state contracts. The FAA supersedes state law and makes an arbitration provision enforceable despite any provisions in state law that would make it unenforceable. In Kindred, the Supreme Court drove home its point:
"Adopting the respondents' view would make it trivially easy for States to undermine the Act-indeed, to wholly defeat it. As the respondents have acknowledged, their reasoning would allow States to pronounce any attorney-in-fact incapable of signing an arbitration agreement-even if a power of attorney specifically authorized her to do so. See Tr. of Oral Arg. 27. (After all, such a rule would speak to only the contract's formation.) And why stop there? If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements. (That rule too would address only formation.) The FAA would then mean nothing at all-its provisions *1429 rendered helpless to prevent even the most blatant discrimination against arbitration. 137 S. Ct. 1421, 1428-29 (2017)."
As an interesting side note, the cases from state courts challenging arbitration clauses in nursing home contracts concern injuries to residents and plaintiff's lawyers who want to sue in state court and recover large awards from local juries. In this politicized political atmosphere, politics appears to have played no role. The Supreme Court was almost unanimous; it was a 7-1 decision (Judge Gorsuch did not participate in the decision). Justice Clarence Thomas, a conservative who one would expect would not favor a ruling that would favor plaintiff's lawyers. Instead, he dissented, expressing his view that the FAA should not apply to state law. The other seven Justices, including the author of the Opinion, Justice Eleanor Kagan, who is regarded as a liberal, ruled against the right to sue in court and have the jury decide damages. When it comes to contracts and the Federal Arbitration Act, it seems there is no room for politics in the U.S. Supreme Court.
Politics will still play a role in this issue. Under President Obama, the Centers for Medicare and Medicaid Services (CMS) issued a ruling barring arbitration clauses in nursing home contracts. CMS was immediately challenged in the Courts. See The Empire Strikes Back - Nursing Homes Enjoin Government's Rule Barring Arbitration Clauses in Agreements with Residents by Melito & Adolfsen, November 8, 2016.
On June 6, 2017, three weeks after Kindred Nursing Centers Ltd. P'ship v. Clark was decided, under President Trump, the CMS made an announcement which states: "[t]he prohibition on pre-dispute binding arbitration agreements is removed." CMS Issues Proposed Revision Requirements for Long-Term Care Facilities' Arbitration Agreements. In its place, CMS announced a proposed rule which "focuses on the transparency surrounding the arbitration process and includes the following proposals: "...[a]ll agreements for binding arbitration must be in plain language..."
While this Supreme Court decision may not get as much press (or presidential) attention as decisions regarding immigration, free speech, or voting rights, the decision-and the prompt change in CMS rules-will have a large impact on nursing home and assisted living matters throughout the United States.