Problems with arbitration agreements and nursing homes are not new, and whether an agent acting under a power of attorney can bind the principal to an arbitration clause when admitting the principal to a nursing home was the subject of an eReport article in February 2014.
On May 15, 2017, the Supreme Court of the United States (the “Supreme Court”) entered an opinion that reversed in part and vacated in part a Kentucky Supreme Court decision regarding an agent’s authority to enter into nursing home arbitration agreements.
The Kentucky Supreme Court consolidated three cases to determine “whether, based upon the language of the particular power-of-attorney instrument, an arbitration agreement was validly formed between the respective nursing home facility and the resident whose interests were thereby affected.” In two of the cases, Wellner and Clark, the court determined the agreements were not valid because “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.” However, the court went on to 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.” Justice Abramson’s dissent to the four to three majority opinion cautioned that the new “clear statement rule” requiring express authority to enter into arbitration agreements was in “apparent disregard of the Federal Arbitration Act (FAA) and numerous decisions by the United States Supreme Court invalidating under the FAA any State rule meant to hinder the enforcement of arbitration agreements.”
Perhaps it’s not surprising the short ten page Supreme Court opinion not only mentioned but often quoted Justice Abramson’s dissent as it held that Kentucky’s clear statement rule singled out arbitration agreements for disfavored treatment in violation of the FAA. The Supreme Court opinion went on to point out that the FAA “preempts any state rule discriminating on its face against arbitration” and the FAA “also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” Although the Kentucky opinion was written in a manner to protect the principal’s fundamental right to jury trial, in doing so it “fails to put arbitration agreements on an equal plan with other contracts,” and as such runs afoul of the FAA.
The Supreme Court did give Kentucky another chance to think about its decision because the opinion only reversed in part and vacated in part. As this was a consolidated case with two separate powers of attorney, the language of each being slightly different, the Supreme Court opinion reversed the Clark decision because the lower court determined that language in the power of attorney was sufficiently broad enough to include executing an arbitration agreement. The only reason the Kentucky Supreme Court invalidated the Clark agreement was because of its new, now invalid, clear statement rule. With respect to the Wellner agreement, the Supreme Court could not determine whether Kentucky’s opinion was based solely on its new rule or something “wholly independent” of its new rule. As such, the Supreme Court vacated the judgement as it applied to Wellner and remanded that case back down to Kentucky for another chance to determine whether the Wellner agreement was validly executed.
This brings up some questions. Why did the Supreme Court even review these issues? Don’t we have new regulations banning nursing home arbitration agreements? In the fall of 2016, new federal regulations were issued that included provisions prohibiting nursing homes from entering into pre-dispute binding arbitration agreements with any resident or resident’s representative and prohibiting nursing homes from requiring residents to sign arbitration agreements as a condition of admission. See 42 C.F.R. §483.70(n)(1). Although these regulations have an effective date of November 28, 2016, the U.S. District Court for the Northern District of Mississippi granted a request for an injunction by the American Health Care Association. To date the regulations are not being enforced, and it is unknown whether the current administration will seek to repeal them entirely.
This article appeared originally in the May 2017 issue of eReport.