Outsourcing Justice

Federal Court Blocks Nursing Home Arbitration Rule  

Nursing home trade associations had filed a lawsuit in Mississippi federal court a few weeks ago, asking the court to invalidate a federal agency rule that would have banned the use of arbitration clauses in nursing homes.  (See my prior blog post about the filing of the lawsuit here).  The rule was supposed to go into effect on November 28, 2016.  However, the federal court just issued a preliminary injunction blocking the rule, finding that the plaintiff trade associations are likely to succeed on the merits in showing that the agency lacked the authority to adopt the rule.  (Click here to see a copy of the judge’s order.)

Despite the judge’s personal views that the agency rule was grounded in sound public policy, the judge found, at this preliminary injunction stage, that the federal agency likely lacks the statutory authority to issue the rule.   The governing statute authorizes the Centers for Medicare and Medicaid Services to adopt rules “relating to the health and safety [and the well-being] of residents.”  The court believed this statutory mandate to promote health and safety of nursing home residents did not encompass the specific power to ban arbitration agreements.   The court described the enactment of the rule as an “unprecedented exercise of agency power in this case.”

What I find ironic is that the nursing home industry, when seeking to enforce arbitration agreements, will often rely on similar rationales used by the court to invalidate the arbitration rule at issue here.  When seeking to compel arbitration, nursing homes will often point to broad, generic, vague language in a power of attorney agreement by which a resident broadly authorizes an agent to act on his or her behalf.  Nursing homes will often argue that such broad generic language in the power of attorney grants a relative or other agent the narrow, specific power to enter into an arbitration agreement on behalf of the resident and waive the resident’s right to a jury trial.  However, when faced with the broad authorization in the statute in this case, the nursing home industry took the exact opposite approach and argued that the broad language in the statute does not encompass the specific power to regulate arbitration agreements.  There is some tension between the nursing home industry’s arguments in this case and the industry’s arguments in individual cases trying to compel arbitration.

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