Outsourcing Justice

US Supreme Court Issues Arbitration Decision in Nursing Home Dispute

In a 7-1 decision issued today, the Supreme Court of the United States continued its long line of cases holding that the FAA preempts state law.  Kindred Nursing Centers v. Clark, No. 16-32 (May 14, 2017) (click here for a copy of the decision).  The Kentucky Supreme Court had developed a rule that a power of attorney instrument cannot authorize an agent to waive fundamental rights, such as the right to a jury trial, unless the power of attorney expressly mentions those fundamental rights.  In other words, a principal should not reasonably expect that fundamental rights are covered by a general power of attorney.  As a result of this state rule governing Kentucky powers of attorney, a general power of attorney does not grant an agent the ability to waive the principal’s right to worship freely, or to terminate the principal’s parental rights, or to waive the principal’s right to a jury trial, or any other fundamental right.  Instead, the power of attorney must provide a clear statement that the agent can waive a fundamental right of the principal.

The Supreme Court found that the FAA preempts this clear-statement rule from Kentucky because the state rule singles out arbitration agreements for special treatment.  The majority reasoned that the Kentucky rule, although couched in broad terms applicable to all fundamental rights, has never really been applied to other fundamental rights, such as the right to freely communicate or to sell one’s property.

The US Supreme Court’s opinion, in effect, is rebuking and telling the justices of the Kentucky Supreme Court, “you are lying; we don’t trust you.”  Although the state court justices articulated a rule applicable to all fundamental rights, the US Supreme Court believed the state court justices’ real motive was an unlawful hostility towards arbitration.

The decision was not really a surprise, especially in light of the per curiam opinion in Marmet a few years ago and the long line of FAA preemption cases.  However, the majority decision is wrong for several reasons.  Justice Thomas, as his usual custom, dissented in this case on the grounds that the FAA does not apply in state courts, which is the correct view in my opinion.  The drafters of the FAA never intended the FAA to apply in state courts, and application of the FAA to state courts raises serious federalism problems.  Furthermore, the FAA’s coverage is limited to written provisions in a contract “to settle by arbitration a controversy thereafter arising out of such contract.”  Wrongful death/personal injury claims, to the extent they can be stated without reference to a contract, do not arise out of a contract, and thus, the FAA should not apply to these types of claims.  The FAA was designed for contractual, commercial disputes, not wrongful death claims.

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