Outsourcing Justice

Lawsuit Challenges Agency Rule Banning Arbitration in Nursing Home Agreements

Recently, the federal agency in charge of administering Medicare and Medicaid issued a final rule prohibiting the use of pre-dispute arbitration agreements in nursing homes.  In the nursing home context, and in other contexts like consumer and employment settings, there are concerns about the existence of meaningful consent, which should be the foundation for arbitration.  Also, because of recent developments in FAA case law, primarily from the Supreme Court’s decisions in Concepcion and American Express and Rent-A-Center, it is more difficult for courts to police the fairness of arbitration clauses, and it has become easier for stronger parties to include harsh or one-sided provisions in their arbitration clauses.

Earlier today, some trade associations filed a lawsuit in federal court in Mississippi challenging the federal agency’s final rule, arguing that the FAA preempts the agency’s rule and that the Medicare and Medicaid Acts do not permit the federal agency to regulate dispute resolution.  A copy of the lawsuit can be found here.

I’ve done a lot of research on the history of the FAA, and the FAA was never intended to cover personal injury or tort claims such as the claims that are often at issue in nursing home disputes.  The FAA was developed for contract claims between businesses, and the FAA was never intended to apply to take-it-or-leave-it contracts involving consumers.  If one applies the original intent of the FAA, the FAA should not preempt the federal agency’s rule because the FAA was intended to have a narrow scope of application.

This new Mississippi lawsuit will be an interesting case to follow, and this case may have ramifications for the Consumer Financial Protection Bureau’s proposed arbitration rule.

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