Nursing home arbitration agreements are among the most unpopular arbitration agreements around.  Last week, Kentucky’s Supreme Court issued a lengthy, but fractured, opinion, finding three arbitration agreements were never validly formed because the signing parties did not have authority to give up the decedent’s constitutional right to a jury trial.  Extendicare Homes, Inc. v. Whisman, ___ S.W.3d___, 2015 WL 5634309 (Ky. Sept. 24, 2015).

The Extendicare case consolidated three separate matters, all of which involved nursing homes attempting to compel arbitration of wrongful death and personal injury claims by estates of deceased residents.  In each case, a relative with power of attorney had signed an admission document when the resident entered the nursing home.  In a 2012 case, the Kentucky Supreme Court held that decedents cannot affect the rights of their beneficiaries with respect to wrongful death claims.  Therefore, the wrongful death claims were already not subject to arbitration.  The Extendicare case confronted the open issue of whether other personal injury claims had to be arbitrated.

The court explained that the arbitration agreements would be validly formed only if the attorney-in-fact had authority to bind the residents to arbitrate claims by the power-of-attorney instrument.  The court found the following statements of authority insufficient to allow the attorney-in-fact to bind the resident to arbitration:

  • power to “institute or defend suits concerning [the principal’s] property rights.”  [The court found “suits” are actions in courts of law, and that signing an arbitration agreement is not incidental to instituting or defending a suit];
  • power “to draw, make and sign any and all checks, contracts…agreements.”  [The court found that statement was limited to managing the principal’s financial and banking affairs.]
  • power “to demand, sue for, collect, recover, and receive all debts, monies” ever due or owing.  [The court found that statement limited to court actions and said arbitration is not reasonably necessary or incidental to the specified powers.]
  • power to “make…contracts of every nature in relation to both real and personal property.”  [The court found that while personal injury claims are personal property, a “pre-dispute arbitration agreement was not a contract made ‘in relation’ to a property claim.”]

The only language that the Kentucky court found did encompass entering into an arbitration agreement was the power to “transact, handle, and dispose of all matters affecting me and/or my estate” and “generally to do and perform for me in my name all that I might if present.”  However, the court refused to infer the agent’s “authority to waive his principal’s constitutional right to access the courts and to trial by jury” unless that power is “unambiguously expressed” in the power-of -attorney document.

In dramatic fashion, the court analogized entering into an arbitration agreement to: putting a child up for adoption, aborting a pregnancy, and entering into personal servitude.  The majority reasoned that if an agent’s general authority cannot be extended to those serious waivers of constitutional rights, then it is equally “absurd” to infer that a general grant of authority carries with it the power to waive the right to a jury trial in a court of law.  How specific would the power of attorney need to be?  The decision suggests it has to expressly provide for “authority to waive the fundamental right to an adjudication by judge or jury.”

In response to the three dissenters, the Extendicare majority reasons that its holding does not conflict with Marmet Health Care Center or Concepcion because it is not a “blanket prohibition” against arbitration agreements and is instead “a long-standing and well-established policy disfavoring the unknowing and involuntary relinquishment of fundamental constitutional rights regardless of the context in which they arise.”

The three dissenters write that the majority’s rule does, in fact, conflict with SCOTUS’s interpretations of the FAA.  “[T]his Court is not at liberty to conclude that in Kentucky a power of attorney that gives the agent express authority to contract does not include the authority to contract for arbitration… Any such holding would fly in the face of federal law and be preempted by the Supremacy Clause because it … singles out arbitration agreements for disfavored treatment….”  Furthermore, the dissenters note that agreeing to arbitrate is fundamentally different from giving up parental rights or personal liberty because “arbitration agreements…involve no substantive waiver.  The principal’s substantive rights remain intact, only the forum for addressing those rights is affected.”

Kentucky’s Supreme Court is not the only governmental entity working against nursing home arbitration agreements.  Just last week, Senator Al Franken joined 33 other senators to urge the Center for Medicare and Medicaid Services (CMS) to “outlaw the use of unfair pre-dispute arbitration clauses in contracts with long-term care facilities like nursing homes.”  CMS is already considering restrictions on pre-dispute arbitration agreements in Long-Term Care facilities, but consumer advocates feel they are not protective enough.