Arbitration is a dispute resolution process that takes place primarily outside of court and the judicial system. While it is not for everyone or for all situations, it is typically expected to resolve disputes faster and cheaper that traditional lawsuits. Congress established a national policy favoring arbitration and arbitration agreements by enacting the Federal Arbitration Act in 1925. In 1984, Kentucky adopted the Uniform Arbitration Act, which similarly favors arbitration if the parties have agreed to it by contract. It’s not surprising then that arbitration has been a preferred method for settling disputes by many for several years, and clauses requiring arbitration have made their way into many different types of contracts.
On January 15, however, the 6th Circuit Court of Appeals issued an opinion in the case ofRichmond Health Facilities – Kenwood, LP, et al. v. Adrianne Nichols, No. 15-5062, that reminded everyone not every agreement to arbitrate will be enforced. That case involves a state court lawsuit filed by the personal representative of an individual who passed away in a nursing home. Their action included a claim for “wrongful death” – a claim authorized by statute, KRS 411.130. The deceased had signed a contract with the nursing home before his death that included all disputes would be subject to arbitration. The contract even said it applied to “wrongful death” claims and it bound all of the deceased’s representatives (which would include the family member who filed the state lawsuit). The nursing home filed an action in federal court to compel the family to arbitrate all of the claims because of the contract instead of moving forward with the state lawsuit – a procedure outlined in the Federal Arbitration Act.
The 6th Circuit, however, refused to make the family arbitrate the wrongful death claim. In doing so, the 6th Circuit affirmed Kentucky law that essentially says wrongful death claims are different. The Kentucky Supreme Court has stated wrongful death claims are independent of claims held by the deceased. That is, the deceased never owned the wrongful death claim, their beneficiaries did. If the deceased did not own the claim, they had no right to bind its true owners to any agreement that the claim be arbitrated.
Faced with whether the nursing home could force the deceased’s family to arbitrate the wrongful death claim, the 6th Circuit merely applied Kentucky law and said, “no.” It also ruled that – in this instance – the federal law in favor of arbitration did not preempt or override Kentucky’s case law on the issue.
The 6th Circuit emphasized that the nursing home could force arbitration of other claims owned by the deceased at the time of their death. In fact, the lower district court had stayed (paused) the state court action as to those claims and ordered they be arbitrated. The 6th Circuit also noted the family could agree to arbitrate, even if the nursing home could not force it. Parties can always agree to forego litigation and arbitrate claims, and it makes sense to do that in some situations. The family members, the deceased’s beneficiaries, could have themselves signed an arbitration agreement. If that occurs, the 6th Circuit was clear that those agreements will be enforced according to law, even as to wrongful death claims if those claims belong to the signing beneficiary. The result in the Kenwood case is not that surprising given how Kentucky courts have interpreted this issue and their fairly uneven enforcement of arbitration provisions over the years.
Not everyone will agree with the 6th Circuit’s decision. At least one federal judge in Kentucky had previously stated that the Federal Arbitration Act should preempt Kentucky’s wrongful death exception. The United States Supreme Court may disagree and overrule the 6th Circuit, and there is always the possibility that Kentucky courts or the state legislature change the law in some way. Kenwood, however, reflects the current Kentucky law in the increasingly litigated world of arbitration agreement enforcement. And it is a reminder that not all arbitration agreements are enforceable. It is still the case for example, that if you want a Kentucky state court to enforce an arbitration agreement your contract must either (1) require the arbitration to be held in Kentucky or (2) state that the Federal Arbitration Act governs. Similarly, recent Kentucky decisions demonstrate that for an agent (such as someone with a Power of Attorney) to be able to bind their principal to arbitration, their authority to do so must be very clear. Because of this, those who use generic form contracts or contracts prepared in other states often find themselves litigating claims in Kentucky courts that they believed would be subject to arbitration. And those who wish to avoid arbitration may still be able to do so even when there is an agreement that seems to require it.
Kenwood shows that Kentucky law is nuanced in its enforcement of arbitration agreements – despite the long-standing national and state policies favoring arbitration and the enforcement of agreements to arbitrate. Since arbitration can be an important procedural tool in any dispute resolution, those who want to require arbitration in their contracts and those who want to avoid it are wise to consult with Kentucky attorneys keeping up with this evolving area of law.