Kindred Nursing Centers L.P. v. Clark, No. 16–32, 581 U.S. ___ (2017) [click for opinion]
This case centered on whether the Supreme Court of Kentucky's "clear-statement" rule, which addresses a legal representative's ability to enter into an arbitration agreement on another's behalf, is valid under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq.
Respondents are the wife and daughter of two former residents of a nursing home operated by Petitioner. Respondents had each received a power of attorney affording them broad authority to manage their family members' affairs. When Respondents' family members moved into the Petitioner's nursing home, Respondents, relying on their power of attorney, each signed arbitration agreements on their relatives' behalf that provided for any claims arising from the relative's stay at Petitioner's facility to be resolved by binding arbitration.
After Respondents' family members passed away, Respondents brought suits against Petitioner in Kentucky, alleging substandard care at the Petitioner's facility had caused the family members' deaths. Petitioner moved to dismiss the case based on the arbitration agreements. Both the trial and appellate courts agreed that the Petitioner's motion should be denied, and Petitioner appealed to the Supreme Court of Kentucky. The Kentucky Supreme Court ultimately affirmed, holding the relevant arbitration agreements invalid. The court reasoned that the Kentucky Constitution declares the rights to access the courts and to a jury trial as so "sacred" and "inviolate" that an agent may only deprive its principal of these rights where the power of attorney expressly so provides. In light of this clear-statement rule, the court upheld the lower courts' decisions.
Petitioner appealed to the U.S. Supreme Court, alleging that Kentucky's clear-statement rule violated the FAA's principle of equal treatment. The Supreme Court agreed. It reasoned that the FAA makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. In so doing, the FAA establishes an equal-treatment principle by which a court may invalidate an arbitration agreement based on generally applicable contract defenses but not based on legal rules that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. Accordingly, the FAA preempts any state rule that, on its face, discriminates against arbitration as well as any rule that covertly accomplishes the same objective by disfavoring contracts that have the defining features of an arbitration agreement. By requiring an explicit statement before an agent can relinquish a principal's right to go to court and receive a jury trial, Kentucky's clear-statement rule hinged on the primary characteristic of an arbitration agreement. Therefore, the court concluded that the rule failed to put arbitration agreements on an equal plane with other contracts and, thus, violated the FAA.
Respondents argued that the clear-statement rule affected only contract formation and that the FAA did not apply to such questions. The Supreme Court disagreed, reasoning that the plain language of the FAA clearly indicated that the statute applied not only to the enforcement of arbitration agreements but also to their validity. The court further commented that Respondents' position would lead to absurd results and undermine application of the FAA.
Accordingly, the court reversed in part and vacated in part the lower courts' decisions and remanded the case for further proceedings consistent with its opinion.