On May 15, 2017, the U.S. Supreme Court held the Federal Arbitration Act preempts state precedent that an agent cannot deprive a principal of the right to trial by jury through an arbitration agreement that is only provided for in the power of attorney.
In Kindred Nursing Centers Limited Partnership v. Clark, 581 US_(2017), No. 16-32, two residents at a nursing home operated by Kindred Nursing Centers Limited Partnership (“Kindred Nursing”) in Kentucky had designated relatives as attorney-in-facts, giving their relatives broad authority to enter into transactions and agreements on their behalf. The relatives then used their authority to sign alternative dispute resolution agreements with Kindred Nursing that stipulated that any disputes arising from the residents’ stays at the facility would be resolved through arbitration. When the residents both passed away, the relatives filed lawsuits against Kindred Nursing for personal injury and wrongful death on their behalf. Kindred Nursing moved to compel arbitration based on the alternative dispute resolution agreements. The Supreme Court of Kentucky refused to enforce the parties’ arbitration agreements and held that the power of attorney that authorized an attorney-in-fact to manage the principal’s “financial affairs” and “health-care decisions” did not include the authority to bind the principal to an optional arbitration agreement.
In its 7-1 holding, the U.S. Supreme Court found that Kentucky’s clear-statement rule, which states that an agent cannot deprive their principal of the rights of access to the court and trial by jury through an arbitration agreement if that agreement is only expressly provided for in the power of attorney, violates the Federal Arbitration Act (“FAA”) by singling out arbitration agreements for disfavored treatment. The Court found that, under the FAA, arbitration agreements may only be found invalid and unenforceable based on legal rules that would apply to any contract. However, rules that apply only to arbitration agreements, even if they do not do so explicitly but focus on contracts that have the characteristics of arbitration agreements, violate the FAA and are therefore preempted. The Court went on to find that because Kentucky’s clear statement rule focuses exclusively on the primary characteristic of an arbitration agreement – the waiver of the right to a jury trial – it does not put arbitration agreements on equal footing with other contracts, and therefore the FAA preempts it.
Justice Thomas dissented, stating because the FAA did not apply in state court proceeding, it did not preempt state-law precedent. Justice Gorsuch did not participate in the discussion or decision.