581 U.S. __, 137 S.Ct. 1421 (2017)
The United States Supreme Court held that Kentucky's "clear statement" rule requiring a nursing home resident's power of attorney document to expressly include arbitration agreements in their grant of authority violated the Federal Arbitration Act ("FAA") by singling out arbitration agreements for disfavored treatment.
The plaintiffs, the estates of two deceased nursing home patients, brought suit against Kindred Nursing Centers alleging that its substandard care caused their deaths. Kindred moved to dismiss the cases, arguing that arbitration agreements signed by the plaintiffs' agents required that disputes be determined by binding arbitration and not in court. The Kentucky Supreme Court disagreed and held that its state constitution rendered the arbitration agreements invalid because neither power of attorney document specifically granted the agents the power to enter into arbitration agreements on behalf of the patients.
First, the Supreme Court noted 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." This establishes the equal-treatment principle, which allows a court to invalidate an arbitration agreement based on generally applicable contract defenses, but not based on laws that apply exclusively to arbitration agreements or arise from the fact that arbitration is at issue in the agreement. The Supreme Court noted that because the FAA preempts any state rule that discriminates against arbitration, the Kentucky Supreme Court's rule, which imposed a requirement specifically on arbitration agreements, could not stand.
Second, Kindred argued that the FAA did not apply to rules about contract formation, such as the Kentucky rule in this case. The Supreme Court disagreed, pointing to the FAA's text, which states that the FAA addresses not only about the "enforce[ment]" of arbitration agreements, but also about their initial "valid[ity]." The decision reinforces the principle that under the FAA an arbitration agreement is subject to generally applicable contract defenses, but not legal rules that only apply when an agreement to arbitrate is at issue.