The U.S. Supreme Court issued its decision on May 15, 2017 that reversed the Kentucky Supreme Court’s holding in two nursing home arbitration agreement cases that declined to give effect to the two arbitration agreements executed by individuals holding powers of attorney.
The Kentucky Supreme Court had held that a general grant of power (even if seemingly comprehensive) does not permit a legal representative to enter into an arbitration agreement for someone else; to form such a contract, the representative must possess specific authority to waive his principal’s fundamental constitutional rights to access the courts and to trial by jury (the Kentucky Supreme Court deemed this the “clear-statement rule”).
The Kentucky Supreme Court had reasoned that the clear-statement rule did not violate the FAA’s preclusion of singling out arbitration agreements because the rule would apply not just to nursing home arbitration agreements, but also to some other contracts implicating fundamental constitutional rights.
The U.S. Supreme Court stated that the Federal Arbitration Act (“FAA “) requires courts to place arbitration agreements “on equal footing with all other contracts.” The U.S. Supreme Court held that because the Kentucky Supreme Court’s rule singles out arbitration agreements for disfavored treatment, it violates the FAA.
The U.S. Supreme Court stated 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), which establishes an equal treatment principle: a court may invalidate an arbitration agreement based on generally applicable contract defenses like fraud or unconscionability, but not on legal rules that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. Thus, the FAA preempts any state rule discriminating on its face against arbitration, including any rule that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements.
The U.S. Supreme Court held that the Kentucky Supreme Court’s clear-statement rule fails to put arbitration agreements on an equal plane with other contracts by adopting a legal rule hinging on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial, stating that such a rule is too tailor-made to arbitration agreements— subjecting them, by virtue of their defining trait, to uncommon barriers—to survive the FAA’s edict against singling out those contracts for disfavored treatment.
The U.S. Supreme Court held that the Kentucky Supreme Court specially impeded the ability of attorneys-in-fact to enter into arbitration agreements, thus flouting the FAA’s command to place those agreements on an equal footing with all other contracts.
The U.S. Supreme Court further held that a rule selectively finding arbitration contracts invalid because improperly formed fares no better under the FAA than a rule selectively refusing to enforce those agreements once properly made: otherwise, the FAA would mean nothing at all—its provisions rendered helpless to prevent even the most blatant discrimination against arbitration.
Nonetheless, the U.S. Supreme Court stated that in one of the two nursing home arbitration agreement cases decided by the Kentucky Supreme Court, the Kentucky Supreme Court had found that the power of attorney was insufficiently broad to give the representative the authority to execute an arbitration agreement for the principal (the nursing home resident). In that case, the U.S. Supreme Court stated “[i]f that interpretation of the document is wholly independent of the court’s clear-statement rule, then nothing we have said disturbs it.”
Source Kindred Nursing Centers L.P. v. Clark, No. 16–32.
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