May 18, 2017

U.S. Supreme Court Rules Federal Arbitration Act Preempts Right to Jury Trial

Written By

Thomas E. Rutledge
Member, Stoll Keenon Ogden PLLC

Earlier this week, the United States Supreme Court issued an opinion in which it rejected Kentucky’s hostility to agreements to arbitrate disputes. This ruling will enhance the ability of parties to an agreement to agree to resolve disputes by arbitration or other means of alternative dispute resolution.

The Kentucky Supreme Court had held that certain agreements to arbitrate disputes arising out of care in nursing homes were not subject to arbitration because the powers of attorney, pursuant to which the admission documents were executed, did not specifically reference a right to enter into arbitration agreements on behalf of the resident. Rather, it held that only an explicit reference to the agent’s power to enter into arbitration would be effective to waive the “sacred” and “inviolate” right to a jury trial in accordance with the state’s Constitution.

The United States Supreme Court rejected that analysis, holding that an agreement to arbitrate could not be treated differently than other agreements entered into on behalf of the patient, pursuant to a power of attorney. Kindred Nursing Centers Limited Partnership v Clark, No. 16-32 (U.S. May 15, 2017).

Under the Federal Arbitration Act (the “FAA”), courts are not allowed to single out agreements to arbitrate for special scrutiny or limitation.  Likewise, states cannot enact laws that would undermine arbitration, either directly or indirectly. Interestingly, in striking down the Kentucky ruling, the Court turned to AT&T Mobility LLC v Concepcion, 563 U.S. 333, 342 (2011) – a matter involving a minor dispute over sales tax on a cellular handset, where no power of attorney was involved, and certainly not the death of a loved one – a ruling that determined courts cannot ignore an arbitration agreement based on any legal rules that “apply only to arbitration or derive their meaning from the fact that an agreement to arbitrate is at issue.”

It was on that basis the Court struck down the Kentucky ruling, finding its decision “to safeguard a person’s ‘right to access the courts and to trial by jury’” was protecting “the one right that just happens to be correlative to the right to arbitrate”, (quoting the dissent of Kentucky Supreme Court Justice Elisabeth Hughes). 

The Court also rejected the assertion that the FAA’s policy in favor of the enforcement of agreements to arbitrate should not apply with respect to the formation of the contract to arbitrate, finding:

A rule selectively finding arbitration contracts invalid because improperly formed fairs no better under the Act than a rule selectively refusing to enforce those agreements once properly made.

This decision by the US Supreme Court follows a series of recent decisions reinforcing the enforceability of agreements to arbitrate. In Kentucky, the Supreme Court has clearly rejected the significant number of decisions in which agreements to arbitrate nursing home and other healthcare disputes, those agreements having been entered into via powers of attorney, are invalid.

It is expected that many of those disputes will now go to arbitration, but not without an additional cost. While the decedent’s claim against the healthcare facility may be resolved in arbitration, claims of spouses and children for consortium losses will continue to be litigated in state court, those claims not being subject to the decedent’s agreement to arbitrate.

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