Source: https://lettersblogatory.com/2017/06/07/iry-ryk-lakhman-on-kindred-nursing-centers-v-clark/
Timestamp: 2019-04-21 12:06:55+00:00

Document:
Friend of Letters Blogatory Ira Ryk-Lakhman comments on the Supreme Court’s most recent arbitration decision.
On May 15, 2017, the US Supreme Court decided Kindred Nursing Centers, L.P. v. Clark. The question before the Court was whether the Federal Arbitration Act (FAA) preempts a state law contract rule that singles out arbitration by requiring a power of attorney (POA) to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.
Under the FAA, arbitration agreements are ‘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). This provision yields the equal treatment principle, whereby 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.’ Briefly put, the FAA preempts any state rule discriminating on its face against arbitration.
Petitioner, Kindred Nursing, operates nursing homes and rehabilitation centers in Kentucky. The Respondents, Clark and Wellner, represented their principals, the estates of the deceased Clark and Wellner, who were residents at Kindred Nursing’s centers.
Prior to their admission to the nursing home, the residents signed general POAs, which designated their family members (Clark and Wellner) as their respective attorney-in-fact and gave them broad authorities over all future business affairs involving the residents, including the power and authority to sign contracts and to initiate and defend against legal proceedings. Clark’s agreement granted power to “draw, make, and sign in my name any and all checks, promissory notes, contracts, deeds or agreements” and Wellner’s agreement granted power to “make, execute, and deliver deeds, releases, conveyances, and contracts of every nature.” The POAs did not mention arbitration.
When the residents were admitted to the nursing home, Clark and Wellner signed their admission paperwork and an ‘Alternative Dispute Resolution Agreement between Resident and Facility (Optional)’, according to which all disputes arising between the residents of the nursing home and the nursing home, are to be resolved in arbitration.
Following the demise of Clark and Wellner, Respondents initiated legal proceedings against the nursing home before the state circuit court for personal injury, wrongful death, abuse, and other breaches of Kentucky state laws. Kindred Nursing moved to dismiss on grounds that the arbitration agreement should be enforced. The first instance sided with Kindred Nursing and dismissed the claims.
However after this decision was handed down, the Supreme Court of Kentucky delivered its judgment in Ping v Beverly Enterprises, where it held that broadly drafted POAs do not comprise the ability to bind the principal to an arbitration agreement. Accordingly, Clark and Wellner asked the circuit court to reconsider its decision to dismiss.
The circuit court granted reconsideration and determined that the arbitration agreements are unenforceable since Clark and Wellner did not have authority to bind their principals to such agreements. Kindred Nursing appealed the decision before the Kentucky Court of Appeals, who affirmed the decision and held that Clark and Wellner’s POA did not confer upon them the authority to bind the residents to arbitration.
Kindred Nursing appealed to the Kentucky Supreme Court. By a 4-3 vote the Kentucky Supreme Court affirmed the decision of the Court of Appeal by and declined to give effect to arbitration agreements executed by individuals holding a broad POAs. According to the Court, 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 (a ‘clear and convincing manifestation’) to ‘waive his principal’s fundamental constitutional rights to access the courts [and] to trial by jury’.
It bears emphasis that the drafters of our Constitution deemed the right to a jury trial to be inviolate, a right that cannot be taken away; and, indeed, a right that is sacred, thus denoting that right and that right alone as a divine God-given right.
Kindred Nursing petitioned the Supreme Court to review this decision.
On appeal, Kindred Nursing adhered to the long pedigree of cases where the Supreme Court held that arbitration agreements must be put on “equal footing” with all other contracts. Respondents on the other hand maintained in their pleadings that this case is not about the interpretation and enforcement of arbitration agreements. Rather, they suggested that this case is about agency contracts, which is plainly governed by state laws. Therefore, they maintained that the provisions of the FAA are not engaged and the FAA does not pre-empt these state laws.
Several amicus curiae briefs were filed in support of both sides. The US Chamber of Commerce supported Kindred Nursing, and focused on the benefits of arbitration compared to court litigation (enumerating duration, cost, procedure, saving precious judicial time, etc.), the underscoring rationale of the FAA, and empirical studies that demonstrate the efficiency of arbitration as a method of dispute settlement.
In the oral hearing, Kindred Nursing maintained a clear line whereby the Kentucky Courts discriminated against arbitration by applying a ‘different and more demanding’ rule to determine whether a POA confers authority to enter into arbitration agreements ‘than the rule for determining whether a power of attorney confers authority to enter into contracts generally’ (pp 3-17).
Clark and Wellner argued that under the rule developed by the Kentucky Supreme Court and the lower courts, ‘the power to waive generally fundamental constitutional rights must be unambiguously expressed in the text of a power of attorney’; this rule was adopted to protect ‘sacred’ constitutional rights, such as access to jury trial (pp. 18-22). Interestingly, Respondents argued that this state rule concerns the ability to enter into arbitration agreements (i.e., formation of agreements) and thus does not conflict with the FAA, which ‘has no application to contract formation issues’, but only to the enforcement of arbitration agreements.
The Court expressed skepticism. First, Justice Breyer noted in the oral hearings that he was ‘highly suspicious’ of this position that the Kentucky laws are designated to protect fundamental constitutional rights. He rather thought that ‘what really … happened is that Kentucky just doesn’t like the Federal law.’ (p 23).
On this point, the Bench’s line of questioning focused on the commonalities and distinctions between arbitration, mediation, and settlement. If, according to the Court, a general POA encompasses the authority of the attorney-in-fact to settle a claim out of court or to opt for mediation in lieu of a jury trial, why should the same POA not encompass the authority to enter into arbitration agreements? Or as Justice Breyer put it to: ‘Now, if you’re not going to tell me that those are treated exactly alike, I will tell you in my opinion right now you have discriminated against arbitration’ (p 49).
But what about the principle that making an arbitration agreement harder to form than other agreements violates the Federal Arbitration Act … [T]he main rule is equal footing. Arbitration we thought to be on the same footing as all other contracts. If you make the arbitration agreement harder to form because you have to have this explicit reference than other contracts, doesn’t that discriminate against arbitration agreements?
At the same time, the Bench was careful not to be too suspicious of the intentions of state courts. Some of the Justices worried that it is difficult to ascertain whether the state rule in question is a general rule that calls for a narrow interpretation of all broad POAs and just happens to focus on arbitration agreements in this instance, or whether it is a rule that pin-points and discriminates against arbitration.
I mean, basically, it seems to me what it’s coming down to is you just don’t believe the Kentucky Supreme Court when it says this is the general principle. And you’re saying, well, I really think you’re hostile to arbitration because I haven’t heard that principle before and this is the first one. But you know, if—if the Kentucky legislature passes a law that does the same thing, I mean, are you going to be suspicious of them too just because arbitration might be the first time it comes up?
The Court’s judgment reflects these views.
By a 7-1 margin (Justice Thomas dissenting; Justice Gorsuch took no part in the case), the Supreme Court held that the Kentucky Supreme Court’s rule—that an agent could deprive her principal of the rights of access to the courts and trial by jury through an arbitration agreement only if expressly provided in the POA—violates the FAA by singling out arbitration agreements for disfavored treatment.
No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees. Nor did the opinion below indicate that such a grant would be needed for the many routine contracts—executed day in and day out by legal representatives—meeting that description … Rather, the court hypothesized a slim set of both patently objectionable and utterly fanciful contracts that would be subject to its rule: No longer could a representative lacking explicit authorization waive her “principal’s right to worship freely” or “consent to an arranged marriage” or “bind [her] principal to personal servitude.” Placing arbitration agreements within that class reveals the kind of “hostility to arbitration” that led Congress to enact the FAA.
The opinion then clarifies that Respondent’s proposition that this is not a rule that specifically singles out arbitration is tantamount to saying that it is ‘applicable to arbitration agreements and black swans’.
Further, the Court cautioned that adopting the distinction between formation and enforcement of arbitration agreements ‘would allow states to pronounce any attorney-in-fact incapable of signing an arbitration agreement—even if a power of attorney specifically authorized her to do so. (After all, such a rule would speak to only the contract’s formation).’ As a result, ‘the FAA would then mean nothing at all—its provisions rendered helpless to prevent even the most blatant discrimination against arbitration’.
On these grounds, and given the distinction that the Kentucky Supreme Court drew between the drafting of Respondents’ POAs, the Supreme Court enforced the arbitration agreement for the Clark dispute and remanded the Wellner dispute for consideration in light of the Court’s opinion.
Justice Thomas dissented and ‘continue[d] to adhere to the view’ that the FAA ‘does not apply to proceedings in state courts’. The dissent did not address the merits of the POA issue.
At least professedly there is nothing new to the Court’s judgment in Kindred Nursing v Clark. Over the last decade, the Supreme Court has consistently held that the FAA preempts state laws on arbitration, and admonished the oft-cited rule of Buckeye Check Cashing v. Cardegna, 546 U.S. 440 (2006), whereby courts must put arbitration contracts “on equal footing” with other contracts.
For instance, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Court held that the FAA preempts California state laws that prohibit contracts from disallowing class-wide arbitration; in Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. ___ (2012), the Court held that the Oklahoma Supreme Court was wrong in preventing arbitration of a dispute over the scope of non-competition agreements in employment contracts; in Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___ (2012), the Court held that West Virginia’s categorical prohibition of pre-dispute agreements to arbitrate personal-injury or wrongful-death claims against nursing homes is contrary to the terms and coverage of the FAA; and, just last term, in the matter of DIRECTV, Inc. v Imburgia, 577 U.S. ___ (2015), the Supreme Court held that the FAA preempts state law judicial interpretations that do not place arbitration contracts on an equal footing with other types of contracts.
Indeed the legal analysis opens with a reminder that the FAA ‘requires courts to place arbitration agreements “on equal footing with all other contracts”’, and with a reference to DIRECTV, Inc. v Imburgia. From this perspective, the decision is on the direct continuum of the Court’s previous pro-arbitration jurisprudence.
It is also noteworthy that previous pro-arbitration Supreme Court judgments have been often associated with the late Justice Scalia. It was Justice Scalia who delivered the opinion of the Court in Buckeye Check Cashing v. Cardegna, which coined the phrase “equal footing” for arbitration agreements, and it was Scalia who authored the Court’s opinion in AT&T v Concepcion among others.
Since the passing of Justice Scalia there has been some uncertainty as to whether the Court will maintain its pro-arbitration positions, in particular because prior decisions on similar questions were far from unanimous. For instance, AT&T Mobility LLC v. Concepcion was adopted by a 5-4 vote, and the decision in DIRECTV, Inc. v Imburgia, which is closest in its factual matrix, was 6-3. The 7-1 vote in Kindred Nursing v Clark brings some reassurance with respect to the Court’s positions on arbitration; except for Justice Thomas, who has repeatedly maintained that the FAA does not apply in state courts, all participating Justices agreed.
It may be said that the relative consensus in this case stems from the Justices’ shared positions on the proper response of the US Supreme Court to insincere state supreme courts, and not from their positions about the FAA and arbitration more broadly. Insofar as this is a plausible assumption, it signals that both the conservative and the liberal wings of the Supreme Court are united in the view that state courts may not use legal artifice to avoid federal laws and Supreme Court precedents.

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