On February 22, 2017, the U.S. Supreme Court heard arguments related to the validity of pre-dispute arbitration agreements signed on behalf of nursing home patients, at the time of their admission, in the matter of Kindred Nursing Centers Ltd. Partnership v. Clark, No. 16-32. The Supreme Court will also review the question of whether an agent may bind a principal to a pre-dispute arbitration agreement based on a general power of attorney that does not clearly and explicitly convey the authority to sign such agreements.
The U.S. Supreme Court granted a petition for writ of certiorari filed by the Kindred Nursing Centers and related facilities, asking the Court to review a judgment from the Supreme Court of Kentucky that invalidated the arbitration agreements signed on behalf of residents at the Winchester Centre, a long-term care facility in Kentucky. The individuals who signed the arbitration agreements did so based on their authority stated in powers of attorney signed by the nursing home residents.
State Court Lawsuit
Following the residents’ deaths, their estates commenced lawsuits against the Winchester Centre in the Circuit Court of Clarke County, Kentucky, alleging wrongful death, personal injury, and violation of Kentucky law that protects residents of long-term care facilities. In each case, the facility’s motion to dismiss was granted, and the circuit court enforced the terms of the arbitration agreements.
However, after the court’s decision, the Supreme Court of Kentucky issued a decision in Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581 (Ky. 2012), cert. denied, 133 S. Ct. 1996 (2013), which addressed the very same issues as those briefed in the motion to dismiss. In Ping, the daughter of a deceased resident of a long-term care facility sued the facility for negligence. The Supreme Court of Kentucky, reversing the lower court decision granting the facility’s motion to dismiss, held that the “general power of attorney” executed by the resident in favor of her daughter was not sufficiently specific as to convey the authority to sign a pre-dispute arbitration agreement on behalf of the mother.
In the Ping decision, the power of attorney signed by the daughter had given her broad authority to “perform any, all, and every act and thing whatsoever requisite and necessary to be done,” including, among other things, managing her mother’s property and finances and executing all “authorizations and releases, related to medical decisions affecting [the mother],” but did not specify that the daughter had the right to waive her mother’s rights to commence a lawsuit in court by signing an arbitration agreement. 376 S.W.3d at 586–87.
The Kindred Nursing Centers plaintiffs moved to vacate the circuit court’s order granting the motion to dismiss and compelling arbitration. They argued that, as in Ping, they had no authority to sign the pre-dispute arbitration agreements. The circuit court agreed and reversed its prior orders, denying the motion to dismiss on the grounds that the arbitration agreements were unenforceable as the agents lacked the express authority to execute such agreements.
Kentucky Supreme Court Decision
The petitioners appealed to the Kentucky Court of Appeals, which denied relief in both cases. The petitioners then appealed to the Supreme Court of Kentucky, which consolidated the two cases with a third case raising similar issues, and affirmed the decisions of the Kentucky Court of Appeals, denying interlocutory relief to compel arbitration.
As stated by the Kentucky Supreme Court, the rights of access to courts, trial by jury, and to appeal to a higher court are “fundamental constitutional rights.” The court found that “the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document in order for that authority to be vested in the attorney-in-fact.” Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306, 328 (Ky. 2015).
The Kentucky Supreme Court concluded that the power of attorney signed by respondent Beverly Wellner, on behalf of her husband, provided only a limited grant of authority, encompassing the authority to institute legal proceedings and engage in real estate contracts, but not the power to execute a pre-dispute arbitration agreement. Although the power of attorney signed by respondent Janis Clark, on behalf of her mother, had broader language, such as the power “to do and perform for me in my name all that I might if present,” implicitly giving the agent the right to enter into a pre-dispute arbitration agreement, such authority did not extend to waiving fundamental constitutional rights including wrongful death claims.
Petition for Writ of Certiorari
In their petition to the U.S. Supreme Court, the Kindred Nursing Centers Limited Partnership and other petitioners argue that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., preempts Kentucky law, rendering the arbitration agreements valid and enforceable.
The Kentucky Supreme Court decision is, according to the petitioners, contrary to prior U.S. Supreme Court decisions, such as DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468 (2015), and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and others that interpret the FAA broadly to “manifest a ‘liberal federal policy favoring arbitration agreements.’” EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002). They argue that the Kentucky Supreme Court decision fails to consider the FAA and subverts its liberal policy that would favor the enforcement of the arbitration agreements signed in these cases.
Three amicus curiae briefs were filed in support of the petitioners’ arguments, including by Genesis Healthcare Inc. et al., the American Health Care Association (AHCA) and the Kentucky Association of Health Care Facilities, and the United States Chamber of Commerce.
Opposition to Petition by Residents’ Estates
In opposition to the petition, respondents Clark and Wellner argue that the protections of the FAA are not triggered and the dispute is not appropriate for review by the U.S. Supreme Court. Instead, they argue that the Kentucky Supreme Court decision addresses only the scope of their authority as agents to sign the arbitration agreements on behalf of the principal, which is a matter of contract interpretation under Kentucky state and common law. The state law interpretation of the power of attorney, they argue, must be addressed before any court were to enforce the arbitration agreements under the FAA. They argue that the U.S. Supreme Court lacks jurisdiction to review this case because the state court decision rests on adequate and independent state grounds.
According to the respondents, “the Kentucky Supreme Court engaged in a routine application of interpretive principles to an instrument of Kentucky agency in this case.” They frame the issue as a question of whether the powers of attorney signed by the respondents gave them the legal authority to enter into the arbitration agreements on behalf of their principals, upon their admission to long-term care facilities. Based on this argument, they contend that the petition for writ of certiorari should be denied.
CMS Final Rule Prohibits Pre-Dispute Arbitration Agreements
While the U.S. Supreme Court petition was pending in Kindred Nursing Centers, the Centers for Medicare & Medicaid Services (CMS) released new regulations related to long-term care facilities, effective November 28, 2016. Medicare and Medicaid Programs; Reform of Requirements for Long-Term Care Facilities, 81 Fed. Reg. 68,688 (Oct. 4, 2016).
The new regulations prohibit Medicare and Medicaid participating long-term care facilities from requiring residents to sign pre-dispute binding arbitration agreements, including as a condition of admission to that long-term care facility. Residents may voluntarily enter into agreements for binding arbitration with the facility after a dispute arises, but facilities may not require the resident to sign a post-dispute arbitration agreement as a condition of the resident’s continued stay at the facility.
The regulations also provide for future review of arbitration agreements by CMS, on request. If a resident and the facility resolve a dispute through the arbitration process, both the arbitration agreement and the arbitrator’s award must be retained by the facility for five years, and available for inspection on request by CMS.
The consumer protection rationale for the regulations was laid out in the final rule. Among other reasons, CMS cited its concern for vulnerable residents and the risk that such residents would be compelled to waive their right to a jury trial in return for nursing home care. CMS also disfavors the confidential nature of arbitration decisions on matters that involve potential injuries of nursing home residents, which it believes should be publicly available.
Enforcement of CMS Final Rule Is on Hold
Shortly after the final rule was published, the AHCA, a long-term care provider industry association, along with three of its members, commenced a federal court action in the Northern District of Mississippi seeking to preliminarily enjoin enforcement of the new regulations. On November 7, 2016, the court issued the requested preliminary injunction. The Secretary of Health and Human Services appealed that decision and, on January 9, 2017, the court granted the parties’ joint motion to stay the proceedings pending the outcome of the appeal. As of the time of this writing, enforcement of the CMS regulations remains on hold.
Keywords: litigation, ADR, arbitration, pre-dispute arbitration agreement, power of attorney, nursing home, fundamental constitutional rights
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