May 15, 2017

Supreme Court Decides Kindred Nursing Centers, L.P. v. Clark

On May 15, 2017, the Supreme Court of the United States decided Kindred Nursing Centers, L.P. v. Clark, No. 16-32, holding that state courts may not single out arbitration agreements for “disfavored treatment.”

Respondents Beverly Wellner and Janis Clark held a power of attorney for their relatives Joe Wellner and Olive Clark. Both Beverly and Janis signed arbitration agreements on behalf of their respective relatives when Joe and Olive moved into a nursing home facility operated by petitioner Kindred Nursing Centers L.P. After Joe and Olive died, their estates (represented by Beverly and Janis) sued the facility on allegations that the facility’s substandard care caused the deaths.

The trial court denied the nursing facility’s motion to dismiss based on the arbitration agreements and the Kentucky Supreme Court affirmed. The Kentucky Supreme Court found that Beverly Wellner’s power of attorney did not permit Beverly to enter into an arbitration agreement on Joe Wellner’s behalf. The Court also found that although the Janis Clark power of attorney gave her capacity to enter into arbitration agreements, neither the Clark nor the Wellner power of attorney provided sufficient specificity to entitle the representatives to enter into arbitration agreements. Given the Kentucky Constitution’s declaration of the right of court access and the “sacred” and “inviolate” nature of trial by jury, powers of attorney must specifically deprive the principal of such rights.

The U.S. Supreme Court reversed. The Kentucky Supreme Court’s “clear-statement” rule violated the Federal Arbitration Act by singling out arbitration agreements for disfavored treatment. Courts may invalidate arbitration agreements based on “generally applicable contract defenses” but not legal rules that apply only to arbitration. The Federal Arbitration Act preempts any state rule that facially discriminates against arbitration or that covertly accomplishes the same objective by disfavoring contracts that contain the features of arbitration agreements.

The Court rejected respondents’ argument that the clear-statement rule did not apply to contract formation. The Federal Arbitration Act’s text stated that it applies to arbitration agreements’ initial validity or, put otherwise, what it takes to enter into them. Adopting respondents’ view would also make it too easy for States to undermine the federal law.

The U.S. Supreme Court ordered the Kentucky Supreme Court to enforce the Clark-Kindred arbitration agreement because it was invalidated exclusively on the now-defunct clear-statement rule but remanded the Wellner-Kindred arbitration agreement since it was unclear whether the Kentucky Supreme Court refused to enforce it solely based on the clear-statement rule.

Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, Alito, and Sotomayor joined. Justice Thomas filed a dissenting opinion. Justice Gorsuch took no part in the consideration or decision of the case.

Download Opinion of the Court

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