KY Nursing Home Cases Latest Battleground in Arbitration Wars

KY Nursing Home Cases Latest Battleground in Arbitration Wars

Page M. Smith, Managing Editor[1]

On February 22, 2017, the United States Supreme Court will hear Kindred Nursing Ctrs. Ltd. PShip v. Clark,[2] a case seeking to resolve whether the Federal Arbitration Act[3] (FAA) preempts a Kentucky contract rule prohibiting an agent acting under the authority of a general power of attorney from entering into an arbitration agreement on behalf of the principal in the absence of express authorization.[4]

Both the Kentucky Uniform Arbitration Act[5] and the FAA strongly favor the enforcement of arbitration agreements.[6] The validity of an arbitration agreement is a matter of state contract law.[7] But, under the FAA, if an arbitration agreement is valid, it is “irrevocable, and enforceable,”[8] unless a state law generally applicable to the “validity, revocability, and enforceability” of all contracts provides otherwise.[9]

In Extendicare Homes, Inc. v. Whisman, the families of three nursing home residents brought suits in circuit court asserting personal injury and wrongful death claims against defendant nursing home facilities.[10] But, because each patient’s agent signed an arbitration agreement contained in nursing home admission documents, the defendant nursing homes moved to compel arbitration proceedings.[11] The two power of attorney instruments at issue in Kindred Nursing Ctrs. Ltd. PShip appeared to give each resident’s agent broad authority to sign an arbitration agreement on the resident’s behalf.[12] Specifically, the instruments included language conferring the agent with authority such as: “full power for me and in my name . . . in her whole discretion, to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way;”[13] “authority to ‘draw, make, and sign . . . any and all . . . contracts, deeds or agreements;’”[14] and, the ability to “make, execute and deliver . . . contracts of every nature in relation to both real and personal property . . . .”[15] On appeal, a majority of the Kentucky Supreme Court determined that one of the three agents had authority under the express terms of the instrument to bind its principal to an arbitration agreement.[16] But, the majority ultimately held all three arbitration agreements unenforceable, emphatically explaining that an agent acting under the authority of a general power of attorney could not “bargain away”[17] his principal’s fundamental constitutional right to access courts and to trial by jury without “unambiguously expressed”[18] authority in the power of attorney instrument.[19]

The majority reasoned that its decision did not undermine the longstanding prohibition against state laws singling out arbitration agreements,[20] stating its rule “merely reflect[ed] a long-standing and well-established policy disfavoring the unknowing and involuntary relinquishment of fundamental constitutional rights regardless of the context in which they arise.”[21] Meanwhile, the strongly worded dissent and court watchers pondering why the U.S. Supreme Court decided to take up this case, assert the majority’s express-authorization requirement blatantly violated the FAA by placing heavier burdens on “agent-entered arbitration agreements” than other contracts.[22] Therefore, even with the current eight-member court, recent federal cases promoting the enforceability of arbitration agreements portend reversal of the Kentucky Supreme Court’s decision.[23]

Regardless, given the brewing distrust of arbitration agreements in nursing home contracts, which are often signed when both patients and their families are in vulnerable states of mind,[24] this case is expected to have potentially far-reaching implications on the long-term care industry and its ability to avoid the costs of litigation.[25] Furthermore, as “part of the larger arbitration war[] in American society,”[26] this case further highlights the grave misunderstanding surrounding arbitration agreements, especially when a nursing home patient is not the one signing the agreement.

[1] J.D. expected May 2018.
[2]Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306 (Ky. 2015), cert. granted, Kindred Nursing Ctrs. Ltd. P’Ship v. Clark, 137 S.Ct. 368 (2016).
[3] 9 U.S.C. § 2 (2016).
[4] Kate Howard, Petition of the Day: Kindred Nursing Centers Limited Partnership v. Clark, SCOTUSblog (Aug. 3, 2016, 11:23 pm), http://www.scotusblog.com/2016/08/petition-of-the-day-965/.
[5] Ky. Rev. Stat. Ann. § 417.050 (2017).
[6] See KPMG LLP v. Cocchi, 565 U.S. 18, 21 (2011) (“The Act [FAA] reflects an ‘emphatic federal policy in favor of arbitral dispute resolution.’”) (citations omitted); Extendicare Homes, Inc., 478 S.W.3d at 320 (Ky. 2015) (noting that public policy favors enforcement of arbitration agreements and that “doubts about the scope of issues subject to arbitration should be resolved in favor of arbitration”).
[7] Extendicare Homes, Inc., 478 S.W.3d at 320.
[8] 9 U.S.C. § 2 (2016).
[9] Extendicare Homes, Inc., 478 S.W.3d at 329-30 (quoting Perry v. Thomas, 482 U.S. 483, 493 n. 9 (1987)).
[10] Id. at 312.
[11] Id.
[12] See id. at 347-48 (Abramson, J. dissenting) (noting that the authority to contract language in both the Clark and Wellner powers of attorney fully authorized the agent’s to enter into arbitration agreements on behalf of the principal).
[13] Id. at 317.
[14] Id. at 347.
[15] Id.
[16] Id. at 327.
[17] Id. at 330.
[18] Id. at 328.
[19] Id. at 330-31.
[20] Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687 (1996).
[21] Extendicare Homes, Inc., 478 S.W.3d at 331.
[22] Id. at 349-51. See Ronald Mann, Argument Preview: Justices to Consider (Once Again) State-Court Decision Limiting Pre-Dispute Arbitration Contracts, SCOTUSblog (Feb. 15, 2017, 12:03 PM), http://www.scotusblog.com/2017/02/argument-preview-justices-consider-state-court-decision-limiting-pre-dispute-arbitration-contracts/ (discussing the similarity between Kindred Nursing Ctrs. Ltd. P’Ship and several recently decided supreme court cases involving arbitration agreements); Liz Kramer, SCOTUS Accepts Review of Kentucky Nursing Home Arbitration Case, Stinson Leonard Street LLP,  Arbitration Nation Blog (Oct. 30, 2016), http://www.lexology.com/library/detail.aspx?g=b374b933-f824-460f-8614-5e52abf04615 (expressing uncertainty regarding the U.S. Supreme Court’s decision to take this case).
[23] Mann, supra note 20.
[24] See Lisa Schencker, Nursing Homes’ Use of Binding Arbitration Comes Under Fire, Modern Healthcare (Aug. 8, 2015), http://www.modernhealthcare.com/article/20150808/MAGAZINE/308089979 (describing the challenges nursing home patients and their families face upon admitting a family member to a nursing home and the confusion surrounding the effects of signing an arbitration agreement).
[25] Matthew Loughran, Supreme Court’s Nursing Home Arbitration Case Could Have Wider Implications, Health Law Reporter, Bloomberg BNA (Feb. 10, 2017), https://www.bna.com/supreme-courts-nursing-n57982083648/.
[26] Id.
*Featured image by Ulrich Joho, licensed under CC BY-SA 2.0.