Ky. Nursing Home Arbitration Decision Could Have Wider Application

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By Matthew Loughran

A Kentucky Supreme Court decision voiding nursing home arbitration agreements, if upheld by the U.S. Supreme Court, could have much broader application to limit the use of powers of attorney in the state generally ( Kindred Nursing Ctrs. LP v. Clark , U.S., No. 16-32, oral argument 2/22/17 ).

That prediction was voiced during oral arguments Feb. 22 in a case challenging a Kentucky high court decision rejecting the enforceability of pre-dispute arbitration agreements signed by representatives for nursing home residents. The state court determined that the authority the residents provided to their representatives didn’t explicitly allow to sign arbitration agreements on their behalf.

The nursing homes asked the Supreme Court to review the state court’s decision because they say the Federal Arbitration Act and a stated federal policy in favor of arbitration preempt the state court’s general rule requiring a power of attorney to explicitly include the authority to enter into arbitration agreements. That question has been at the heart of numerous cases filed in both state and federal courts in Kentucky by the estates of nursing home residents, challenging the validity of the arbitration agreements.

Robert E. Salyer, of Wilkes & McHugh PA in Lexington, Ky., who argued on behalf of the nursing home residents’ representatives, said the state court’s decision was a reflection of Kentucky’s approach to powers of attorney. “It has been the law of Kentucky since 1912 that powers of attorney are to be strictly interpreted and that the third party deals with the principal by an agent at that third party’s own peril,” he said in response to a question from Justice Anthony Kennedy.

As a result, Salyer said, most organizations in the state requiring a power of attorney, such as banks, have always demanded explicit information in a power of attorney. However, “this happens to be an instance where you have the third party who doesn’t actually want more explicit language in the power of attorney,” he added.

Justices Question Broader Application

The majority of questions posed by the justices revolved around the scope of the state court decision, beyond its application to just arbitration agreements. Justice Stephen Breyer had the sharpest questions for Salyer, posing a number of hypothetical scenarios to test whether the Kentucky Supreme Court’s decision would invalidate any power of attorney agreement that cedes a person’s authority to settle or avoid a jury trial in any litigation.

“What I really think has happened is that Kentucky just doesn’t like the federal law,” Breyer said. “That’s what I suspect. So they’re not going to follow it,” he added.

Justice Elena Kagan and Chief Justice John Roberts grilled Andrew Pincus, of Mayer Brown LLP in Washington, the representative for Kindred Nursing Centers LP, with equal vigor. Both justices wondered whether a state statute that protected all fundamental rights from inclusion in a power of attorney would be valid even if it included arbitration agreements within its scope.

“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,” Roberts said.

Kagan expressed her belief that leaving the Kentucky high court’s opinion intact would fit with past Supreme Court decisions. “Usually we don’t presume that State courts are acting in ways that are not in accordance with law,” she said. “Actually, we usually give them the benefit of a kind of good faith presumption.”

Pincus answered that arbitration agreements were different because of the FAA and the stated federal policy in favor of arbitration. “What Congress said in the FAA is, in fact, you can’t say that arbitration agreements should be treated like some special category of contracts just because of a characteristic of arbitration,” he said.

Special Requirements for Nursing Homes

Early on in the argument, a few of the justices asked Pincus if the fact that the arbitration agreements were part of nursing home admission agreements should affect the analysis of whether they are enforceable. “What about if the category were fundamental rights that implicate the individual’s life or health, so that you would have to have an express provision giving the attorney-in-fact authorization to consent to various procedures that a terminally ill person might undergo, and if this were put in that category?” Justice Samuel Alito asked Pincus.

Pincus responded that an arbitration agreement couldn’t be included in the same category of fundamental rights that implicated the life and health of a resident.

Kennedy posed the example of an individual who was forced to sign an arbitration agreement before being admitted to a nursing home and asked Pincus whether that situation would take the agreement out of the realm of the FAA and place it within the power of the states to regulate.

“The problem with the hypotheticals is that the FAA basically says the State doesn’t have the power to treat arbitration agreements specially on the theory that they impose some special burden on the parties to the arbitration agreement,” Pincus replied.

Alito pointed out that the case doesn’t involve the same type of arbitration that the high court has recently addressed. “This doesn’t involve an arbitration about the amount that you were charged for your cable bill or for your telephone bill,” he said. “This involves a situation where an elderly person needs care.”

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com

For More Information

The transcript of the oral argument is at http://src.bna.com/mo2.

The Kentucky Supreme Court's decision is at http://src.bna.com/mo4.

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