Supreme Court’s Nursing Home Arbitration Case Could Have Wider Implications

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By Matthew Loughran

The U.S. Supreme Court will hear arguments Feb. 22 in a case that may have far-reaching implications and affect the viability of the long-term care industry ( Kindred Nursing Ctrs. LP v. Clark , U.S., No. 16-32, oral argument scheduled 2/22/17 ).

The case presents a question of Kentucky contract law, with the state supreme court rejecting arbitration agreements signed by representatives for nursing home residents. The state court determined that the authority that the residents provided to their representatives didn’t explicitly allow them to enter into arbitration agreements ( 25 HLR 1169, 8/11/16 ).

Groups representing long-term care providers say the state supreme court’s decision “poses a substantial threat to the long-term care industry at a time when demographic trends dictate that provision of long-term care could become increasingly important.” The groups said the Federal Arbitration Act (FAA) and a federal policy favoring arbitration preempt the Kentucky law and similar laws in other states.

Meanwhile, public advocacy groups and representatives for the elderly told the U.S. Supreme Court a right to a jury trial is a fundamental right under the Constitution and shouldn’t be denied to a nursing home resident because her representative signed an optional arbitration agreement without the explicit authority to do so.

“This case is part of the larger arbitration wars in American society,” Imre S. Szalai, the John D. Wessel Distinguished Professor of Social Justice at Loyola University New Orleans College of Law told Bloomberg BNA. Szalai, an arbitration scholar, who filed a friend-of-the-court brief supporting the nursing home residents, pointed out corporate interests prefer arbitration while consumer rights groups prefer to take their cases to court.

“Corporate interests are heavily pushing for the use of arbitration in different contexts in order to lower the costs of dispute resolution, which in theory should lower prices for consumers,” he said. Meanwhile, he added, the consumers prefer to go to court to take advantage of court procedures “which would help level the playing field when suing large corporate interests.”

Federal Preemption at Issue

Kindred Nursing Centers LP, which runs the Kentucky nursing homes in question, brought the appeal to the U.S. Supreme Court , saying the FAA and prior U.S. Supreme Court precedent prohibit a state from placing more of a burden on the creation of an arbitration agreement than it would on any other contract between parties.

The FAA was enacted to place arbitration agreements on the same footing as any other contract and to make those agreements enforceable as a matter of federal law unless grounds exist allowing revocation of all forms of contract, Kindred said in its brief.

But representatives for the nursing home residents warned the U.S. Supreme Court in their brief that following that reasoning would lead to the unconstitutional result of state courts being unable to interpret and apply state agency law without running afoul of federal policy.

The representatives warned that “Kindred’s argument thus portends federalizing all sorts of state law determinations regarding agency and authority, including both the reach of state guardianship statutes and the interpretation of state corporate laws.”

Application of State Law

A group of nursing home operators, led by Genesis Healthcare Inc., filed a friend-of-the-court brief saying the Kentucky supreme court’s decision had created a federalism problem because different rules apply in federal or state courts.

The group argued lower state courts must still apply the Kentucky Supreme Court’s rulings on the enforceability of an arbitration agreement, while the federal courts have all determined the FAA applies to those same agreements.

“Kentucky citizens lacking diversity to remove or file an original federal action often lose their right to enforce valid arbitration agreements,” the group said.

Additionally, the group told the U.S. Supreme Court, the Kentucky court’s decision places undue burdens on long-term care facilities when “the future well-being of the country’s aging population depends on a strong long-term care industry.”

Szalai, in his brief, told the U.S. Supreme Court applying the FAA in this case “results in an unconstitutional intrusion on state sovereignty” because it would “strip away the sovereignty of a state to design and implement its own policies to protect personal-injury victims.”

Szalai said the FAA contains an exception for personal injury claims “that can be asserted without reference to a contract.”

In the case currently before the U.S. Supreme Court, two nursing home residents died while in the care of their respective nursing homes. When their representatives sued wrongful death and for other personal injury claims under Kentucky law, the homes tried to compel them to arbitrate.

HHS Rule Implicated

The parties also pointed to a rule from the Health and Human Services Department that would forbid nursing homes from requiring residents to agree, upon admission, to arbitrate any disputes that arise between them.

The homes said the rule was another example of the anti-arbitration bias that they have to fight against despite the stated federal public policy in favor of arbitration.

The rule was scheduled to take effect Nov. 28 but was blocked by a federal court after the American Health Care Association challenged its legality ( 25 HLR 1613, 11/10/16 ).

The HHS has appealed that court’s ruling to the U.S. Court of Appeals for the Fifth Circuit, which is accepting briefs in the matter ( Am. Health Care Ass’n v. Burwell, 5th Cir., No. 17-60005, filed 1/5/17 ).

Benefits of Arbitration

The U.S. Chamber of Commerce filed a friend-of-the-court brief supporting Kindred’s perspective and arguing that a federal policy favoring arbitration “is a fair, efficient, and inexpensive alternative to litigation that benefits business and individuals alike.” According to the chamber’s brief, the streamlined processes of arbitration make it 41 percent less expensive for nursing homes than defending against litigation in court.

The group also pointed to studies showing that individuals could be equally as successful when taking their claims to an arbitrator as they would be if they were to take their claims to state court. As a result, the group said, the Kentucky Supreme Court’s decision should be reversed because it “reflects continued hostility to arbitration, upsets settled expectations and undermines the proper operation of the Supremacy Clause,” of the U.S. Constitution.

The American Health Care Association and the Kentucky Association of Health Care Facilities filed a joint brief agreeing with the chamber about the benefits of enforcing arbitration agreements. The groups pointed out that a significant portion of individuals who require care from nursing homes are incapable of contracting for themselves and have planned for that eventuality by designating family or friends to make those decisions for them.

If the U.S. Supreme Court upholds the state court’s decision to deny the enforceability of the agreements, it would eliminate an avenue for dispute resolution that is faster and more cost effective, both for providers and for patients, the groups said.

However, the American Association for Justice and the Kentucky Justice Association filed a competing brief challenging the characterization of the state court’s decision. In their brief, the groups said the Kentucky Supreme Court’s decision didn’t show a hostility to arbitration. Instead, they argued, the court was supporting a policy protecting a nursing home resident from waiving his or her constitutional rights without explicitly saying so.

Question of Patient Intent

The AARP and other advocates for the elderly and nursing home patients also filed a friend-of-the-court brief asking the U.S. Supreme Court to consider the intent of the patients when crafting a rule on whether they intended to waive their right to a jury trial.

“Generally speaking, older adults seeking to delegate the authority to manage their affairs want someone to manage the practicalities of their day-to-day lives, not to waive substantive rights of which they are either unaware or do not foresee a need to exercise,” the groups told the court.

The brief by the public advocacy group Public Citizen agreed with the AARP contention and asked the U.S. Supreme Court not to overturn the state court’s decision because it was based on state law concepts of contract formation. “The FAA itself does not supply standards determining whether there is a valid agreement to arbitrate between two parties,” the group’s brief said.

Instead, it argued, state law governs the evaluation of intent of the parties. Public Citizen’s brief also emphasized that arbitration agreements entered into by family members of potential nursing home residents come at a stressful time where the nursing home has immense power to accept or reject the potential resident for admission.

Kindred is represented by Mayer Brown LLP in Washington. Attorneys for the residents’ representatives are from Wilkes & McHugh PA in Lexington, Ky.

The Chamber of Commerce brief was filed by Consovoy McCarthy Park PLLC in Arlington, Va. The Genesis brief was filed by Quintairos Prieto Wood & Boyer PA in Louisville, Ky. The American Health Care Association brief was filed by Hooper, Lundy & Bookman PC in Washington.

The Public Citizen brief was filed by the Public Citizen Litigation Group in Washington. The American Association for Justice and the Kentucky Justice Association brief was filed by the Center for Constitutional Litigation PC in Fairfax Station, Va. The AARP brief was filed by the AARP Foundation Litigation in Washington.

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 Chamber of Commerce brief is at http://src.bna.com/lQW.The Genesis brief is at http://src.bna.com/lQX.The AHCA/KAHCF brief is at http://src.bna.com/lQY.Szalai's brief is at http://src.bna.com/lQU.Public Citizen's brief is at http://src.bna.com/lQ4.The AAJ/KJA brief is at http://src.bna.com/lQV.The AARP brief is at http://src.bna.com/lRD.

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