May 29, 2017
Kindred Nursing Centers, L. P. v. Clark: Intersection of Constitutional and Agency Law with the Federal Arbitration Act
Kindred Nursing Centers, L.P. v. Clark involved a nursing home contract, which contained an agreement to arbitrate. The arbitration agreement stated that any claims arising from the residents’ stay at the facility would be resolved through binding arbitration. The interesting element in the case is that the agreement was not signed by the residents (principals) but by their two children, each holding a power of attorney affording them broad authority to manage the affairs of their elderly parents. After the deaths of the parents, the two heirs individually filed a lawsuit claiming the health care owners provided substandard care that caused their deaths. The nursing home moved to dismiss the case, arguing that the arbitration agreements prohibited bringing the disputes to court. Subsequently, the Supreme Court of Kentucky affirmed that the arbitration agreement did not bar the lawsuits.1
The Kentucky Supreme Court held that the arbitration agreements were invalid because the powers of attorney do not specifically entitle the representatives to enter into an arbitration agreement. It reasoned that the Kentucky Constitution declares the rights of access to the courts are “sacred” and, therefore, the waiving of such rights of principals must be expressly provided for in the power of attorney. Justice Kagan delivered the opinion of the Court in a seven-to-one vote.2
Federal Arbitration Act, Constitutional Rights, and Agency Law
The Kentucky Supreme Court essentially singled out arbitration agreements as unique due to the constitutional right to a civil jury trial. Thus, a comprehensive power of attorney may grant the representative authority to do just about anything on behalf of the principal except for waiving constitutional rights. The Kentucky court relied on a previous case that held that a representative must possess specific authority to “waive his principal’s fundamental constitutional rights to access the courts [and] to trial by jury.”3 The Court did find that one of the powers of attorney was broad enough to encompass the power to enter into an arbitration agreement, but still invalidated the agreement because it did not specifically give that authority under the Court’s “clear-statement rule.” Justice Kagan noted that Kentucky’s clear-statement rule violated the “equal-treatment principle” of Section 2 of the Federal Arbitration Act (FAA).4
Justice Kagan noted that it was established law that the FAA applies to all arbitration agreements and that such agreements are “on equal footing with all other contracts.”5 The Court held that the singling out of arbitration agreements and requiring that a power of attorney must “clearly state” that the representative has the power to enter into an arbitration agreement violates the FAA, which provides that federal policy supports arbitration as the preferred means of dispute resolution in the United States. The FAA makes arbitration agreements “valid, irrevocable, and enforceable.” However, arbitration agreements are subject to invalidity based upon the general rules of contract law. Section 2 of the FAA provides an equal-treatment principle in which courts may invalidate arbitration clauses or agreements based on “generally applicable contract defenses.”6 However, state laws may not develop specific rules that regulate the enforceability of arbitration agreements.
It has long been the case that state statutes that invalidated arbitration agreements or clauses, mostly directed at consumer contracts, violated the FAA. Kindred Nursing Centers reaffirms the enforceability of arbitration agreements by showing that states cannot invalidate such agreements covertly through specialized rules that they can not invalidate en masse.7 Justice Kagan relied heavily on the 2011 case of AT&T Mobility LLC v. Concepcion.8 The Court in that case posed a hypothetical in which a fictitious state law spoke only of the right to a jury with no mention of arbitration agreements: “In Concepcion, for example, we described a hypothetical state law declaring unenforceable any contract that ‘disallow[ed] an ultimate disposition [of a dispute] by a jury.’”9 Justice Kagan reasoned that a state law might avoid referring to arbitration by name, but still “would ‘rely on the uniqueness of an agreement to arbitrate as [its] basis’—and thereby violate the FAA.”10
Justice Kagan noted that the Kentucky Supreme Court’s constitutional argument is made clear when it profusely states that the framers “recognized ‘that right and that right alone as a divine God-given right’ that is “held sacred” and “inviolate.”11 The important fact is that the Kentucky Supreme Court was referencing the Kentucky Constitution and not the United States Constitution. Thus, any conflict with the FAA would invalidate any ruling based upon such a rationale. It is the same rationale rejected by the U.S. Supreme Court in Concepcion.12
Justice Kagan exposed the flaw in the lower court’s argument that the waiver of constitutional rights is so important that it requires an express and specific authority to do so in the power of attorney. She noted that other constitutional rights can be waived under a general power of attorney without abiding by any clear-statement rule. She further noted: “No Kentucky court . . . has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees. For example, the Kentucky Constitution protects the ‘inherent and inalienable’ rights to ‘acquire and protect property’ and to ‘freely communicat[e] thoughts and opinions,’” as required by Section 1 of the Kentucky Constitution, but the power to execute or expunge those rights does not have to be specifically stated in a power of attorney.
Thus, the clear-statement rule in the context of this case is no more than an anti-arbitration specific rule, “much as if it were made applicable to arbitration agreements and black swans.” In footnote 1 of the opinion, Justice Kagan emphasized the discriminatory nature of Kentucky’s clear-statement rule when she noted the rule does not apply to other types of agreements in which a person may waive the right to a jury trial. For example, there is no such requirement of a specific authorization needed for an attorney-in-fact to sign a settlement agreement or consent to a bench trial on the principal’s behalf.
The Court also rejected the argument that the FAA does not apply to contract-formation issues, but only to contract-enforcement issues, and the associated argument that it is within the States’ powers to determine if contracts are valid in the first place (that is, that the FAA only applies after a court determines that a valid arbitration agreement had been concluded). The Court held otherwise, again noting that Section 2 of the FAA states that arbitration agreements are presumed to be “valid, irrevocable, and enforceable.” Thus, the FAA covers the formation or validity of arbitration agreements as well as their enforcement.
In the end, the Supreme Court held that the broader power of attorney held by one of the children implicitly granted the authority to enter into an arbitration agreement (but was still invalid since it did not meet the clear-statement requirement), reasoning that the clear-statement rule was a discriminatory rule aimed at invalidating arbitration clauses. However, the Court held open the possibility that if the other power of attorney was “insufficiently broad,” it could be interpreted not to grant a power to enter into an arbitration agreement. But the Court seemed skeptical that the lower court could reach that conclusion because it would have to review the narrower power of attorney independent of the taint of the clear-statement rule.13
Federal Arbitration Act Preempts Actions of States
In Kindred Nursing Centers, L. P. v. Clark, the Supreme Court, in a near-unanimous opinion, reinforced its longstanding precedent that the FAA’s principle of the enforceability of arbitration agreements remains firm. The states are barred from diminishing such enforceability in favor of allowing a contracting party to pursue a claim in a court of law. Put simply, the FAA represents longstanding “federal” policy favoring the use of arbitration.14 The FAA has sustained due process challenges related to a “right” to a trial because the courts have held that a proper arbitration process is a fair method of dispute resolution. Furthermore, the right to a civil jury trial or litigation is a waiveable right. Therefore, an agreement to arbitrate is a waiver of any such right. Unfortunately, state courts that view the right to a civil trial as an unalienable right will continue to attempt to restrict the reach of arbitration agreements, and will continue to fail in their quest. This is nothing new since, according to Justice Scalia, “[t]he FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements.”15 Ninety-two years later, some judges continue to hold to the belief of an absolute right to a trial in civil cases.
Larry DiMatteo is the Huber Hurst Professor of Contract Law & Legal Studies at the University of Florida’s Warrington College of Business, as well as an Affiliate Professor at the Levin College of Law and the Center for European Studies. He received his J.D. from Cornell Law School; LL.M. from Harvard Law School; and Ph.D. in Business and Commercial Law from University of Monash. In 2012, he was the University of Florida’s Teacher-Scholar of the Year; former Editor-in-Chief of the American Business Law Journal; 2012 Fulbright Professorship (University of Sofia); and author or co-author of 100 publications including 10 books and more than 50 law review articles. His books include Comparative Contract Law: British and American Perspectives (Oxford University Press 2016) (M. Hogg); International Sales Law: Principles, Contracts and Practice (Beck, Hart, & Nomos 2016) (Janssen, Schulze & Magnus); Global Challenge of International Sales Law (ed. Cambridge University Press 2014); Commercial Contract Law: A Transatlantic Perspective (DiMatteo, et al. Cambridge University Press 2012), Visions of Contract Theory: Rationality, Bargaining, and Interpretation (Prentice, Morant & Barnhizer) (Carolina Academic Press 2007). Professor DiMatteo has been a Visiting Professor at University of Münster; Bocconi University; University of Catania; Leverhulme Trust Grant Professor (University of Leicester); University of Warsaw; and City University Hong Kong.
- See Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306 (2015).
- No. 16-32, slip op. (U.S. May 15, 2017). Justice Thomas dissented; Justice Gorsuch took no part in the decision.
- See Extendicare Homes, 478 S.W.3d at 327.
- Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., 61 Stat. 670 (2012).
- See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006) (arbitration agreements have equal footing to enforceability as any other type of contract).
- AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339 (2011). This comment that arbitration clauses are subject to invalidation just like any other contract term is in reference to the following phrase in Section 2 of the FAA: “save upon such grounds as exist at law or in equity for the revocation of any contract.” Examples would be arbitration agreements that are a product of duress or that are deemed to be unconscionable.
- Id. at 341.
- 563 U. S. 333 (2011).
- Id. at 342.
- Id. at 341 (partially quoting Perry v. Thomas, 482 U.S. 483, n.9 (1987)).
- 478 S.W.3d, at 328–29.
- See Concepcion, 563 U.S. at 341–42 (“adopt[ing] a legal rule hinging on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial.”).
- Kindred Nursing, slip op. at 1 (Thomas, J., dissenting). Justice Thomas, in dissent, holds to the implausible view that somehow the FAA does not apply to proceedings in state courts, citing his dissents in six previous opinions. See DIRECTV, Inc. v. Imburgia, 577 U.S. ___ (2015) (Thomas, J., dissenting) (slip op., at 1); Preston v. Ferrer, 552 U.S. 346, 363 (2008) (same); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) (same); Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 460 (2003) (same); Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 689 (1996) (same); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265–97 (1995) (same).
- See Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (FAA represents a policy in favor of the liberal use of arbitration and that regulation of arbitration clauses is a matter for the general law of contracts); see also Cardegna, 546 U.S. at 443 (arbitration agreements are on equal footing with other contracts).
- Concepcion, 563 U.S. at 337.
Recommended Citation Larry DiMatteo, Response, Kindred Nursing Centers, L. P. v. Clark: Intersection of Constitutional and Agency Law with the Federal Arbitration Act, Geo. Wash. L. Rev. On the Docket (May 29, 2017), http://www.gwlr.org/kindred-nursing/.