Kindred Nursing Centers LP v. Clark
581 U.S. ___ (2017) (2017)
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Rule of Law:
Under the Federal Arbitration Act (FAA), a state law rule that requires an agent holding a power of attorney to have explicit authority to enter into an arbitration agreement is preempted because it singles out arbitration agreements for disfavored treatment and does not place them on an equal footing with other contracts.
Facts:
- Beverly Wellner held a power of attorney for her husband, Joe, granting her broad authority to 'institute legal proceedings' and make 'contracts of every nature.'
- Janis Clark held a power of attorney for her mother, Olive, granting her 'full power ... to transact, handle, and dispose of all matters.'
- Joe Wellner and Olive Clark were admitted to a nursing home operated by Kindred Nursing Centers L.P.
- Using their respective powers of attorney, Beverly and Janis signed admission paperwork which included contracts requiring all disputes to be resolved through binding arbitration.
- Joe Wellner and Olive Clark later died while residing at the facility.
- The estates of Wellner and Clark alleged that substandard care provided by Kindred caused their deaths.
Procedural Posture:
- The estates of Joe Wellner and Olive Clark filed separate lawsuits against Kindred Nursing Centers in Kentucky state trial court.
- Kindred filed motions to dismiss, arguing the disputes were subject to binding arbitration agreements.
- The trial court denied Kindred's motions.
- Kindred, the appellant, appealed to the Kentucky Court of Appeals, which affirmed the trial court's decision.
- Kindred then appealed to the Kentucky Supreme Court, the state's highest court, which consolidated the cases.
- The Kentucky Supreme Court affirmed the lower court decisions, invalidating the arbitration agreements based on its newly announced 'clear-statement' rule.
- Kindred successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
Does the Federal Arbitration Act preempt a state law rule requiring that a power of attorney explicitly grant the authority to enter into an arbitration agreement on behalf of a principal?
Opinions:
Majority - Justice Kagan
Yes, the Federal Arbitration Act preempts the state law rule. The FAA requires that arbitration agreements be placed on an equal footing with all other contracts, and the Kentucky rule violates this principle by imposing a specific requirement on arbitration agreements that is not applied generally to other contracts. The Kentucky Supreme Court's 'clear-statement' rule, which requires a power of attorney to explicitly authorize entering an arbitration agreement, is impermissibly hostile to arbitration because it is based on the waiver of the right to a jury trial—the primary feature of an arbitration agreement. The court's attempt to frame this as a general rule protecting all 'fundamental rights' was unpersuasive, as it did not apply to other contracts waiving constitutional rights and only offered fanciful examples like contracts for personal servitude. This kind of tailor-made rule that disfavors arbitration is precisely what the FAA was enacted to prevent.
Dissenting - Justice Thomas
No, the Federal Arbitration Act should not preempt the state law rule. The FAA does not apply to proceedings in state courts. Therefore, it cannot displace a state law rule governing the formation of contracts, including one that requires express authorization from a principal before an agent may waive the principal's right to a jury trial through an arbitration agreement. The judgment of the Kentucky Supreme Court should be affirmed.
Analysis:
This decision reinforces the FAA's broad preemptive scope over state laws that disfavor arbitration, even when those laws are not overtly discriminatory. It clarifies that state contract formation rules, such as those governing powers of attorney, cannot impose unique burdens on arbitration agreements. The Court rejected the argument that a state's interest in protecting the 'sacred' right to a jury trial can justify a rule that effectively singles out arbitration. This ruling makes it more difficult for state courts to invalidate arbitration agreements through subtle, arbitration-specific applications of general contract or agency law principles.
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