KINDRED NURSING CENTERS LIMITED PARTNERSHIP, DBA WINCHESTER CENTRE FOR HEALTH AND REHABILITATION, NKA FOUNTAIN CIRCLE HEALTH AND REHABILITATION, ET AL. v. CLARK ET AL.
Kindred Nursing Center Limited Partnership et al. v. Janis Clark, et al, Case No. 16-32
On May 15 2017, the United States Supreme Court rendered Kindred Nursing Center s Limited Partnership v. Janis Clark et al., Case No. 16-32, and rejected a rule of law announced by the Kentucky Supreme Court in Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306 (2016). The Kentucky Supreme Court adopted a “clear statement rule,” mandating an agent deriving authority from a power of attorney document must hold express authority to “waive his principal’s fundamental constitutional rights to access the courts [and] to trial by jury,” in order to enforce an agent-executed arbitration agreement. Justice Kagan delivered the 7-1 Opinion of the Court (Thomas, J., dissenting), holding Whisman’s rule of law singled out arbitration agreements for disfavored treatment and, thus, violated the Federal Arbitration Act. Justice Gorsuch did not participate in the decision.
Clark involved claims brought by the estates of two former nursing home residents, Joe Wellner and Olive Clark. The estates alleged their decedents suffered negligent care while residing at a Kindred long-term care residence in Winchester, Kentucky. Both Wellner’s and Clark’s representatives held powers of attorney granting them authority to act on the respective resident’s behalf: Mr. Wellner granted his attorney-in-fact powers “in my name, place and stead,” to “institute legal proceedings” and “make contracts of every nature in relation to both real and personal property,” among other powers. Ms. Clark’s granted her attorney-in-fact authority to “full power… to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way,” and also included powers to “draw, make and sign in my name any and all …contracts, deeds or agreements.”
Using the authority granted by their respective powers of attorney, Mr. Wellner’s and Ms. Clark’s legal representatives executed voluntary, predispute arbitration agreements with the nursing home at the time of their principals’ admissions. The agreements provided that all disputes arising from the resident’s stay at the facility would be resolved through binding arbitration and not by a lawsuit in court. After the residents died, their estates separately sued Kindred in Kentucky state court. Kindred moved to dismiss both lawsuits based upon the executed arbitration agreements.
The trial court originally enforced the arbitration agreements, dismissed the lawsuits and ordered the parties to arbitration. Soon thereafter, the Kentucky Supreme Court rendered Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581 (Ky. 2012). Ping also concerned an agent-executed arbitration agreement in a nursing home context, with the agent acting pursuant to a general power of attorney. Ping held that a general “medical and financial power of attorney” did not provide sufficient authority for the agent to agree to arbitrate her principal’s disputes. Based on Ping, the trial court granted the estates’ motions to vacate and held instead the POAs did not grant sufficient authority to sign arbitration agreements. Kindred petitioned the Court of Appeals for interlocutory relief, which that Court denied. Kindred then petitioned the Kentucky Supreme Court for interlocutory relief, and the Court consolidated the cases for argument (along with a third case not in issue in Clark).
The Whisman Opinion
In a 4-3 decision, Kentucky’s highest court upheld the Court of Appeals’ and trial court’s refusals to enforce the arbitration agreements. Concerning Wellner’s case, the majority found Wellner’s POA, expressly granting the otherwise unlimited “power to contract,” did not provide his agent with the power to enter an arbitration contract because an arbitration contract actually concerns a “constitutional right to access courts, and to trial by jury,” not covered by the power to contract for his personal property (property which doesn’t encompass constitutional rights). The Court then addressed the Olive Clark POA, stating that her POA’s grant of power “to transact, handle and dispose of all matters affecting me and/or my estate in any possible way,” was so broad that “it would be impossible to say that entering into a pre-dispute arbitration agreement was not covered.” Nevertheless, the Court still rejected Clark’s grant of authority as insufficient because the Court must “also consider the extent to which the authority of an agent to waive his principal’s fundamental constitutional rights to access the courts, to trial by jury, and to appeal to a higher court,” cannot be “inferred from a less-than-explicit grant of authority.” Whisman analogized arbitration contracts – which it defined as a “waiver of the fundamental right to jury trial” — to the likes of “contracts to waive civil rights,” “contracts to waive the principal’s right to worship freely,” “contracts to bind the principal to indentured servitude,” and the “power to enter a plea agreement pleading the principal guilty to a criminal offense,” among others. Ignoring that the FAA requires arbitration contracts must be enforced on equal footing with all other contracts, Whisman attempted to explain why its result did not violate the FAA, Concepcion and Marmet Health:
“It bears emphasis that the drafters of our Constitution deemed the right to a jury trial to be inviolate, a right that cannot be taken away; and, indeed a right that is sacred, thus denoting that right and that right alone as a divine God-given right.” (Emphasis original).
The Whisman majority concluded that this “God-given” right required a POA must include an “explicit” grant of the authority “to waive constitutional rights” of the principal, or to enter into an arbitration agreement.
Justice Abramson (now Hughes) authored the powerful dissent, noting, “In contravention of the FAA and controlling U.S. Supreme Court precedent, the majority’s specific-authorization requirement burdens agent-entered arbitration agreements more heavily than either agent-entered contracts generally, or judicial forms of agent-initiated dispute resolution.” She also questioned the majority rule’s allegedly neutral application, “If the rule were truly meant to apply generally, to say that the majority has revolutionized our agency law would be a gross understatement.” She concluded by calling out the majority’s obvious judicial hostility against arbitration, “The majority’s apparent presumption that the arbitration agreement has substantive implications adverse to the principal (and thus belongs on the list of hard-to-waive substantive rights) is the very presumption Congress sought to counteract with the FAA.”
The Clark Opinion
The U.S. Supreme Court granted a writ of certiorari and heard oral arguments. The Clark Opinion set the tone by quoting from Justice Abramson’s dissent, which noted Whisman’s “new clear-statement rule was ‘clearly not … applicable to ‘any contract’ but [instead] single[d] out arbitration agreements for disfavored treatment.’” Clark directed attention to the FAA’s establishment of an “equal treatment principle” for arbitration contracts — permitting their invalidation based upon “generally applicable contract defenses,” but not on legal rules that “apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” (citing AT&T Mobility v. Concepcion, 563 U.S. 333, 339 (2011). The Court wasted little time in cutting to the chase, denouncing Whisman’s clear-statement rule’s lack of general applicability, and finding the rule failed to put arbitration agreements on an equal plane with other contracts. “And so it was that the [Whisman] court did exactly what Concepcion barred: adopt 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.” “Such a rule is too tailor-made to arbitration agreements – subjecting them, by virtue of their defining trait, to uncommon barriers – to survive the FAA’s edict against singling out contracts for disfavored treatment.”
The Clark Court rejected outright Whisman’s attempt to show equal application to non-arbitral contracts, sarcastically illustrating Whisman’s flagrantly hostile attitude towards arbitration, “the state court nowhere cautioned that an attorney-in-fact would now need a specific authorization to, say, sell her principal’s furniture or commit her principal to a non-disclosure agreement…. Rather, the court hypothesized a slim set of both patently objectionable and utterly fanciful contracts that would be subject to its rule: No longer could a representative lacking explicit authorization waive her ‘principal’s right to worship freely’ or ‘consent to an arranged marriage’ or ‘bind her principal to personal servitude.’ … Placing arbitration agreements with that class reveals the kind of ‘hostility to arbitration’ that led Congress to enact the FAA…. And doing so only makes clear the arbitration –specific character of the rule.”
Nor was the Clark Court tempted by the Estates’ argument that the FAA did not apply to “contract formation issues” and only applied after a valid contract was formed under state law. “By its terms, the Act [FAA] cares not only about the ‘enforce[ment] of arbitration agreements, but also about their initial ‘valid[ity] – that is, about what it takes to enter into them…. A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the Act than a rule selectively refusing to enforce those agreements once properly made. Precedent confirms that point.”
The Court concluded by addressing another prominent concern, “Adopting the respondents’ view would make it trivially easy for States to undermine the Act – indeed, to wholly defeat it. As the respondents have acknowledged, their reasoning would allow States to pronounce any attorney-in-fact incapable of signing an arbitration agreement – even if the power of attorney specifically authorized her to do so. …. And why stop there? If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements. (That rule too would address only formation.) The FAA would then mean nothing at all – its provisions rendered helpless to prevent even the most blatant discrimination against arbitration.”
The Clark Court reversed the Kentucky Supreme Court’s judgment in favor of the Clark Estate, finding the Whisman court applied the “clear-statement rule” to invalidate that arbitration agreement.
Many of Kentucky’s state and federal courts are currently holding cases in abeyance, pending final resolution of the Clark Court’s decision. Courts should now reverse those containing POAs similar to the Clark POA and remand with directions to enforce the arbitration agreements. We also anticipate those cases denied prior appellate relief or a stay, and that are currently pending in litigation, may move for extraordinary relief based upon the declaration that then-existing Kentucky law violated the FAA and the U.S. Constitution. However, with the Clark Court’s remand and directive to “reconsider” the Wellner POA in light of Clark’s holding (POA granting authority to make contracts and to institute legal proceedings on principal’s behalf), Kentucky’s courts and litigants with POAs like Wellner find themselves awaiting further consideration. Note that these POAs containing powers to contract and to handle legal proceedings amount to the majority of matters being held in abeyance. Whether the Kentucky Supreme Court will accept the Clark Court’s FAA guidance to evaluate the Wellner POA remains to be seen.
This decision is certainly an important, hard-fought victory for the use of the expedited arbitration process to resolve disputes concerning care received in long-term care facilities. The entire industry mobilized to obtain this result which, hopefully, will reduce the huge sums of money spent by health care providers defending enormously expensive litigation.