States Can't Impose Blanket Ban on Nursing Home Arbitration Agreements

Some nursing homes and other residential care facilities, as a condition of admission, require that prospective residents waive their right to a jury trial and submit any claims for personal injury due to facility negligence to binding arbitration.

The United States Supreme Court has vacated an order of the West Virginia Supreme Court holding that such arbitration agreements are unenforceable as against public policy.

Three negligence suits were brought against nursing homes in West Virginia, by Clayton Brown, Jeffrey Taylor, and Sharon Marchio. In each case, a family member of a patient requiring extensive nursing care had signed an agreement with a nursing home on behalf of the patient.

Essentially, the relevant parts of the agreements in all three cases were identical. All included a clause requiring the parties to arbitrate any dispute in which a claim was brought by the patient or the patient’s family for personal injuries due to the negligence of the nursing home.

A state trial court dismissed the suits by Brown and Taylor based on the agreements to arbitrate. The Supreme Court of Appeals of West Virginia consolidated those cases with Marchio’s, which was before the court on other issues.

In a June 2011 decision concerning all three cases, the West Virginia Supreme Court held that “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”

That holding did not end the inquiry, however. The West Virginia Supreme Court considered whether the state’s public policy was pre-empted by the Federal Arbitration Act.

Enacted in 1925, the Federal Arbitration Act “provides for contractually-based compulsory and binding arbitration, resulting in an arbitration award entered by an arbitrator or arbitration panel as opposed to a judgment entered by a court of law.” (The definition is from Wikipedia.)

A 1984 U. S. Supreme Court case, Southland Corp. v. Keating, established that the Federal Arbitration Act was applicable to contracts under state law that affect interstate commerce.

The West Virginia Supreme Court asserted that “Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public,” and thus the Federal Arbitration Act did not, at least in the state of West Virginia, pre-empt the state’s public policy denying enforcement of nursing home arbitration agreements.

In the 2011 case AT&T Mobility LLC v. Concepcion, the U. S. Supreme Court ruled that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”

Accordingly, in a per curiam decision (that is, not signed by any of the justices), the U. S. Supreme Court vacated the state court judgment. The federal law (FAA) trumps state public policy.

The U. S. Supreme Court decision is likely to make binding arbitration agreements more common. But the high court’s decision does not mean that a binding arbitration provision in every agreement will be upheld by a court.

For example, a court could find that under state contract law the patient lacked the legal capacity to enter into a contract (due to mental impairment or duress) and the patient’s attorney-in-fact was not authorized to enter into a binding arbitration agreement.

Marmet Health Care Center, Inc. v. Brown, Feb. 21, 2012.
The West Virginia case is Brown v. Genesis Healthcare Corp., June 29, 2011.

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