SCOTUS Says States Can’t Discriminate Against Arbitration, Directly or Indirectly

Adding to its line of pro-arbitration decisions led by AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011)(available at http://bit.ly/1Sf42Bm), the U.S. Supreme Court on Monday reaffirmed in a 7-1 ruling written by Justice Elena Kagan that the Federal Arbitration Act (FAA) both “preempts any state rule discriminating on its face against arbitration” and “displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” Kindred Nursing Centers v. Clark, No. 16-32 (May 15)(available at http://bit.ly/2pCk94L ).

Kindred came to the Supreme Court after the Kentucky Supreme Court refused to enforce arbitration agreements signed on behalf of two residents of the Kindred Nursing Center, by relatives to whom the residents had given power of attorney. The two residents died, their families alleged, from substandard care provided by the nursing home.

The nursing home moved to dismiss the complaints on the grounds that the parties had agreed to arbitrate their claims. The trial court initially sent the cases to arbitration, but reconsidered later in light of a Kentucky Supreme Court opinion, and denied these motions. The Kentucky Court of Appeals agreed that the suits could proceed. The Kentucky Supreme Court consolidated the cases and affirmed, holding that a power of attorney must explicitly authorize the attorney in fact to waive jury trials in order to include arbitration agreements under the power.

As the Justices’ questioning during oral arguments earlier this year acknowledged, the facts of this case involved something more important and sensitive than a mere dispute over the arbitrability of a telephone or cable bill. But, with Monday’s ruling, the Supreme Court seemed to be implying that, no matter how emotional the backdrop, the states cannot attack federal law that applies to that contract, even indirectly.

The Kentucky Supreme Court, wrote Kagan in the Kindred opinion, “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.”

With this recent line of cases, the U.S. Supreme Court has made clear that the presence of unequal treatment of arbitration will control the results in these cases.

“There is no doubt that mandatory arbitration procedures, when abused, can be used to stack the deck in favor of companies against individuals, and the original case’s underlying facts are upsetting,” said CPR President & CEO, Noah J. Hanft. “But in ruling that the FAA precludes states from imposing rules that negatively single out arbitration agreements, the Supreme Court in Kindred has correctly protected a process that is fundamentally no less fair or favorable to individuals than a trial might be–and which arguably has the potential to offer many additional benefits. One can, and must, advocate simultaneously both for a robust arbitration option, and for its fair application.”

Justice Kagan’s majority opinion was joined by Chief Justice Roberts, and Justices Kennedy, Ginsburg, Breyer, Alito and Sotomayor. Justice Gorsuch, who had not yet been confirmed when the case was argued, did not participate.

Justice Clarence Thomas dissented–the seventh time he has issued a solo dissent noting that the FAA doesn’t apply to state court proceedings.  He would have backed the Kentucky Supreme Court, writing that in state courts, “the FAA does not displace a rule that requires express authorization from a principal before an agent may waive the principal’s right to a jury trial.”

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