February 21, 2012

Supreme Court Upholds Applicability of Federal Arbitration Act to Predispute Nursing Home Arbitration Agreements

The use of arbitration clauses in nursing home admission agreements is a growing trend.  In some states, however, there is bias against the enforcement of such clauses, particularly those adopted prior to the occurrence of the events that give rise to the dispute.  Some state courts have gone so far as to hold that predispute arbitration clauses in nursing home admission agreements are unenforceable as a matter of public policy.  This was the conclusion, albeit an erroneous one, in a pair of recent decisions from the Supreme Court of Appeals of West Virginia.

On February 21, 2012, the United States Supreme Court, in a per curiam opinion in Marmet Health Care Ctr., Inc. v. Brown and Clarksburg Nursing Home & Rehab. Ctr., LLC v. Marchio, decisively rejected the West Virginia court’s conclusion that predispute arbitration clauses in nursing home admission agreements are unenforceable.  The Supreme Court held clearly and unequivocally that “State and federal courts must enforce the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq., with respect to all arbitration agreements covered by that statute.”  Under the FAA, a “written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.  As the Court pointed out, the statutory text “includes no exception for personal-injury or wrongful-death claims.”  The West Virginia state law prohibition was a “categorical rule prohibiting arbitration of a particular type of claim,” which was “contrary to the terms and coverage of the FAA.”  Thus, the Court concluded, the FAA preempts the conflicting anti-arbitration rule.

The Supreme Court recognized that the state court had proposed, as an alternative holding, that the clause in two of the cases was unconscionable.  It was unclear, however, whether the invalid rule against predispute arbitration clauses had influenced that holding.  Accordingly, the Supreme Court vacated the state court judgment and remanded the cases for consideration whether, absent the invalid public policy, the arbitration clauses at issue were unenforceable under generally applicable common law principles that are not preempted under the FAA.

The Court’s full decision is available here.

This post was contributed by Jane Bello Burke.