Arbitration Agreements are Alive and Well

Anyone who follows this blog knows that I am an advocate for arbitration agreements because of the benefits they offer parties to a dispute.  They can streamline dispute resolution, reduce costs of resolution, make the process more predictable because the parties control the terms, and allow for confidentiality, all while allowing the complainant to have his or her day in court.

The availability of arbitration was initially jeopardized by the November 28, 2016 regulations from the Centers for Medicare and Medicaid Services (“CMS”), with its eleventh hour attempt to pass regulations prohibiting pre-dispute arbitration agreements in the skilled care setting.  Interestingly, those regulations were not the initially proposed regulations submitted for comment, which did not prohibit pre-dispute arbitration agreements.  On November 7, 2016, The United States District Court for the Northern District of Mississippi granted a preliminary injunction prohibiting enforcement of the November 28 regulation.  The court found that the regulation violated the Federal Arbitration Act (“FAA”) and that Congress did not grant CMS the authority to enact the regulation.  The court noted that the breadth of the regulation raised concerns about expansion of federal agency power, prompting separation of power concerns.  CMS appealed the injunction on January 5, 2017 to the United States Court of Appeal for the Fifth Circuit.  On June 2, 2017, CMS withdrew its appeal.  In the meantime, the U.S. Supreme Court has weighed in on yet another state court attempt to violate the FAA by prohibiting enforcement of arbitration agreements signed by skilled care residents’ attorneys-in-fact.

On May 15, The U.S. Supreme Court reversed the Kentucky Supreme Court’s refusal to give effect to arbitration agreements executed by individuals with powers of attorney for nursing home residents.  In Kindred Nursing Centers L.P. v. Clark, the Court found in violation of the FAA the Kentucky Supreme Court’s opinion that if a power of attorney document does not specifically state that the attorney-in-fact can enter into arbitration agreements, then that authority was not granted, even though they have the authority to contract generally.  The Kentucky court’s rule singles out arbitration agreements for less favorable treatment than other contracts and, thus, violates the FAA.  The Court also held that an argument that the FAA enforcement requirement does not apply to contract formation is meritless.  If the FAA arbitration contract protections do not apply to contract formation challenges, then no arbitration contracts would be enforced.

With recent Supreme Court decisions that affirm decades of similar decisions enforcing the FAA and upholding arbitration agreements, the CMS regulation banning pre-dispute arbitration appears to have died on the vine.  Not wanting to make bad law, CMS has backed down, which is a victory for long term care.  The message is, and has been for years, that a flat ban on arbitration agreements, pre-dispute or otherwise, does not treat arbitration agreements the same as other contracts and will probably not survive analysis under FAA jurisprudence.

So, with the current climate, it appears that long term care facilities are free to include arbitration agreements in their resident admission documents.  The key to ensuring that they will be enforced is compliance with the pertinent contract law.

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