U.S. Supreme Court: Individual States Cannot Treat Arbitration Agreements Different From Contracts

The Kentucky case, Kindred Nursing Center L.P. v. Clark, emerges from a consumer context.  Plaintiffs were relatives of elderly individuals who resided at a Kindred Nursing Center location.  The plaintiffs signed arbitration agreements with Kindred on behalf of the elderly individuals, for whom they had also executed powers of attorney in order to manage the elderly individuals’ affairs.  Upon the death of their relatives, plaintiffs sued Kindred.  The Kentucky Supreme Court invalidated the arbitration agreement, announcing a new rule: any agreements that waive the “divine God-given right” to a jury trial must be explicitly stated before an attorney-in-fact.  According to the Kentucky Supreme Court, the plaintiff’s power of attorney was too broad and did not grant the authority to execute arbitration agreements.

The Supreme Court disagreed.  In a 7-1 ruling, the Supreme Court stated that laws designed to single out and disfavor arbitration agreements—such as the Kentucky Supreme Court’s new rule—defy the FAA’s requirement that arbitration agreements are treated equally with all other contracts.

As a result of Kindred, the Supreme Court forbids not only any local laws that outright prohibit arbitration of any particular type of claim, but also any regulations that attempt to “covertly accomplish the same objective.”  This decision indicates the Supreme Court’s continued support of FAA provisions in preempting state regulations that seek to alter or interfere with enforcement of arbitration agreements.

 Action Items

1. Look for potential changes to arbitration agreement rules as this is currently a hot topic in the courts; ManagEase will continue to report on new developments.
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