On May 15, the United States Supreme Court reversed and remanded a state court decision that invalidated an arbitration agreement. In a visceral 7-1 decision, the Supreme Court sent a clear message to Kentucky that the state cannot circumvent the Federal Arbitration Act (“FAA”) merely because the court does not like arbitration clauses.
In Kindred Nursing Centers Limited Partnership et al. v. Clark et al., two residents of the Kindred nursing home executed powers of attorney designating their agents to act on their behalf. Each agent entered into an agreement with Kindred which, among other things, contained an arbitration clause that bound the parties to arbitrate should a dispute arise. Both residents subsequently died due to alleged negligent care by Kindred, resulting in their agents bringing individual wrongful death suits against the nursing home. The trial court dismissed both claims in favor of the arbitration provision.
However, on appeal, the Kentucky Supreme Court found an explicit reference or a “clear statement” to arbitrate was needed in the power of attorney to authorize an attorney-in-fact to enter into an arbitration agreement because that agreement waived the principal’s “sacred”, “inviolate,” and “God-given” right to a jury trial under the Kentucky Constitution.
Upon grant of writ of certiorari, the U.S. Supreme Court held that the Kentucky Supreme Court did exactly what the Court had prohibited in the past, by adopting a legal rule that hampered the primary characteristic of an arbitration agreement, namely, a waiver of the right to go to court and receive a jury trial. In writing for the majority, Justice Elena Kagan held that the “clear-statement rule” adopted by the Kentucky Supreme Court impeded the ability of attorneys-in-fact to enter into arbitration agreements, and therefore failed to put arbitration agreements on equal footing with all other contracts.
Justice Kagan also noted that there was nothing within the Kentucky Supreme Court’s decision that suggested explicit authorization was required for an attorney-in-fact to sign a settlement agreement or consent to a bench trial in lieu of a jury trial on the principal’s behalf. Justice Kagan found that the Kentucky Supreme Court’s position was yet another indication that the Court’s demand for specificity of powers of attorney arose from the suspect status of arbitration rather than the sacred status of jury trials.
The Kindred decision is notable for two reasons. First, the case garnered a clear 7-1 majority; the Court made clear its intolerance for states that attempt to override the FAA. Secondly, the Supreme Court was clear that rules and arguments that target arbitration’s effect on fundamental liberties, such as the right to a jury trial, are unlikely to succeed.