Does the Federal Arbitration Act preempt a state-law contract rule that requires a power of attorney to expressly refer to arbitration agreements before an attorney-in-fact can bind her principal to an arbitration agreement, even though the power of attorney includes the power to make “contracts”? Kindred Nursing Centers Limited Partnership v. Clark raises that issue, and the US Supreme Court granted certiorari on October 28 to decide that issue in a case coming out of Kentucky. [Certiorari petition] [Supreme Court briefs]
Kentucky has an interesting rule regarding powers of attorney and the way they relate to the formation of an agreement to arbitrate. Interesting for two reasons:
- The Kentucky Supreme Court split 4-3 on whether the rule is preempted by the Federal Arbitration Act.
- The rule appears to place a special burden on the formation of arbitration agreements – something the FAA forbids. Requiring a power of attorney to unambiguously express the power to enter into an arbitration agreement is - simply put - hostile to arbitration.
When Joe Wellner and Olive Clark were admitted to Fountain Circle Health and Rehabilitation Center, their attorneys-in-fact executed pre-dispute arbitration agreements on behalf of the residents, ostensibly pursuant to written powers of attorney. After Wellner and Clark died, their estates filed personal injury claims in state court. The nursing home moved to compel arbitration. The trial court denied the motion on the ground that the powers-of-attorney instruments did not authorize the resident's attorney-in-fact to waive the resident's right to access to the courts for the resolution of disputes. The Supreme Court of Kentucky affirmed in a 4-to-3 vote. Extendicare Homes v. Whisman (Kentucky 09/24/2015) [Opinion text].
The Kentucky court examined the powers-of-attorney instruments with considerable care, and concluded that the agents were not authorized to enter into arbitration agreements. The court emphasized that it would enforce an arbitration agreement if one had been made, but that its decision was that there was no assent to an arbitration agreement in the first place.
The Kentucky court put things in terms of a waiver of fundamental constitutional rights – access to the courts, appeal to a higher court, and trial by jury – and said that "the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document."
[W]e are convinced that the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document in order for that authority to be vested in the attorney-in-fact. The need for specificity is all the more important when the affected fundamental rights include the right of access to the courts (Ky. Const. § 14), the right of appeal to a higher court (Ky. Const. § 115), and the right of trial by jury, which incidentally is the only thing that our Constitution commands us to "hold sacred." See Ky. Const. § 7 ("The ancient mode of trial by jury shall be held sacred, and the right thereof remain inviolate, subject to such modifications as may be authorized by this Constitution.").
One dissent said:
Relying on a "God-given right" to a jury trial, the majority announces a new rule that contravenes the United States Constitution and controlling precedent from the Supreme Court of the United States.
Another dissent said:
I dissent from the majority's holding that crafts a rule requiring special treatment of the right to a jury trial that conversely treats the right to arbitrate as a lesser process when the United States Supreme Court has held that it is at least an equal process of dispute resolution, if not a preferred one, under the Federal Arbitration Act (FAA).
Expect the case to be argued early in 2017, with a decision by July.
[For recent decisions and pending employment law cases, see US Supreme Court Watch.]