State courts must enforce arbitration agreements pursuant to the Federal Arbitration Act (FAA) regardless of public policy concerns or conflicting state laws, the U.S. Supreme Court has held in Marmet Health Care Center Inc. v. Brown, in a per curiam opinion entered Feb. 21.
West Virginia’s Supreme Court of Appeals
The ruling vacated a decision by West Virginia’s Supreme Court of Appeals that said compelled arbitration was unenforceable in a trio of consolidated suits against nursing homes for personal injury and wrongful death.
The West Virginia court was not persuaded by earlier rulings from the Supreme Court that said the FAA trumps state law. In fact, the state court called that interpretation of the FAA “tendentious” and “created from whole cloth.”
The state court could not escape the U.S. Constitution’s Supremacy Clause, however, which dictates that laws made under the authority of the United States “shall be the supreme law of the land.”
Federal Arbitration Act
Therefore, a state’s public policy is preempted by the FAA, which says that written contract provisions that direct parties to settle disputes through arbitration, “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” as quoted in the Supreme Court’s opinion.
Moreover, the FAA does not include an exception for personal-injury or wrongful-death claims in its text, the opinion said.
Three Consolidated Lawsuits
In a June 2011 decision in three consolidated suits, the West Virginia court held that, as a matter of public policy under state law, arbitration provisions in nursing home admissions agreements would not be enforced in actions alleging negligence that resulted in a personal injury or wrongful death.
The three suits were brought by Clayton Brown, Jeffrey Taylor, and Sharon Marchio, family members of patients who died, the opinion said. The suits alleged that the nursing homes’ negligence caused injuries or harm resulting in their deaths.
The family members had signed agreements on the behalf of the patients, who required long-term nursing care. Two of the agreements required the parties to arbitrate all disputes, other than claims to collect late payments owed by the patient, the opinion said. One required arbitration of all disputes. All three contracts required that the party filing the arbitration pay for the filing fees.
The state trial court dismissed the Brown and Taylor suits because of the arbitration requirements and West Virginia’s Supreme Court consolidated those cases with the Marchio case — on appeal for other reasons — and reversed the trial court, arguing that Congress never intended the FAA to be applicable to personal injury or wrongful death suits. The court reasoned that these tort suits do not directly derive from the written agreements that created the connection with interstate commerce that bestows federal jurisdiction.
This is particularly true when the written agreement involves a service that members of the public have to use by necessity, the state court opinion said, seeming to make a distinction between a contract for a service like health care and business-to-business contracts for services or goods.
Therefore, the state appeals court said, the FAA does not pre-empt West Virginia’s public policy against pre-dispute arbitration agreements that apply to claims of personal injury or wrongful death against nursing homes.
U.S. Supreme Court Ruling
The U.S. Supreme Court ruled that the West Virginia court had misread and disregarded its precedents interpreting the FAA, and did not follow controlling federal law as required.
The FAA’s coverage is not as limited as the state court would have it, the Supreme Court opinion said, adding that when the Supreme Court interprets a federal law, as is its duty, state courts may not fail to implement the interpretation.
In vacating the decision of the court below, the Supreme Court cited a whole string of its own cases expressing the strong federal policy in favor of arbitration, and confirming the enforceability of arbitration agreements and provisions.
The opinion also cited last year’s decision in AT&T Mobility LLC v. Concepcion, in which the Supreme Court held that when state law prohibits the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA.
West Virginia’s policy against arbitration of a particular type of claim is contrary to the terms and coverage of the FAA, the Supreme Court opinion said.
The high court therefore vacated and remanded the cases so the state court could consider whether — absent the public policy reasons — the arbitration clauses are unenforceable under state common law principles that are not specific to arbitration and not pre-empted by the FAA.
Memorandum on the Decision
According to a memorandum on the decision from New York firm Wachtell Lipton Rosen & Katz, the Supreme Court decision left open two possibilities. First, as noted, the state court might find arbitration provisions unenforceable under state-law principles that are not specific to arbitration.
Second, the opinion did not address the potential tension between the federal policy in favor of arbitration — codified in the FAA — and other federal statutory rights of litigants.
Wachtell Lipton pointed to a recent Second Circuit decision that illustrates this tension. In the case In re American Express Merchants’ Litigation, the circuit court invalidated an arbitration clause and class action waiver because they allegedly precluded the vindication of rights under the Sherman Act.
In Marmet, the Supreme Court made it clear that state-law rules and decisions designed to invalidate arbitration clauses will not stand, but Wachtell Lipton thinks a few limited paths may remain for litigants seeking to circumvent their agreements to arbitrate.
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