U.S. Supreme Court upholds enforceability of nursing home arbitration agreement signed by a holder of a general power of attorney.
In Kindred Nursing Centers LP v. Clark, (U.S. Supreme Court, May 15, 2017, slip opinion), the Supreme Court overturned a Kentucky Supreme Court ruling that had nullified an agreement to arbitrate signed by a family member who held a general power of attorney which provided that the agent had “full power . . . to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way,” including the power to “draw, make, and sign in my name any and all . . .contracts, deeds, or agreements.” The individual’s estate filed suit claiming that substandard care from the nursing home caused the individual’s death. The nursing home sought to compel arbitration.
The Kentucky court articulated and applied a “clear statement” principle holding that powers of attorney by their terms must expressly provide that the holders of the powers of attorney are empowered to enter into arbitration agreements because agreements to arbitrate obviate the “sacred” and “inviolate” rights of individuals to their access to courts and their rights to a jury trial as provided for by the Kentucky constitution.
The U.S. Supreme Court in a 7-1 decision (Justice Thomas dissenting) observed that:
“The FAA makes arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. §2. That statutory provision establishes an equal-treatment principle: A court may invalidate an arbitration agreement based on “generally applicable contract defenses” like fraud or unconscionability, but not on legal rules that “apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”
AT&T Mobility LLC v. Concepcion, 563 U. S. 333,
339 (2011).
The Supreme Court explained that the FAA thus preempts any state rule that discriminates on its face against arbitration—for example, a “law prohibit[ing] outright the arbitration of a particular type of claim.” It also prohibits any rule that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements. The Supreme Court determined that the Kentucky Supreme Court decision impeded the ability of attorneys-in-fact to enter into arbitration agreements. By doing so, the court “flouted the FAA’s command to place those agreements on an equal footing with all other contracts.” Accordingly, the U.S. Supreme Court reversed the Kentucky Supreme Court and upheld the enforceability of the agreement to arbitrate made by the holder of the general power of attorney.
Hawaii Legislature acts to restore practicality and efficiency to the practice of arbitration. Legislative measure awaits decision by the Governor.
In two recent decisions, Nordic PCL Construction, Inc. v. LPIHGC, LLC, 136 Hawai’I 29, 358 P. 3d 1 (2015) (the “Nordic” case) and Noel Madamba Contracting LLC v. Romero, 137 Hawai‘i 1, 364 P.3d 518 (2015) (the “Madamba” case), the Hawaii Supreme Court ruled that an arbitrator’s nondisclosure of information that a “reasonable person” might find likely to affect the arbitrator’s impartiality constitutes “evident partiality” as a matter of law. Upon finding “evident partiality”, the Court ruled that a reviewing court must vacate the arbitrator’s decision and award: a) whether or not the undisclosed information is material or substantial; b) without an opportunity for rebuttal; and c) without a showing of any actual or unfair bias or impact upon the arbitration process. Those two decisions have significantly damaged the efficiency, practicality and finality of the arbitration process.
As a practical result, these rulings make commercial arbitration, especially the larger cases, multi-round litigations. The traditional perceived benefits of arbitration as being fast, efficient and final are lost as a consequence. Parties who lose in an arbitration are virtually encouraged to seek judicial vacature by commencing an action and conducting discovery or extensive Google searches in the hopes of finding some element of arbitrator participation or involvement in prior matters that was not disclosed, however insignificant, in order to obtain vacature of the arbitration decision.
In response to concerns expressed by arbitrators, advocates and arbitration practitioners, the Hawaii Legislature has passed SB 314 SD1, HD1, CD1 and sent the measure to the Governor for his review and consideration. The measure seeks to amend HRS Section 658A-12 by providing for a trial court review and decision as to whether an arbitrator failed to disclose information reflecting that the arbitrator had a direct and material personal or financial interest in the outcome of the arbitration or that the arbitrator had an existing or past substantial relationship with any of the parties to the agreement to arbitrate or the arbitration proceeding, their counsel or representatives, a witness, or another arbitrator. If the trial court determines that the non-disclosed information is material or substantial, the court may order vacature.
Hopefully, the measure will be approved by the Governor and the new amendment to Ch. 658A will restore practicality, efficiency and finality to and reduce the potential for game playing in the arbitration process.