By: Phillip Rakhunov
On February 21, 2012, the United States Supreme Court announced its decision in Marmet Health Care Center, Inc. v. Brown. The question in this case was whether the Federal Arbitration Act (“FAA”) preempted a determination by West Virginia courts that, as a matter of state public policy, pre-dispute arbitration agreements are not enforceable with respect to claims made against nursing homes for injury or wrongful death resulting from negligence.
The main case (and the companion cases) arose from classic negligence wrongful death actions brought by plaintiffs against nursing homes. The basic facts of each case are substantially the same. In each case, an ill or incapacitated person needing extensive, ongoing nursing care was admitted to a nursing home, and a family member signed an admission agreement with the nursing home that contained a garden-variety pre-dispute arbitration clause. The clause generally provided that any disputes that the ill or incapacitated person might have in the future with the nursing home would be submitted to arbitration. Later, after the patient died, a family member filed a lawsuit against each nursing home, alleging that various acts and omissions of the nursing home negligently caused injuries which eventually resulted in the ill or incapacitated person’s death. In each case, the nursing homes successfully moved the trial court to dismiss the cases on the basis of the arbitration clauses. The plaintiffs in each case appealed to the West Virginia Supreme Court of Appeals.
In a consolidated appeal, the West Virginia Court considered the history and purposes of the FAA and, surprisingly, determined that Congress did not intend for the FAA to apply to arbitration clauses in pre-injury contracts, where a personal injury or wrongful death occurred after the signing of the contract. Specifically, the West Virginia Court made three rulings: (1) that the FAA preempted Section 15(c) of the West Virginia Nursing Home Act, which purports to declare “null and void as contrary to public policy” any waiver of a nursing home resident’s ability to “commence an action in circuit court”; (2) that, in any event, as a matter of West Virginia public policy, all pre-injury agreements to arbitrate personal injury or wrongful death claims are unenforceable and that this categorical rule of public policy was not preempted by the FAA; and (3) that the arbitration provisions at issue were procedurally and substantively unconscionable.
In so ruling, the West Virginia Court’s decision focused heavily on the often difficult and emotional decision to be admitted to a nursing home and on the circumstances surrounding the admission process. The Court of Appeals showed a marked compassion towards the plaintiffs in passionately describing how such a decision, often made in the midst of a crisis brought on by a precipitous deterioration in a love-one’s health, is also often prompted by the loss of, or deterioration in the health of, a spouse or care giver, or when the care-giving family is no longer able to adequately manage the demands of home care. The West Virginia Court focused on how the confusing and hurried admissions process might discourage the patient (or patient’s family) from questioning the content of the forms to be signed, including the “buried” arbitration provision, because of the implicit perception that the forms must be signed as a condition of admission.
Additionally, the West Virginia Court’s opinion reflected a patent hostility towards the Supreme Court’s expansion of the reach of the FAA over the past century. In searching for a way to circumvent the FAA, the Court of Appeals criticized the United States Supreme Court for having stretched the application of the FAA, based on “tendentious reasoning,” from being a procedural statutory scheme effective only in the federal courts, to being a substantive law that preempts state law in both the federal and state courts. The West Virginia Court ceased on the apparent lack of Supreme Court precedent regarding the enforceability of an arbitration clause in a health care contract and, despite recognizing that a rule of state law disfavoring arbitration for a class of interstate commercial transactions is preempted by the FAA, purported to carve out an exception to the FAA, ruling that Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public.
In an unusually harsh, but succinct unanimous per curiam opinion, the Supreme Court found that the West Virginia Court’s “interpretation of the FAA was both incorrect and inconsistent with clear instruction” in the Supreme Court’s precedents. The Supreme Court unanimously reaffirmed that state public policy cannot trump the FAA to agreements implicating interstate commerce. Because the Court of Appeals cited common law unconscionability as an alternative basis for its holding, the Supreme Court reluctantly remanded the case for the West Virginia court to determine whether the arbitration agreement at issue was otherwise unenforceable under state common law principles that are not specific to arbitration.
Although succinct in its analysis, the Marmet decision sends a strong message that a unanimous Supreme Court would likely fully embrace the prior term’s ruling by a divided (5 to 4) Court in AT&T Mobility LLC v. Concepcion, 563 U.S. __, __, 131 S.Ct. 1740 (2011) (slip op., at 6-7), and makes it clear that “when a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”
Phillip Rakhunov is a business litigator who represents health care organizations, financial institutions, investment professionals, fiduciaries and various other business entities and individuals in a broad array of business disputes, including securities fraud litigation, enforcement of restrictive covenants, and high stakes contract litigation. Mr. Rakhunov regularly appears in state and federal courts, as well as before arbitration and mediation tribunals. Fluent in Russian, Mr. Rakhunov also represents Russian-speaking clients and other clients in need of his unique background and language. Mr. Rakhunov received his law degree from Northeastern University School of Law and his undergraduate degree from Tufts University. Mr. Rakhunov is admitted to the state and federal bars of Massachusetts and New Hampshire.