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Special Law Alert - Preserving Arbitration: The U.S. Supreme Court Nears Unanimity to Protect the Supremacy of the Federal Arbitration Act

May 24, 2017

Last week, the United States Supreme Court slammed a Kentucky rule that required “explicit reference” to the authority to enter into arbitration agreements in powers of attorney. In a 7-1 decision, Justice Kagan delivered a pejorative opinion that railed against Kentucky’s discriminatory rule. The court held that the Federal Arbitration Act must preempt all state rules that, on their face, discriminate or “covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” In this case, that defining feature was relinquishing one’s right to a trial by jury.

This case came to fruition when Kindred Nursing Centers moved to dismiss two wrongful death claims for lack of jurisdiction. Kindred argued that the deceased residents’ attorneys-in-fact had bound each resident and their estates to arbitration during the admission process. The Kentucky trial court, appellate court and supreme court all held that both arbitration agreements were invalid because neither power of attorney specifically authorized the attorney-in-fact to enter into an arbitration agreement. In other words, the Kentucky courts held that there must be an “explicit reference” to arbitration in the power of attorney. To support their decision, the courts cited to the Kentucky Constitution, which recognized the right to trial by jury as a “divine God-given-right” and as “the only thing” that must be “held sacred” and “inviolate.” The Kentucky Supreme Court held that a person must knowingly give up this right, therefore, it must be explicitly addressed in a power of attorney.

In its 7-1 decision, the U.S. Supreme Court overturned the Kentucky decision and found that this particular rule was clearly discriminatory against arbitration and, therefore, could not stand against the Federal Arbitration Act. In response to the respondents’ arguments, the Court also made clear that the Federal Arbitration Act not only preempts laws discriminatory to the enforcement of arbitration agreements, but also to their formation. While in the past the Court has been split by a wider margin, with a dissent troubled by the expansion of the Federal Arbitration Act’s scope, Kindred’s near-unanimous ruling is not reflective of a sudden change in ideology for the Court. Instead, the Court aligned to admonish Kentucky, only the latest in a string of contumacious underlings (See, DirecTV, Inc. v. Imbrugia, 136 S.Ct. 463 (2015) and AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011)), for its flagrant discrimination against arbitration contracts, in direct contravention of U.S. Supreme Court jurisprudence.

N.B. Litigators should take note of the amicus brief filed by the U.S. Chamber of Commerce, which sets out statistics regarding the success of arbitration as a fair, efficient and inexpensive alternative to litigation. 

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Leslie M. Jenny
Managing Attorney, Cleveland, OH Office
(216) 912-3805
(216) 912-3823

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