U.S. SC reverses W.Va. SC ruling on arbitration agreements

Jessica M. Karmasek Feb. 21, 2012, 3:00pm


WASHINGTON (Legal Newsline) - The U.S. Supreme Court has reversed the decision of the West Virginia Supreme Court in a set of cases in which the state court ruled that arbitration agreements in nursing home contracts are "unconscionable and unenforceable."

The U.S. Supreme Court released its five-page per curiam opinion Tuesday, granting a petition for certiorari and vacating the judgment of West Virginia's highest court.

On June 29, the West Virginia Supreme Court filed its 99-page opinion in the cases Clayton Brown v. Genesis Healthcare Corp., et al.; Sharon A. Marchio v. Clarksburg Nursing & Rehabilitation, et al.; and Jeffrey Taylor v. MHCC, Inc., f/k/a Marmet Health Care Center, et al.

The three cases involve arbitration clauses buried within nursing home admission agreements.

In each case, a plaintiff alleged that a nursing home negligently caused the death of a nursing home resident. In each case, a representative for the resident had signed an agreement, admitting the resident to the nursing home for treatment, which contained a clause stating that any disputes arising from negligent treatment by the nursing home would be submitted to arbitration. And in each case, the nursing home argued that any claims arising from the death of the resident must be dismissed from the circuit court and resolved by an arbitrator.

The plaintiffs argued that the arbitration clauses were prohibited by, and null and void under, Section 15(c) of West Virginia's Nursing Home Act.

Meanwhile, the defendant nursing homes argued that Section 15(c) is preempted by Section 2 of the Federal Arbitration Act.

The West Virginia Supreme Court sided with the nursing homes, finding that Section 15(c) is preempted by the FAA.

"The economic activities of these nursing home facilities have a significant impact on general practices subject to federal control, such as interstate commerce and transportation. Hence, the FAA applies to our examination of this case," Now Chief Justice Menis Ketchum wrote for the court.

The U.S. Supreme Court said state and federal courts must enforce the FAA with respect to all arbitration agreements by that statute.

"Here, the Supreme Court of Appeals of West Virginia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not follow controlling federal law implementing that basic principle," it wrote.

The West Virginia Supreme Court, in its June decision, said it believed that Section 15(c) conflicted with the FAA's "intended purpose" of putting arbitration clauses on "equal footing" with other commercial clauses.

"By adopting Section 15(c), the West Virginia Legislature clearly intended for the right of a nursing home resident to pursue a civil action in court to be unwaivable, a right that the resident (or the resident's representative) could not be compelled to relinquish as a condition of admission to a nursing home," it wrote.

The court said although arbitration may be an expeditious way of resolving some disputes, it is also a way for the nursing home industry to resolve FAA violations out of the public's eye.

Also in its decision, the court concluded that, in the Brown and Taylor cases, the arbitration agreements at issue were "unconscionable and unenforceable" as a matter of law. In the Marchio case, the issue of unconscionability was not considered by the trial court, but could be raised by the parties on remand, it said.

By definition, the doctrine of unconscionability means that, because of an overall and gross imbalance, one-sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce the contract as written.

"Congress did not intend for arbitration agreements, adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, and which require questions about the negligence be submitted to arbitration, to be governed by the Federal Arbitration Act," the court wrote.

"We therefore hold that, as a matter of public policy under West Virginia law, an arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence."

The court had remanded the cases back to Kanawha County Circuit Court.

"The admission agreements in this case contain arbitration clauses that eliminate a fundamental constitutional right: the right of the parties to have a jury trial in the West Virginia circuit court system on the plaintiffs' personal injury claims against the defendant nursing homes," it concluded.

The U.S. Supreme Court called the West Virginia court's interpretation of the FAA "both incorrect and inconsistent."

The Court said the FAA's text includes no exception for personal injury or wrongful death claims.

"As this Court reaffirmed last term, 'when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.' That rule resolves these cases," it wrote.

"West Virginia's prohibition against predispute agreements to arbitrate personal injury or wrongful death claims against nursing homes is a categorical rule prohibiting arbitration of a particular type of claim, and that rule is contrary to the terms and coverage of the FAA."

As to the court's determination that, in the Brown and Taylor cases, the arbitration agreements at issue were "unconscionable and unenforceable," the U.S. Supreme Court said it was "unclear" to what degree the court's holding was influenced by the "invalid" rule against predispute arbitration agreements.

"For example, in its discussion of the alternative holding, the state court found the arbitration clauses unconscionable in part because a predispute arbitration agreement that applies to claims of personal injury or wrongful death against nursing homes 'clearly violates public policy,'" the U.S. Supreme Court wrote.

The nation's highest court ordered, on remand, that the West Virginia court must consider whether, absent that general public policy, the arbitration clauses in the Brown and Taylor cases are unenforceable under state common law principles that are not specific to arbitration and preempted by the FAA.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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