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Supreme Court Weighs in on Power of Attorney Holders’ Authority to Enter Into Binding Arbitration

The Supreme Court of the United States handed down its opinion on Kindred Nursing Centers, L.P. v. Clark, No. 16-32 on May 15, 2017. The case addressed whether or not a person acting as a power of attorney could bind an estate to an arbitration agreement.

Respondents Beverly Wellner and Janis Clark, family members of Joe Wellner and Olive Clark, respectively, each held powers of attorney for their relatives, granting them broad authority to manage their affairs, but neither power of attorney specifically mentioned the authority these documents granted Beverly and Janis when it came to arbitration agreements.

When their family members moved into a nursing home operated by Kindred, Beverly and Janis used their family members’ powers of attorney to complete admission documents, which included an arbitration agreement with Kindred Nursing on behalf of the respective family members. That agreement effectively stated that Joe and Olive agreed to arbitrate any claims arising from their stay at the nursing home versus filing a lawsuit.

When Joe and Olive died, their estates filed suits in Kentucky state court alleging that their deaths resulted from poor care while in the nursing facility. Kindred responded with motions to dismiss the cases based on the arbitration agreements that were a part of the admission forms, which had been signed via power of attorney by Beverly and Janis.

The trial court in Kentucky denied Kindred’s motions to dismiss and the Kentucky Supreme Court affirmed. The Kentucky Supreme Court found that the arbitration agreements were invalid because the powers of attorney signed by Beverly and Janis did not specifically grant them authority to enter into arbitration agreements.

The Kentucky Supreme Court reasoned that a power of attorney could not entitle a representative to enter into an arbitration agreement “without specifically saying so.” The Kentucky high court found that the state constitution safeguards access to the courts and trial by jury as “sacred” and “inviolate.” The Court focused on the clear-statement rule when reviewing the Clark power of attorney, stating no specificity regarding arbitration agreements.

However, Justice Kagan, in a sometimes-colorful opinion, found the clear-statement rule flawed. The rule was “too tailor-made to arbitration agreements – subjecting them, by virtue of their defining trait, to uncommon barriers” to overcome the FAA’s prohibition “against singling out those contracts for disfavored treatment.” The state court then sought to broaden the scope of the rule to other “fundamental constitutional rights” possessed by the principal – to which Justice Kagan responded, “[b]ut what other rights really? No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees.”

Going in a different direction, the respondents Janis and Beverly argued that there was a distinction between contract formation and contract enforcement under the FAA. And according to the argument, the Kentucky rule only impacted contract formation which was not protected by the FAA. Yet Justice Kagan forcefully rejected this argument as well, declaring: [T]he Act cares not only about the “enforce[ment] of arbitration agreements, but also about their initial “valid[ity]” – that is, about what it takes to enter into them. Or said otherwise: A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the Act than a rule selectively refusing to enforce those agreements once properly made.  Further, “[a]dopting the respondents’ view would make it trivially easy for States to undermine the Act – indeed to wholly defeat it.”

Accordingly, the Court ordered the Kentucky Supreme Court to enforce the Clark arbitration agreement because its invalidation rested on the clear-stated rule but remanded the Wellner arbitration agreement because it was unclear whether the state supreme court had another reason for its refusal to enforce it.

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Document Preview: Annotated Document Sample (Medicaid Family Protection Trust)

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