Supreme Court Decides Power of Attorney Preemption Case

In Kindred Nursing Centers v. Clark the Supreme Court held 7-1 that an arbitration agreement entered into by a power of attorney may still be valid even if the power of attorney doesn’t specifically say the representative may enter into arbitration agreements.

Beverly Wellner and Janis Clark moved their husband and mother, respectively, into a nursing home using their powers of attorney. Both wanted to sue the nursing home in court after their relative died. But both had signed contracts stating that any claims would be resolved through arbitration.

The Kentucky Supreme Court concluded that Wellner’s power of attorney wasn’t broad enough to allow her to enter into an arbitration agreement but Clark’s was. Regardless, the court held that both arbitration agreements were invalid because “a power of attorney could not entitle a representative to enter into an arbitration agreement without specifically saying so.” According to the Kentucky Supreme Court, this is because the right to a jury trial under the Kentucky Constitution is the only right declared “sacred” and “inviolate.”

The Federal Arbitration Act (FAA) makes arbitration agreements irrevocable; they may not be invalidated based on legal rules that only apply to arbitration. The Supreme Court, in an opinion written by Justice Kagan, reversed the Kentucky Supreme Court concluding that its “clear-statement rule” “fails to put arbitration agreements on an equal plane with other contracts.”

The Kentucky Supreme Court argued that the “clear-statement rule” doesn’t just apply to arbitration agreements. The court would strike down other contracts implicating “fundamental constitutional rights” where the power of attorney didn’t have explicit authorization to, for example, waive her principal’s right to worship, consent to an arranged marriage, or undertake “personal servitude.” According to the Supreme Court, “[p]lacing arbitration agreements within that class reveals the kind of ‘hostility to arbitration’ that led Congress to enact the FAA.”

The Court also rejected the argument that Kentucky’s “clear-statement rule” only applies to contract formation, over which the FAA has no application, rather than contract enforcement. If that was the case, states could get around the FAA by declaring everyone incompetent to sign arbitration agreements. After all, such a rule would only address contract formation.

The Court concluded that the Clark arbitration agreement with the broader power of attorney must be enforced. But, the Kentucky Supreme Court must relook at the narrower Wellner power of attorney to make sure that its interpretation of it was “wholly independent” of the “clear-statement rule.”