Marmet Health Care Center, Inc. v. Brown: Reasserting Federal Supremacy In The Arbitration Arena
In a short, almost terse, unanimous opinion, the United States Supreme Court recently reversed a decision of the Supreme Court of Appeals of West Virginia, the state's highest court, refusing to enforce arbitration clauses contained in two similar nursing home admission contracts. The decision, Marmet Health Care Center, Inc. v. Brown, 556 U.S.__, __ S. Ct. __, Nos. 11-391, 11-394, 2012 WL 538286 (2012), is notable not only for its substantive impact on long-term care contracts, but also because it reasserts—in no uncertain terms—the preeminence of federal law where agreements to arbitrate are concerned.
Congress enacted the Federal Arbitration Act, 9 U.S.C. § 1, et seq., in 1925 to reverse traditional judicial hostility towards arbitration agreements. The key provision of the FAA is contained in § 2, which states that:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2. The above provision represents a liberal federal policy favoring arbitration and ensures that courts treat contracts to arbitrate the same as any other type of contract. Accordingly, the last sentence of § 2, the so-called "savings clause," allows a court to refuse to enforce an arbitration agreement on state-law based defenses, such as unconscionability, provided that the defense would also result in the refusal to enforce "any contract." Thus, at the practical level, agreements to arbitrate are governed by both federal and state law. Where federal and state law conflict, federal law preempts any contrary state law.
Marmet stems from three separate West Virginia negligence cases brought by the family members of deceased nursing home residents. In two of the three cases, the trial court dismissed the suits based on arbitration clauses in the respectively applicable nursing home admission contracts. The residents' families appealed, arguing that the arbitration provisions in the admission contracts were unenforceable because they conflicted with § 15(c) of the West Virginia Nursing Home Act, W. Va. Code § 16-5C-15(c), which prohibits nursing home contracts from containing waivers of the right to a jury trial. The residents' families also argued that the arbitration agreements could not be enforced because they were unconscionable.
The cases were consolidated on appeal and, agreeing with the residents' families, the West Virginia Court of Appeals reversed in a lengthy opinion. Brown ex rel. Brown v. Genesis Healthcare Corp., __ S.E.2d __, 2011 WL 2611327, at *6-8 (W.V. June 29, 2011), rev'd sub nom Marmet Health Care Center, Inc. v. Brown, 556 U.S. __, __ S. Ct. __, 2012 WL 538286 (Feb. 21, 2012).
While it ostensibly recognized that federal law would preempt any portion of the West Virginia Nursing Home Act in conflict with the FAA's policy of treating arbitration agreements the same as other types of contracts, the Court of Appeals nevertheless found the arbitration agreements at issue to be unenforceable. In doing so, the Court of Appeals undertook a detailed examination of Supreme Court precedent on the topic. It criticized the Supreme Court for "stretch[ing] application of the FAA" and characterized its reasoning in past cases as "tendentious." It then utilized its own independent analysis of the FAA's purposes and legislative history to hold that in passing the FAA, Congress did not intend for it to apply where personal or injury or wrongful death claims of the type at issue in the case were concerned. It therefore held that the arbitration agreements in the admission contracts were unenforceable, stating that:
[A]s 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.
It also held that the arbitration agreements at issue were unconscionable and could not be enforced, in part, because of the same public policy.
The Supreme Court's Decision
The United States Supreme Court reversed in a unanimous, per curiam, decision. One of the most interesting aspects to the Court's opinion was not what they said, but the procedural mechanism they used to say it. Most cases heard by the Supreme Court, Marmet included, arrive there by way of a writ of certiorari directed to the lower court. The party losing in the lower court must petition the Court to issue such a writ. This is done through an initial round of briefing arguing why the Court should hear the case. If the Court accepts the case and issues a writ of certiorari, the parties then typically draft and submit appellate briefs on the substantive issues.
This is not what happened in Marmet. The Court issued its opinion before any briefing on the substantive merits, based only on the parties' arguments as to why the case should be heard in the certiorari proceedings. This is highly unusual and can be interpreted as a statement of strong disapproval as to the Court of Appeal's findings and reasoning.
This unusual procedural mechanism was not the only indication of the Supreme Court's disapproval. The opinion itself could hardly be clearer. It stated:
The West Virginia court's interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court... The [FAA]'s text includes no exception for personal-injury or wrongful-death claims.
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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.
Thus, the Supreme Court unequivocally reasserted their supremacy when it comes to the task of interpreting federal law and Congressional intent. By failing to follow controlling federal precedent on arbitration, the Court of Appeals all but guaranteed reversal. Additionally, the Court refused to accept the Court of Appeals "alternative" holding that the arbitration provisions were unconscionable because, in the Supreme Court's view, that holding improperly relied on an announced public policy disfavoring arbitration, and therefore contradicted the FAA.
Marmet is a cautionary tale regarding the interplay between federal and state authority, especially in areas like arbitration where both federal and state law have a role to play. When it comes to interpreting Congressional intent and setting precedent to be followed by both federal and state courts, the Supreme Court will not tolerate usurpers. Any litigant dealing with a contract containing an arbitration provision to which the FAA applies must consider whether the Supreme Court or, for that matter, any other federal court, has passed on the issue. If yes, their precedents must be followed, or properly distinguished. Failure to do so will lead to a strong rebuke of the sort delivered to West Virginia.