Not that long ago in 2012, SCOTUS was faced with deciding whether or not delegation clauses, specifically ones related to personal injury claims and healthcare providers, were enforceable through contractual mandatory arbitration. In Marmet Health Care Center, Inc. v. Brown, SCOTUS reviewed three separate negligence suits that had been consolidated against different nursing homes in West Virginia. See Marmet Health Care Center, Inc. v. Brown, __ S. Ct. __, 2012 WL 538286 (Feb. 21, 2012).
In Marmet, the West Virginia state court held 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.” See Brown v. Genesis Healthcare Corp., No. 35494 (W. Va., June 29, 2011)
The West Virginia court had concerns that the FAA pre-empted the negligence claims from being brought in court as opposed to being bound to arbitration under the contract, but later concluded: “Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidences a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public . . . ” id., at 84a. The state court decided that the FAA did not pre-empt West Virginia’s state public policy against pre-dispute arbitration agreements that apply to claims of personal injury or wrongful death.
SCOTUS could not disagree more with the decision held by the West Virginia Supreme Court in interpreting the FAA’s application to West Virginia law and public policy. In fact, SCOTUS made it very clear that personal-injury or wrongful-death claims were no exception to the FAA:
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 provides that a ‘written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’
The statute’s text includes no exception for personal-injury or wrongful-death claims. It ‘requires courts to enforce the bargain of the parties to arbitrate.’ It ‘reflects an emphatic federal policy in favor of arbitral dispute resolution.’
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.
From the Marmet, et al. cases in 2012, SCOTUS made it very clear that personal-injury claims were not barred from being forced into arbitration pursuant to a prior contractual agreement. This applied even if forcing arbitration for certain categories of claims violated state laws and public policies.
Earlier this year SCOTUS granted certiorari (basically, the court agreed to review the case) for the Schein case, which involved more arbitration clauses and the FAA. In Schein, the Fifth Circuit had been faced with a situation where a dental distributor named Archer filed a lawsuit against a dental equipment manufacturer and distributor alleging federal and state antitrust violations. The case was filed in court and then a motion to compel arbitration was brought based on an arbitration provision agreed to in the original contract between the companies.
From Marmet in 2012, SCOTUS made clear that personal injury cases were not barred or exempt from being forced into arbitration if that is what the parties agreed to in the contract. But what happens when the parties have delegated questions of arbitrability such as whether or not the arbitration agreement itself is valid or if it covers the dispute at hand? The confusion surrounding what is or is not “wholly groundless” in these situations has created a split among the Circuit Courts of Appeal across this country when dealing with contractually based arbitration agreements.
The Fifth Circuit is one that has taken the position that even when parties have delegated questions of arbitrability to go before an arbitrator, the courts have the right to intervene and make an initial independent determination on whether or not the claim(s) fall under the arbitration provision and can move forward before an arbitrator. When courts like the Fifth Circuit determine the grounds for arbitration are “wholly groundless” they can refuse to send them to an arbitrator and allow the case to continue to move forward in a courtroom and before a jury.
Schein resolves a split we have seen among Circuit Courts of Appeal regarding what is and is not bound by contractual arbitration provisions, as well as determining when to apply the alleged “wholly groundless” exception within the FAA. In fact, SCOTUS rejected the “wholly groundless” exception altogether:
We reject the ‘wholly groundless’ exception. The exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability. When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.
Just like the decision in Marmet when SCOTUS made it clear that personal-injury claims could be forced into arbitration through a contractual agreement, the Schein case makes it clear that arbitration agreements between parties must be honored and not circumvented a court judge trying prior to getting in front of an arbitrator.
So, what does this mean moving forward?
It could be argued that one glaring point to take away from the Schein holding is that we need to be careful with what we sign. This means be careful with what you sign and be aware of any arbitration agreements you may find when you go to your doctor’s office, are admitted to a hospital, when you hire a lawyer, or when investing your money or purchasing a home and financing a mortgage through a bank.
Schein shows us that SCOTUS and courts across the country are going to take the position that what we sign and agree to under contract will ultimately dictate how any future disputes from the agreement will be handled “ . . . the courts must respect the parties’ decision as embodied in the contract.”
Let the Schein case be an emphatic declaration to all of us to make sure we thoroughly read through any contracts for services we enter into, especially when dealing with our healthcare providers. We have no way of anticipating at this point just how detrimental the decision in Schein may be to our healthcare system. But it likely won’t be long before more and more arbitration agreements start showing up in the healthcare industry for physician-patient services and procedures, as well as nursing homes, private hospitals, private surgery centers, among others.