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October Term, 2011

February 21, 2012

Today the Supreme Court issued one decision, described below, of interest to the business community.

Federal Arbitration Act—Preemption of State Law

Marmet Health Care Center, Inc. v. Brown, No. 11-391 and 11-394

Section 2 of the Federal Arbitration Act (“FAA”) states that written agreements to arbitrate “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. Despite this requirement, the West Virginia Supreme Court of Appeals declared invalid all pre-dispute arbitration agreements that apply to personal-injury or wrongful-death claims against nursing homes. The West Virginia court held that the FAA did not preempt this per se state-law rule.

Today, in Marmet Health Care Center, Inc. v. Brown, Nos. 11-391 and 11-394, the U.S. Supreme Court summarily reversed the West Virginia court in a unanimous and unsigned opinion. Mayer Brown represented Clarksburg Nursing Home & Rehabilitation Center, the petitioner in No. 11-394.

The Supreme Court stated that the West Virginia court had failed to “follow controlling federal law,” which forbids states from adopting any legal rule prohibiting arbitration of a particular category or class of claims. Slip op. 1. The Court held that the West Virginia court’s blanket rule declaring pre-dispute arbitration agreements in the nursing home context unenforceable “was both incorrect and inconsistent with clear instruction in the precedents of this Court.” Id. at 3.

The Court reiterated the FAA’s “emphatic federal policy in favor of arbitral dispute resolution.” Slip op. 3. And it reaffirmed that the FAA’s “text includes no exception for personal-injury or wrongful-death claims.” Id. Thus, the Court explained, the proper disposition of the case was “straightforward.” Id. Because the West Virginia court’s per se public policy rule was “a categorical rule prohibiting arbitration of a particular type of claim,” that rule was preempted by the FAA. Id. at 4.

The Court considered an additional issue with respect to the arbitration provisions used by Marmet Health Care Center, the petitioner in No. 11-391. The West Virginia court had also held those provisions unconscionable under state law and unenforceable for that additional reason. The Court vacated this holding as well, remarking that it was “unclear . . . to what degree the state court’s alternative holding was influenced by the invalid, categorical” public policy rule that was preempted by the FAA. Slip op. 4. The Court instructed that, on remand, the West Virginia court was to consider whether the Marmet arbitration provisions were unenforceable under only “state common law principles that are not specific to arbitration and pre-empted by the FAA.” Id. at 5

Today’s decision is of substantial importance for all businesses that enter into arbitration agreements with their customers or employees to provide them with efficient and fair alternative methods of dispute resolution. The decision reiterates that federal law favors arbitration of disputes, that this rule applies both in state and federal courts, and that states may not place any category of claims off limits to arbitration. Moreover, the fact that the Court summarily reversed the West Virginia court’s decision signals that the Court will vigorously enforce the FAA’s mandate when “a state court . . . contradict[s] or fail[s] to implement” the Supreme Court’s interpretation of the FAA. Slip op. 1.

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