Supreme Court Holds Federal Arbitration Act Preempts Public Policy of West Virginia

U.S. Supreme Court Contract Cases

The Supreme Court once again affirmed federal policy favoring arbitration this week as it reversed the Supreme Court of Appeals of West Virginia in Marmet Health Care Center, Inc. v. Brown.

The state high court had held unenforceable all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against nursing homes, based on West Virginia’s public policy. But the Supreme Court held that the public policy of a state is not a sufficient basis for refusing to enforce an arbitration agreement. The Supreme Court wasn’t subtle in disagreeing with the lower court’s decision:

State and Federal Courts must enforce the Federal Arbitration Act with respect to all arbitration agreements covered by that statute. Here, the Supreme Court of Appeals of West Virginia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not follow controlling federal law implementing that basic principle.

The decision of the state found the FAA’s coverage to be more limited than mandated by this Court’s previous cases. The decision of the State Supreme Court of Appeals must be vacated. When this Court has fulfilled its duty to interpret federal law, a state court may not contradict or fail to implement the rule so established.

. . .
. . . The state court found unpersuasive this Court’s interpretation of the FAA, calling it “tendentious,” and “created out of whole cloth”. . . .

The West Virginia court’s interpretation of the FAA was both incorrect and inconsistent with clear instruction in the precedents of this Court.

[citations omitted]

Section 2 of the FAA provides that binding arbitration agreements are “valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.” The Supreme Court noted that the FAA doesn’t provide an exception for personal injury or wrongful-death claims, and quoted its recent AT&T Mobility v. Concepcion opinion: “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.” The Supreme Court found that the decision of the West Virginia Supreme Court of Appeals reflects a categorical rule prohibiting arbitration of a particular type of claim and is contrary to the FAA. Thus, the Supreme Court reversed the state court’s decision.

The state court had held in the alternative, however, that the arbitration agreements at issue were unconscionable, which is a basis upon which an arbitration agreement can be held unenforceable under section 2 of the FAA. Because it was unclear from the state court’s opinion whether the court’s unconscionability analysis rested in part on improper grounds, the Supreme Court ordered the lower court to consider whether, absent West Virginia’s public policy against predispute arbitration agreements that apply to claims of personal injury or wrongful death against nursing homes, the arbitration agreements were unconscionable.

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