Reverse Pre-Empting the Federal Arbitration Act: Alleviating the Arbitration Crisis in Nursing Homes

Article excerpt

   I. INTRODUCTION
  II. HISTORY & LEGISLATION
 III. SUPREME COURT DECISIONS INTERPRETING THE FAA
  IV. THE AFTERMATH OF PREEMPTION: UNREGULATED
      ARBITRATION IN NURSING HOMES
      A. Unregulated Arbitration in Nursing Homes
         Creates a Multifaceted System of Deterrence
         1. Procedural Unconscionability
         2. Substantive Unconscionability
         3. Prohibitive Costs
         4. Slanted Outcomes
      B. The Deterrent Effects of Arbitration are
         Magnified in Nursing Homes
         1. The Typical Claimant
         2. The Typical Claim
   V. THE FUTURE PLIGHT OF NURSING HOME RESIDENTS
  VI. PROPOSED LEGISLATION: A PARALLEL TO
      THE MCCARRAN ACT
      A. Congress Should Consent to State Regulation
 VII. PROPOSED GUIDELINES FOR STATES
VIII. CONCLUSION

I. INTRODUCTION

In 1925, Congress enacted the Federal Arbitration Act (FAA), (2) which codified the enforceability of arbitration agreements (3) in expansive, wholesale language. (4) "The Federal Arbitration Act rests on the authority of Congress to enact substantive rules under the Commerce Clause." (5) The FAA provides that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy ... 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." (6) In a series of later cases, the United States Supreme Court interpreted the FAA's broad rule of enforceability as applying to both consumers and merchants in federal and state courts. (7) Most recently in Doctor's Associates, Inc. v. Casarotto, (8) the Court held that states were preempted from enacting substantive legislation regarding arbitration, and that even legislation concerning a simple notice requirement (9) would be invalidated as conflicting with the "goals and policies" of the FAA. (10)

By preempting the states from regulating certain aspects of arbitration, specifically the process associated with agreeing to arbitration, the Court has left a gaping hole of unregulated territory in this alternative adjudicatory forum. (11) The Court's acquiescence and restrictions on state legislation, although once intended to "make arbitration agreements as enforceable as other contracts," (12) has "elevate[d] arbitration provisions [to a standing] above all other contractual provisions." (13) The consequence is that state legislatures are foreclosed from enacting even minimal safeguards to protect unwary consumers, and courts can only cure unconscionable arbitration agreements on a case-by-case basis.

In nursing homes, preemption has created an arbitration crisis, (14) whereby potential residents are passively compelled to sign contracts that contain binding, pre-dispute arbitration clauses as a condition of being admitted to the facility. This unregulated process is wrought with insurmountable obstacles (15) which collectively deter residents from obtaining redress in either a court of law or the arbitral forum. (16) Federal legislation is essential to restore fundamental principles of contract law (17) and fairness to nursing home admission agreements which, due to the lack of regulation, have been abandoned in favor of "administrative convenience." (18)

Section II provides a brief history of arbitration in consumer contracts, and the development of federal and state legislation condoning the practice of arbitrating consumer disputes. Section III analyzes United States Supreme Court decisions that have interpreted the FAA to preempt state legislation regarding arbitration. Section IV discusses the aftermath of preemption and unregulated arbitration in nursing homes. Section V considers the future plight of nursing home residents if the system is permitted to continue without regulation. Section VI of this Note proposes a solution to alleviate the arbitration crisis in nursing homes that will maintain the viability of arbitration as an alternative to litigation. …