Reply Brief — Kindred Nursing Ctrs. Ltd. P'ship v. Clark, 137 S. Ct. 1421 (2017) (No. 16-32)

No. 16-82

In the Supreme Court of the United States

KINDRED NURSING CENTERS LIMITED PARTNERSHIP,

DBA WINCHESTER CENTRE FOR HEALTH AND

REHABILITATION, NKA FOUNTAIN CIRCLE HEALTH AND

REHABILITATION, ET AL.,

iitiiines

Vv.

JANIS E. CLARK AND BEVERLY WELLNER, ET AL.,

Respondents.

On Writ of Certiorari to the

Supreme Court of Kentucky

REPLY BRIEF FOR PETITIONERS

ANDREW J. PINCUS

Counsel of Record

ARCHIS A. PARASHARAMI

DANIEL E. JONES

Mayer Brown LLP

1999 K Street, NW

Wushington, DC 20006

(202) 263-3000

apincus@mayerbrown.com

Counsel for Petitioners

i

TABLE OF CONTENTS

Page

I. The FAA Applies To The State-Law

Interpretive Rule Announced Below. ................... 3

A. The Challenged State-Law Rule

Governs The Enforceability Of

Arbitration Agreements. ......................ccccce000+ 4

B. The FAA Preempts State-Law Rules

That Make Arbitration Agreements

More Difficult To Form Than Other

| ETE STEER a aaa Pe eave aa oe 9

C. Application Of The FAA Here Does Not

Threaten To Federalize State Agency

REESE OC? Ee ce 12

Il. The Decision Below Conflicts With The

FAA And Defies This Court’s Precedents. ......... 13

A. The Explicit-Reference Rule Cannot Be

Justified Under General Principles Of

1. The explicit-reference rule does not

apply to all kinds of contracts, nor

does it comport with generally-

applicable principles for interpreting

POWSTS OF GLOOTIAGT. ......000ccereccccosecsesccecessees 14

2. The explicit-reference rule cannot be

salvaged by calling it a rule that

applies generally to transactions

with “significant legal

ec 18

3. The FAA precludes policy-based

exceptions for nursing home-related

GR ccihsleinindincnsicanniceleetacibatish-tince nai aainiianientaia 20

is

TABLE OF CONTENTS—continued

Page

B. The Explicit-Reference Rule Is

Inconsistent With This Court’s

RRR IE NET Sh SN en ERR 21

CONCLUSION

TABLE OF AUTHORITIES

Page(s)

CASES

14 Penn Plaza LLC v. Pyett,

I i Oe 20, 21

Allied-Bruce Terminix Co. v. Dobson,

Ee 4, 13, 21

Arthur Andersen LLP v. Carlisle,

ee a ercaneseimitndnbti 5, 6

AT&T Mobility LLC v. Concepcion,

Ae passim

Atl. Marine Constr. Co. v. Dist. Ct. for

the Western Dist. of Texas,

BE em 13

Baker v. LeBoeuf, Lamb, Leiby &

MacRae,

1993 WL 662352 (S.D. Ohio 1993) ...................... 15

Breazeale v. Victim Services, Inc.,

2016 WL 4059258 (N.D. Cal. 2016).......00000.000000.... 4

Buckeye Check Cashing v. Cardegna,

RET A Ree 9

Button v. Drake,

I, BD ., cncerccnniseeninenssettenon 17

DIRECTV, Inc. v. Imburgia,

TST A RANE TI passim

Doctor’s Associates, Inc. vy. Casarotto,

I passim

First Options of Chicago, Inc. v. Kaplan,

Be in cnecnnssnhesisbeemnninemenncnets passim

Gabby v. Roberts,

35 S.W.2d 284 (Ky. 1931)..0....-cecccceecocscvesvesseesesveeees 7

iv

TABLE OF AUTHORITIES—continued

Page(s)

Kimble v. Marvel Entm't, LLC,

a a coneesenniededinns 13

LP Pikeville, LLC v. Wright,

2014 WL 1345293 (Ky. Ct. App.

Rae Renn ts ks 808 Oh NS Se oe cE 16

Marmet Health Care Center, Inc. v.

Brown,

565 U.S. 530 (2012) (per curiam) ...... 12, 13, 16, 20

Mitsubishi Motors Corp. v. Soler

Chrysler Plymouth, Inc.,

i, cc secnnetienmmereniel 21

Nitro-Lift Techs., LLC v. Howard,

133 S. Ct. 500 (2012) (per curiam) ............ 3, 12, 16

Perry v. Thomas,

ins cccsciceansicinsenbectonins passim

Ping v. Beverly Enters., Inc.,

376 S.W.3d 581 (Ky. 2012)..................... 4, 6, 14, 15

Rent-A-Center, West, Inc. v. Jackson,

EE ESTES LIES ACE Re ae ne 22

Rice v. Floyd,

I ee I a cricccascnnsenseestocnsesoenes 14

Saturn Distribution Corp. v. Williams,

905 F.2d 719 (4th Cir. 1990)............0.000..000008. 10, 11

Sec. Indus. Ass’n v. Connolly,

883 F.2d 1114 (1st Cir. 1989) .........000.0000ceee. 10

Select Portfolio Servicing, Inc. v.

Blevins,

494 S.W.3d 510 (Ky. Ct. App. 2016)...................... 6

v

TABLE OF AUTHORITIES—continued

Page(s)

Southland Corp. v. Keating,

ee ee unpeneiintosmtaniits 13

Sprint Commce’ns Co. v. APCC Servs.,

Inc.,

i saeeinmenasenbintiie 17

Villanueva v. Brown,

EE EEE CIEE, DTD ccncccccccvccncssnduidtonccsosess 7

STATUTES

ict iniasicintaira eink ti ciasieain ccnticiiiiaais taiieuianee passim

ak icccllateinnreiinienndanedensiiieigecimindees seuntasaaateail 8

a ee, STL... cc cncnaunnesihbunsmbnnsadeatannaan 19

Ia a climatic 19

Uniform Power of Attorney Act § 203(4).................. 15

MISCELLANEOUS

RESTATEMENT (THIRD) OF AGENCY

I ecdiieigiatadiehis 14,18

REPLY BRIEF FOR PETITIONERS!

Respondents and their amici focus relatively lit-

tle attention on the question presented: whether ar-

bitration agreements are singled out for disfavored

treatment by the Kentucky Supreme Court’s rule—

holding that a power of attorney expressly authoriz-

ing the attorney-in-fact to accept “contracts” does not

convey the authority to accept an arbitration agree-

ment without an additional, explicit reference to ar-

bitration.

They instead broadly assert that the Federal Ar-

bitration Act (FAA) and this Court’s precedents have

no role to play here. E.g., Resp. Br. 15-25, 40-46;

Supp. Br. 1-4. That contention is plainly wrong.?

First, respondents err in characterizing the issue

presented here as one of contract formation. There is

no dispute that respondents’ respective principals

executed power-of-attorney documents that appoint-

ed respondents as attorneys-in-fact; nor is there a

dispute that respondents entered into arbitration

agreements on behalf of their principals. The only

question is whether those agreements should be en-

forced, the answer to which turns entirely on the in-

terpretation of the powers of attorney, not their for-

mation.

1 The Rule 29.6 Statement in the opening brief remains accu-

rate.

2 Respondents’ Supplemental Brief is improper. Respondents

cite Rule 26.5, but the only “intervening” developmer* sfter

they filed their initial brief was the filing of amicus curiae

briefs in support of their position. We nonetheless explain why

the issues raised in the Supplemental Brief lack merit.

2

A similar rhetorical maneuver was attempted by

the respondent—and rejected by this Court—in DI-

RECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2016).

There is no legally significant difference between the

Kentucky court’s interpretation of the authority to

make “contracts” in a power-of-attorney document

and the California Court of Appeal’s interpretation of

the phrase “law of your state” in a consumer con-

tract.

The interpretation of powers of attorney—like

the interpretation of contract terms—must give ef-

fect to the intent of the parties based on the language

of the document. And here—as in Jmburgia—the

state court adopted a “unique” interpretation “re-

stricted to [the] field” of arbitration that failed to

“place[] arbitration contracts on equal footing with

all other contracts.” Imburgia, 136 S. Ct. at 468-69

(quotation marks omitted).

Second, even if the Kentucky court’s rule were a

rule of contract formation, it would still be preempt-

ed by the FAA. States cannot impose added burdens

on the formation of arbitration agreements any more

than they can burden such agreements’ enforceabil-

ity. If the rule were otherwise, it would be trivially

easy for States to disfavor arbitration and erect bar-

riers to the creation of arbitration agreements, acting

upon the very judicial hostility to arbitration that the

FAA was enacted to prevent.

Third, respondents turn the Supremacy Clause

on its head in protesting that application of the FAA

here would violate separation-of-powers principles.

As this Court underscored just last term, “[t]he Fed-

eral Arbitration Act is a law of the United States,”

and, “[clonsequently, the judges of every State must

follow it.” Imburgia, 136 S. Ct. at 468.

3

Once respondents’ claims about the FAA's inap-

plicability are eliminated, it is clear that the Ken-

tucky court’s ruling cannot stand. Here, as in

Imburgia, the state court failed to honor the same

“equal footing” principle that this Court has invoked

time and time again to prohibit States from “singling

out arbitration provisions for suspect status” in vio-

lation of the FAA. Doctor’s Associates, Inc. v.

Casarotto, 517 U.S. 681, 687 (1996); see also, e.g.,

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339

(2011); Perry v. Thomas, 482 U.S. 483, 492 n9

(1987). The Kentucky court’s special rule for deter-

mining whether an attorney-in-fact is authorized to

sign an arbitration agreement thus “disregards this

Court’s precedents on the FAA” (Nitro-Lift Techs.,

LLC v. Howard, 133 S. Ct. 500, 603 (2012) (per

curiam)), and must be reversed.

I. The FAA Applies To The State-Law Inter-

pretive Rule Announced Below.

Respondents attempt to evade the application of

the FAA and this Court’s precedenis by asserting

that the decision below is about “the a priori exist-

ence of an arbitration agreement.” Resp. Br. 15-17.

That argument is wrong on two counts: the issue

here involves the enforceability of an arbitration

agreement; and even if it did not, the FAA would still

apply.’

3 Indeed, respondents’ own amici agree that the FAA can

preempt “state-law principles that govern how contracts are

formed, whom they bind, how they are interpreted, and what

defenses may exist to their enforcement.” Pub. Citizen Br. 3-4;

see also AAJ Br. 4. And while those amici argue that the deci-

sion below represents an application of ordinary contract prin-

4

A. The Challenged State-Law Rule Governs

The Enforceability Of Arbitration

Agreements.

This is a case about the interpretation of power-

of-attorney documents to determine the enforceabil-

ity of arbitration agreements.

1. It is undisputed that the principals (the nurs-

ing home residents) executed valid powers of attor-

ney designating the respective respondents as their

attorneys-in-fact. J.A. 7-13. Each respondent signed

the admission paperwork on behalf of his or her

principal. Pet. App. 6a-7a. There is no dispute that

each respondent also separately signed an optional

arbitration agreement. J.A. 20, 27. It is further un-

disputed that each arbitration agreement is in writ-

ing and evidences a transaction involving commerce,

and is therefore subject to the FAA. 9 U.S.C. § 2;

Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 589-90

(Ky. 2012) (holding that the FAA applies “to arbitra-

tion provisions in nursing home admission con-

tracts”; collecting authorities); accord Allied-Bruce

Terminix Co. v. Dobson, 513 U.S. 265, 270, 274-75

(1995) (holding that the FAA reaches to the full ex-

tent of Congress’ power over interstate commerce).

ciples, that contention is demonstrably incorrect. See Part II,

infra.

4 Respondents cite (Supp. Br. 2) Breazeale v. Victim Services,

Inc., 2016 WL 4059258 (N.D. Cal. 2016), which held that an ar-

bitration agreement in a non-prosecution agreement between a

State District Attorney and a criminal suspect regarding a po-

tential state-law criminal violation did not implicate a transac-

tion involving commerce because the agreement arose from plea

bargaining. Jd. at *3-5. Whatever the merits of Breazeale, the

arbitration agreements here evidence transactions in interstate

5

The only question in this case, then, is whether

the arbitration agreements should be enforced. And

the answer to that question depends not on disputes

over the formation of either the arbitration agree-

ments or the powers of attorney, but rather on the

interpretation of the power-of-attorney documents to

determine the scope of the authority conferred.

Respondents’ argument that the power-of-

attorney documents do not themselves contain arbi-

tration provisions (Supp. Br. 2) does not allow the

State to avoid applying generally-applicable princi-

ples of law to determine the authority that those

documents gave respondents. What the court below

did—and what Section 2 of the FAA squarely fore-

closes—was to condition the enforceability of arbitra-

tion agreements signed by attorneys-in-fact, and gov-

erned by the FAA, on complying with a novel explic-

it-reference requirement that is not applicable in de-

termining an attorney-in-fact’s authority to enter

into other kinds of contracts. See 9 U.S.C. § 2

(providing that written agreements to arbitrate dis-

putes are “valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity for the

revocation of any contract”). Thus, as Justice Noble

noted in dissent, the majority's interpretive rule does

not actually “affect[] the formation of a contract to

arbitrate.” Pet. App. 100a.

2. One set of amici focuses on the principle that a

“third party generally may not commit a non-party to

a contractual relationship” unless authorized to do so

under “traditional principles of state law.” AAJ Br.

6 (quoting Arthur Andersen LLP v. Carlisle, 556 U.S.

commerce, and respondents did not argue otherwise below; nor

did the Kentucky court hold otherwise.

6

624, 631 (2009)) (some quotation marks omitted).

That argument is puzzling, because the entire ques-

tion here is whether the lower court applied general-

ly-applicable legal principles, as the FAA requires.

Indeed, this Court in Arthur Andersen explained

that state law “is applicable to determine which con-

tracts are binding under § 2 and enforceable under

§ 3” only “tf that law arose to govern issues concern-

ing the validity, revocability, and enforceability of

contracts generally.” 556 U.S. at 630-31 (emphasis

added) (quoting Perry, 482 U.S. at 492 n.9); see also

First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938, 944 (1995) (holding that federal courts deter-

mine whether an arbitration agreement was formed

based on “ordinary state-law principles that govern

the formation of contracts.”) (emphasis added).*

3. It is no answer for respondents to assert that

“(Kentucky] courts are the ultimate authority” on

Kentucky agency or contract law; the same was true

of the California courts in Imburgia. 136 S. Ct. at

468. The FAA requires this Court to “decide whether

the decision of the [Kentucky] court places arbitra-

tion contracts on equal footing with all other con-

tracts” (ibid. (quotation marks omitted))—and to

hold preempted a state-law rule that fails that test.

See also Pet. Br. 31-32.

5 As amici concede, “agency” is a traditional principle of state

law that can bind a nonparty to an arbitration agreement (AAJ

Br. 9-10), and in Kentucky (as elsewhere), “[a] power of attor-

ney creates an agency relationship between the principal and

the agent.” Select Portfolio Servicing, Inc. v. Blevins, 494

S.W.3d 510, 514 (Ky. Ct. App. 2016) (citing Ping, 376 S.W.3d at

591).

7

Respondents principally attempt to distinguish

Imburgia by arguing that Jmburgia involved judicial

interpretation of a contract while this case involves

judicial interpretation of power-of-attorney docu-

ments. Resp. Br. 19, 40; see also id. at 12, 25-27 (ar-

guing that the decision below “did not announce a

rule of contract law’).

But any “state-law principle” that is used to re-

fuse enforcement of an arbitration agreement runs

afoul of the FAA if it “takes its meaning precisely

from the fact that a contract to arbitrate is at issue”

(Perry, 482 U.S. at 492 n.9) or is applied “in a fashion

that disfavors arbitration.” Concepcion, 563 U.S. at

341; see also Pet. Br. 13-14.

Moreover, respondents advance a distinction

without a difference. A power of attorney is a partic-

ular type of formal instrument under which the prin-

cipal confers certain authority on the agent. That is

why powers of attorney “should be construed in ac-

cordance with the rules for interpreting written in-

struments generally.” Villanueva v. Brown, 103 F.3d

1128, 1136 (8d Cir. 1997); see also Resp. Br. 27 (in-

terpreting a power-of-attorney document requires

“construing the writing” to give effect to the intent of

the principal) (quoting Gabby v. Roberts, 35 S.W.2d

284, 285 (Ky. 1931)).

Accordingly, respondents’ remarkable assertion

that Imburgia would have turned out differently had

the California court been construing “the intentions

of the parties” holds no water. Resp. Br. 13, 40. In-

deed, this Court made clear that the California court

was purporting to construe the intentions of the par-

ties. See 136 S. Ct. at 468 (“The Court of Appeal de-

cided that, as a matter of contract law, the parties

did mean the phrase ‘law of your state’ to refer to

8

{preempted state law]”). The problem was that “[t]he

Court of Appeal did not explain why parties might

generally intend the words ‘law of your state’ to en-

compass ‘invalid law of your state” (id. at 469)—just

as the court below did not offer any coherent expla-

nation why a principal conferring a broad authority

to make “contracts” generally intends to confer au-

thority to make any kind of contract except a dis-

pute-resolution agreement.

Indeed, respondents’ argument that a principal

“may discriminate against arbitration as much as he

or she wants” (Resp. Br. 39) only reinforces the par-

allel to Jmburgia. Just as, “[i]n principle, [parties]

might choose to have portions of their contract gov-

erned by the law of Tibet, the law of pre-

revolutionary Russia, or (as is relevant here) the law

of California including the Discover Bank rule and

irrespective of that rule’s invalidation in Concepcion”

(136 S. Ct. at 468), so too might a principal choose to

confer on his attorney-in-fact the authority to make

all contracts on his behalf except dispute-resolution

agreements.

But the question is whether the principal actual-

ly did so, and what the court may not do, “consistent

with the [FAA]” (tbid.), is adopt a unique rule that a

power of attorney broadly authorizing an attorney-

in-fact to enter into “contracts” really (and illogically)

excludes one type of contract—dispute-resolution

agrec nents—from that authorization.®

6 Respondents also state that, because the FAA provides for a

jury trial if “the making of the agreement for arbitration” is “in

iasue” (9 U.S.C. § 4), that provision somehow justifies reserving

to state courts the ultimate right to decide disputes over the in-

terpretation of powers of attorney and the authority that they

9

B. The FAA Preempts State-Law Rules

That Make Arbitration Agreements

More Difficult To Form Than Other

Contracts.

Even if respondents were right that the explicit-

reference rule announced below applies solely to con-

tract formation, the FAA would still apply, for sever-

al reasons.

First, respondents cite no relevant authority for

the proposition that the FAA is categorically inappli-

cable to contract-formation disputes. They point to

Buckeye Check Cashing v. Cardegna, 546 U.S. 440

(2006) in passing (Resp. Br. 16), but the issue in that

case was completely different. Buckeye applied the

rule of severability in distinguishing between chal-

lenges to the validity of a contract as a whole—which

are ordinarily reserved to an arbitrator—and chal-

lenges “to the arbitration clause itself,” which gener-

ally are decided by a court. Buckeye, 546 U.S. at 444-

46 & n.1. Buckeye certainly did not exclude formation

disputes from the FAA’s ambit.

Beyond that, respondents cherry-pick a passage

from the 1924 submission to Congress by Julius

Henry Cohen, one of the drafters of the FAA. Supp.

Br. 3. But Cohen’s statement that “whether or not a

contract exists is a question of the substantive law of

the jurisdiction wherein the contract was made” is

confer. Resp. Br. 44-46. But the jury trial right under the FAA

is limited to addressing factual disputes about contract for-

mation, and there is no factual dispute here; as respondents

elsewhere acknowledge, “|ijn Kentucky, determination of the

intent encompassed in a power of attorney is a matter of law,

and a matter for the courts.” /d. at 3 n.1. Likewise, the question

whether the FAA precludes the legal rule announced below is a

pure issue of law appropriate for resolution by this Court.

10

entirely consistent with this Court’s repeated pro-

nouncements that whether an arbitration agreement

was formed is based on “ordinary state-law princi-

ples that govern the formation of contracts.” First

Options, 514 U.S. at 944 (citing, inter alia, Perry, 482

U.S. at 492 n.9). Nothing in the FAA or this Court’s

precedents suggests that all state-court rules of con-

tract formation—even those that single out arbitra-

tion for suspect status and reflect the judicial hostili-

ty that the FAA was enacted to prevent—are insu-

lated from the FAA.’

Second, respondents have no convincing response

to decisions expressly holding that the FAA’s reach

extends to state laws that prohibit the formation of

arbitration agreements. Pet. Br. 32 (citing Saturn

Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir.

1990); Sec. Indus. Ass’n v. Connolly, 883 F.2d 1114,

1117 (1st Cir. 1989)). They ignore Connolly entirely

and try to distinguish Saturn solely on the basis that

it involved “statutory law” rather than a judicially-

created rule. Resp. Br. 21.

That attempted distinction is squarely foreclosed

by this Court’s precedents. As we pointed out in our

opening brief, “the FAA preempts any ‘state law,

whether of legislative or judicial origin,’ that disfa-

vors arbitration.” Pet. Br. 14 (quoting Perry, 482 U.S.

at 492 n.9 (emphasis added)); see also Casarotto, 517

U.S. at 687 n.3. The same rationale defeats respond-

ents’ attempt to distinguish Casarotto on the grounds

’ Indeed, the majority below itself stated that “the question of

whether an arbitration agreement was ever formed is a matter

of state law, so long as the state law in question does not single

out arbitration agreements.” Pet. App. 44a (emphasis added;

quotation marks omitted).

11

that it involved a “legislative” mandate rather than a

judicial one. Resp. Br. 22.

Third, respondents fail to acknowledge the ab-

surd results that would flow from their proposed ap-

proach. States would have carte blanche to impose

laws blatantly disfavoring arbitration so long as

those discriminatory standards applied to the for-

mation of new arbitration agreements rather than to

existing ones. See Pet. Br. 33-34. Respondents can-

not explain how “restrict[ing] the FAA to existing

agreements” would avoid “allow[fing] [S]tates to

‘wholly eviscerate Congressional intent to place arbi-

tration agreements upon the same footing as other

contracts.” Saturn, 905 F.2d at 722-23. Indeed, they

appear to embrace that impermissible result, argu-

ing that the decision below is immune from the Su-

premacy Clause “[rjegardless of how the Kentucky

Supreme Court came to its conclusion.” Supp. Br. 4.

Finally, respondents caricature our position in

arguing that “the FAA does not exist to make arbi-

tration agreements easier to form.” Resp. Br. 12.

That’s not the issue here. As this Court has held time

and again, the “equal footing” principle embodied by

Section 2 of the FAA does preclude States from con-

versely making arbitration agreements harder to

form or enforce than other types of contracts. E.g.,

Imburgia, 136 5. Ct. at 468-69; Concepcion, 563 U.S.

at 339; Casarotto, 517 U.S. at 687; Perry, 482 U.S. at

492 n.9. Because the decision below does just that, it

cannot stand under the FAA.

12

C. Application Of The FAA Here Does Not

Threaten To Federalize State Agency Or

Contract Law.

Respondents’ final bid to avoid application of the

FAA is to assert, much as they did at the petition

stage (Opp. 34), that reversal would “federaliz[e] all

sorts of State law determinations regarding agency

and authority” and amount to a commandeering of

state courts. Resp. Br. 40-44.

These hyperbolic contentions run headlong into

the Supremacy Clause, which “forbids state courts to

dissociate themselves from federal law because of

disagreement with its content or a refusal to recog-

nize the superior authority of its source.” Imburgia,

136 S. Ct. at 468 (quotation marks omitted). As this

Court has recognized, because “[s]tate courts rather

than federal courts are most frequently called upon

to apply the * * * FAA,” “fiJt is a matter of great im-

portance * * * that state supreme courts adhere to a

correct interpretation of the legislation.” Nitro-Lift

Techs., 133 S. Ct. at 501; see also Marmet Health

Care Center, Inc. v. Brown, 565 U.S. 530, 531 (2012)

(per curiam) (“When this Court has fulfilled its duty

to interpret federal law, a state court may not con-

tradict or fail to implement the rule so established.”).

Far from “federalizing the State law of agency to

a large extent” (Resp. Br. 44), this case, like

Imburgia, requires nothing more than applying the

unexceptional “equal footing” principle that this

Court has invoked many times to police States that

have treated arbitration agreements differently from

other contracts. See Casarotto, 517 U.S. at 687 (not-

ing that the FAA “precludefs] States from singling

out arbitration provisions for suspect status”); see al-

13

so, e.g., Concepcion, 563 U.S. at 339; Perry, 482 U.S.

at 492 n.9.8

Il. The Decision Below Conflicts With The FAA

And Defies This Court’s Precedents.

A. The Explicit-Reference Rule Cannot Be

Justified Under General Principles Of

‘Kentucky Law.

The Kentucky Supreme Court has actually re-

quired explicit authorization in a power of attorney

for only one type of contract—arbitration agree-

8 An amicus law professor urges this Court to overrule South-

land Corp. v. Keating, 466 U.S. 1 (1984), and hold the FAA in-

applicable in state courts. Szalai Br. 11-23. Stare decisis pro-

vides reason alone to reject that request. Pet. Br. 18-19 (citing

Kimble v. Marvel Entm', LLC, 135 S. Ct. 2401, 2409-10 (2015));

see also Allied-Bruce, 513 U.S. at 283-84 (O’Connor, J., concur-

ring) (refusing to vote to overrule Southland on the basis of

stare decisis; “as the Court paints out, more than 10 years have

passed since Southland, severa) subsequent cases have built

upon its reasoning, and parties have undoubtedly made con-

tracts in reliance on the Court’s interpretation of the Act in the

interim”). The reasons that the majority in Allied-Bruce, along

with Justice O’Connor’s concurrence, identified for according

Southland stare decisis effect have only been reinforced further

by the passage of two additional decades.

In all events, respondents have never challenged the contin-

ued vitality of Southland, nor did the parties brief the issue “at

any stage of this litigation,” which is an independent reason for

the Court to “not consider it.” Atl. Marine Constr. Co. v. Dist.

Ct. for the Western Dist. of Texas, 134 S. Ct. 568, 580 (2013).

Finally, the same law professor argues that personal-injury

claims are categorically excluded from the FAA. But this Court

has squarely held that the “statute’s text includes no exception

for personal-injury or wrongful-death claims." Marmet, 132 S.

Ct. at 1203. And respondents have never suggested, much less

asked, that Marmet be overruled.

14

ments. Respondents and their amici labor mightily

to shoehorn this arbitration-specific rule into a gen-

eral principle of Kentucky law. But they cannot: the

decision below is a paradigmatic example of a state-

law rule that targets arbitration agreements, and is

therefore preempted by the FAA.

The lower court’s “explicit-reference rule” is not a

general application of Kentucky agency law; nor is it

a construction of powers of attorney in general. And

the rule does not apply even-handedly to the waiver

of all constitutional rights, nor to—as respondents

have contended—ali “acts fraught with major legal

implications for the principal.” Resp. Br. 28 (quoting

RESTATEMENT (THIRD) OF AGENCY § 2.02 cmt. h.

(2006)).

1. The explicit-reference rule does not apply

to all kinds of contracts, nor does it com-

port with generally-applicable principles

for interpreting powers of attorney.

Respondents bear the burden of demonstrating

that the legal rule applied below is a “ground]] as ex-

ist[s] at law or in equity for the revocation of any

contract.” 9 U.S.C. § 2 (emphasis added). They can-

not come close to meeting that standard.

First, respondents argue that Ping and other

cases stand for the proposition that a power of attor-

ney must be “strictly construed” under Kentucky law

(e.g., Rice v. Floyd, 768 S.W.2d 57 (Ky. 1989)). Resp.

Br 27, 31. In fact, those cases hold only that un-

bounded general language in a power of attorney—

such as the power “to do and perform any, all, and

every act and thing whatsoever requisite and neces-

sary to be done” or to do all that the principal “might

or could do if personally present” (Ping, 376 S.W.3d

15

at 590-92)—must be construed in tandem with the

power of attorney’s specific grants of authority.

That proposition is irrelevant here, because the

source of respondents’ authority to agree to arbitra-

tion was the specific, express authority to make or

enter into contracts. J.A. 7, 10-11; see also Resp. Br.

6 (quoting the language in the Clark power of attor-

ney “specifically authorizfing] my attorney in fact

*** (tlo draw, make, and sign in my name any and

all checks, promissory notes, contracts, deeds, or

agreements’ ).®

Second, respondents fail to counter our demon-

stration that explicit authorization is not necessary

to confer the authority to enter into a forum selection

clause under Kentucky law—even though such

clauses may also waive a party’s constitutional

rights. Pet. Br. 26. They claim that a decision by a

federal court in Ohio supports their argument (Resp.

Br. 29 (citing Baker v. LeBoeuf, Lamb, Leiby &

MacRae, 1993 WL 662352, at *9 (S.D. Ohio 1993))),

but they are incorrect. Rather, Baker held that de-

fendants who were not parties to or third-party bene-

® Respondents and their amici acknowledge that Justice

Abramson (now Hughes), who authored Ping, was the principal

dissenter below (Resp. Br. 11, 36), yet they ignore her cogent

explanation of why Ping does not apply. See Pet. App. 70a-74a.

Respondents’ reference to the fact that Kentucky has not

adopted the Uniform Power of Attorney Act (Resp. Br. 14; see

also AAJ Br. 19-20) is a non-sequitur. While Section 203 of the

Uniform Power of Attorney Act provides that general language

“to do all acts that a principal could do” authorizes the principal

to “submit [the principal’s claims] to alternative dispute resolu-

tion” (Uniform Power of Attorney Act § 203(4)), petitioners are

not relying on such language as the basis for enforcement of the

arbitration agreements here.

16

ficiaries of a contract containing a forum-selection

clause could not enforce that clause against the

plaintiffs with whom they had an attorney-client re-

lationship created by a power of attorney that did not

itself contain a forum-selection clause.

Third, respondents quibble with our observation

(Pet. Br. 22) that Kentucky law has no similar explic-

it-reference requirement in its guardianship stat-

utes, but we have not argued, as respondents suggest

(Resp. Br. 31, 37-39), that attorneys in fact and

State-appointed guardians are equivalent. The key

fact is, as respondents recognize, the Kentucky Court

of Appeals (like the federal court decisions that we

cited in our opening brief) has held that guardians’

statutory authority to enter into contractual rela-

tionships includes the power to enter into predispute

arbitration agreements. Jd. at 37 (citing LP Pikeville,

LLC v. Wright, 2014 WL 1345293 (Ky. Ct. App.

2014)).

Their suggestion that the grant of review and the

possibility of reversal by the Kentucky Supreme

Court in Wright should insulate the decision below

from criticism, however, is misplaced. On the contra-

ry, while respondents are correct that “[w]hether or

not a State legislature may discriminate against ar-

bitration in its State guardianship statutes is of

course a different question” than the one presented

here (Resp. Br. 39), the possibility that the court be-

low will compound its erroneous interpretation of the

FAA in future cases is all the more reason to correct

it now. See Nitro-Lift, 133 S. Ct. at 501; Marmet, 565

U.S. at 531.

Finally, respondents echo the majority’s conclu-

sion that the Wellner power of attorney’s authoriza-

tion to make “contracts * * * in relation to * * * per-

17

sonal property” does not encompass predispute arbi-

tration agreements. Resp. Br. 6. But they also con-

cede, as did the majority, that “a chose-in-action is

property under Kentucky law.” Jd. at 9; see also Pet.

App. 36a; Button v. Drake, 195 S.W.2d 66, 69 (Ky.

1946). Thus, they are left simply repeating the ma-

jority’s spurious assertion that an agreement to arbi-

trate a principal’s legal claims somehow does not re-

late to those claims. Resp. Br. 9-10; Pet. App. 37a.

Indeed, respondents do not engage at all with our

discussion of both the dissent’s powerful rebuttal to

this point and this Court’s decisions similarly recog-

nizing that a cause of action is a species of property.

Pet. Br. 23.10

10 One of respondents’ amici tries a different tack, arguing that

the language in the Wellner power of attorney does not author-

ize predispute arbitration agreements on the theory that future

legal claims that have not accrued are not yet property. Pub.

Citizen Br. 12. They quote Button for the proposition that a

chose in action creates a right “not reduced to possession,” but

that proposition does not advance their theory, because (as this

Court has observed) immediate reducibility to possession is not

the defining characteristic of a property right. See Sprint

Comme'ns Co. v. APCC Servs., Inc., 554 U.S. 269, 275 (2008)

(noting that a “chose in action” is “an interest in property not

immediately reducible to possession”). Moreover, it would be

nonsensical to limit the authority to make contracts in relation

to personal property to cover only the principal’s existing prop-

erty interests—that would yield the illogical result, for in-

stance, that the attorney-in-fact could sell the principal’s exist-

ing possessions at the time the power of attorney was executed

but not future possessions that the principal has yet to acquire.

18

2. The explicit-reference rule cannot be sal-

vaged by calling it a rule that applies

generally to transactions with “significant

legal consequences.”

Respondents offer little in response to our

demonstration—and that of the principal dissent be-

low—that the majority’s own reasoning impermissi-

bly targets only those constitutional rights that are

inherently affected by arbitration agreements. See

Pet. Br. 24-26. And they do not directly engage at all

with our showing that upholding the decision below

would leave States free to discriminate against arbi-

tration in countless ways. Id. at 29-30.

They instead resort to the majority's invocation

of the rule that actions with “significant legal conse-

quences” for the principal are “not to be inferred

lightly.” Pet. App. 39a (quoting RESTATEMENT

(THIRD) OF AGENCY § 2.02 cmt. h); Resp. Br. 28.

But the majority itself recognized that there was

nothing to “infer[]” in the Clark power of attorney's

“broad grant of authority” to make contracts and

therefore the rule did not apply (Pet. App. 39a).

Thus, this principle of agency law plainly did not

supply the basis for the majority’s decision. Rather,

the majority’s explicit-reference requirement turned

on its elevation of the jury trial right to sacrosanct

status—an elevation that conflicts with the FAA’s

purposes. Pet. Br. 17-29.

It is also telling that neither respondents nor

their amici are able to articulate any other transac-

tions to which the explicit-reference rule might apply

beyond the parade of improbable horribles trotted

out by the majority. They instead rest on the majori-

ty’s example that an attorney-in-fact entering into an

19

arbitration agreement on behalf of her principal

would be as unexpected and significant as the attor-

ney-in-fact binding the principal to an arranged mar-

riage. Resp. Br. 29-30; AAJ Br. 18-19. To state the

comparison is to refute it: as the dissent below point-

ed out, arbitration agreements “are commonplace,”

unlike this fanciful example. Pet. App. 97a; see also

Pet. Br. 28-29.

The example—along with amici’s observation

that Kentucky law precludes an attorney-in-fact

from authoring a will for a principal (AAJ Br. 19)—

also misses the point more broadly. States are gener-

ally free as a policy matter (consistent with constitu-

tional constraints) to impose requirements on the va-

lidity of marriages or wills that do not apply to other

kinds of contracts or written instruments. E.g., Ky.

Rev. Stat. § 394.040 (requiring two witnesses to a

will not written entirely by the testator); id.

§ 402.050 (solemnization and two-witness require-

ments for marriages). But the FAA precludes States

from erecting similar hurdles to the formation or en-

forceability of arbitration agreements when those re-

quirements do not apply to all contracts. See pp. 3-

11, supra.

Likewise unavailing is amicis attempted com-

parison between the waiver of a jury trial inherent in

an arbitration agreement and the judicial colloquy

required for a criminal] defendant to waive his right

to a jury trial. AAJ Br. 10-12. Amici ignore entirely

the numerous cases rejecting arguments that a

heightened “knowing and voluntary waiver” stand-

ard applies to the enforcement of an arbitration

agreement. Pet. Br. 26 n.7. If anything, the attempt-

ed comparison only reinforces the point made by the

dissent below: as a matter of Kentucky law and his-

20

tory, the jury trial right takes on much greater im-

portance in criminal felony cases than in civil dis-

putes. Jd. at 24 n.6; App. 89a-90a n.26.

3. The FAA precludes policy-based excep-

tions for nursing home-related claims.

Several amici further suggest that the explicit-

reference rule is warranted by perceived problems

concerning resident care in the nursing home indus-

try. AARP Br. 13-20; Pub. Citizen Br. 4-6. But this

suggestion suffers from at least three fundamental

flaws.

First, this Court’s decision in Marmet, which also

involved nursing home-related claims, squarely re-

jected West Virginia’s attempt to exclude such claims

from the FAA’s reach on policy grounds as “contrary

to the terms and coverage of the FAA.” 565 U.S. at

533; see also n.8, supra.

Second, state public policy concerns can neither

substitute for nor override congressional judgment.

See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 270

(2009) (holding that the FAA precludes reliance on

“judicial policy concern[s] as a source of authority”

for refusing to enforce arbitration agreements); see

also Concepcion, 563 U.S. at 342 (explaining that the

FAA was enacted to eliminate the “great variety’ of

‘devices and formulas’ declaring arbitration against

public policy”). Amici’s policy arguments are properly

directed to Congress, not the courts.

Third, these policy arguments are also wrong.

They all stem from the erroneous premise that arbi-

tration is inadequate to protect the rights of nursing

home residents and their families. But as amici in

support of petitioners explain, nursing home resi-

dents and their representatives fare comparably in

21

arbitration and litigation, and arbitration results in

lower costs and quicker resolution of their claims.

Am. Health Care Ass’n Br. 5-8; Genesis Healthcare

Br. 12-17; see also Chamber of Commerce Br. 3-13

(collecting “data confirm[ing} that arbitration is

cheaper and faster than litigation and produces fair

outcomes” in general).

This Court has likewise repeatedly acknowledged

the “advantages” of arbitration. Allied-Bruce, 513

U.S. at 280; see also, e.g., Concepcion, 563 U.S. at

345; 14 Penn Plaza, 556 U.S. at 257; Mitsubishi Mo-

tors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S.

614, 628 (1985). Indeed, “we are well past the time

when judicial suspicion of the desirability of arbitra-

tion and the competence of arbitral tribunals inhibit-

ed the development of arbitration as an alternative

means of dispute resolution.” Mitsubishi, 473 U.S. at

626-27.

Finally, respondents and their amici cannot jus-

tify the hostility to arbitration reflected by the deci-

sion below by pointing out other cases in which the

Kentucky Supreme Court has enforced arbitration

agreements. See Resp. Br. 25-26; AAJ Br. 24. The

question presented is whether the explicit-reference

rule announced in this case comports with the FAA,

and it does not.

For all of these reasons, the Kentucky court’s

explicit-reference rule cannot be saved from preemp-

tion as an even-handed application of Kentucky law.

B. The Explicit-Reference Rule Is Incon-

sistent With This Court’s Precedents.

Based on this Court’s statements that “a party

can be forced to arbitrate only those issues it specifi-

cally has agreed to submit to arbitration,” First Op-

22

tions, 514 U.S. at 945, and that the delegation of is-

sues of arbitrability to an arbitrator must be “clear

and unmistakable,” Rent-A-Center, West, Inc. v.

Jackson, 561 U.S. 63, 69-70 & n.1 (2010), amici as-

sert that “courts ought to hesitate to interpret silence

as to the waiver of constitutional rights in an agency

agreement to permit waiver.” AAJ Br. 14; see also

Pub, Citizen Br. 15-17. Their argument appears to be

that the specificity required under First Options and

Rent-A-Center should also apply to powers of attor-

ney.

But these analogies do not work. First, this

Court’s precedents do not require parties to spell out

by name each of the issues that are within the scope

of their arbitration agreements. For instance, an ar-

bitration provision covering “ail claims or controver-

sies between the parties” means just that—all dis-

putes—without the need to list what those disputes

might be. For the same reason, the authority in a

power of attorney to make “contracts” covers all con-

tracts, without the need to spell out what contracts

those might be. In other words, the powers of attor-

ney were far from “silen[t]” on the matter at hand; it

is enough that the powers of attorney expressly au-

thorized the attorneys-in-fact to make or enter into

contracts.

Second, the specificity that this Court requires

for the delegation of issues of arbitrability is based

on an underlying federal default rule: that a court,

and not an arbitrator, will decide threshold questions

of arbitrability, such as whether the arbitration

agreement is enforceable. But the FAA precludes a

State from adopting a default rule that requires

heightened specificity only with respect to arbitra-

tion agreements. K.g., Casarotto, 517 U.S. at 687-88.

23

CONCLUSION

The judgment of the Kentucky Supreme Court

should be reversed.

Respectfully submitted.

ANDREW J. PINCUS

Counsel of Record

ARCHIS A. PARASHARAMI

DANIEL E. JONES

Mayer Brown LLP

1999 K Street, NW

Washington, DC 20006

(202) 263-3000

apincus@mayerbrown.com

Counsel for Petitioners

FEBRUARY 2017