Amicus Curiae Brief — SSC Odin Operating Operating Co., LLC v Carter (No. 08-805)

4 f Supreme Court. U.S

\ (ure. 08-805 | FILED

—

IN THE

JAN Z 3 2009

OFFICE OF THE CLERK

Supreme Court of the Anited States

SSC ODIN OPERATING COMPANY LLC,

D/B/A ODIN HEALTH CARE CENTER,

Petitioner,

Vv.

SUE CARTER, SPECIAL ADMINISTRATOR OF THE

ESTATE OF JOYCE GOTT,

Respondent.

On Petition for a Writ of Certiorari to the

Appellate Court of Illinois,

Fifth District

BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA, THE

AMERICAN HEALTH CARE ASSOCIATION,

THE ILLINOIS HEALTH CARE ASSOCIATION,

THE ILLINOIS COUNCIL ON LONG-TERM

CARE AND THE ALLIANCE FOR QUALITY

NURSING HOME CARE AS AMICI CURIAE

IN SUPPORT OF PETITIONER

ROBIN S. CONRAD PETER B. RUTLEDGE

AMAR D. SARWAL Counsel of Record

NATIONAL CHAMBER 100 Herty Drive

LITIGATION CENTER, INC. Athens, GA 30602

1616 H Street, N.W. (706) 542-1328

Washington, D.C. 20062

(202) 463-5337

PRISCILLA SHOEMAKER

AMERICAN HEALTH CARE

ASSOCIATION

1201 L Street, N.W.

Washington, D.C. 20005

(202) 898-2850

[Additional Counsel Listed On Inside Cover]

WILSON-EPES PRINTING CO INC -— (202) 789-0096 -— WASHINGTON, D C 20002

MR. NICHOLAS J. LYNN

ILLINOIS HEALTH CARE ASSOCIATION

1029 S. 4th Street

Springfield, IL 62703

(217) 528-6455

MR. TERRENCE P. SULLIVAN

ILLINOIS COUNCIL ON LONG-TERM CARE

3500 W. Peterson Avenue

Suite 400

Chicago, IL 60659

(773) 478-6613

QUESTIONS PRESENTED

. Whether the lower court correctly held, in di-

rect conflict with several of this Court’s deci-

sions, that an otherwise valid arbitration

agreement was unenforceable solely on the

basis of “public policy” embodied in a

generalized anti-waiver provision of a state

statute.

. Whether, and to what extent, “public policy”

qualifies as a ground for the “revocation of any

contract” under Section 2 of the Federal Arbi-

tration Act.

TABLE OF CONTENTS

QUESTIONS PRESENTED .....................ccceseees

FPS APE BAS TREO £ BS 00. cccevcssveccssesessvonesess

INTEREST OF AMICI CURIAE .................0000

SUMMARY OF THE ARGUMENT ......00......00....

PT oe isis cehteivd ie teccorviancivcbiconnnsans

3

IT.

III.

CONCLUSION

THIS COURT SHOULD SUMMARILY

REVERSE THE DECISION BELOW

AND REAFFIRM THE IMPORTANT

PRINCIPLE THAT COURTS MAY NOT

RELY ON GENERALIZED ANTI-

WAIVER LANGUAGE IN STATUTES

TO INVALIDATE ARBITRATION

AGREEMENTS ON PUBLIC POLICY

RII tubssinix ceca esedianecsccactsniecvereebertsies

ALTERNATIVELY, THIS COURT

SHOULD GRANT CERTIORARI TO

DECIDE WHETHER THE GROUNDS

“FOR REVOCATION OF ANY

CONTRACT” INCLUDE “PUBLIC

NN eee ee swtecteasscatek uy cae back sasornateNuneene

REGARDLESS OF WHETHER THIS

COURT SUMMARILY REVERSES OR

GRANTS CERTIORARI, THE IMPOR-

TANCE TO THE NURSING HOME

INDUSTRY OF THE ISSUES FRE-

SENTED IN THIS CASE JUSTIFIES

THIS COURT'S INTERVENTION. .........

Se ee ee ee ee

(111)

Page

1]

15

18

iV

TABLE OF AUTHORITIES

CASES Page

Allied-Bruce Terminix Cos. v. Dobson, 513

a I iiereescnesssncesvanvernevareesvscerssess passim

Blazier v. Beveriy Enterprises, Slip Op. No.

5-08-0011 (Ill. App. 2008)................0.00002. 17

Buckeye Check Cashing, Inc. v. Cardegna,

ES passim

Circuit City Stores, Inc. v. Adams, 532

nc inisvececscocsvicsunernnsevepexeeeve 16

Dean Witter Reynolds, Inc. v. Byrd, 470

I vis scuvnvaccencalesecvenacdncnesswentens 6

Discover Bank v. Superior Court, 113 P.3d

i ss ova veosenithesvenrawkenaien 12

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.

gies tng duns vixecesewcnvanseusoonns 6, 10, 11

Gilmer v. Interstate/Johnson Lane Corp.,

BS BO nce cccceccsnsconvcvcnssveseseanees 8

Green Tree Fin. Corp.-Ala. v. Randolph,

I Te oc cncccnonsneesecrnensdsmuasarees 8

Kelly v. Martin & Bayley, Inc., 503 F.3d

tS nr arr 18

Kruger Clinic Orthopaedics, L.L.C. v. Re-

gence BlueShield, 138 P.3d 936 (Wash.

orn ds ac ivanunienancndatantbovnvevenicins 12

Kulukundis Shipping Co. v. Amtorg Trad-

ing Corp., 126 F.2d 978 (2d Cir. 1942)..... 13

Mitchell v. Beverly Enterprises, Slip Op.

No. 5-07-0637 (Ill. App. 2008) .................. 17

Mitsubishi Motors Corp. v. Soler, 473 US.

is csv a bastn vo iena weaencnogneees 9-10

Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U. me 5 = ) es 12

Perry v. Thomas, 482 » . 483 (1987) ......... 6, 10

Vv

TABLE OF AUTHORITIES—Continued

CASES Pages

Presidential Leasing, Inc. v. Krout, 896 So.

2d 938 (Fla. Dist. Ct. App. 2005).............. 12

Preston v. Ferrer, 128 S. Ct. 978 (2008)....... §, 11

Rodriguez de Quijas v. Shearson/

American Express, Inc., 490 U.S. 477

SE eS SERRE Re 8

Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987)............... passim

Southland Corp. v. Keating, 465 U.S. 1

Naan Abie Lagandssadéaseserveseroseooeeees passim

Wilko v. Swan, 346 U.S. 427 (1953)............. 8

STATUTORY AUTHORITIES

ee oso scasepenccsdsescevseservessorsses 1

Re EE so scscscesevevesvsvesenssvevsseceouses passim

10 U.S.C. §987(£)(4) (2006)........ ME Reece 9

ROE SOR Ae Fe)

Ala. Code §28-9-11 (2008) ............................ 17

Ark. Code Ann. §8-7-1010(c) (2008)............. ig

N.Y. Pub. Health Law §2801-d (McKinney

eae vicceaxuvesvesvonesveoweses 17

Okla. Stat. Ann. tit. 63, §1-1939 (West

else ciasdeivcaraveteessvasvnevisceess 17

W. Va. Code §16-5N-15 (2008)............0..00... 17

OTHER AUTHORITIES

Gary B. Born and Peter B. Rutledge, Jn-

ternational Civil Litigation in United

States Courts (3d ed. 2006)................:0.0. 13

Dep’t of Health and Human Services, Cen-

ters for Medicare & Medicaid Services,

Memorandum of Steven A. Pelovitz, Di-

rector of Survey and Certification Group

Cf eS "EP ve 16

vl

TABLE OF AUTHORITIES—Continued

OTHER AUTHORITIES Pages

Fairness in Nursing Home Arbitration Act

a NE , MINE exci rcnusicisveidossicencerneexcuens 9

Hearing Before the Subcomm. on Antitrust,

Competition Policy and Consumer

Rights of the S. Judiciary Comm., (June

| SOIR: SALLI SPEIER HD TO TE 15

INTEREST OF AMICI CURIAE

Amic: curiae represent organizations whose mem-

bers share a keen interest in a robust, well-

functioning system of arbitration in the United

States. Many of amici’s members employ arbitration

agreements in contracts with their customers.

Unless corrected, the erroneous reasoning of the

lower court’s decision threatens to spawn litigation

over the enforceability of those agreements and

thereby deprive both businesses and consumers of

the substantial benefits of arbitration.

The Chamber of Commerce of the United States of

America (“Chamber”) is the nation’s largest federa-

tion of business companies and associations. It

represents an underlying membership of more than

three million business, trade and professional organi-

zations of every size, sector and geographic region of

the country. A principal function of the Chamber is

to represent the interests of its members by filing

briefs amicus curiae in cases involving issues of vital

concern to the Nation’s business community, includ-

ing cases before this Court raising important ques-

tions under the Federal Arbitration Act (“FAA”), 9

U.S.C. §§1 et seq.

The American Health Care Association (“AHCA”) is

the national representative of nearly 11,000 non-

profit and proprietary facilities dedicated to improv-

The parties have consented to the filing of this brief.

Counsel of record for all parties received notice at least 10 days

prior to the due date of the amici curtae’s intention to file this

brief. No counsel for a party authored this brief in whole or in

part, and no counsel or party made a monetary contribution

intended to fund the preparation or submission of this brief. No

person other than amici curiae, their members or their counsel

made a monetary contribution to its preparation or submission.

2

ing the delivery of professional and compassionate

care to more than 1.5 million citizens who live in

nursing facilities, assisted-living residences, subacute

centers, and, homes ffor persons with mental

retardation and developmental disabilities. One way

in which AHCA promotes the interests of its

members is by participating as amicus curiae in cases

with far-reaching consequences for its members,

including cases brought under the FAA.

The Illinois Health Care Association (“IHCA”) is a

non-profit organization comprising approximately

500 licensed and certified long-term care facilities

and programs throughout the State of Illinois.

Founded in 1950, IHCA is the oldest and largest as-

sociation of its kind in the State. Its members consist

of proprietary and non-proprietary facilities which

represent skilled, intermediate care, developmentally

disabled, skilled pediatric, assisted living and shel-

tered care levels of care. Collectively, they provide

health care to more than 31,000 people.

The Illinois Council on Long Term Care (“ICLTC”),

founded in 1977, is a statewide, non-profit service as-

sociation representing 24,000 long term care profes-

sionals and caregivers serving over 30,000 residents

in nearly 200 Illinois nursing and rehabilitation

facilities. One way in which the ICLTC promotes

progressive public policy on behalf of its members is

by participating as amicus curiae in cases with far-

reaching consequences for the long term care

profession.

The Alliance for Quality Nursing Home Care (the

“Alliance”) is a non-profit organization representing

17 national and regional post-acute providers, all of

which offer skilled nursing facility services. Alliance

members collectively operate nearly 2,000 facilities in

3

49 states. They treat as many as 500,000 patients

each year and employ more than 300,000 people.

SUMMARY OF THE ARGUMENT

Section 2 of the Federal Arbitration Act provides

that arbitration agreements are valid, irrevocable,

and enforceable except upon “grounds” that exist “for

the revocation of any contract.” 9 U.S.C. §2. The

lower court interpreted this quoted language to in-

validate a model arbitration agreement, used

throughout the nation by nursing homes, on the basis

of “public policy” contained in the anti-waiver provi-

sions of Illinois’s Nursing Home Care Act (“INHCA”).

That holding rests on two legal propositions: (1) a

narrow proposition that this “public policy” defense

includes generalized anti-waiver language in a state

statute and (2) a broad proposition that Section 2’s

grounds for “revocation of any contract” include

“public policy.”

This Court has squarely rejected the narrow propo-

sition, and the decision below can be summarily re-

versed on that basis. 7he grounds “for revocation of

any contract” do not include a “public policy” based on

a generalized anti-waiver provision in a state statute

That was the central lesson of Southland Corp. v.

Keating, 465 U.S. 1 (1984), where this Court rejected

a similar effort by the California Supreme Court to

invalidate an arbitration agreement on the basis of

“public policy” contained in an anti-waiver provision

of the California Franchise Investment Law. This

Court’s non-arbitrability decisions support Southland’s

central lesson. The consistent principle unifying

those decisions is that the prerogative to override the

FAA’s “mandate” lies exclusively with Congress, not

with state legislatures or the courts. See Shearson/

American Express, Inc. v. McMahon, 482 U.S. 220,

4

226 (1987). Disrespecting that principle, the decision

below arrogates unprecedented power to state courts

unilaterally to declare statutory claims non-arbitrable.

This Court has never directly addressed the broad

proposition—whether Section 2’s grounds “for revo-

cation of any contract” include “public policy”—so,

alternatively, it could grant the petition to resolve

that question. The scope of Section 2 is critically im-

portant for companies using arbitration agreements.

Some courts are relying on doctrines such as “public

policy” and “unconscionability” to invalidate arbitra-

tion agreements. Yet, in many cases the so-called

“applications” of these “general” doctrines are indis-

tinguishable from rules that “single out arbitration,”

something that the FAA clearly disallows. In con-

trast to more fact-specific doctrines like fraud and

duress, subjective, policy-laden doctrines like “public

policy” and “unconscionability” sweep more broadly.

They can invalidate entire classes of arbitration

clauses or, as in this case, invalidate arbitration

clauses in an entire industry. Such refusals to en-

force arbitration agreements on the basis of “public

policy” represented precisely the sort of “judicial hos-

tility” which Congress, by enacting the FAA, sought

to overcome. Thus, if this Court chooses not to sum-

marily reverse on the narrow ground suggested

above, it should grant the petition to clarify Section

2’s scope.

Regardless of whether this Court summarily re-

verses the lower court’s judgment on the narrow

proposition or grants certiorari to address the broad

one, the issues presented here are sufficiently impor-

tant to warrant this Court’s intervention. The arbi-

tration agreement invalidated in this case was based

on a model agreement used by nursing homes through-

5

out the nation. It provided residents and their

guardians a choice whether to accept the benefits of

arbitration such as speedier results, lower costs, and

confidential proceedings. The decision below de-

prives individuals of this choice and thereby denies

them the benefits of arbitration that this Court pre-

viously has recognized. Aliied-Bruce Terminix Cos. v.

Dobson, 513 U.S. 265, 280 (1995). The decision below

also encourages forum shopping. Not only does it

deepen divides between federal and state courts, it

invites arbitration’s opponents to utilize Illinois,

including the famous “plaintiffs haven” of Madison

County, as a favorable forum in which to challenge

these model arbitration agreements. Subsequent

opinions handed down in the wake of the decision

below provide concrete evidence that just such

litigation will materialize unless this Court intervenes.

ARGUMENT

I. THIS COURT SHOULD SUMMARILY

REVERSE THE DECISION BELOW AND

REAFFIRM THE IMPORTANT PRINCI-

PLE THAT COURTS MAY NOT RELY

ON GENERALIZED ANTI-WAIVER LAN-

GUAGE IN STATUTES TO INVALIDATE

ARBITRATION AGREEMENTS ON PUB-

LIC POLICY GROUNDS.

Several principles of law appear to be uncontested

in this case. First, Section 2 of the Federal Arbitra-

tion Act applies in state court. Preston v. Ferrer, 128

S. Ct. 978, 983 (2008); Southland, 465 U.S. at 15-16.

Second, under Section 2, arbitration agreements

“shall be valid, irrevocable, and enforceable” except

upon such grounds that exist “for the revocation of

any contract.” 9 U.S.C. §2. Third, this quoted lan-

guage represents a “national policy favoring arbitra-

6

tion,” Buckeye Check Cashing, Inc. v. Cardegna, 546

U.S. 440, 443 (2006), and effectively “withdr[aws] the

power of the states to require a judicial forum for the

resolution of claims which the contracting parties

agreed to resolve by arbitration.” Doctor’s Assocs.,

Inc. v. Casarotto, 517 U.S. 681, 684 (1996) (quoting

Southland, 465 U.S. at 10). Fourth, Section 2 conse-

quently preempts both state legislative enactments

and judicial constructions of those enactments which

frustrate the FAA’s national, arbitration-promoting

objective. Perry v. Thomas, 482 U.S. 483, 492 n. 9

(1987).

The state court decision in this case, which effec-

tively invalidates arbitration agreements across an

entire industry, unquestionably undercuts the FAA’s

policy “requir[ing] that [courts] rigorously enforce

agreements to arbitrate.” Dean Witter Reynolds, Inc.

v. Byrd, 470 U.S. 213, 221 (1985). So the only basis

upon which the lower court’s judgment can be sus-

tained is if “public policy,” as embodied in the IN-

HCA’s anti-waiver provisions, is a ground “for revoca-

tion of any contract.”

This Court has never held—or even sugyested—

that the grounds “for revocation of any contract” in-

clude “public policy.” The decisions referring to Sec-

tion 2’s defenses have used various formulations such

as “fraud,” Southland, 465 U.S. at 16 n. 11; “fraud,

duress or unconscionability,” Casarotto, 517 U.S. at

686; and “fraud or excessive economic power.”

McMahon, 482 U.S. at 226. So there is strong reason

to believe that the lower court’s reliance on “public

policy” is simply erroneous. See Cardegna, 546 U.S

at 446 (rejecting state supreme court’s view that “en

forceability of the arbitration agreement should turn

7

on Florida public policy and contract law”) (interal

quotations omitted).

Yet, the Court does not need to resolve that ques-

tion in order to summarily reverse the decision below.

Even if public policy might qualify as a Section 2

“ground” in some hypothetical case—a position that

amici do not concede—it cannut be stretched to in-

clude a generalized anti-waiver provision contained

in a state statute. That was the central lesson of

Southland. Southland involved California’s Fran-

chise Investment Law which contained an anti-

waiver provision but did not specifically “single out”

arbitration. 465 U.S. at 4 n.1. As Justice Stevens

recognized, the California Supreme Court relied on

the public policy defense to invalidate an agreement

requiring arbitration of claims arising under the

franchise law. Id. at 19-21 (Stevens, J., concurring in

part and dissenting in part). This Court reversed the

California Supreme Court’s judgment and held that

invocation of a public policy based on an anti-waiver

provision in a state statute did not qualify as a

ground “for the revocation of any contract” but, in-

stead, “conflict/ed] with the [FAA].” Southland, 465

U.S. at 16 n. 11.

This case is indistinguishable from Southland

Just like the California Franchise Investment Law,

the INHCA contains generalized anti-waiver lan-

guage that has been judicially construed to preclude

arbitration. Indeed, by comparison to Southland, the

conflict in this case between the state statute and the

FAA is even more pronounced. Whereas the gener-

alized anti-waiver language in Southland was merely

directed at compliance with the franchise law’s sub

stantive provisions, the INHCA explicitly attempts to

channel disputes toward litigation by making jury

to)

waivers unenforceaple. Compare 465 U.S. at 5 n. 1

(Califormia ‘aw), with Pet. at 3 (Illinois law). Thus,

on the avtnority of Southland, the lower court’s

“public policy” holding cannot stand.

This Court’s jurisprudence on the arbitrability of

statutory claims also supports this reading of South-

land. In the decades following the FAA’s enactment,

this Court limited its application in cases involving

certain claims arising under federal statutes, such as

those ac,ising under the federal securities laws. See,

e.g., Wilko v. Swan, 346 U.S. 427 (1953), overruled by

Rodriguez de Quijas v. Shearson/American Express,

Inc., 490 U.S. 477 (1989). Those laws, just like the

INHCA, contain generalized anti-waiver provisions

that do not explicitly mention arbitration. See Wilko,

346 U.S. at 430 n. 6. More recent decisions reconsid-

ered—and in some cases overruled—those early deci-

sions in light of exploding dockets and a growing

awareness of arbitration’s efficacy. See Gilmer v. In-

terstate/Johnson Lane Corp., 500 U.S. 20, 30-32

(1991); Rodriguez de Quijas, 490 U.S. at 479-86;

McMahon, 482 U.S. at 227-33. In the years that fol-

lowed, this Court consistently held statutory disputes

to be arbitrable even where those statutes were al-

leged to advance “important social policies.” Green

Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90

2000). See also McMahon, 482 U.S. at 226 (“[T]his

duty to enforce arbitration agreements is not dimin-

ished when a party bound by an agreement raises a

claim founded on statutory rights.”). The upshot of

these decisions is that the mere presence of an anti-

waiver provision in a federal statute does not render

disputes arising under the statute non-arbitrable

Rather, “{hlaving made the bargain to arbitrate, the

party should be held to it unless Congress itself has

evinced afr Intention to wre luce i walver ol! yuaicia!l

9

remedies for the statutory rights at issue.” Mitsubi-

shi Motors Corp. v. Soler, 473 U.S. 614, 627 (1985)

(emphasis added). See also McMahon, 482 U.S. at

226 (FAA’s “mandate may be overridden by a

contrary congressional command.”) (emphasis added).”

This Court’s decision in Mitsubishi exemplifies the

relationship between Southland and the limits on

state power to regulate the arbitrability of disputes

arising under state law. While Mitsubishi principally

concerned the arbitrability of federal antitrust

claims, the Court also addressed an ancillary argu-

ment that claims under local antitrust law were not

arbitrable. The Court summarily rejected that view

in a footnote explaining that “any contention that the

local antitrust claims are non-arbitrable would be

foreclosed by this Court’s decision in [Southland]

where we held that the [FAA] withdrew the power of

the states to require a judicial forum for the resolu-

* During the last legislative session, Congress considered bills

that would have invalidated certain arbitration agreements

between long-term care facilities and their residents (or persons

acting on their behalf). See Fairness in Nursing Home

Arbitration Act (H.R. 6126/S. 2838). Those bills validate amict’s

view that decisions about the arbitrability of disputes reside

with Congress, not the courts. Those bills have not yet been

reintroduced in the 111th Congress, and their reintroduction

would not supply a reason to deny certiorari. In recent decades,

Congress has considered numerous bills that would declare

certain disputes off-limits from arbitration but, in the eighty

four years since the FAA’s adoption, only passed such legislation

twice. See 15 U.S.C. §1226 (2006); 10 U.S.C. §987(f)(4) (2006).

Moreover, the bills only apply to disputes or claims that arise

after the date of their enactment. See id. §4. Thus, even if

enacted, they would not affect this dispute or the numerous

existing disputes around the country involving the enforceability

ff arbitration agreements in contracts with long-term care

facilities

10

tion of claims which the contracting parties agreed to

resolve by arbitration.” 473 U.S. at 623 n. 10 (inter-

nal quotations omitted).

Contrary to both Mitsubishi and the broader non-

arbitrability jurisprudence, the decision below arro-

gates to state courts the power to override the FAA’s

mandate. The lower court tries to justify that power

by distinguishing between a state legislative act and

a judicial decision. See Pet. at 9a. That distinction

collides with this Court’s teachings in Southland and

Perry. Both of those decisions stressed that the

judge-made law of state courts, no less than state

statutory law, can conflict with the FAA and, conse-

quently, be preempted. Southland, 465 U.S. at 16 n.

11; Perry, 482 U.S. at 492 n. 9.

Here the conflict is unmistakable. Under the FAA,

agreements to arbitrate INHCA claims are “valid, ir-

revocable, and enforceable.” Under the lower court’s

construction, they are not. Consequently, the INHCA

as construed by the lower court frustrates the FAA’s

“goals and policies.” Casarotto, 517 U.S. at 688. See

McMahon, 482 U.S. at 226 (Absent a claim of fraud or

excessive economic power, the FAA “provides no basis

for disfavoring agreements to arbitrate statutory

claims by skewing the otherwise hospitable inquiry

into arbitrability.”). Unless the decision below is

corrected, state courts, by means of this “public

policy” doctrine, will enjoy unparalleled power to

declare disputes non-arbitrable—a power that neither

state legislatures nor federal courts (or even this

Court) currently enjoy.

Thus, on the authority of Southland, reinforced by

this Court’s more recent decisions on the arbitrability

of statutory claims such as Mitsubishi, the grounds

for “revocation of any contract” do not include “public

11

policy,” at least where based on a generalized anti-

waiver provision in a state statute. Once that narrow

proposition of law is accepted, then the decision be-

low cannot stand and should be summarily reversed.

il. ALTERNATIVELY, THIS COURT SHOULD

GRANT CERTIORARI TO DECIDE

WHETHER THE GROUNDS “FOR

REVOCATION OF ANY CONTRACT”

INCLUDE “PUBLIC POLICY.”

As noted above, this Court has never held that Sec-

tion 2’s grounds “for revocation of any contract” in-

clude “public policy.” Nor have its descriptions of the

scope of Section 2’s “grounds” been consistent. South-

land described Section 2 most narrowly to include

only defenses such as “fraud.” 465 U.S. at 16 n. 11.

Dicta in Casarotto described Section 2 most broadly

to encompass defenses “such as fraud, duress, or un-

conscionability.” 517 U.S. at 686. This uncertainty

over the scope of Section 2 has sown confusion among

the lower courts and has allowed anti-arbitration

rules masquerading as generally applicable contract

defenses to creep into the FAA jurisprudence.

As the decision below illustrates, courts can re-

package almost any judicially crafted anti-arbitration

rule as an application of a general contract defense.

Had the Illinois Legislature enacted a rule that

declared arbitration clauses in long’ term-care

contracts to be unenforceable, the FAA would have

preempted such as statute. See Preston, 128 S. Ct. at

983. Despite that clear prohibition, the court below

announced precisely the same rule and, by describing

it as a specific application of the “public policy”

doctrine, sought to avoid FAA preemption. Despite

the differences in labels, both rules—the explicit anti-

arbitration provision and the particular application of

12

the public policy defense—have precisely the same

deleterious effect: they invalidate arbitration

agreements and, thereby, undermine the FAA’s

“federal policy favoring arbitration.” Moses H. Cone

Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1,

24 (1983).

This thin line between anti-arbitration rules, which

the FAA prohibits, and alleged applications of certain

generally available contract defenses is evident from

the number of courts relying on doctrines like “public

policy” and unconscionability to invalidate arbitra-

tion agreements. See, e.g., Discover Bank v. Superior

Court, 113 P.3d 1100 (Cal. 2005) (arbitration clause

containing class action waiver held unconscionable

and contrary to public policy); Kruger Clinic Ortho-

paedics, L.L.C. v. Regence BlueShield, 138 P.3d 936

(Wash. 2006) (arbitration clause limiting remedies

held unenforceable as contrary to public policy as

embodied in state statute); Presidential Leasing, Inc.

v. Krout, 896 So. 2d 938 (Fla. Dist. Ct. App. 2005)

(arbitration clause held unenforceable as contrary to

public policy embodied in statute’s fee-shifting provi-

sion). These courts often fail meaningfully to ex-

plain—and indeed cannot explain—why particular

features of an arbitration clause or arbitral regime

satisfy the elements of a contract defense; rather they

simply assert it to be so.

Such judicially crafted rules are far worse than

state statutes that overtly discriminate against arbi-

tration. Statutes at least have the virtue of clarity,

and the legislative process enables a thorough in-

quiry into the underlying policies. By contrast,

nebulous, judicially crafted rules “complicatfe] the

law and breed|{] litigation from a statute [the FAA]

13

that seeks to avoid it.” Allied-Bruce Terminix, 513

US. at 275.

Certain of these so-called defenses also pose an es-

pecially grave threat to the “national policy favoring

arbitration.” Cardegna, 546 U.S. at 443. Some de-

fenses such as fraud and duress usually end up only

invalidating specific contracts. For example, if an ar-

bitration agreement is void on duress grounds be-

cause one party has held a gun to the other party’s

head, that holding will not result in the invalidation

of many arbitration clauses beyond the instant one

before the Court. By contrast, others such as uncon-

scionability and public policy threaten to sweep much

more broadly. Invoking the unconscionability doc-

trine to invalidate a clause containing a particular

set of features potentially invalidates all clauses with

the offensive features. Invoking the public policy

doctrine, as the decision below demonstrates, can

sweep even more broadly and invalidate arbitration

agreements across an entire industry, regardless of

the agreement’s content.

The history behind the FAA’s enactment demon-

strates the risk that state courts might embed their

hostility toward arbitration agreements in such

“public policy” arguments. As this Court previously

has noted, the FAA was enacted to counter judicial

hostility toward arbitration agreements. Southland,

465 US. at 13-14. The form of that historic hostility

is illuminating—courts declared such agreements

“void” on the grounds that they ousted the courts of

jurisdiction and accordingly violated “public policy.”

Gary B. Born and Peter B. Rutledge, International

Civil Litigation in United States Courts 1090 (3d ed.

2006). See also Kulukundis Shipping Co. v. Amtorg

Trading Corp., 126 F.2d 978, 983-84 (2d Cir. 1942)

14

(describing how, prior to the FAA’s enactment,

American courts relied on public policy arguments to

invalidate arbitration agreements). There is simply

no difference between the historic “public policy” in-

validations of the 19th century and the type of “public

policy” invalidation effected by the court below. Both

types of decisions ultimately represent the sort of

jealous guarding of jurisdiction that the FAA sought

to overcome. Unless corrected, the 21st century

“public policy” doctrine threatens to usher in a new

era of judicial hostility to arbitration agreements.

Finally, this Court’s recent decision in Cardegna

casts further doubt on the availability of “public pol-

icy” as a Section 2 defense. Cardegna, which also

construed Section 2 of the FAA, involved whether

judges or arbitrators should determine the enforce-

ability of a contract containing an arbitration clause

where there is an underlying claim that the contract

is “void” under state law. Citing Florida contract law

and “public policy,” the Florida Supreme Court held

that judges should decide the matter. This Court re-

jected that view and, citing Southland, held that the

enforceability of the arbitration agreement should not

“turn on ‘Florida public policy and contract law.” 546

U.S. at 446. While Cardegna concerned the doctrine

of separability, its unequivocal rejection of the Flor-

ida Supreme Court’s invocation of “public policy”

lends further reason to be skeptical about the lower

court’s invocation of that doctrine in this case.

Thus, certiorari should be granted to offer further

guidance to lower courts and parties over whether

“public policy” qualifies as a “ground for the revoca-

tion of any contract” and, more generally, to clanfy

Section 2’s scope.

15

Til. REGARDLESS OF WHETHER THE

COURT SUMMARILY REVERSES OR

GRANTS CERTIORARI, THE IMPOR-

TANCE TO THE NURSING HOME

INDUSTRY OF THE ISSUES PRESENTED

IN THIS CASE JUSTIFIES THIS COURT’S

INTERVENTION.

Enforceable arbitration agreements are important

in disputes in many industries. These agreements

are especially important in disputes between nursing

homes and their residents. As a long-time nursing

home provider recently explained to Congress:

[A]rbitration is more efficient, less adversarial

and has a reduced time to settlement. . . . Timely

resolution of disputes is of unique importance to

residents of long term care facilities. .. . In addi-

tion, because it vastly reduces transaction costs,

arbitration may also enable patients and their

families to retain a greater proportion of any

financial settlement than with traditional

htigation

Hearing Before the Subcomm. on Antitrust, Competti-

tion Policy and Consumer Rights of the S. Judiciary

Comm., (June 18, 2008) (statement of Kelley Rice-

Schild, Executive Director, Floridean Nursing and

Rehabilitation Center) (“Schild Testimony”), avail-

able at http://aging.senate.gouv /events/hr196kr.pdf.

The agreement invalidated by the court below is

based on a model agreement developed by the nurs-

ing home industry and used throughout the country.”

j

It also tracks the views of the Centers for Medicare &

Medicaid Services, a division of the federal Department of

Health and Human Services overseeing the nursing home

industry, which has publicly stated that, at least in some cases,

16

In several respects, that model agreement seeks to

harness the above-described benefits of arbitration:

e The resident or guardian’s consent to arbitra-

tion is not a condition of admission, and

declining to sign the form does not affect

admission to the facility (indeed, in this case,

the Respondent signed the arbitration agree-

ment six days after the resident was admitted)

e Residents and their guardians enjoy a period

during which they may rescind their agree-

ment to arbitrate

e The nursing home company agrees to pay the

arbitrator’s fees and up to $5,000 of the resi-

dent’s attorneys’ fees

e The resident retains the absolute right to de-

termine the situs of the arbitration

Pet. at 28a-32a. Thus, the model agreement in this

case extends significant rights to residents in nursing

homes. While amici should not be understood to sug-

gest that such terms are necessary for an arbitration

agreement to be enforceable, they validate this

Court’s oft-stated principle that arbitration can bene-

fit individual litigants. See Circuit City Stores, Inc. v.

Adams, 532 U.S. 105, 123 (2001); Allied-Bruce Ter-

minix, 513 U.S. at 280. Yet by invalidating the model

agreement on public policy grounds, the lower court’s

decision categorically deprives individuals of the

right to choose these benefits.

the use of an arbitration agreement “is an issue between the

resident and the nursing home” provided that the resident’s

consent is not a condition of admission. See Dep't of Health and

Human Services, Centers for Medicare & Medicaid Services,

Memorandum of Steven A. Pelovitz, Director of Survey and

Certification Group (Jan. 9, 2003)

17

The impact of the decision below extends far be-

yond the nursing home industry in Illinois. It lays

the groundwork for similar invocations of public pol-

icy to invalidate arbitration agreements in other states

and in other industries. Several states have enacted

similar statutes which regulate the nursing home

industry and contain generalized anti-waiver lan-

guage. See, e.g., N.Y. Pub. Health Law §2801-d

(McKinney 2008) (residential health care facility law

authorizing cause of action and containing anti-

waiver provision); Okla. Stat. Ann. tit. 63, §1-1939

(West 2008) (same); W. Va. Code §16-5N-15 (2008)

(same). States also have enacted legislation regulating

other industries such as alcoholic beverages and haz-

ardous substances through statutes that, like the

INHCA, authorize a cause of action and contain gen-

eralized anti-waiver language. See, e.g., Ala. Code

§28-9-11 (2008) (beer wholesalers); Ark. Code Ann.

§8-7-1010(c) (2008) (hazardous substances). Under

the logic of the decision below, all of these statutes

could easily be read to express a public policy necessi-

tating the invalidation of agreements to arbitrate

disputes arising under those statutes.

Finally, the decision below also encourages forum

shopping, something that this Court has sought to

discourage in its FAA jurisprudence. Allied-Bruce

Terminix, 513 U.S. at 272. Not only does it deepen

divides between several federal courts and other

state courts, Pet. at 19-28, it also encourages parties

seeking to circumvent their arbitration agreements to

file suit in Illinois. Two other decisions of the Illinois

appellate courts already have relied on the decision

below to invalidate arbitration agreements. See

Mitchell v. Beverly Enterprises, Slip Op. No. 5-07-

0637 (Ill. App. 2008); Blazier v. Beverly Enterprises,

Slip Op. No. 5-08-0011 (Ill. App. 2008). Both of those

18

cases, perhaps unsurprisingly, were filed in Madison

County, Illinois which enjoys an unrivaled reputation

as one of the most financially punitive venues in the

country. See Kelly v. Martin & Bayley, Inc., 503 F.3d

584, 585-86 (7th Cir. 2007). Given the financial

vulnerability of the nursing home industry to costly

and abusive litigation, see Schild Testimony at 5-6,

the decision below threatens to unleash a flood of

financially crippling lawsuits.

CONCLUSION

For the foregoing reasons, the Court should sum-

marily reverse the decision below or, alternatively,

grant the petition for a writ of certiorari.

Respectfully submitted,

PETER B. RUTLEDGE

Counsel of Record

i00 Herty Drive

Athens, GA 30602

(706) 542-1328

MR. NICHOLAS J. LYNN

ILLINOIS HEALTH CARE

ROBIN S. CONRAD

AMAR D. SARWAL

NATIONAL CHAMBER

LITIGATION CENTER, INC.

1616 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

PRISCILLA SHOEMAKER

AMERICAN HEALTH CARE

ASSOCIATION

1201 L Street, N.W.

Washington, D.C. 20005

(202) 898-2850

January 23, 2009

ASSOCIATION

1029 S. 4th Street

Springfield, IL 62703

(217) 528-6455

MR. TERRENCE P. SULLIVAN

ILLINOIS COUNCIL ON

LONG-TERM CARE

500 W. Peterson Avenue

Suite 400

Chicago, IL 60659

(773) 478-6613