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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2008

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_0929%3A4. Public record. Not legal advice.