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State arbitration laws can reverse-preempt the Federal Arbitration Act (FAA) when the law has been "enacted for the purpose of regulating the business of insurance," according to a Texas federal court.
In Patterson v. Nexion Health, Inc., Civil Action No. 2-06-CV-443 (TJW), 2007 WL 2021326 (E.D. Tex. July 9, 2007), the Patterson plaintiffs brought a negligence and wrongful death suit, alleging that Nexion caused the death of Patterson while she was in Nexion's care in a nursing home facility. Nexion moved to compel arbitration of the claims, arguing that they were within the scope of a resident arbitration agreement signed by Patterson's representative when she entered Nexion's care. The Patterson plaintiffs maintained that the arbitration agreement did not comply with state arbitration law as to the wording or typeface used in the arbitration agreement. They also claimed that several of the plaintiffs were not signatories to the contract, and could not be compelled to arbitration.
The Court first held that the agreement did not comply with a Texas state law requiring that an arbitration provision requested by health care providers contain certain wording and be in a sufficiently large typeface. Finding the agreement did not comply with state law, the Court then considered whether state law controlled the requirements of the agreement, or whether those requirements were preempted by the FAA.
The Court explained that the McCarran-Ferguson Act (MFA) provides an exception to federal preemption when state laws are "enacted for the purpose of regulating the business of insurance." The MFA allows such reverse-preemption of the FAA because the FAA itself is not specifically related to regulation of the business of insurance. The Court found the Texas state law as to health care arbitration provisions was enacted as an attempt to regulate medical malpractice insurance premiums, and, therefore, the MFA "reverse-preempted" the FAA. The Court held the state law controlling under these circumstances, and declared that the arbitration agreement was unenforceable because it was not compliant with Texas state law.
Although it did not need to reach the question of compelling non-signatories to arbitration, the Court did observe that the non-signatories could not be compelled to arbitrate, even if the MFA did not reverse-preempt the FAA in this case, since nothing in the record indicated these parties agreed to arbitrate their wrongful death claims.
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