A federal district court in Oklahoma has held that an Oklahoma state statutory prohibition on jury trial waivers in nursing home contracts is preempted by the Federal Arbitration Act (FAA), where the nursing home engages in interstate commerce and the contract specifically invokes the FAA in a choice-of-law provision.

In Rainbow Health Care Center, Inc. v. Crutcher, No. 07-CV-194-JHP, 2008 WL 268321 (N.D. Okla. Jan. 29, 2008), Rainbow sought a declaratory judgment from the Court that Oklahoma's statutory prohibition of jury trial waivers in nursing home admission contracts, contained in Okla. Stat. tit. 63, § 1-1939(E), was preempted by the FAA. Rainbow also sought an injunction prohibiting the Oklahoma State Department of Health from revoking Rainbow's license because of its use of an arbitration agreement in its admission contract.

Noting the U.S. Supreme Court's holding in Citizen's Bank v. Alafabco, Inc., 539 U.S. 52 (2003), that the reach of the FAA is co-extensive with a full exercise of Congress's Commerce Clause power, the Court rejected the State of Oklahoma's contention that Rainbow's admission contract did not come within the scope of the FAA because it did not evidence a transaction involving commerce.

The Court observed that about one-quarter of Rainbow's expenditures for goods and services could be attributed to interstate transactions, including those for food, medicine, and durable medical supplies. This, according to the Court, was sufficient to evidence a transaction involving interstate commerce for FAA purposes.

While the Court acknowledged that Rainbow's care services were provided wholly within Oklahoma, that definition of provided goods and services was too narrow considering the broad reach of the FAA under the Commerce Clause powers. Furthermore, the Court found no evidence elsewhere in federal statutes that Congress intended to selectively preempt the FAA in favor of state law as to nursing home contracts.

The Court carefully distinguished the Oklahoma Supreme Court's recent decision in Bruner v. Timberland Manor Limited Partnership, 155 P.3d 16 (Okla. 2006), opining that Bruner turned on a finding that the parties specifically selected Oklahoma law in the contract's choice-of-law provision. Rainbow's arbitration agreement, by contrast, specifically invoked the FAA.

Despite the Court's attempt to reconcile its holding with Bruner, it did cast some doubt on the Bruner court's rationale for not finding preemption. In particular, the Court categorized the Bruner court's conclusion that a nursing home contract is a purely local transaction as mere dicta and strongly disagreed with the Bruner court's conclusion that buying supplies from out-of-state vendors does not constitute interstate commerce for FAA purposes.

In sum, Crutcher suggests disparate definitions of "interstate commerce" are being applied in Oklahoma's federal and state courts regarding the FAA and nursing home contracts. However, this opinion also suggests that specifically invoking the FAA within an admission contract may persuade Oklahoma federal and state courts alike to apply the FAA to arbitration agreements in nursing home contracts.