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The Oklahoma Supreme Court held that the Federal Arbitration Act (FAA) did not preempt the application of an Oklahoma law limiting the use of binding arbitration as means of resolving disputes between a nursing home and its residents. Specifically, the Court reasoned that the FAA did not apply because the nursing home admission contract did not involve interstate commerce despite the receipt of federal funds and the use of materials obtained from out-of-state vendors. In reaching this holding, the Court took a solitary position among the states and rejected the holding of the high court in at least three other states.
In Bruner v. Timberlane Manor Ltd. Partnership, No. 103,028, 2006 WL 3593740 (Okla. Dec. 12, 2006), Bruner was admitted to a nursing home owned and operated by Timberlane Manor. The admission contract contained an arbitration clause that called for the application of Oklahoma law.
Bruner died during her residency in the nursing home, and her next of kin subsequently sued Timberlane Manor for alleged negligence. Timberlane Manor moved to compel arbitration. The district court denied the motion based on the Oklahoma Nursing Home Care Act (ONHCA), which disallows any waiver of a nursing home resident's right to a jury trial and thus precluded mandatory arbitration.
On appeal, Timberlane Manor argued that the FAA preempted the anti-arbitration provisions of the ONHCA. The preemption question turned on the applicability of the FAA, which in turn depended on whether the admission contract involved or affected interstate commerce.
In arguing that the admission contract involved interstate commerce, Timberlane Manor submitted evidence that the nursing home (1) received funds from Medicare and Medicaid, (2) used materials and supplies obtained from out-of-state vendors, and (3) received payments from other states.
Applying the three-part test set forth in Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003), the Oklahoma Supreme Court (the Court) held that the admission contract did not involve interstate commerce and, accordingly, that the FAA did not apply. Specifically, the Court reasoned that the evidence demonstrated only a "de minimus impact on interstate commerce."
In reaching this holding, the Court diverged from the majority rule that the receipt of Medicare or Medicaid involves interstate commerce and brings nursing home admission contracts within the reach of the FAA. See McGuffey Health and Rehab. Center v. Jackson, 864 So. 2d 1061 (Ala. 2003); Vicksburg Partners, L.P. v. Stephens, 911 So. 2d 507 (Miss. 2005); In re Nexion Health at Humble, Inc., 173 S.W.3d 67 (Tex. 2005).
Given its conclusion that the FAA did not apply, the Court affirmed the order denying Timberlane Manor's motion to compel arbitration.
Several distinct aspects of this case will limit the scope of the Court's holding. First, as the Court noted, the parties' arbitration agreement called for the application of Oklahoma law and did not even mention the FAA. The omission of any reference to the FAA distinguishes the case from those instances where the parties have expressly invoked the FAA either within the arbitration agreement or by incorporating arbitration rules that provide for the FAA's applicability. See, e.g., Rule 48B of the National Arbitration Forum Code of Procedure.
Second, in reaching its holding, the Court relied partly on the fact that Bruner was an Oklahoma resident. The relevance of Bruner's residency is questionable in light of the rule that the underlying economic activity must be considered in the aggregate and not as an isolated transaction. Nevertheless, given the Court's reliance on Bruner's Oklahoma residency, this aspect of the case should limit the scope of the Court's holding.
Finally, the Court distinguished Vicksburg Partners on the ground that the defendants in that case included out-of-state corporations who contributed to the nursing home's operation. This aspect of the case implies that the Court's holding does not apply in cases where the nursing home is managed or controlled by an out-of-state entity.
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