Federal District Court Enjoins CMS Ban on Pre-Dispute
Arbitration Agreements in Long Term Care Resident Agreements
By Conna Weiner
On September 28, 2016, the Center for Medicaid and Medicare
Services (CMS) promulgated a lengthy final rule that, among many
other things, banned pre-dispute binding arbitration agreements
between nursing facilities in the Medicare or Medicaid programs and
nursing home residents commencing November 28, 2016 (the "Rule").
The American Health Care Association, a long term care provider
industry association, along with three of its members, quickly
filed suit in federal district court in Mississippi seeking to
preliminarily enjoin enforcement of the Rule in October. On
November 7, a federal District Court judge issued the requested
preliminary injunction. Am. Health Care Ass'n v. Burwell,
No. 3:16-CV-00233 (N.D. Miss. Nov. 7, 2016).
On November 17, 2016, the Massachusetts Bar
Association's Dispute Resolution and Health Law Sections
jointly sponsored a comprehensive discussion of the background of
the Rule and the court decision. I co-chaired the panel with Health
Law Section member Patrick Sheehan of Whatley Kallas and we were
ably assisted by panelist Melissa (Lisa) Thompson of Robinson &
Cole. The discussion is now available by webcast and free to MBA
members; please click here for further information.
This article very briefly summarizes some of the procedural
issues resulting from Judge Mills' decision as well as highlights
of the 40-odd page decision itself.
CMS has 60 days from the order, which brings us into early
January, to decide whether or not to seek an interlocutory appeal
of the ban. They also might choose to seek to stay the preliminary
injunction pending an expedited interlocutory appeal. The parties
recently filed a joint motion seeking to cancel the scheduled
federal Rule 16 case management conference on the grounds that
cases of this type were exempt from this requirement; a magistrate
judge denied the request on November 30.
For the time being, the current status quo is in place and the
pre-dispute arbitration agreement ban is suspended. Nursing homes
and their attorneys carefully should consider how to proceed in
connection with resident contracts that will go into effect after
the Rule's original effective date of November 28, 2016, bearing in
mind that the ban could be reinstated; what would happen to the
effective date upon reinstatement is not certain.
Before discussing the applicable preliminary injunction
standards and their application to the Rule, Judge Mills took the
unusual step of describing in some detail some of his own
experiences with nursing home arbitration litigation. In a section
called "General Observations and Experiences with Nursing Home
Arbitration," Judge Mills sought to address an argument that he
said "permeates the plaintiffs' entire motion: the notion that
nursing home arbitration is a fast and efficient process." Judge
Mills expressed his concerns that, in making efficiency arguments,
the industry association and other plaintiffs focused on the cases
that actually went to arbitration, without considering nursing home
arbitration litigation - including motions to compel - as a whole.
Judge Mills highlighted his view that "one intractable problem
affecting nursing home arbitration and no other form of arbitration
is mental competency." Among other things, Judge Mills went on to
observe that, in his experience: (a) nursing homes will obtain
signatures from residents in spite of grave doubts about their
mental competency or more often will choose to have relatives sign
even when no power of attorney has been executed; (b) they would
then file motions to compel arbitration based upon these "suspect
agreements;" (c) these motions resulted in time-consuming
litigation which significantly delayed resolution and ultimately
served as a very significant incentive against filing suit in the
Despite these concerns, Judge Mills, based upon his assessment
of his authority in the context of the matter at hand, concluded he
was limited to considering the adequacy of the administrative
record before CMS in judging the Rule under the Administrative
Likelihood of success on the merits
(a) The Rule is Likely Pre-empted by the Federal
Judge Mills found that the Rule likely was pre-empted by the
Federal Arbitration Act ("FAA"), going through several analytical
steps to reach this conclusion.
CMS contended that the Rule did not outright ban existing
arbitration agreements, but merely provided strong financial
disincentives to use such clauses since compliance with the Rule
only would be a requirement for long term care entities wanting
Medicare and Medicaid funding. Judge Mills did not accept this
reasoning, finding that since nursing homes were so dependent on
federal funds, a ban on the practice in this context effectively
amounted to a complete ban on pre-dispute nursing home arbitration
The Judge also found that the FAA does not just protect
arbitration agreements that are in existence as valid and
enforceable, but prohibits the prospective banning of arbitration
clauses unless appropriately overridden.
He then looked to recent Supreme Court precedent strongly
supporting the enforceability of arbitration agreements, including
AT&T Mobility v. Concepcion, 563 U.S. 333
(2011) and CompuCredit Corp. v. Greenwood, 132 S.
Ct. 665 (2012). A particularly important principal set forth in
CompuCredit was that the FAA mandate that arbitration
agreements be enforced according to their terms can be displaced
only by a "contrary congressional command" in another statute. In
this connection, Judge Mills also looked to his home circuit's
decision in D.R. Horton, Inc. v. NLRB, 737 F.3d
344 (5th Circuit 2013) which concluded that the National
Labor Relations Board had acted contrary to the FAA when it ruled
that class action waivers in an employment contract should be
banned because they interfered with an employee's right to engage
in concerted activities under Section 7 of the NLRB. There was no
clear "congressional command," the Fifth Circuit found, overriding
the FAA's pro-arbitration policy in that context.
Finally, Judge Mills noted that the defendants' reliance on
disparities in bargaining power and procedural unfairness arguments
was difficult to accept in light of the Supreme Court's opinion in
Am. Express Co. v. Italian Colors, 133 S. Ct.
The Judge then went on to castigate CMS for its sparse
administrative record. In reading the record:
the Court does not get the impression that CMS appreciated the
gravity of an attempt to ban entire form of arbitration, nor does
it appear that the agency made the requisite efforts to actually
prove that nursing home arbitration had the sort of negative
effects which it quoted various commenters as saying it had.
Judge Mills hypothesized that if CMS had singled out mental
competency as an issue and proven it was a problem, it might have
had a better chance of harmonizing the Rule with FAA.
(b) CMS does not have the authority to
issue a ban on pre-dispute binding arbitration
Judge Mills also found that CMS did not have the requisite
regulatory authority to issue a pre-dispute arbitration agreement
ban in the nursing home context, noting that: "A federal agency
might wish to enact the most beneficial rule imaginable, and yet,
if it lacked the authority to do so, then the rule would not be
upheld," and later that:
While this court is sympathetic to the public policy
considerations behind the rule, it places even greater importance
upon the basic separation of powers principles set forth in the US
Judge Mills was not moved by CMS's authority to issue
regulations protecting the health and safety and well being of
residents or protect and promote the rights of each resident. These
powers were "broad but vague." Reliance on the "rights" language
was in particular, he found, "a strikingly broad assertion of
authority by a federal agency." He noted that Congress has failed
to adopt a predispute arbitration agreement ban in the nursing home
context despite many attempts to made to pass such legislation.
By way of contrast with the broad provisions cited by CMS, Judge
Mills noted that in some cases Congress had expressly granted
certain federal agencies the authority to regulate or prohibit the
use of arbitration agreements and has done so with clear and direct
language. He cited as an example Section 1028 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, which provides
that, if certain conditions are met, the Consumer Financial
Protection Bureau "may prohibit or impose conditions or limitations
on the use of an agreement between a covered person and a consumer
for a consumer financial product or service providing for
arbitration of any future dispute between the parties.[.] 12 U.S.C.
Sec. 5518(b). The CFPB has issued for comment a rule banning class
actions waivers in consumer finance contracts.
In sum, Judge Mills found that the only arguable basis for
authority to issue the ban was for CMS to demonstrate that this
form of arbitration was so flawed that it negatively impacts
health, safety and welfare - something it had not in any way
attempted to prove with empirical evidence as opposed to the many
comments the agency had received from the public.
Judge Mills found that the nursing homes would indeed suffer
irreparable injury if injunctive relief was not granted, observing
that nursing homes would lose signatures on arbitration agreements
from residents that could likely never be regained and incur
immediate, substantial administrative expenses to revise admissions
agreements and re-train staff on admissions and dispute resolution
The threatened injury if the PI was denied outweighs
any harm that would result if it was granted.
Judge Mills also made short work of the defendants' arguments
here, observing that CMS was in a "poor position" to argue that the
Rule had to go into effect immediately given its long history of
permitting the use of arbitration agreements.
The grant of the PI will not harm the public
Judge Mills found that the public interest would not be
disserved by essentially preserving the long-standing status quo in
connection with predispute arbitration agreements.
Many important constitutional, statutory and general legal
principles are at stake in this matter that will doubtless
influence how other regulatory attempts to ban pre-dispute
arbitration agreements or class action waivers will be assessed.
This article was originally posted as a My Bar
Access blog. To view additional blogs, and more member-generated
content, visit www.massbar.org/access.
Ms. Weiner, www.connaweineradr.com, is an independent
mediator and arbitrator focusing on complex commercial and
employment disputes, with a special expertise in the technology,
life sciences and healthcare arenas. She serves on many DR panels,
including the American Arbitration Association, the International
Institute for Conflict Prevention and Resolution (CPR), the World
Intellectual Property Organization, the American Health Lawyers
Association, the Boston Law Collaborative and MWI. She is also a
Fellow in the Chartered Institute of Arbitrators and a member of
the MBA Dispute Resolution Section Council.