Villas of Mount Pleasant, LLC v. King

• Decision Date: 31 December 2014
• Docket Number: No. 06–14–00045–CV,06–14–00045–CV
• Citation: 454 S.W.3d 689
• Parties: The Villas of Mount Pleasant, LLC, d/b/a Greenhill Villas, f/d/b/a Villas of Mount Pleasant, Mt. Pleasant Operators, LLC, and Lloyd Douglas, Appellants v. Kyle King, Individually, as Administrator of the Estate of Marilou Whatley King, Deceased, and on Behalf of the Wrongful Death Beneficiaries of Marilou Whatley King, Appellee
• Court: Texas Court of Appeals

454 S.W.3d 689

The Villas of Mount Pleasant, LLC, d/b/a Greenhill Villas, f/d/b/a Villas of Mount Pleasant, Mt. Pleasant Operators, LLC, and Lloyd Douglas, Appellants

v.Kyle King, Individually, as Administrator of the Estate of Marilou Whatley King, Deceased, and on Behalf of the Wrongful Death Beneficiaries of Marilou Whatley King, Appellee

No. 06–14–00045–CV

Court of Appeals of Texas, Texarkana.

Submitted: September 24, 2014

Decided: December 31, 2014

Jorge Padilla, G. Breck Harrison, Jackson Walker, LLP, Austin, TX, for Appellants.

R. Daniel Sorey, The Sorey Law Firm, PLLC, Longview, TX, for Appellee.

Before Morriss, C.J., Carter and Moseley, JJ.

OPINION

Opinion by Justice Carter

Kyle King admitted his mother, Marilou Whatley King (Whatley), to The Villas of Mount Pleasant, LLC, d/b/a Greenhill Villas (the Villas) nursing facility in Mount Pleasant, Texas. Acting as Whatley's agent, King signed an admission agreement containing an arbitration clause that purported to require the parties to arbitrate any controversy arising from the services provided by the Villas to Whatley. Whatley died, and King sued the Villas alleging that her death was caused by its failure to render proper nursing home care and to protect his mother from abuse. Under Section 74.451 of the Texas Civil Practice and Remedies Code, the arbitration agreement, to be enforceable, must contain a conspicuously placed, written notice stating that the agreement is invalid unless it is also signed by an attorney chosen by and representing the patient. Tex. Civil Prac. & Rem. Code Ann. . § 74.451 (West 2011). The agreement signed by King on Whatley's behalf contained no such notice, and it was not signed by an attorney acting on Whatley's behalf. The trial court found that the arbitration agreement was not enforceable.

The first issue we must resolve is whether the Federal Arbitration Act (the FAA) preempts Section 74.451, thereby rendering it inapplicable to this case. If the FAA does preempt Section 74.451, then we must decide whether the McCarran–Ferguson Act (the MFA) reverse preempts the FAA, thereby negating the FAA's preemptive effect and restoring Section 74.451's applicability to Whatley's agreement with the Villas.

I. Texas Law on Arbitration Agreements Between Patients and Health Care Providers

Section 74.451 of the Texas Civil Practice and Remedies Code prohibits health care providers from requiring or even requesting that a patient execute an agreement to arbitrate a health care liability claim unless such agreement includes a clear, conspicuous, written notice printed in ten-point, boldface type and stating,

UNDER TEXAS LAW, THIS AGREEMENT IS INVALID AND OF NO LEGAL EFFECT UNLESS IT IS ALSO SIGNED BY AN ATTORNEY OF YOUR OWN CHOOSING. THIS AGREEMENT CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS, INCLUDING YOUR RIGHT TO A JURY. YOU SHOULD NOT SIGN THIS AGREEMENT WITHOUT FIRST CONSULTING WITH AN ATTORNEY.

Tex. Civ. Prac. & Rem. Code Ann. . § 74.451(a). No such provision was included in the agreement at issue in this case.

II. Preemption of Texas Law by the FAA

The Villas contends that the FAA preempts Section 74.451 and that, consequently, the FAA governs the enforceability of the arbitration agreement signed by King on Whatley's behalf. The United States Supreme Court has held that the FAA “extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach.” In re L & L Kempwood Assocs., 9 S.W.3d 125, 127 (Tex.1999) (citing Allied–Bruce Terminix Co. v. Dobson, 513 U.S. 265, 268, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) ). Stated differently, if an arbitration agreement relates to a transaction involving interstate commerce, then the FAA preempts state law and governs the enforceability of that arbitration agreement. If, on the other hand, the arbitration agreement does not relate to a transaction involving interstate commerce, then state law governs enforceability. The Texas Supreme Court has held that the payment of federal Medicare or Medicaid funds to a Texas health care provider as reimbursement for health care services involves interstate commerce to a sufficient degree to render the transaction between the Texas health care provider and its patient a transaction affecting commerce. In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005). Consequently, an arbitration agreement between a Texas health care provider and its patient under the above scenario relates to a transaction affecting interstate commerce, and the enforceability of that arbitration agreement is governed by the FAA. Id. Here, the Villas participates in the Medicare and Medicaid programs and is obligated to meet certain minimum health and safety standards established by the Department of Health and Human Services. Further, Whatley received monthly Medicare benefits that were used to partially defray the expenses arising from her stay at the Villas. Following the precedent of the Texas Supreme Court and under the facts and circumstances of this case, we hold that the FAA preempts Section 74.451 of the Texas Civil Practice and Remedies Code. See id. The remaining question, then, is whether the reverse preemption mechanism contained in the MFA applies under the facts and circumstances of this case.

III. The MFA and Reverse Preemption

The MFA states, in pertinent part, “No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012(b). “The McCarran–Ferguson Act (MFA) provides an exception to ... preemption if the conflicting state law was enacted ‘for the purpose of regulating the business of insurance.’ ” Fredericksburg Care Co., L.P. v. Perez, 406 S.W.3d 313, 318 (Tex.App.–San Antonio 2013, pet. granted) (quoting 15 U.S.C. § 1012(b) ). Three conditions must be satisfied to invoke the MFA's preemption exception: (1) the federal statute at issue—here, the FAA—must not “specifically relate[ ] to the business of insurance,” (2) the state statute at issue—here Section 74.451 of the Texas Civil Practice and Remedies Code —must have been “enacted ... for the purpose of regulating the business of insurance,” and (3) application of the federal statute must “invalidate, impair, or supersede” the state statute. 15 U.S.C. § 1012(b) ; Perez, 406 S.W.3d at 318 (citing United States Dep't of Treasury v. Fabe, 508 U.S. 491, 500–01, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993) ; Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir.1998) ). The first and third conditions are unquestionably met in the case; the issue we must decide is whether Section 74.451 was enacted for the purpose of regulating the business of insurance.

The San Antonio Court of Appeals recently addressed this issue in Perez, where several former patients sued a nursing home alleging negligence and gross negligence. After carefully analyzing the issues related to reverse preemption and the MFA, the San Antonio Court found that “section 74.451 is a law ‘enacted for the purpose of regulating the business of insurance’ within the meaning of the first clause of section 1012(b) of the MFA and is, thus, exempted from preemption by the FAA.” Perez, 406 S.W.3d at 325–26 (quoting 15 U.S.C. § 1012(b) ).¹ In reaching this decision, the San Antonio Court relied heavily on In re Kepka, 178 S.W.3d 279 (Tex.App.–Houston [1st Dist.] 2005, orig. proceeding), overruled in part on other grounds by In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex.2009).² Kepka was the first case to address the interplay of Section 74.451, the FAA, and the MFA, albeit in the context of Section 74.451's predecessor, Article 4590i, Section 15.01 of the Texas Medical Liability Insurance Improvement Act.³

In analyzing Article 4590i, the Kepka court took note of the findings and purposes underlying its enactment and found,

It is clear ... that the purpose of the entire statute —even those substantive provisions that do not expressly mention insurance—was to decrease the costs of health-care liability claims through modifications of the insurance, tort, and medical-practice systems, in order to make insurance reasonably affordable so that health-care providers could have protection against potential liability and so that citizens could have more affordable and accessible health care.

Kepka, 178 S.W.3d at 291. The Kepka court concluded that Article 4590i, including Section 15.01, was enacted to regulate the business of insurance. Id. at 289. Consequently, the Kepka court held that the MFA's exception was triggered, reversing the FAA's preemptive effect on Texas' arbitration notice requirements. Id.

A. Review of Entire Statutory Scheme or Individual Parts?

The Villas criticizes the reasoning of Kepka and Perez, labeling it an “all or nothing approach.” Indeed, the Kepka and Perez opinions considered the purpose of the TMLA—or its predecessor in Kepka —in its entirety and found that the purpose behind the legislation, as a whole, was to address issues of medical malpractice and the perception that professional liability insurance was either too expensive or entirely unavailable. The Villas contends that the better approach is to analyze Section 74.451, which limits the creation of arbitration agreements between health care providers and patients, in isolation.

The TMLA was unquestionably enacted as a part of the tort reform movement in Texas, and it was clearly intended to affect liability insurance rates paid by health care providers. However, it is also true that the particular subsection with which we are confronted does not specifically address the business of insurance; rather, Section 74.451 is a significant encumbrance on the rights of certain parties—health care providers and their patients—to enter into arbitration agreements. In fact, it is reasonable to conclude that Section 74.451 favors litigation—generally thought...