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Kindred Nursing Centers v. Clark

Oral argument transcript · No. 16-32 · October Term 2016 · argued February 22, 2017 · the petitioner won

Decision: votes, opinion and citations · Official transcript (PDF) · Argument audio at the Supreme Court

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Transcript

From the Court's official transcript; speaker labels as in the transcript, with advocates' full names from its list of appearances.

Chief Justice Roberts: We'll hear argument today in Case 16-32, Kindred Nursing Centers v. Clark. Mr. Pincus. ORAL ARGUMENT OF ANDREW J. PINCUS ON BEHALF OF THE PETITIONERS

Andrew J. Pincus: Thank you, Mr. Chief Justice, and may it please the Court: To determine whether a power of attorney confers authority to enter into an arbitration agreement, Kentucky applies the rule different and more demanding than the rule for determining whether a power of attorney confers authority to enter into contracts generally. The question in this case is whether the Federal Arbitration Act precludes Kentucky from erecting the special obstacle to enforce arbitration agreements signed by an attorney-in-fact. To ask that question, we believe, is to answer it. That's the very reason that Congress enacted the FAA, to prevent discriminatory rules targeting arbitration agreements.

Justice Kennedy: Suppose Kentucky had a statute providing that an attorney-in-fact lacks authority to do a -- a -- a number of things: Convey Alderson Reporting Company 1 real property, move the principal's residence out of state, invest in foreign real estate, a few more examples like that, or sign an arbitration clause -- arbitration contract. That's -- that's not this statute, I know. But at -- at some point, can arbitration clauses be included in a -- in a list of items that must be given special attention?

Andrew J. Pincus: At some point they can, Your Honor. And I think the dividing line -- the statute, of course, refers to rules that apply to any contract. This Court has talked about contracts generally. We don't think that -- that means that the rule has to apply to every single contract no matter what. If the rule takes its meaning from a characteristic other than arbitration, to give an example, if a -- if a State had a law that said all consumer contracts have to be in at least 10-point type, surely the court -- the State could apply that law to an arbitration agreement associated with a consumer contract. The problem, obviously, arises if there's some gerrymandering that puts arbitration in a special category. And -- and we think the rule here fails for several reasons, one of which is even the categories Alderson Reporting Company 1 that the State court said it was erecting really don't hold up based on the objective evidence. But also more importantly, the reason that arbitration was included in this category is the very reason that the FAA forbids, which is the conclusion by the State that arbitration -- an arbitration contract is especially onerous, and therefore, should be classed with other especially onerous contracts. That's exactly what the FAA was designed to prevent. So that's the -- the problem here.

Justice Sotomayor: So how about a different example, but more related in my mind right now. Under Kentucky law, let's say, the power of attorney requirements are strictly construed. That was one of the principles that the court below used to interpret at least one of the contracts. And as a general matter, it states that the State requires express consent to confer power to waive any fundamental constitutional right. Would this general principle be preempted by the FFA -- by the FAA?

Andrew J. Pincus: Well, let me distinguish between those -- those two general principles, Your Honor, if I may. I think a principle of strict construction, fairly applied across a wide category of contracts Alderson Reporting Company 1 probably is something; in other words, if it applied to all powers of attorney probably is something that would pass muster under the FAA, again, recognizing that a court would have to take care that that notwithstanding the general rule, there wasn't some discrimination-in-fact against arbitration. I think the question about a fundamental rights line, let me answer that in two ways. First of all, in this case, we don't believe that that's in fact what happened because we think there are a number of fundamental rights that are not categorized in the group that the State court mentioned. And, in fact, what the State court did was identify four or five especially onerous examples of intrusion on fundamental rights and say they -- these are all like arbitration. It didn't say all fundamental rights, for example. Foreign selection clauses may waive due process rights. There's no indication that they're covered; the right to property, et cetera, et cetera. I think -- so that's not this case. If there were a fundamental rights rule, I think the problem that it presents is whether that intrudes on the judgment that the FAA made, that arbitration contracts are not especially onerous as other waivers of fundamental rights may be; and therefore, I think that Alderson Reporting Company 1 case would -- it's obviously different than this one. The Court doesn't have to reach it, but we think even in that case, grouping an arbitration contract with a contract to enter into a guilty plea or something like that, I think is troublesome because it really puts arbitration agreements in the very category that Congress said they shouldn't be in.

Justice Alito: What about if the category were fundamental rights that implicate the -- the individual's life or health, so that you would have to have an express provision giving the attorney-in-fact authorization to consent to various procedures that a terminally ill person might undergo, and if this were put in that category?

Andrew J. Pincus: Well, I -- I -- I just want to make sure I understand your hypothetical, Your Honor.

Justice Alito: Well, in this case, what's involved here is care for a -- a person who is unable to look after that -- that person's own care, an elderly person, a disabled person in a -- in a nursing facility. So what if that were lumped together with consent to surgery, consent to terminate feeding, or -- or breathing for a terminally-ill patient. All of those could be put into a category that implicate life or health. Alderson Reporting Company

Andrew J. Pincus: They could. I -- I don't think an arbitration agreement would -- would fall into that same category of implicating life and health. And -- and also, I think it's important to recognize that -- that, again, here the State court didn't say that all decisions implicating life or health are subject to its special express requirement. It -- it -- it identified a couple of -- an abortion or adoption.

Justice Kennedy: Well, in Justice Alito's example, just to take it a little further, suppose the nursing home said you cannot enter here unless you sign the arbitration agreement, and this is the -- this is the only place where this person can go for care. That brings it closer to some of Justice Alito's examples because now there's a danger that the care can't be rendered.

Andrew J. Pincus: Well, interestingly, what the -- the Kentucky court held in another case, Ping, that -- that actually a -- the power to make health decisions would be interpreted to include the power to enter into an arbitration agreement if arbitration were a condition of admission. But in this case, because it wasn't a condition of admission, it didn't apply that rationale. I -- I -- I think -- I guess the distinction Alderson Reporting Company 1 here seems to me the decisions about health that we're talking about; operations, medicine, are a category of important decisions that the State has the power to decide about. The -- the -- the problem with the -- with the hypotheticals is that the FAA basically says the State doesn't have the power to treat arbitration agreements specially on the theory that they impose some special burden on the parties to the arbitration agreement. And so I think a decision by the State to lump them together with those other decisions runs afoul of the FAA.

Justice Alito: But the --

Andrew J. Pincus: Again, not in this case.

Justice Alito: But the context here seems different from the arbitration cases that we've had in recent years. This doesn't involve an -- an arbitration about the amount that you were charged for your cable bill or for your telephone bill. This involves a situation where an elderly person needs care. And as Justice Kennedy's hypothetical mentioned, it may be that the only facility that's available, or all of the facilities, require the signing of an -- an arbitration agreement which prevents the assertion of tort claims and the -- the elimination of Alderson Reporting Company 1 the deterrents that they provide may really implicate the care of someone who is vulnerable. So this seems like something that is close to or that it falls squarely within the police power of a State. Now, I suppose that there's a connection here to interstate commerce, I don't know what exactly it is, but on the assumption that everything is connected to interstate commerce, I assume that this falls within the FAA. But you see the problem? This is really taking the arbitration precedence that we have handed down in recent years into a different category of interests.

Andrew J. Pincus: Well, respectfully, I don't -- I don't think so, Your Honor. The -- the courts unanimously decided the Marmet case a few years ago, which involved this precise context: An arbitration agreement in the nursing home context. And there, one of the arguments that was advanced in -- in opposing -- in supporting the rationale that the arbitration clause shouldn't be enforced was that tort claims and the nursing home context is different. And the Court expressly rejected that criteria. And I think Congress's judgment in the FAA -- and Congress has specifically looked at the Alderson Reporting Company 1 nursing home context in recent years; there have been a number of hearings and examinations -- is that there isn't a difference between deciding claims in arbitration or in court. And the amicus briefs filed in the case, I think, recite some of the empirical data that, in fact, in the nursing home context and in other contexts, arbitration results for claimants are quite similar. The differences are it's cheaper, the process is cheaper and faster.

Justice Ginsburg: What do you do with the argument that this doesn't have to do with the enforcement of an arbitration agreement? It goes to the question of whether the agreement was ever formed or made. That is, if it takes outside the power of attorney, the power to enter into arbitration agreements, so it's a question that goes to making that enforcement.

Andrew J. Pincus: Well, two answers, Your Honor. I -- I -- I think it does go to enforcement because really the question here is what the Kentucky court said: We are interpreting the power of attorney document in a way that renders the arbitration agreement unenforceable. I don't think anyone argues that any of the other requisites of contract formation were not present. Alderson Reporting Company 1 But, also, this Court has never drawn a distinction between contract formation and enforceability in applying the FAA. And I think to do so would open a dramatic hole in -- in the FAA, because it would be quite easy for a State to say, for example, an arbitration agreement requires notarization; no other contract does. Or an arbitration agreement, to be properly formed, must contain a provision that allows it to be revocable at will. And so it would be quite easy to -- to -- if formation was ruled off limits, to allow very easy circumvention of the protections of the FAA.

Justice Alito: Well, what about the Wellner -- the Wellner documents. As I read what the court said in the first part of its discussion about that, it just interpreted the power of attorney as not reaching arbitration. So there it was just exercising its ordinary powers of contract interpretation.

Andrew J. Pincus: I think Wellner is closer to the -- to the issue that the court confronted in Imburgia, whether that really was an ordinary contract interpretation. And as we've explained, the argument for enforcing it is that it expressly provides the authority to contract with respect to personal property. And it's been long settled under Kentucky law that Alderson Reporting Company 1 choses in action, clauses of action are personal property. The court didn't apply that precedent, and that seems to us to be exactly as in Imburgia: The -- a situation where a generally applicable rule was not applied in the arbitration context.

Justice Alito: Well, do you think every time a State court incorrectly interprets a power of attorney relating to -- as it relates to arbitration, that that raises an FAA preemption issue?

Andrew J. Pincus: I think the question is whether the State court's decision fails to put an arbitration agreement on an equal footing, as the -- as the Court has said. I -- obviously, there's not going to be the occasion or the ability for the Court to review all of those decisions. I think in this case there's obviously a difference between the Clark situation where there was no argument that the power of attorney was ambiguous; in fact, the State court said it wasn't. That's just applying a new legal rule. In the Clark situation, there is this question about whether or not it was ambiguous. But we think under -- under any reasonable test, it -- it really can't be said to be ambiguous, given the long-standing rule under Kentucky law and the Alderson Reporting Company 1 fact that the -- the power of attorney there, in a separate provision, conveyed the authority to --

Justice Sotomayor: Mr. --

Andrew J. Pincus: -- bringing Federal lawsuits.

Justice Sotomayor: Following up on Justice Alito's question, and I know Ping is not before us, but applying your arguments to Ping, because the author of Ping dissented in these two cases, do you think Ping is closer to the neutral application of a contract interpretation?

Andrew J. Pincus: I do, because the -- what the court relied on in Ping was the absence of any general authority to contract and the fact that the broader -- all -- what Ping provided for was the ability to -- to invest funds, the ability to make health decisions, and -- and the ability to essentially administer real property. It didn't have a general clause relating to the making of contracts or the making of contracts with respect to personal property.

Justice Sotomayor: I see --

Andrew J. Pincus: There was some -- I'm sorry, Your Honor.

Justice Sotomayor: No, no. I was going to say, Wellner is a little closer.

Andrew J. Pincus: Wellner is -- Alderson Reporting Company

Justice Sotomayor: But it seems to me that --

Andrew J. Pincus: The difference in Wellner is that Wellner does have a very broad clause that provides for the making of contracts with respect to personal property. And given the fact that under Kentucky law, personal property includes choses of -- clauses of action, choses in action, it's pretty clear. And also in Wellner and not in Ping was a separate provision that gave the attorney the power to bring and prosecute lawsuits. So if the -- if the -- if the fear was that that general power to contract with respect to personal property somehow didn't extend to litigation, there's a separate clause with respect to litigation. Now, the Kentucky Court said that clause alone isn't enough because it doesn't relate to arbitration or to contracting, but it seems to me the combination of them is pretty powerful in --

Justice Sotomayor: That's a pretty powerful --

Andrew J. Pincus: -- explaining what's going on.

Justice Sotomayor: That's a pretty weak argument that they've automatically made a special rule for arbitration. They looked at, will the institute Alderson Reporting Company 1 settle and conduct litigation with no mention of alternative dispute resolution and conveying personal property, not necessarily contracting. There wasn't a general contracting clause. So I think there's arguments on both sides of that question. If there is, what do you suggest we do?

Andrew J. Pincus: Well, let me take a little bit of issue with -- with your -- with the predicate of your question, because the Wellner power does say to make, execute, deliver deeds, releases, conveyances, and contracts of every nature in relation to both real and personal property. So I think that is a pretty broad provision that -- that was not present in Ping.

Justice Ginsburg: And, Mr. Pincus, may I ask you a question about the wrongful death action, which everyone agrees does not belong to the patient; it belongs to -- to the survivors. And the same issues of negligence on the nursing home part would arise in the patient's suit as in the survivor's suit. Now, who determines which one goes first? Because if the -- if the survivor's action goes first and the nursing home is found liable, wouldn't the nursing home be bound by that in the arbitration?

Andrew J. Pincus: I guess that, in the first instance, would be a question of Kentucky law, Your Alderson Reporting Company 1 Honor. I'm not sure how Kentucky law in arbitration treats prior decisions. And I also -- since there are different parties, I don't know whether Kentucky law provides for offensive, non-mutual estoppel. So I guess those would be the questions that would arise in that context. Of course, the Court has said most recently in the KPMG case that the fact that there are claims that -- that could be bundled together doesn't mean that the ones that are subject to an arbitration clause shouldn't be sent to arbitration. So just to -- to sort of return to first principles and -- and to elaborate on my answer to Justice Sotomayor's question, I -- there are two -- two distinct issues in this case. One is the general express reference rule that the Court announced and applied with respect to Wellner in particular. That rule obviously also applies to the Clark power of attorney -- I mean, applied in Clark with respect to the Wellner power of attorney. There's the second question about whether the -- the language that -- that I quoted is sufficiently clear that a decision by the State court that it is ambiguous triggers the same kind of a concern that the Court identified in Imburgia as -- as Alderson Reporting Company 1 indicating that this is really a special rule targeting arbitration, as opposed to the application of a neutral principle. Unless the Court has any further questions, I'll save the remainder of my time for rebuttal. Thank you.

Chief Justice Roberts: Thank you, Counsel. Mr. Salyer. ORAL ARGUMENT OF ROBERT E. SALYER ON BEHALF OF THE RESPONDENTS

Robert E. Salyer: Thank you, Mr. Chief Justice, and may it please the Court: Kentucky is a common law State in the development of its power of attorney interpretive law. It is not a uniform power of attorney act State. Therefore, over time, the Kentucky Supreme Court and the lower courts of Kentucky developed Kentucky's interpretive rules regarding powers of attorney case by case, again, over time. And -- and this is the rule that the Kentucky Supreme Court has established in this case below. The power to waive generally fundamental constitutional rights must be unambiguously expressed in the text of a power of attorney. Now --

Justice Ginsburg: Is -- is there such an Alderson Reporting Company 1 explicit reference in the power of attorney with respect to anything other than arbitration agreements?

Robert E. Salyer: Is -- is there anything?

Justice Ginsburg: Is there an explicit reference -- to be effective, you've just told us, the power of attorney has to explicitly state the -- that disputes will be settled by an arbitration. My question is whether there is any other contract that in order to be made effectively in Kentucky, it must be an explicit reference in the power of attorney.

Robert E. Salyer: Oh, I -- I understand your -- your question, Justice Ginsburg. From -- this is the announcing of this particular rule, but logically, from here on out, any such actions taken by an -- a -- an attorney-in-fact that might restrict the principal's free speech rights, say, by entering into a contract with a non-disparagement clause or some sort of confidentiality clause, that would necessarily have to be spelled out in a power of attorney.

Justice Breyer: In other words --

Justice Kennedy: In other words -- in other words, for a number of years Kentucky had allowed powers of attorney and the first time that one was called into Alderson Reporting Company 1 question under this theory was with reference to the arbitration.

Robert E. Salyer: Well, Your Honor, here -- here's the thing about Kentucky powers of attorney. It has been the law of Kentucky since 1912 that powers of attorney are to be strictly interpreted and that the -- the third party deals with the principal by an agent at that third party's own peril. Therefore, it is up to and -- and incumbent upon that third party to be very clear and understand what the agent is allowed to do. And -- and -- and the fact is that it is -- the reason that these cases have not come up is that the third parties, the -- the banks, the -- the whatever that are -- are receiving powers of attorney as authority of agents for principals, they've always demanded very explicit information in that power of attorney. And this happens to be an instance where you have the third party who doesn't -- who doesn't actually want more explicit language in the power of attorney. Have I answered your -- your -- yes, sir.

Justice Breyer: So in Kentucky, I issue a power of attorney to Jones and say, you have full power to protect, defend and maximize the value of all my property. Okay. That's what it says.

Robert E. Salyer: Yes, Your Honor. Alderson Reporting Company

Justice Breyer: And someone claims that this piece of land over here that we thought belonged to Smith belongs to him under various deeds. All right?

Robert E. Salyer: Yes, Your Honor.

Justice Breyer: Now, the -- the attorney says, in my opinion, I want this tried before a judge because I think I'll get a fairer shake. Okay. Illegal; right?

Robert E. Salyer: Are you making the distinction, Your Honor, between --

Justice Breyer: Well, you just said anything that waives the right to a jury is illegal unless it's explicitly there. So, that's case one. Case two, similar kind of argument, and the lawyers for the two parties get together and say, we'd like to settle this case. Illegal; right? No power, they can't do it in Kentucky. Can't settle cases. Can't have traces -- cases tried before a judge. Is that right?

Robert E. Salyer: No, Your Honor. That -- that --

Justice Breyer: Oh, that's not right. Oh, I see. In other words, you -- you -- you -- why -- why isn't it right? Because after all, the fundamental right of trial by jury is being -- you're giving the Alderson Reporting Company 1 attorney the power to refuse to have a jury.

Robert E. Salyer: Well, Your Honor --

Justice Breyer: So what's the difference between that and the case we have, where we're not going to have a mediator, we're not going to have settlement, we're not going to have a judge trial, we're going to have an arbitrator.

Robert E. Salyer: Your Honor, the -- the interpretive rule that the Kentucky Supreme Court enunciated was the power to waive generally fundamental constitutional rights. The -- the idea that -- that the -- the person is going to waive their jury rights in -- in general from now on --

Justice Breyer: All he did was say that in the attorney's judgment, if he wants to go to arbitration and thinks that's best, he can do it. Now, I just don't see the difference between that and implying, in the attorney's judgment, if he wants to settle a case, rather than going to a jury, he can do it. Or, if in the attorney's judgment, he would like a case tried before a judge instead of a jury, he can do it. And you're going to tell me that that's ridiculous to think that a general power of attorney would give the attorney the right to say, no jury, judge trial. No jury, mediator. Oh, but it makes perfect sense to say Alderson Reporting Company 1 no jury, arbitrary -- arbitrator. Now, if you're not going to tell me that those are treated exactly alike, I will tell you in my opinion right now you have discriminated against arbitration --

Robert E. Salyer: Well, Your Honor --

Justice Breyer: Unless you can find some difference.

Robert E. Salyer: It seems to me that the analogue to what you're -- you're proposing would be an instance where the -- the attorney engaged with another party never to have a jury trial with that party pre-dispute just for a -- for from now on. Or that they're always going to go to mediation and never go to --

Justice Breyer: No, that isn't this. You say that a attorney -- I'll be repeating myself. I'm testing out whether it's really true. Of course I'm highly suspicious as you can tell from my tone of voice. What I really think has happened is that Kentucky just doesn't like the Federal law. That's what I suspect. So they're not going to follow it. Now, that, of course, you're going to say, no, they would never do that. So I'm trying to test this out. And that's why I asked my question. Because it seems to me that Alderson Reporting Company 1 arbitration as a means of settlement of a case, of a dispute, mediation as a means of settling a dispute, a judge as a means of settling a dispute, are equally and no different in the respect that none of those three involves a trial by jury. So I just want to know -- and you have already said, no, no, they're all different. Well, that to me proves that they're treating arbitration specially. So I put my whole argument there because I want you to have an opportunity to reply.

Robert E. Salyer: Thank you, Your Honor. I -- I think that the -- the -- the distinction that -- that would be made there is that we're -- we're talking about an agreement that's pre-dispute and waives a -- this particular right vis-à-vis the nursing home resident and the nursing home potentially in perpetuity. And I guess the analogue to -- to a -- coming to an agreement to settle pre-dispute would be a liquidated damages clause. And I think that the -- that the Kentucky Supreme Court probably would not look very favorably on an attorney-in-fact executing a liquidated damages clause with a nursing home to settle any potential personal injury that occurred at -- during the nursing home resident's stay. Alderson Reporting Company 1 But I -- I actually want to get to -- to, if I could, to a more overarching point in -- in this case; and that is, the Federal Arbitration Act does not extend this Court's powers of interpretation beyond agreements to arbitrate. Moreover, DIRECTV was the exception that proved the rule, and the rule applies here. Excuse me. This Court does not ordinarily instruct States in how to interpret the instruments and documents that are governed by State law. Now --

Chief Justice Roberts: And maybe I missed your -- missed your point. The FAA does not extend beyond what?

Robert E. Salyer: Agreements to -- beyond agreements to arbitrate and --

Chief Justice Roberts: Interpret -- interpreting them or anything with respect to them? For example, you're not arguing that if Kentucky had a law saying you can't have agreements to arbitrate, that would certainly be covered by the FAA.

Robert E. Salyer: Yes, Your Honor, that -- that -- well, we believe, would be covered by the FAA.

Chief Justice Roberts: So -- and if that was a decision of a court that said, under our common law you can't have agreements to arbitrate, that would also? Alderson Reporting Company

Robert E. Salyer: Totally not. That's what the Federal Arbitration Act is directly directed at.

Chief Justice Roberts: Well, since we're talking about laws that have an impact on agreements to arbitrate, I guess I don't understand the effect of your principle.

Robert E. Salyer: Well, we're looking at the black letter of Section 2, which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, save upon such grounds as exist for the revocation of any contract.

Chief Justice Roberts: Right.

Robert E. Salyer: That pertains specifically to arbitration agreements. And so what do we have here? We have an absence of authority of the signator to this arbitration agreement. That certainly should qualify as a -- a ground for revocation of any contract, absence of authority. So that is as far as the Federal Arbitration Act extends. It extends to the enforcement of formed, existing arbitration agreements. It doesn't bootstrap them into place by -- Section 2 creates substantive contract rights, certainly. The presumption of arbitrability in certain instances, the preemption of State law in certain instances. What it does not create Alderson Reporting Company 1 are other kinds of rights, such as the right -- the entitlement to the creation of agency in someone else's agency instrument. Have I answered --

Justice Ginsburg: So -- and your reasoning, I take it, that Kentucky could adopt a law that says agents lack authority to enter into arbitration on behalf of the principal.

Robert E. Salyer: Well, technically, Your Honor, that's correct. However, this Court would not have to go that far in this particular case, because again, what we're talking about is interpreting a power of attorney. And if you -- if you take a look at -- let's use a comparison, the -- the spectrum of Volt on one end and DIRECTV on the other end. We have instances where this Court in Volt said that ordinarily, issues of State contract law interpretation are for the States. And it accepted the -- the lower California court's interpretation of that -- that particular California contract, even though it -- it meant that there was not going to be an arbitration. On the other hand, in DIRECTV, the opposite occurred. And now what's really the difference there? The difference there is where the decision maker has effectively abandoned its interpretive role. In Alderson Reporting Company 1 DIRECTV, one could certainly say that the California Appellate Court in that case had abandoned its interpretive role and rather imposed its own policy interests and -- and predilections on that -- that contract. To use another example -- now, this is slightly different because it would fall under the 10(b)4 deference standards -- but the difference between Stolt-Nielson on the one hand and Oxford Health on the other. You have an instance where an arbitrator simply imposed a policy decision on its quote-unquote "interpretation of the contract," and in which case the arbitrator had gone outside of his express powers under that contract, and Oxford Health, where, even though there was some suspicion that the arbitrator had gotten his or her interpretation of the agreement wrong, nonetheless, that arbitrator was attempting to interpret that arbitration contract, and this Court respected that. Now, again, I understand that that was under the 10(b)4 analysis. But if you look in this case, Clark refers to all contracts. And I think my friend, Mr. Pincus, is probably relying on a literal interpretation, well, all contracts means -- means all contracts. But we must recall that in Volt v. Leland Alderson Reporting Company 1 Stanford, what we had was also a potential literal interpretation, the Law of the place. The law of the place, in that instance, the place being California, well, what is the literal law of that place? That law -- the law of that place is the law of the State of California and Federal law. But the California court had determined that the local understanding of the local usage of that phrase -- phrase, "law of the place," actually just referred to California State law.

Chief Justice Roberts: Can I talk about -- focus a little bit on -- on Wellner. What is your response to Mr. Pincus's argument that personal property does include arbitration because choses in action are personal property?

Robert E. Salyer: Well, the -- my response to that, Your Honor, Mr. Chief Justice, is that the Kentucky Supreme Court certainly engaged in trying to understand the intentions of the words that the principals meant. And it simply said that a principal -- no principal who grants the power to their son, their daughter, their -- their spouse, their -- their attorney-in-fact to buy and sell property or engage in contracts involving property would ever think about -- would allow that -- that attorney-in-fact to Alderson Reporting Company 1 engage -- engage in one of these arbitration agreements. In that -- in the earlier case regarding powers of attorney in Kentucky -- and that was -- I believe it's U.S. Guarantee & Trust. It's an older case, from -- from 1912. The -- there's language to the effect of giving the power for an agent to buy or sell property does not intrinsically give that person the -- the power to mortgage property, although one could say that that should naturally flow from -- from the -- the overarching language. So that's the -- the sort of backdrop and context in which the Kentucky Supreme Court is operating. If I could turn for a second to DIRECTV, which is a -- obviously relied upon, to a large extent, by Kindred. In that particular case, I think that this Court reiterated its basic assumption that ordinarily, what a State instrument means is a question for State law in the State courts. And only in exceptional circumstances will this Court engage in a preemption, and in essence, an independent review and reinterpretation of that State instrument. And in DIRECTV, the two similar points that seem to -- to stand out are that that California Appellate Court singled out arbitration, singled out the Federal Arbitration Act for not incorporating Federal Alderson Reporting Company 1 Arbitration Act preemption into the way they read their California contract, the DIRECTV contract. And they did so without attempting to tie that effectively to what the parties might intend in the DIRECTV contract. Here, we do not have that. We have the Kentucky Supreme Court announcing an interpretive rule that -- and it may be difficult for them to -- to work it out over -- over time, but again, that's the way the common law develops, that if you have a general waiver of a fundamental constitutional right by a power of attorney, that has to be spelled out in the document.

Justice Breyer: We give the power of attorney to manage my patent, general. A lot of litigation. The other side comes in and says, okay, we'll settle. I'd like you to sign this paper, and this says what you will say and what you won't say about my patent. Absolutely normal. What you will say about your patent, what you won't say about it in certain areas. Can't do that in Kentucky, huh? Free speech. Free speech.

Robert E. Salyer: Your Honor, Mr. Justice Breyer, I think that's correct.

Justice Breyer: Can't -- can't give a power -- general power of attorney that will allow a person to settle a patent case on perfectly ordinary Alderson Reporting Company 1 terms.

Robert E. Salyer: Well, it doesn't make a difference --

Justice Breyer: Is there any case that suggests that -- except this case, which happens to deal with arbitration.

Robert E. Salyer: Well, it does have to --

Justice Breyer: You see, I don't know how to -- the part I don't know how to deal with your argument is, is you say every time I think of examples that would be very weird, which is what I'm trying to do, then -- then you say, oh, well, yeah, that's right. You can't do that anymore in Kentucky. And every time you say that, the law of Kentucky in terms of attorneys, powers of attorney is getting more and more peculiar. That's why I suspect something is going to happen there. So what should I -- what do you think?

Robert E. Salyer: Well, Your Honor, I think that the interpretive rule is -- is rather explicit.

Justice Breyer: Now -- now we say that you cannot enter into a power of attorney giving the power of attorney the power to enter into normal patent settlements.

Robert E. Salyer: To --

Justice Breyer: Well, what about business Alderson Reporting Company 1 settlements? What about business settlements where, you know, there is a perfectly normal thing where a person agrees not to compete, and in agreeing not to compete, you're agreeing not to go to certain places?

Robert E. Salyer: Well --

Justice Breyer: For that business anyway, a lot of constitutional rights that might infringe. It might if you didn't waive it. I don't know.

Robert E. Salyer: Well, Justice Breyer, I mean, that -- again, that's a -- that's a question of what constitutes a fundamental -- constitute --

Justice Breyer: Yeah.

Robert E. Salyer: -- fundamental constitutional right. Now --

Justice Breyer: What do you say about the competing product?

Robert E. Salyer: Right. That would, in fact, be a infringement on the principal's free speech. Indeed, in instances where there are settlements in personal injury actions, often there are non-disparagement clauses.

Justice Breyer: Right, right. And, by the way, he makes a product, you know, the person who's given the power of attorney. And as part of the disagreement, the attorney -- a disagreement with OSHA. Alderson Reporting Company 1 He agrees that OSHA can come in and inspect his plant at various hours of the day or night. That kind of power of attorney would be illegal also in Kentucky. I mean, is there any State that makes that kind of power of attorney illegal or requires it to be explicit somehow that you could settle an ordinary OSHA case, you could settle an ordinary competition case, you could settle an ordinary, you know, patent case on fairly ordinary terms, and it says when you give a power of attorney to do that, you have to be explicit? Is there any State other than Kentucky in this opinion that has ever held such a thing? Maybe there is.

Robert E. Salyer: Well, Your Honor, if I could use a -- a comparative example from the -- the UCC, we know that in ongoing transactions between commercial parties under the UCC, whether a -- a contract clause is incorporated into the contract, if and when it is incorporated, may turn on whether or not that clause is considered material. Now, whether or not it's -- it's considered material is a question of State law. And as -- as I understand, they -- that has never been challenged at -- that -- some instances, that would -- that will, in fact, cause arbitration clauses not to be incorporated in contracts and not be enforceable because they're Alderson Reporting Company 1 considered material and they haven't been negotiated properly. What -- what constitutes a fundamental constitutional right is, of course, an -- an open question, but it does seem that certain things such as speech, marriage, religious rights, those sorts of things cannot be dealt with on a permanent basis vis-à-vis another party by an agent without the principal explicitly authorizing them to do so. Furthermore, what the principal has explicitly authorized the agent to do so is an interpretive question regarding this -- this instrument. And just as a -- with a State statute, what a State statute means is a question for the State supreme court. What the principals meant was encompassed within these powers of attorney. Ultimately, someone has to determine what that is. And I posit that that -- that should be the State's supreme court.

Justice Ginsburg: But what about the principle that making an arbitration agreement harder to form than other agreements violates the Federal Arbitration Act. As Mr. Pincus mentioned, the main rule is equal footing. Arbitration we thought to be on the same footing as all other contracts. If you make the arbitration agreement harder to form because you have to Alderson Reporting Company 1 have this explicit reference than other contracts, doesn't that discriminate against arbitration agreements?

Robert E. Salyer: Perhaps it does, Your Honor. But, again, our -- our position is that the Federal Arbitration Act does not extend beyond agreements to arbitrate, such that in the -- the instance of the -- the UCC example that I just used where a State decision as to whether or not arbitration clauses are considered material might make that -- might make it harder to form the arbitration agreement as part of the larger commercial contract. We believe that the Federal Arbitration does not speak to that. However, there are, on the other hand, instances where if a State specifically singles out arbitration to make it more difficult to form, we believe that the formation -- that the FAA would have something to say along those lines. And the -- the example I would like to use in that instance is the facts of Casarotto, if -- if they were slightly different. If the Montana statute hadn't used the language in its subsection that unless the arbitration clause is in -- you know, on the first page in bold letters, then that particular clause is unenforceable. Alderson Reporting Company 1 If they -- if that statute had simply said, we do not recognize the formation of an agreement to arbitrate unless these hoops are -- are jumped through, that, we believe, would be addressed by the Federal Arbitration Act because it's not really a formation issue. It's really an enforceability issue, relieving the parties to the contract in Casarotto of the responsibility for what they voluntarily signed in which there was a clear meaning.

Justice Ginsburg: Well, you say you're distinguishing formation from enforcement, but we have two separate agreements that both been formed the power of attorney that's been concluded, the agent has signed the arbitration agreement. So it's not a question of the formation of those agreements; it's what -- what they mean, what is the proper interpretation of the power of attorney.

Robert E. Salyer: Yes, Justice Ginsburg. That -- that's correct inasmuch as -- the question here revolves around what the power of attorney means. If the power of attorney encompassed the authority for the agent to sign this agreement, then, as the Kentucky Supreme Court said, the agreement will be enforced. If it doesn't, then there's no agreement. And I'm saying -- saying that the Federal Arbitration Act does not bear upon Alderson Reporting Company 1 answering that question; that that is a function of State law and of the State court's interpretation of a power of attorney instrument. So in summation, our -- our general -- our -- our general position is that the Federal Arbitration Act again does not extend this Court's interpretive powers beyond agreements to arbitrate. It does not extend them to powers of attorney. However, this Court need not even reach out to that particular principle because we are talking about interpreting a power of attorney, which, in the ordinary course of a State instrument, is up to the State supreme court to -- to -- to make that interpretation. And this Court will only step in and substitute its interpretation for that of the State supreme court in the exceptional circumstances. And the only exceptional circumstances that this Court has identified in DIRECTV do not apply here. The Kentucky Supreme Court did not single out arbitration for distinctive treatment, and the Kentucky Supreme Court went out of its way to tie the -- its interpretation of the meaning and authority of the power of attorney to the intention of the principal. No further questions.

Chief Justice Roberts: Thank you, counsel. Alderson Reporting Company 1 Mr. Pincus, you have ten minutes. REBUTTAL ARGUMENT OF ANDREW J. PINCUS ON BEHALF OF THE PETITIONERS

Andrew J. Pincus: Thank you, Mr. Chief Justice. Just a couple of quick points. With respect to the -- the question about whether the FAA is limited to arbitration agreements, I think it's important to note that the text of the FAA says that arbitration agreements shall be valid irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. So it's true the focus of the FAA is on whether the arbitration agreement is enforceable or not, but there's nothing in the FAA that prohibits its application to an antecedent agreement if that antecedent agreement prohibits the enforcement of the arbitration agreement on a ground that's specific to arbitration. And I think that's not only true of the text of the statutes; it's true because the implications of that rule would be quite dramatic. For example, a State could just enact a statute that says a power of attorney can never be interpreted to confer the ability to enter into an arbitration agreement either at all, which my Alderson Reporting Company 1 friend, I think, acknowledged would -- would be problematic under the FAA or could impose all kinds of special requirements. It has to be notarized. There have to be warnings about the dangers of arbitration. And surely --

Chief Justice Roberts: Now, the State could also --

Andrew J. Pincus: -- that would --

Chief Justice Roberts: The State could also enact a statute that says powers of attorney can't waive -- can't waive fundamental rights. Would -- would that violate the FAA, in your view?

Andrew J. Pincus: I -- I think it would present a more difficult question than this case. And let me explain why and then let me answer your -- your question, Mr. Chief Justice. I think as -- as some of Justice Breyer's questions indicated, the rule here doesn't, in fact, embody that principle because it is both -- it -- it is underinclusive in two respects. It doesn't even affect all jury waivers because --

Chief Justice Roberts: Yeah. But I mean, legislators -- legislatures often pass statutes that are underinclusive or overinclusive. So I don't think that distinguishes the case. Alderson Reporting Company

Andrew J. Pincus: Well, I think the question would be just how inclusive is it. If -- if it's interpreted -- if it is the same kind of --

Chief Justice Roberts: It -- it says it embodies the rule that the supreme -- Kentucky Supreme Court adopted, which is that you can't -- you can't waive fundamental rights, and like a lot of statutes, it's going to require some interpretation. But that's all it says. It says, you can't -- you know, they're worried about the scope of powers of attorney, and they say powers of attorney in Kentucky cannot waive fundamental rights under the Constitution.

Andrew J. Pincus: And -- and I -- I -- I think our answer to that question would be -- although the Court doesn't have to reach it here -- that lumping arbitration agreements into that category of fundamental rights is a judgment that the FAA precludes the State from making because the judgment --

Justice Kagan: But that -- that suggests that the arbitration is a preferred right, and I thought that the idea of the FAA was to say it can't be -- whatever, dis-preferred, un-preferred, you know -- but not to put it on its own separate plane, like you can't deal with this in the same way that you could deal with any other fundamental right. Alderson Reporting Company

Andrew J. Pincus: Well, that's why I say it would be a harder question, Your Honor, but -- but I think the -- the critical thing is here, it's quite clear from the State court's own opinion that that isn't the rule of decision here because the State court, as the dissent points out, the -- the express authorization requirement doesn't apply to jury waivers in a host of different circumstances, as Justice Breyer's opinions pointed out, and it also doesn't apply to lots of fundamental -- other kinds of fundamental rights.

Justice Kagan: But how do we really know? Are -- are you saying that a court can never announce a generally applicable rule first in an arbitration case?

Andrew J. Pincus: Well, I think it -- it certainly is something that should raise a lot of suspicion. Can it never -- I would never want to say never, but I do think that this aspect of the case presents a -- a more compelling argument for application of the FAA than Imburgia. In Imburgia, the threshold question for the court was, does the California State courts' interpretation of the phrase "law of your State" actually discriminate against -- single out arbitration? There's no doubt that this rule is singling out arbitration. If that's what the court -- Alderson Reporting Company

Justice Kagan: Suppose -- well, suppose --

Andrew J. Pincus: -- expressly says, the question is how broad is it singling out.

Chief Justice Roberts: It doesn't single out arbitration. That happens to be the issue before it. I mean, basically, it seems to me what it's coming down to is you just don't believe the Kentucky Supreme Court when it says this is the general principle. And you're saying, well, I really think you're hostile to arbitration because I haven't heard that principle before and this is the first one. But you know, if -- if the Kentucky legislature passes a law that does the same thing, I mean, are you going to be suspicious of them too just because arbitration might be the first time it comes up?

Andrew J. Pincus: I -- I think it -- it depends on the circumstances and it depends on -- on how badly --

Justice Kagan: Suppose -- suppose we send this back and we say we don't really believe you. We think you're being hostile to arbitration, and they say, well, prove it. And in five cases involving other fundamental rights they do what Justice Breyer suggests that they don't really have any intention of doing, but they really do it. They say no, we're -- we're really Alderson Reporting Company 1 serious about this. We think powers of attorney are -- are -- are special things and we have to impose special protections. And then it comes up here, you know, the sixth time. They say, and arbitration too. What do we do then?

Andrew J. Pincus: Well, I -- I guess a couple of things. First of all, I -- I do think the Court has to make a judgment, as it did in Imburgia, based on what's before it at the time. And what's before the Court at this time is a rule created in the context of arbitration --

Justice Kagan: Well, I know, but I want --

Andrew J. Pincus: -- premised on --

Justice Kagan: -- what I want to hear you talk about, usually we don't presume that State courts are acting in ways that are not in accordance with law. Actually, we usually give them the benefit of a kind of good faith presumption. So if you're saying, well, no, they have to prove it first in five other cases before we'll believe them that they really do mean all constitutional rights, that seems, you know, an unusual rule to apply to State supreme courts who we usually think are acting in good faith and in accordance with law.

Andrew J. Pincus: Well, I don't -- I don't know Alderson Reporting Company 1 that they have to prove it. I think this Court has to look at the objective indicia, as it did in Imburgia, as it's done in other cases, to see what -- what is really going on in a case. And I think even the majority below did not -- although it said all fundamental rights, the five instances that it identified were not general, fundamental rights. Free speech, for example, was not one. They are the most --

Chief Justice Roberts: So you --

Andrew J. Pincus: -- onerous -- I'm sorry.

Chief Justice Roberts: You have to look at what's going on in the case. So in my case where you just have a statute, there's nothing else to look at. So how -- how -- I still don't get why that would be invalid.

Andrew J. Pincus: I -- I think the question in that case would not be whether it's going to be applied to the category of fundamental rights. The question in that case would be does the FAA permit a State to make a judgment that contracts with respect to arbitration should be lumped in --

Chief Justice Roberts: There's no talk about arbitration. The word "arbitration" --

Andrew J. Pincus: No, I understand --

Chief Justice Roberts: -- doesn't come up. Alderson Reporting Company

Andrew J. Pincus: -- but -- but there still is a question, I think. What the FAA -- at bottom, what the FAA said to -- was reacting to was State courts saying arbitration is especially onerous and troublesome and we're going to require -- we're going to require special processes if we --

Chief Justice Roberts: We understand that. But I'm talking about a legislative proposition. And it doesn't say anything about arbitration. It just says powers of attorney. You can't waive fundamental rights unless it's expressly stated.

Andrew J. Pincus: I -- I think it would be a much harder case. I don't know --

Chief Justice Roberts: Well, I know, but the problem is -- is that it is, in terms of the law-making authority, Kentucky would say to the supreme court, you know, we make these rules through the courts as we did in this case. And I just -- I guess I just don't see -- I -- I don't think you've -- well, you haven't come up with a distinction that persuades me, and that's important because I think, as Justice Kagan said, we have to assume the Kentucky Supreme Court is acting in good faith.

Justice Breyer: So isn't it that -- that your answer is there's nothing wrong with that statute? Alderson Reporting Company

Andrew J. Pincus: Well, I think -- I think --

Justice Breyer: And that, in fact, what the statutes does, whether it covers arbitration or not, if a court holds that it does cover arbitration, you have to look to see whether the other things in there are like arbitration sufficiently or there are other things that aren't covered that are like arbitration sufficiently, so that you could, at the end, draw a conclusion that this is or is not discriminatory.

Chief Justice Roberts: There's nothing else in there. The -- the first time --

Andrew J. Pincus: That's exactly --

Chief Justice Roberts: The first time the statute is applied, it happens to be to an arbitration case. It happens to be to this case. But you can't say oh, look in the background of it. It's all about hostility to arbitration. You can't --

Andrew J. Pincus: Well, I -- I -- I guess two answers. Just to return to this case for a minute, I -- I don't think that's the rule that's being applied. I think it's clear, because the instances of fundamental rights that were identified were one part --

Chief Justice Roberts: Mr. Pincus, you understand that when your first answer is, let's go to this case, that's not the most compelling response. Alderson Reporting Company

Andrew J. Pincus: I understand, Your Honor, but -- but I -- I -- and to answer the question more broadly, I -- I do think there's a -- there's a question that the Court would have to answer in that circumstance, whether, as Justice Breyer put it more eloquently than I did, that the -- that arbitration is being included in that category not because of some special characteristic of arbitration, but because arbitration agreements have the same characteristics as all of those other things --

Chief Justice Roberts: All right. Well, how would you do that? That's the position that you and maybe Justice Breyer are taking. How would you -- how would you go about that? How would you say we've got to decide why arbitration is being included in this?

Andrew J. Pincus: Well, and -- I would say, as an advocate at least, that the problem with that judgment is that what Congress said in the FAA is, in fact, you can't say that arbitration agreements should be treated like some special category of contracts just because of a characteristic of arbitration. There has to be another reason. And what the State is doing there is saying arbitration is especially significant because of a -- of a characteristic. It waives the jury right that is intrinsic to arbitration, and I think that conflicts Alderson Reporting Company 1 with the Federal policy. So, yes, the State could say that with all fundamental rights. My argument would be it can't do that with respect to arbitration and -- and I might lose.

Justice Breyer: If -- so the -- as I -- as I understand the question better, one, of course the legislature could enact such a statute. Two, if we have our first case arbitration and they say arbitration is included among it, then what we're job is is to read the opinion. Now, sometimes courts don't write enough in the opinion for us to make the decision as to whether or not it is being discriminated against, in which case we send it back and ask them to write more. So is that what we should do?

Chief Justice Roberts: Yes or no, and your time is expired.

Andrew J. Pincus: No. (Laughter.)

Andrew J. Pincus: I think you have enough here.

Chief Justice Roberts: No. Thank you. You can answer it.

Andrew J. Pincus: I -- I think the answer is no because I -- I think there's enough in this opinion. Alderson Reporting Company 1 I -- I think for the reasons indicated in Justice Breyer's question, the -- the category here doesn't apply to all jury waivers. So the argument that it applies even to the waiver of a jury right is not true, and it doesn't apply to all fundamental rights. The examples that were given are the most onerous kind --

Justice Kagan: He cheated --

Andrew J. Pincus: -- of contracts you can imagine. (Laughter.)

Andrew J. Pincus: Sorry.

Chief Justice Roberts: Thank you, counsel. The case is submitted. (Whereupon, at 11:23 a.m., the case in the above-entitled matter was submitted.)