San Antonio COA Refuses to Compel Nursing Home Negligence Case to Arbitration

Texas’ Fourth District Court of Appeals in San Antonio has refused to compel a nursing home health care liability lawsuit to arbitration.  In The Williamsburg Care Company L.P. v. Acosta, (No. 04-13-00110-CV), several former nursing home residents alleged that a long-term care facility committed a number of acts of negligence against them.  Prior to being admitted to the nursing home, each patient signed an admission contract that contained an agreement to arbitrate any future disputes with the facility.  In addition, the residents each signed a separate mutual agreement to arbitrate any and all disputes with the nursing home.  Neither arbitration clause, however, successfully complied with the 10-point boldface requirement enumerated in Texas Civil Practice and Remedies Code Section 74.451.  The arbitration clauses also failed to successfully comply with the statute’s attorney signature requirements.

After the former residents filed their negligence case, the nursing home sought to compel the dispute to arbitration under the Federal Arbitration Act (FAA).  The former residents argued that arbitration was inappropriate because Section 74.451 was not preempted by the FAA.  According to the former residents, the Texas statute controlled the dispute because it is a law that regulates the business of insurance within the within the meaning of the federal McCarran-Ferguson Act.  A trial court agreed and refused to submit the lawsuit to arbitration.  The nursing home then filed an interlocutory appeal with the Fourth Court of Appeals.

First, the appellate court stated the FAA demonstrates that Congress generally favors arbitration.  Next, the court said the FAA normally preempts state law and the “Texas Supreme Court has held that an attorney-signature restriction on arbitration contained in the general Texas Arbitration Act (TAA) is inconsistent with the FAA.”

After that, the appellate court discussed the McCarran-Ferguson Act (MFA) exception the FAA preemption.  According to the court,

The MFA prevents a federal statute from preempting a conflicting state statute if (1) the federal statute does not specifically relate to “the business of insurance,” (2) the state law was “enacted for the purpose of regulating the business of insurance,” and (3) the federal statute operates to “invalidate, impair, or supersede” the state law. U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 500-01 (1993); Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir. 1998). Thus, under the MFA, state laws enacted for the purpose of regulating insurance prevail over general federal laws that do not specifically relate to the business of insurance. In the instant appeal, we are concerned only with the second prong of the MFA.

The appeals court then examined whether Section 74.451 “was enacted for the ‘purpose of regulating the business of insurance,’ thereby bringing it within the MFA’s protection against preemption by the FAA.”  After examining the relevant caselaw, the court held,

…we conclude that under the Fabe/Pireno analysis, 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.

Because the FAA does not preempt Section 74.451 of the Texas Civil Practice and Remedies Code, the Fourth District Court of Appeals affirmed the trial court’s order and refused to compel the parties’ dispute to arbitration.