Fredericksburg Care Co. v. Perez

461 S.W.3d 513

The Fredericksburg Care Company, L.P., Petitioner

v.Juanita Perez, Virginia Garcia, Paul Zapata, and Sylvia Sanchez, Individually and as All Heirs of Elisa Zapata, Deceased, Respondents

No. 13–0573

Supreme Court of Texas.

Argued October 14, 2014

OPINION DELIVERED: March 6, 2015

Rehearing Denied June 26, 2015

Gavin Joe Gadberry, Underwood Law Firm, P.C., Amarillo, for Amicus Curiae American Health Care Association and Texas Health Care Association.

Michael G. Guajardo, Guajardo & Marks, LLP, Dallas, Peter M. Kelly, Kelly, Durham & Pittard, L.L.P., Houston, for Amicus Curiae The Texas Trial Lawyers Association (TTLA).

David Harris, Roy R. Barrera III, Shawn Christopher Golden, Golden & Barrera, P.C., San Antonio, for Petitioner The Fredericksburg Care Company, L.P.

Gavin McInnis, Marynell Maloney, Marynell Maloney Law Firm, PLLC, San Antonio, for Respondents Juanita Perez, Virginia Garcia, Paul Zapata, and Sylvia Sanchez, Individually and as All Heirs of Elisa Zapata, Deceased.

Opinion

Justice Green delivered the opinion of the Court.

This case involves a federal statutory exception to the general rule that federal law preempts state law. One of the federal laws at issue, the McCarran–Ferguson Act (MFA), 15 U.S.C. §§ 1011 –1015, provides an exemption from preemption that applies to state statutes enacted for the purpose of regulating the business of insurance. The trial court found that the MFA applied, triggering the exemption under which the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 –16, would not preempt section 74.451 of the Texas Civil Practice and Remedies Code, relating to agreements to arbitrate health care liability claims. The trial court denied the defendant's motion to compel arbitration because the arbitration clause did not comply with section 74.451 and was therefore invalid. The defendant filed an interlocutory appeal, and the court of appeals affirmed. 406 S.W.3d 313, 315 (Tex.App.–San Antonio 2013). We hold that the MFA does not apply to section 74.451 and reverse the court of appeals' judgment.

I. Factual and Procedural Background

The Fredericksburg Care Company, L.P. (Fredericksburg), operates a health care facility—commonly known as a nursing home—that specializes in providing long-term care to patients. Elisa Zapata was a patient and resident under the care and supervision of Fredericksburg at the time of her death. Zapata's death and survival beneficiaries (the Beneficiaries) sued Fredericksburg for negligent care and wrongful death. Fredericksburg moved to compel arbitration based on an arbitration clause contained in an agreement that Zapata signed prior to her admission into the nursing home.

It is undisputed that the pre-admission agreement's arbitration clause did not comply with section 74.451's requirement that an agreement to arbitrate a health care liability claim must contain a written notice in bold-type, ten-point font that conspicuously warns the patient of several important rights. See Tex. Civ. Prac. & Rem. Code § 74.451(a). Nonetheless, Fredericksburg's motion to compel arbitration asserted that federal law should determine the enforceability of the arbitration clause because the underlying patient–provider transaction involved interstate commerce, which made the FAA applicable to the pre-admission agreement. In Fredericksburg's view, the FAA preempted section 74.451 because the two laws directly conflicted, and the FAA therefore prevented the arbitration clause from being invalidated.

The Beneficiaries did not dispute Fredericksburg's position that the FAA would normally preempt section 74.451. Rather, they argued that section 74.451 was part of a state law enacted for the purpose of regulating the business of insurance and fell within the protection of the MFA. The MFA trumped preemption under the FAA, the Beneficiaries argued, because Congress created an exemption from preemption for any federal law that could be “construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.”See 15 U.S.C. § 1012(b). The trial court denied Fredericksburg's motion to compel arbitration, and Fredericksburg filed an interlocutory appeal.

The court of appeals affirmed the trial court's ruling. 406 S.W.3d at 315. The court of appeals noted that section 74.451 is part of the Texas Medical Liability Act (TMLA), and that Chapter 74 succeeded the Texas Medical Liability Insurance Improvement Act (TMLIIA). Id. at 320. After examining the reasoning of courts interpreting the earlier, substantially identical TMLIIA provision, the court of appeals concluded that “section 74.451 is part of a law enacted for the purpose of protecting and managing the performance of insurance policies in the area of medical malpractice and health care liability,” and therefore fell within the MFA's protection. Id. at 324. In making this determination, the court of appeals looked to the legislative purpose behind Chapter 74 as a whole in deciding that it, much like its TMLIIA predecessor, was enacted to regulate the business of insurance in Texas. Id. at 324–25. The court of appeals held that the MFA applied to exempt section 74.451 from FAA preemption, and the trial court properly denied Fredericksburg's motion to compel arbitration because the arbitration clause was unenforceable under section 74.451. Id. at 325–26. We granted Fredericksburg's petition for review. 57 Tex. Sup. Ct. J. 305, 307 (Mar. 21, 2014).

II. FAA Preemption

The parties do not dispute that the FAA, when applicable, preempts section 74.451 except when an exemption applies. The trial court and court of appeals both assumed without deciding that the FAA applied in this case, allowing them to reach the MFA question. See id. at 322. This approach is consistent with the approach other courts of appeals have taken. See In re Sthran, 327 S.W.3d 839, 845–46 (Tex.App.–Dallas 2010, orig. proceeding) ; In re Kepka, 178 S.W.3d 279, 288 n.9 (Tex.App.–Houston [1st Dist.] 2005, orig. proceeding), disapproved of on other grounds by In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex.2009) (orig. proceeding). We note, however, that if the FAA does not apply, then section 74.451 is not preempted and it is unnecessary to address whether the MFA provides an exemption from FAA preemption.

The FAA applies to arbitration clauses in contracts that affect interstate commerce. In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex.1999) (orig. proceeding) (per curiam) (recognizing that the FAA “extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach”) (citing Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273–77, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) ). We have previously concluded that evidence of Medicare payments made to a health care provider on a patient's behalf was “sufficient to establish interstate commerce and the FAA's application” to the case. In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005) (orig. proceeding) (per curiam). The record in this case reflects that Fredericksburg received Medicare payments on behalf of the deceased patient, Zapata, and the parties have never challenged the applicability of the FAA in this case. See id. We therefore assume, as did the trial court and court of appeals, that the FAA applies here.

In 2005, this Court held that the FAA preempted a Texas Arbitration Act (TAA) requirement that an attorney sign a client's agreement to arbitrate a personal injury claim. Id. This was because the TAA required an additional element—the attorney's signature—that the FAA did not, and the laws were in direct conflict. Id. Applying that precedent here, section 74.451's requirement that an arbitration clause provide a bold and conspicuous warning of a patient's right to consult an attorney and the requirement that an attorney must sign the agreement are additional requirements that directly conflict with the FAA, which contains no such requirements. See id. ; see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 683, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (finding that the FAA preempted a nearly identical statute that required a specific notice to appear on the first page of an agreement containing an arbitration clause). Compare 9 U.S.C. § 2, with Tex. Civ. Prac. & Rem. Code § 74.451(a). Thus, the FAA preempts section 74.451 and the parties will be compelled to arbitrate—despite the arbitration clause's deficiencies under section 74.451 —unless the MFA exempts the Texas law from FAA preemption.

III. MFA Applicability

The MFA provides that the regulation and taxation of the business of insurance is a matter of state law. See 15 U.S.C. § 1012(a). The MFA provision at issue here, section 1012(b), states in full:

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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

Id. § 1012(b) (first emphasis added) (citation omitted). This case requires us to interpret and apply federal preemption law, and therefore United States Supreme Court precedent controls the outcome. See Eichelberger v. Eichelberger , 582 S.W.2d 395, 401 (Tex.1979). In analyzing the MFA, the Supreme Court observed that section 1012(b) is divided into two clauses. U.S. Dep't of Treasury v. Fabe , 508 U.S. 491, 504, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993). The second clause deals with antitrust matters, see id. and is not at issue here. This case...