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Holding that one federal law prevents another federal law from pre-empting a state law governing arbitration agreements in the health-care context, Texas’ 1st Court of Appeals ruled in favor of a widow who wants her wrongful-death claim heard by a jury, not a panel of arbitrators. The key issue in In Re: Marguerite Kepka, decided on July 28 by a three-justice panel of Houston’s 1st Court, is whether the state Legislature enacted a provision in the Texas Medical Liability and Insurance Improvement Act for the purpose of regulating the business of insurance. That provision, Article 4590i, 15.01(a), has since been replaced by 74.451 of the Civil Practice & Remedies Code, as part of the medical-malpractice overhaul passed in 2003. Based on the “findings and purposes” section of former Article 4590i of the Texas Civil Practice & Remedies Code, the 1st Court determined that the purpose of the entire statute was to adjust, manage or control the business of insurance. After making that determination, the court held that the federal McCarran-Ferguson Act, which gives states authority to regulate insurance, “reverse pre-empts” the Federal Arbitration Act, thereby preventing the latter from pre-empting arbitration notice requirements in the state law. Justice Tim Taft wrote the opinion for the panel. Justices Evelyn Keyes and George Hanks Jr. joined Taft in the decision. Melvin Wolovits, lead attorney for Kepka, applauds the ruling. “It will maintain health-care liability claims in the courthouse where they should be tried by a jury of [one's] peers in the community,” says Wolovits, principal in the Law Offices of Melvin Wolovits in Dallas. Gerald Treece, associate dean at South Texas College of Law, teaches tort law and says the decision in Kepka is important to patients. “People who go to hospitals or nursing homes aren’t in a position to bargain for things,” Treece says. Treece also views the decision as a victory for states’ rights. What the 1st Court did in Kepka, he says, was to use reverse pre-emption to protect state sovereignty and state tort law. However, the 1st Court may not have the final say on the issue. Andrew Schulz, an attorney representing Southfield Healthcare Center, a defendant in the underlying suit, says his client will appeal to the Texas Supreme Court. “The court of appeals erred in injecting a business-of-insurance issue in a case that does not involve insurance,” says Schulz, an associate with Preston & Cowan in Houston. In its response to Kepka’s mandamus petition, Southfield asserted that the U.S. Supreme Court’s 1982 decision in Union Labor Life Insurance Co. v. Pireno set out guidelines for determining whether a legislature enacted a state statute for the purpose of regulating the business of insurance as the phrase is used in the McCarron-Ferguson Act. One consideration is whether a statute is limited to entities within the insurance industry, Southfield noted in the response. “The FAA should apply because a nursing home is involved in commerce, not insurance,” Schulz says. According to the 1st Court’s opinion, Kepka signed multiple documents, including an arbitration agreement, when she admitted her husband to Southfield’s nursing home in Pasadena, Texas, on Nov. 22, 2002. Kepka’s husband died about two weeks later. Kepka sued Southfield and two health-care providers, who are not part of the mandamus proceeding, alleging negligence and gross negligence arising out of her husband’s care at the nursing home. As noted in the opinion, Kepka asserts her negligence claims under the Texas survival statute, Civil Practice & Remedies Code 71.021(b) and the Texas wrongful-death statute, Civil Practice & Remedies Code 71.004(a) and (b). According to the opinion, Kepka alleges in her wrongful-death claim that she personally has been damaged and sought compensation for pecuniary loss, loss of companionship and society, mental anguish and loss of inheritance. Kepka also seeks punitive damages. Southfield moved to compel arbitration under the agreement that Kepka signed when her husband entered the nursing home. Taft noted in the opinion that 269th District Judge John T. Wooldridge initially denied Southfield’s motion to compel arbitration without specifying the grounds for his decision. But Wooldridge granted the motion to compel in November 2004, again without stating the grounds, after Southfield filed a motion for reconsideration. Kepka petitioned the 1st Court for a writ of mandamus, asserting that Southfield’s arbitration agreement is invalid, because it did not comply with the requirements in former Article 4590i, 15.01(a). Section 15.01(a) required that an arbitration agreement contain a written notice in 10-point boldface type advising a patient not to sign the agreement without consulting an attorney. The same language is in 74.451 of the Civil Practice & Remedies Code, which the Legislature enacted in 2003. No one disputes that Southfield’s arbitration agreement did not comply with the state law provision, Taft wrote in the opinion. The agreement did include a clause that a person who signs the agreement voluntarily consents to all of its terms. TRUMP AND RE-TRUMP In its response to Kepka’s mandamus petition, Southfield asserted to the 1st Court that the Federal Arbitration Act, which does not contain the notice requirement, pre-empts 15.01. Southfield further asserted that the Legislature did not enact 15.01 for the purpose of regulating the business of insurance and that 15.01 simply sets forth language and type-face requirements for arbitration agreements. Therefore, the McCarran-Ferguson Act does not reverse pre-empt the Federal Arbitration Act, Southfield argued in its response. The 1st Court did not limit its consideration to the specific statutory provision dealing with the notice requirements. “We disagree with Southfield that Section 15.01 can be read in a vacuum for (the purpose of determining whether it was enacted “for the purpose of regulating the business of insurance,’ ” Taft wrote in the opinion. According to the opinion, 1.02 of the former Article 4590i contained legislative statements that applied to the statute as a whole. Those statements address the medical-malpractice insurance crisis that the state faced when the Legislature enacted the statute in 1993. The 1st Court drew support for its conclusion regarding the purpose of the Texas statute from the Colorado Supreme Court’s 2003 holding in Allen v. Pacheco. The Colorado court held in Pacheco that the Colorado Health Care Availability Act was enacted to regulate the business of insurance within the meaning of the McCarran-Ferguson Act and that the Federal Arbitration Act did not pre-empt the statute’s provisions pertaining to arbitration agreements. Southfield had argued in its response to the mandamus petition that the Pacheco decision addressed an arbitration agreement between a health maintenance organization and a policyholder. The relationship between Southfield and Kepka is not the same as that between an insurer and a policy holder, according to the nursing home’s response. The Texas Supreme Court recently upheld an arbitration agreement between a hospital and the wife of a patient who died. On May 27, the court held in In Re: Nexion Health Humble Inc. that the Federal Arbitration Act governed the arbitration agreement at issue in that case, pre-empting the Texas Arbitration Act. According to the high court’s per curiam opinion, the Medicare funds that crossed state lines to reimburse the hospital for the care of the patient in this care constituted interstate commerce. However, Nexion did not deal with whether the McCarran-Ferguson Act prevents the Federal Arbitration Act from pre-empting the state medical liability law. The 1st Court also ruled in Kepka’s favor on another point, holding that the trial court abused its discretion in compelling arbitration of her wrongful-death claim because Kepka brought the claim in her individual capacity but signed the arbitration agreement in her representative capacity as her husband’s agent. According to the opinion, Kepka left blank the signature line in the agreement that allowed her to sign in her individual capacity. Taft noted in the opinion: “Wrongful-death claims are personal to the statutory beneficiaries who assert the claims, and recovery for those claims do not benefit the estate.”

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