Ask the legal expert ... about arbitration agreements

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Attorney John Durso, Ungaretti & Harris LLP
Attorney John Durso, Ungaretti & Harris LLP

It seems like every time I see a news item about arbitration agreements being signed by a resident/patient's surrogate or relative, some judges rules it invalid or unenforceable. Are they ever valid? Must we always get the resident/patient to sign for himself or herself, or is that just strongly recommended?

Even though arbitration provides an efficient alternative to litigation, a nursing home may fear a court will rule an arbitration agreement signed by a third party is invalid or unenforceable.

However, barring other enforceability-related issues, arbitration agreements and other resident contracts are valid and enforceable if an authorized third party enters into such an agreement on behalf of a resident who lacks sufficient mental capacity to form a contract.

For a contract to be valid, both parties must possess sufficient mental capacity to appreciate the effect of the contract, and they must be able to exercise free will in forming it. Thus, the risks associated with attempting to enter into arbitration agreements with residents who do not have sufficient mental capacity are greater than any risks of entering into such agreements with authorized third parties.

When a third party signs an arbitration agreement, nursing homes should confirm that the third party has the authority to bind the resident to the agreement. An individual with power of attorney generally has such authority. If a resident has not appointed power of attorney to someone, an adult member of the resident's immediate family typically has the authority to enter into a contract on behalf of the resident.

Nursing home providers should consult legal counsel to determine any state-specific requirements.