Arbitration agreements: Is a signature enough?
Steven D. Weiner
What a difference a year makes. In 2016, federal agencies proposed rules banning pre-dispute arbitration in long-term care admissions. Now, arbitration is widely accepted.
Still, not all signed arbitration agreements are valid. This scenario especially arises when the agreement is signed by someone other than the resident.
Under such circumstances the validity of the arbitration contract centers on whether the signatory has authority as an “agent” to enter into the agreement. The only two possible sources of an agent's power are if they are acting pursuant to a Power of Attorney (“POA”), or under the guise of apparent authority.
A POA is statutory and permits the agent to make legal, financial and other decisions.
Apparent authority exists when the person holds them self out as an agent through words or conduct and leads the party with whom they are dealing to reasonably believe that the agent is acting pursuant to the wishes of the principal. For example, a spousal relationship alone does not confer apparent authority to the putative agent.
Both sources of agency can be problematic for long-term care providers as there is no guarantee that a Court will find that the agent in fact possesses the requisite grant of authority.
This past May, the U.S. Supreme Court issued what could have been a seminal decision on agency in Kindred Nursing Centers L.P. v. Clark. The Kindred matter involved two separate Kentucky State Court actions that questioned if a power of attorney could agree to pre-dispute arbitration absent a clear grant to the agent of the right to waive a jury trial.
The U.S. Supreme Court found that the Federal Arbitration Act preempted any inconsistent state law that singled out arbitration. The High Court, however, remanded back to Kentucky the narrow issue of whether the language of one of the POAs was broad enough to encompass pre-dispute arbitration.
One would assume Kentucky would defer to the Supreme Court's preference for arbitration? Not so fast. On remand, the Kentucky Court found that the POA made absolutely no allowance for the agent to waive access to the Courts and the right to a jury trial.
Florida, South Carolina and Texas have also limited the authority of a POA to bind the resident to arbitration. These decisions rest on the premise that arbitration is not a healthcare decision and is ancillary to the actual provision of medical or nursing services. Thus, a POA's broad power to bind the principal to certain acts does not extend to waiver of the right to a jury trial. Massachusetts has held that family members acting as “responsible parties” also lack authority to bind residents to arbitration agreements.
West Virginia too has found that a healthcare surrogate's authority is limited to making healthcare decisions and does not extend to the signing of an arbitration agreement.
What are long-term care providers to do post-Kindred? Should they expect that their agreements to arbitrate will be enforced or invalidated at the state level?
The answer is highly-fact specific. However, certain basic elements must be considered at the time of the execution of the arbitration agreement.
First, the mere possession of a POA, or signed arbitration agreement, may not be enough to invoke arbitration. Rather, any provider should, to the extent possible, affirmatively determine that the signatory actually possesses the full power and authority to contract and sign the arbitration agreement for the resident. Such measures can be incorporated into the arbitration agreement by having conspicuous language in bold print that the person was acting as the “agent” for any and all matters related to the admission, and agreed to arbitrate any dispute arising from the admission, or the provision of services under the contract.
Even if an agent signs the arbitration contract, consideration must be given as to whether the agreement is broad enough to cover later disputes. Courts may invalidate arbitration on the grounds that the family and resident's claims are distinct, separate and independent of each another.
For example, a resident may sue for claims of deficient care while the family, by contrast, asserts claims of wrongful death (loss of pecuniary support and guidance). In such situations, courts may split the causes of action and send to arbitration those claims directly related to the decedent's care while keeping the family's wrongful death claims in state court even though such claims sometimes have little, if any, cognizable damages.
The remedy to splitting claims may be to simply adopt language in the arbitration agreement that “any and all disputes” regardless of whether they are asserted by the resident or a family member, will be subject to arbitration.
The apparent authority argument is more problematic. Facilities often argue that the third-party signed admission papers, made medical decisions on behalf resident's behalf and therefore, had authority to sign an arbitration agreement. As you can imagine, this argument is ripe with potential flaws and is not one that facilities should assume will be successful if raised.
There are other concerns when the agreement is executed by the resident. If the resident suffers dementia, has mental illness, confusion or some other medical condition that places their capacity at issue, expect the family to argue that the resident could never have ratified a contract or granted permission for someone to act on the resident's behalf, including agreeing to arbitration.
In summary, long-term care providers should not assume that the fact that a family member or POA signs an arbitration agreement will result in an enforceable contract. An arbitration agreement must be signed by a person with legal authority to enter the contract and that person must be an agent. When a claimant challenges an agent's authority to execute the agreement, the long-term care provider has the burden of establishing an agency relationship exists.
We expect that courts will continue to question the validity of arbitration agreements despite the favorable decision in Kindred.
Steven D. Weiner and Mario C. Giannettino are both partners at Kaufman Borgeest & Ryan, LLP and litigate matters pertaining to all aspects of the defense of long-term care providers.