Agreement to Arbitrate Entered into Through Power of Attorney Held Enforceable

Agreement to Arbitrate Entered into Through Power of Attorney Held Enforceable

      There has been in Kentucky, over the last year, a significant string of cases in which reference of a matter to arbitration was avoided on the basis that the arbitration agreement was entered into by a purported agent who did not have the authority to bind the principal to arbitration.  See, e.g., Kindred Nursing Centers Limited Partnership v. Leffew, 2013 WL 1688361 (Ky. App. April 19, 2013), reviewed HERE on April 23, 2013; LP Pikeville, LLC, v. Pinson, 2013 WL 3335013 (Ky. App. June 28, 2013), reviewed HERE on July 11, 2013, and Kindred Hospitals L.P. v. Clark, No. 2011-CA-001663-MR (Ky. App. Feb. 15, 2013), reviewed HERE on March 11, 2013.  There are now decisions from both the Eastern and Western Districts of Kentucky in which the opposite result was achieved, namely arbitration was ordered.  The first of those decisions is Oldham v. Extendicare Homes, Inc., 2013 WL 1878937 (W.D. Ky. May 3, 2013), and the second GGNSC Vanceburg LLC v. Taublee, 2013 WL 4041174 (E. D. Ky. Aug. 7, 2013).

      In both of these decisions, the plaintiff sought to avoid arbitration by reference to the Kentucky Supreme Court’s decision in Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581 (Ky. 2012), wherein the Court held that there was no agreement to arbitrate where the power of attorney did not enable the agent to enter into contracts on behalf of the principal, being restricted rather to financial and health-care decisions.  In these two cases, in contrast, the power of attorney at issue expressly allowed the agent to bind the principal to a contract.  In part, the power of attorney in the Oldham decision included the power to “make contracts” and “generally to do and perform for me and in my name all that I might do if present.”  From there, the Court was able to conclude that:

The arbitration agreement to participate in alternative dispute resolution for any tort, negligence, or gross negligence is undoubtedly a “contract” or “agreement” that [the agent] had authority “make and sign.”  2013 WL 1878937, *3.

      The GGNSC Vanceburg, LLC decision also included an extensive discussion of Colorado River abstention and the question whether the federal court should be involved in ordering arbitration in that was already pending a state court action, in this instance the federal court determining it could act.  The power of attorney at issue allowed the agent “make contracts,” “make and sign in my name any and all contracts or agreements,” “institute or defend suits concerning my property or rights” and “generally to do and perform for me and in my name all that I might do if present.”  In reliance upon this language, the court had no problem determining that the agent could property bind the principal to arbitration of an agreement.

      Clearly the language of the instrument designating the agent and the agent’s authority is crucial.

       Before closing, a small quibble must be raised with respect to the GGNSC Vanceburg, LLC decision.  It is stated therein that:

LLCs are required to file annual reports in order to comply with KRS 275.115, which in turn requires that LLCs maintain a registered office in Kentucky.

With due respect to Judge Forester, this statement, obviously dicta, is incorrect.  LLCs are required to file annual reports because every LLC is subject to the Kentucky Business Entity Filing Act, and subject to certain exceptions therein, every entity so subject is required to file an annual report with the Kentucky Secretary of State.  See KRS § 14A.6-010(1).  The requirement to name a registered agent is an independent duty; the LLC Act, at KRS § 275.115 requires each LLC to name a registered office and agent that comply with KRS § 14A.4-010.  Even without KRS § 275.115 the obligation to appoint a registered office and agent would exist by reason of KRS § 14A.4-010.  As such, the obligation to file an annual report and the obligation to designate a registered office and agent are independent of one another; there is nothing about the annual report requirement that requires an entity to designate a registered office/agent, or vice versa.