Tuesday, April 23, 2013

Arbitration Avoided (Again) on Basis that Agent Did Not Have Authority to Bind Principal

The Court of Appeals Once Again Considers and Invalidates
Arbitration Clause on the Basis of Insufficient Authority
      Yet again, the Court of Appeals has determined that a particular agreement to arbitrate was not enforceable on the basis that the agents executing the agreement on behalf of the principal lacked actual authority to so bind the principal.  There being no effective agreement to arbitration, the matter could proceed in court.  Kindred Nursing Centers Limited Partnership v. Leffew, No. 2011-CA-002067-MR, 2013 WL 1688361 (Ky. App. April 19, 2013).
      Louis Leffew, on the basis he was mentally incapable of handling his daily needs, had appointed for him as an emergency custodians Jerry Leffew, his son, and Yvonne Leffew, his wife.  The District Court, in appointing Jerry and Yvonne Louis’ emergency custodians, completed an AOC Form 748, “Order for Emergency Appointment of Fiduciary,” indicating thereon by checking certain boxes that they had the “authority to conduct Lewis’ affairs as follows: to determine his living arrangement, consent to medical procedures, and to handle his financial responsibilities.  The District Court did not check boxes that would have given them power to dispose of Louis’ property, to execute instruments on his behalf, or to enter into contractual relationships.”
      There was as well an additional power of attorney given by Louis to Jerry giving him “power of attorney rights to get all papers and statements written papers concerning charges”; this was provided at the time that Louis was apparently incarcerated.
      Within two months of being appointed his emergency custodians, Jerry and Yvonne admitted Louis to the Harrodsburg Health Care Center, a facility operated by Kindred.  On his behalf, they signed admission documents including an agreement to arbitrate disputes arising in connection with his treatment at the facility.  Ultimately the Cabinet for Health and Family Services was appointed Louis’ permanent guardian, and it executed and delivered several documents for his re-admission to the Harrodsburg Health Care Center, each indicating that it was pursuant to the terms of the original admission.  Ultimately Louis passed away, and Jerry filed suit alleging the nursing home had negligently caused Louis’ death.  Kindred sought dismissal or a stay and that the matter be referred to arbitration.
      On appeal, Kindred argued that:
(1)  although Jerry and Yvonne did not have authority to enter into the arbitration agreement, the Cabinet’s subsequent execution of re-admission documents, after having been named Louis’s permanent guardian, constituted ratification of Jerry’s and Yvonne’s action upon admission, thereby binding Louis;
(2)  Jerry should be estopped, in accordance with Kentucky law, from asserting he had no authority to act, because the nursing home relied to it detriment on Louis’s 2007 hand-written power of attorney document; and
(3)  even if Kentucky law does not permit Jerry’s estoppel, the Federal Arbitration Act (FAA) permits estoppel of the estate even though Louis did not sign the arbitration agreement.  2013 WL 1688361, *2.
      With respect to the argument that the Cabinet for Health and Family Services had in effect ratified the ADR agreement entered into at the time of admission, the Court of Appeals noted that while ratification was certainly possible, the ratification must be by the principal and not by the agent.  As the Cabinet was always Louis’ agent, it never had the capacity as principal to ratify the prior act: 
Only Louis could subsequently ratify [the arbitration agreement].  Because he never regained competence, it was impossible for him to do so….  The Cabinet could not ratify the arbitration agreement because the Cabinet was not a principal; rather, it was a judicially appointed agent of Louis which possessed limited authority to act on his behalf.  2013 WL 1688361, *3.
      As to the argument that Jerry should be estopped from relying upon his lack of authority to bind Louis, the court found that the elements of estoppel were not met.  Rather, Kindred had been presented a copy of the handwritten power of attorney and thereby had the means to know of its limited scope.  “Even a cursory examination of this document would alert nursing home administrators that it did not confer upon Jerry the authority to enter into the arbitration agreement.”  Id.
      Turning to the argument that the Federal Arbitration Act should in some manner mandate a successful estoppel argument, the Court made short shift of the argument, noting that principles of contract creation that exist at state law are not preempted by the FAA.
      Consequently, the determination of the trial court denying the motion to compel arbitration was affirmed.
      This decision is another in a long string of recent holdings in which arbitration agreements, purportedly entered into at the time of a hospital or healthcare facility admission, were ultimately found unenforceable against the admittee’s estate.  This case is curious in that Louis presented the handwritten power of attorney at the time of his admission, thereby putting Kindred on notice of its (very limited) terms.  It was because Kindred was aware of those limited terms that the estoppel argument, at least in part, was ultimately unsuccessful.  In this instance, from Kindred’s perspective, too much knowledge was a bad thing.  One wonders if Kindred might have been successful having not seen the actual document and rather relied on an express statement from the purported agent of their capacity to bind the principal.

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