Day on Torts
While the parties to an arbitration agreement may agree to “arbitrate threshold issues concerning the arbitration agreement,” issues concerning whether a contract was actually formed should be decided by a court.
In Edwards v. Allenbrooke Nursing and Rehabilitation Center, LLC, No. W2016-02553-COA-R3-CV (Tenn. Ct. App. Oct. 26, 2017), plaintiff sued defendant nursing home for wrongful death and health care liability claims regarding the death of plaintiff’s mother. Defendant moved to compel arbitration, attaching to its motion an arbitration agreement and Appointment of Surrogate. The Appointment of Surrogate was signed by a different daughter on April 18, 2012, and purported to give the daughter “authority to make all health care related decisions for” the mother, although the daughter’s name was erroneously put into the blank instead of the mother’s name. This Surrogate form was signed by the mother the next day. The arbitration agreement had been signed by the other daughter on April 18, “the day before Mother signed the Appointment of Surrogate form.”
The trial court denied defendant’s motion to compel arbitration, finding that the other daughter “did not have the authority to make a health care decision on behalf of Mother pursuant to the Tennessee Health Care Decisions Act, regardless of any discrepancy about the dates on the relevant documents.” The trial court pointed out that Tenn. Code Ann. § 68-11-1806 provides that a “surrogate may make a health care decision for a patient who is an adult…if, and only if: The patient has been determined by the designated physician to lack capacity…” Here, Mother’s physician specifically noted on April 20th that Mother did not lack capacity. Accordingly, the trial court “concluded that [the other sister] did not have the authority to sign the arbitration agreement on Mother’s behalf as her surrogate.” Further, the trial court noted that because the form listed the daughter’s name instead of the mother’s, it was “flawed and as such void from the beginning.” The Court of Appeals affirmed.
On appeal, defendant focused solely on whether the trial court should have decided the issue of enforceability of the arbitration agreement, or whether the issue should have been sent to arbitration. The Court of Appeals noted that while parties can agree to arbitrate “threshold issues concerning the arbitration agreement” and that such an agreement should be enforced, “the court must be satisfied that the making of the agreement for arbitration…is not in issue.” (internal citations and quotations omitted). The Court stated:
…[A] court, rather than an arbitrator, must resolve the parties’ formation dispute. Although there is a federal policy favoring arbitration, that policy does not override the principle of consent. Accordingly, a challenge to the formation of a contract is a question to be resolved by the court. In sum, when a party claims it never concluded an agreement at all, it is for the court, not the arbitrator, to determine whether the parties agreed to the arbitration provision upon which the party seeking arbitration relies.
(internal citations and quotations omitted). One issue that has been cited as one to be decided by the court is “the signor’s lack of authority to bind the principal.” (internal citation omitted).
Because the trial court here was faced with plaintiff’s argument that the signor of the arbitration agreement lacked authority to bind the mother, the Court of Appeals held that the trial court “did not err in deciding these issues rather than referring them to an arbitrator.” The Court found that defendant “did not carry its burden of establishing that [the other daughter] had authority to execute the arbitration agreement on Mother’s behalf,” and thus affirmed the trial court’s denial of the motion to compel arbitration. The Court of Appeals further affirmed the denial of defendant’s assertion that it should have been allowed to conduct discovery “in the arbitral forum,” noting that the issue regarding contract formation had to be resolved first. If no contract was formed, then plaintiff was not bound to conduct any proceedings via arbitration.
This was the correct result in this case. While arbitration agreements are often enforced, the one at issue here had several shortcomings, including date discrepancies, name errors, and the fact that the person for whom a surrogate was allegedly appointed was found to not lack capacity. Under these circumstances, the Court was right to deny enforcement of this arbitration agreement, and the Court correctly ruled that the issue in this case was one of formation that should be decided by a court