Tennessee Nursing Home’s Arbitration Agreement Unenforceable

These days, almost all Tennessee nursing homes and rehabilitation centers include arbitration agreements in their admission documents. In this case, enforceability became an issue because the arbitration agreement was signed by the patient’s sister who did not have a power of attorney. Moreover, it was undisputed the patient did not have any mental competency issues. However, the nursing home argued sister had implied and apparent authority to bind the patient. 

Marie Farmer was a 36 year old woman with multiple health issues including diabetes and end-stage renal disease. Over the course of several years, she had been in and out of various hospitals and medical facilities and her sister, Angelica Massey, had typically accompanied her and completed the necessary paperwork and Farmer’s admission to defendant’s nursing home was no different. While a patient at the nursing home, Farmer died allegedly from complications of hypoglycemia and her husband and minor children brought a wrongful death action. The nursing home then sought to enforce the arbitration agreement.

Since implied authority has been defined as "actual authority circumstantially proved, or evidenced by conduct, or inferred from a course of dealing between the alleged principal and the agent", defendant argued Massey had implied authority to sign the arbitration agreement since she routinely performed that function for her sister. The Court of Appeals disagreed. While Farmer knew Massey was signing admission documents for her, there was no evidence to establish Farmer knew an arbitration agreement was contained within those documents as even the nursing home’s representative testified it was not discussed in Farmer’s presence. Moreover, the undisputed testimony was the arbitration agreement was not mandatory. In other words, admission was not conditioned upon signing it. Given its optional nature, knowledge of its existence and an acquiescence to its terms was necessary, and evidence of that was absent in the record.

The court also rejected the nursing home’s argument that Massey had apparent authority to execute the arbitration agreement because again there was no evidence Farmer was aware an arbitration agreement was contained within the admission paperwork.   As such, the Court concluded there was no "overt affirmation of agency" by which to conclude Farmer had authorized Massey to execute the optional arbitration agreement.

This is the right result. The waiver of the constitutional right to a jury trial is no small matter. So, if a nursing home or any other defendant wants to enforce an arbitration agreement, then they should ensure it is either signed by the person against whom it will be enforced or by someone with a power of attorney or other legal authority to do so.

One final comment: The defendant in this case tried to characterize its conduct here as a failure to "dot  i’s and cross  t’s" and wanted its sloppiness excused. I can’t help but wonder if it would have been so forgiving of the plaintiff if the pre-suit notice had been less than perfect. 

The case is Farmer v. South Parkway Associates, L.P., W2012-02322-COA-R3-CV (Tenn. Ct. App. Sept. 25, 2013).

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