Nursing Home Agreement to Arbitrate – Who Can Bind Patient?

Where a nursing home patient’s daughter executed the admission paperwork and arbitration agreement, but the power of attorney the patient had previously executed in favor of her daughter specifically excluded the power to make health care decisions, the arbitration agreement was not enforceable.

In Jones v. Allenbrooke Nursing and Rehabilitation Center LLC, No. W2019-00448-COA-R3-CV (Tenn. Ct. App. Dec. 16, 2019), plaintiff’s mother executed a power of attorney (“POA”) in favor of her daughter in 2007. The POA granted plaintiff power to handle certain property and business transactions, but it specifically stated: “This document does not authorize anyone to make medical or other health care decisions for you.” In 2013, the mother was suffering from dementia and was incompetent, so plaintiff executed nursing home admission documents in connection with having the mother admitted to defendant nursing home. Included in these documents was an arbitration agreement.

In 2016, the mother fell while under the care of defendant nursing home. Plaintiff, as next friend, brought this suit for ordinary negligence and violations of the HCLA. Defendant filed a motion to compel arbitration based on the signed arbitration agreement, which the trial court denied, and the Court of Appeals affirmed.

The Court of Appeals began its analysis by rejecting defendant’s argument that the trial court erred by failing to apply the Federal Arbitration Act to the issue of whether the arbitration agreement was enforceable. The Court noted that this exact argument was rejected in Edwards v. Allenbrooke Nursing & Rehabilitation Center, LLC, 2017 WL 4861658 (Tenn. Ct. App. Oct. 26, 2017), in which the Court found that “the trial court must resolve any issue questioning the formation of the parties’ arbitration agreement.” The Court quoted from Edwards, noting that “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 citation omitted).

Next, the Court looked at whether plaintiff had the authority to bind her mother to an arbitration agreement. The Court specifically noted that the POA was the only form signed by the mother and that no separate healthcare power of attorney had been executed. While the POA in question mentioned “broad powers,” it went on to enumerate specific areas, including “real estate transactions, banking transactions, and claims and litigation.” Moreover, the POA specifically excluded the power to make health care decisions. Defendant argued that the arbitration agreement would fall under “claims and litigation,” but the Court of Appeals looked to a previous Tennessee case which held that a decision to admit a person to a nursing home is a health care decision. (internal citation omitted). Further, the arbitration agreement at issue here “explicitly states that the parties ‘agree that the signing of this Agreement, both by itself and in conjunction with the corresponding admission and receipt of services, is a healthcare decision.’” Based on the language of the POA and the arbitration agreement, as well the cited Tennessee case, the Court held that “[b]ecause the execution of the Agreement was a healthcare decision, we conclude that [plaintiff] did not have the authority to bind [her mother] to the Agreement.”

Defendant argued that plaintiff had the apparent authority to enter into the arbitration agreement, but the Court noted that it had previously rejected this argument in a similar case. (see Barbee v. Kindred Healthcare Operating, 2008 WL 4615858 (Tenn. Ct. App. Oct. 20, 2008)). “Apparent authority may be found only where the principal himself by his acts or conduct has clothed the agent with the appearance of authority.” (quoting Barbee). Here, at the time the arbitration agreement was signed, the mother was incompetent. The Court accordingly found that “[a]s such, she could not have clothed [plaintiff] with the appearance of authority to make healthcare decisions on her behalf.”

Defendant’s final argument was that the agreement was actually between plaintiff and defendant and that the mother/patient was a third-party beneficiary, so the arbitration agreement should be enforced. The Court noted that it had rejected this exact argument in a previous case, where it ruled that “[t]hird party beneficiary concepts should not be used to circumvent the threshold requirement that there be a valid arbitration agreement.” (internal citation omitted).

Having rejected all of defendant’s arguments, the Court held that plaintiff did not have the authority to bind her mother to the arbitration agreement and affirmed the trial court’s denial of the motion to compel arbitration.

This is a notable case, as arbitration agreements are fairly standard parts of nursing home admission paperwork. As it is not uncommon for a person being admitted to a nursing home to be incompetent at the time, it will be interesting to see if the result in this case changes the way nursing homes approach this issue.

NOTE:  to aid lawyers in giving clients guidance about how long it takes to receive an opinion after oral argument in the appellate courts, we are going to start sharing that information with readers.   Please understand that the length of time that elapses between oral argument and the date the opinion is released is dependent on a multitude of factors, not the least of which is the complexity of the issues presented.  In this case, the opinion was released about four weeks after oral argument.