Ruling that nursing home arbitration agreement was invalid reversed.

Where plaintiff had signed an arbitration agreement in conjunction with his brother’s admission to defendant nursing home, and plaintiff had a durable power of attorney for health care executed by his brother naming plaintiff as the attorney-in-fact, the trial court “erred in looking beyond the durable power of attorney for health care to examine the patient’s competency at the time it was executed.”

In Welch v. Oaktree Health and Rehabilitation Center LLC d/b/a Christian Care Centers of Memphis, No. W2020-00917-COA-R3-CV, 2022 WL 589926 (Tenn. Ct. App. Feb. 28, 2022), plaintiff was the brother of a patient who had died after a brief stay at defendant nursing home. When the brother was admitted, plaintiff filled out admission paperwork, including an arbitration agreement, as plaintiff had a durable power of attorney for healthcare executed by the brother and naming plaintiff as the attorney-in-fact.

After the brother’s death, plaintiff filed this action asserting claims for health care liability, negligence, and wrongful death. Defendant filed a motion to compel arbitration, in response to which plaintiff argued that he lacked authority to sign the arbitration agreement as the attorney-in-fact because the brother was not competent to execute the power of attorney, thus rendering the power of attorney for health care invalid. Plaintiff presented evidence that the brother had Down Syndrome, and plaintiff’s expert testified that the brother lacked the ability to understand the document. Plaintiff also testified that he printed the power of attorney form online, and that anytime he presented the document, he stated that he was not sure of its legality. The trial court ultimately ruled that the brother was incompetent and lacked capacity to sign the power of attorney for health care, that the power of attorney for health care was therefore invalid, and that the arbitration agreement was accordingly unenforceable. On appeal, this ruling was reversed.

The issue on appeal was “whether it was permissible for the trial court to look beyond the power of attorney for health care and examine the circumstances surrounding the execution of the document in 2012 in order to determine whether [the brother] was competent at that time.” The Tennessee Supreme Court heard a nursing home arbitration agreement case in 2007, where the primary issue was “whether a durable power of attorney for health care authorized the attorney-in-fact to enter into an arbitration agreement as part of a contract admitting the principal to a nursing home and thereby to waive the principal’s right to trial by jury.” (Owens v. National Health Corp., 262 S.W.3d 876 (Tenn. 2007)). While the Supreme Court ruled that the attorney-in-fact could bind the principal to arbitration in this context, it also addressed assertions that the principal was incompetent when executing the power of attorney in a footnote, stating: “Discovery should not be permitted, however, concerning the validity of the power of attorney or the circumstances of its execution. See Tenn. Code Ann. § 34-6-208 (providing immunity to health care providers who rely on decisions ‘made by an attorney in fact who the health care provider believes in good faith is authorized’ to make health care decisions).” (quoting Owens, footnote four).

Plaintiff argued that the Owens reasoning was not applicable here for several reasons. First, plaintiff asserted that the footnote was “non-binding dicta,” but the Court of Appeals stated that “trial courts must follow the directives of superior courts, particularly where the superior court has given definite expression to its views in a case after careful consideration.” (internal citation omitted). The Court explained that it was “not free to disregard the discussion in Owens directly addressing the issue before [it].” (internal citation omitted).

During oral arguments, plaintiff also suggested that Owens was inapplicable because the statute cited therein, Tenn. Code Ann. § 34-6-208, would not apply to this power of attorney because it was executed in Mississippi. While the Court pointed out that neither party had suggested that the power of attorney for health care in this case failed to comply with Tennessee law, it did conclude that Tenn. Code Ann. § 34-6-208 did not apply because “the durable power of attorney for health care in this case must be considered under a newer statutory scheme, the Tennessee Health Care Decisions Act, Tenn. Code Ann. § 68-11-1801.”  (internal citation omitted).

The purpose of the Health Care Decisions Act (HCDA) was “to simplify formal requirements and thus make it easier for patients to provide their instructions by broadening the spectrum of forms patients could use.” (internal citation omitted). Because the power of attorney for health care in this case did not cite any governing law, “so long as it complie[d] with the HCDA, it [would] be given effect as an advance directive under that act.” (internal citation omitted). The document in question in this case was signed by the principal and two witnesses and contained the required attestation clauses, thus complying with the HCDA. While the statute cited in Owens did not apply here, the HCDA “contains a very similar provision” regarding health care providers who rely in good faith on advance directives. Accordingly, the Court found that “the Tennessee Supreme Court’s application of Tennessee Code Annotated section 34-6-208 in Owens requires the same result with respect to section 68-11-1810 in this case, involving a power of attorney for health care and the newer HCDA.” Because the power of attorney for health care in this case met the HCDA requirements and the Owens rationale applied, the trial court should not have looked beyond the document to examine the principal’s capacity when he executed it.

Third, plaintiff argued that the statutory language would not apply here because the nursing home did not act in good faith, but the Court found that the record did not support that argument. The Court stated that accepting a power of attorney for health care signed by a principal who had Down Syndrome was not proof of bad faith, as the capacity of persons with Down Syndrome varies greatly. Further, plaintiff’s less than unequivocal testimony that he told the nursing home during the admission process that he was not sure whether the power of attorney for healthcare was legal was not enough to show a lack of good faith on the nursing home’s part.

Finally, plaintiff argued that “the Owens decision wrongly applied section 34-6-208 to issues involving the enforceability of an arbitration agreement because the statute is limited to protection from civil liability, criminal prosecution, or professional discipline,” but the Court stated that it was “not for this Court to say whether the statute was properly applied in Owens.

Having rejected all of plaintiff’s arguments regarding why Owens should not apply, the Court ruled that “the trial court erred in looking beyond the power of attorney for health care to consider the circumstances surrounding its execution and whether the principal was competent to sign the power of attorney for health care.” The trial court’s finding that the arbitration agreement was unenforceable due to the principal’s incompetence when executing the power of attorney for health care was reversed.

Arbitration agreements are often signed during the process of nursing home admissions, and this case is important for anyone litigating the validity of such an agreement. Based on this holding, if the arbitration agreement was executed by an attorney-in-fact named in a power of attorney for health care or advance directive that complies with the HCDA, arguing that the principal lacked capacity to execute the power of attorney for health care is most likely not a viable strategy.

This opinion was released 5.5 months after oral arguments in this case.

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