May 2, 2014
Most—if not all—nursing homes require that the resident sign a residential agreement before the nursing home admits the resident. Sometimes these agreements merely set forth the resident’s financial obligation for placement in the home. Lately, however, there is an emerging trend for nursing homes to place arbitration clauses in their residential agreements. These clauses prohibit the resident from suing the nursing home in court and, instead, require the resident to submit any claim to binding arbitration.
If the resident or the resident’s family files a lawsuit against the nursing home, the nursing home will file a motion to compel arbitration. Although the courts have expressed a favorable view of arbitration, they have also held that general contract law principles govern the enforceability of arbitration agreements. The courts will compel a party to arbitration if that party has not agreed to do so.  And a party to an arbitration agreement cannot enforce the agreement’s terms against a person who is not a party to the agreement. Although a lawyer may have other compelling arguments against the enforceability of the arbitration agreement, the lawyer should first determine who signed the agreement and whether or not that person had the legal capacity and authority to sign it.
Normally, either the resident or the resident’s spouse or family member will sign the arbitration agreement. This article will outline certain arguments that may help a lawyer defeat the nursing home’s motion to compel arbitration when either the resident or the resident’s family member has signed an arbitration agreement.
When the resident signs the residential agreement or the arbitration agreement, the lawyer should determine whether or not the resident had the mental capacity to sign his or her own contracts. If a court had issued an order declaring the resident legally incompetent and had appointed a guardian for him or her then the lawyer may argue that the arbitration agreement is invalid because the resident did not have the mental capacity to sign it. Furthermore, in the context of wrongful death cases, many states have held that a resident’s decision to arbitrate his or her personal injury claims does not apply to the resident’s heir’s wrongful death claims. These courts have held that a resident’s decision to arbitrate his or her claims does not require the resident’s heir to arbitrate their wrongful death claim because the wrongful death claim is a new and independent action that is distinct from the resident’s personal injury claim. These courts, therefore, will not impute the resident’s waiver of his or her right to a jury trial to the wrongful death heir.
In many situations, however, the resident will not sign the agreement. Instead, the resident’s spouse or family member will check the resident into the home and sign the necessary paperwork for his or her admission. In this situation, the spouse or family will sign the spouse’s or family member’s name on the arbitration agreement. The signature line on the agreement usually states that the person signing is the resident’s personal representative.
A majority of courts have held that a person’s signature as another person’s legal representative is not sufficient to establish that the person was actually acting in a legal representative capacity for the resident. Rather, that person is a legal representative only if the law or court confers that status to him or her. Thus, these courts have held that a signor’s signature on an arbitration agreement as the resident’s representative will bind the resident only when the nursing home establishes that the signor had the resident’s or the court’s authority to bind the resident to the agreement.
The court looks to the law of agency to determine whether or not the signor had the authority to bind the resident to an arbitration agreement. Agency is the fiduciary relationship that results when one person—the principal—gives authority to another person—the agent—to act on the principal’s behalf and subject to the principal’s control. A principal may vest an agent with actual authority or apparent authority. The courts do not presume that an agency relationship exists between two people and the party alleging that an agency relationship exists has the burden to establish that relationship.
1. The lawyer should determine whether or not the signor had actual authority to sign the arbitration agreement
A principal gives actual authority to his or her agent when the principal consents to the agent’s actions and the agent acts in accordance with the principal’s commands. An agent’s actual authority may be express or implied. An agent has express authority when the principal gives the agent certain orders to perform. A principal may grant express authority to his or her agent in a written contract or by executing a durable power of attorney. The court may also grant express authority to a person to act as another person’s agent by granting that person guardianship over the principal. An agent has actual implied authority to take actions that are incidental and necessary to carry out the agent’s express authority.
The lawyer should first note that the majority of states have concluded that, without additional evidence, a marital relationship or family relationship is not sufficient to establish that the signor was an agent for the resident. Thus, the nursing home will have to identify additional evidence besides the signor’s relationship to the resident to prove that the signor was the resident’s agent.
The lawyer should determine whether or not the court had appointed the signor as the resident’s guardian or whether or not the resident had created a durable power of attorney with the spouse or family member. If the court has appointed the signor as the resident’s guardian then the signor may in fact have the authority to bind the resident to an arbitration agreement. But, the lawyer should note that a guardian or durable power of attorney does not always have the authority to sign an arbitration agreement.
For example, a durable power of attorney contract may authorize the spouse to make health care decisions for the principal. But, the agent’s authority to make health care decisions does not necessarily mean that the agent had the authority to sign an arbitration agreement. Some courts have held that the authority to make health care decision does not mean that the person has the authority to waive a person’s right to a jury trial. Thus, the lawyer should review the guardianship order or durable power of attorney contract to determine the scope of the agent’s authority. If the document that grants authority to the agent limits the agent’s authority to making health decisions for the principal and does not give authority to the agent to waive the principal’s constitutional rights then the lawyer may prevent the nursing home from enforcing its arbitration agreement.
Of course, some courts have held that an agent’s authority to make health decisions also includes the authority to sign a nursing home’s arbitration agreement. Some of these courts, however, have held that a person’s authority to make health care decisions means that he or she has the right to sign a nursing home’s arbitration agreement only when the nursing home conditions the resident’s admission on signing the arbitration agreement. These courts believe that the decision to sign an arbitration agreement is not a health care decision if the resident may receive the health care at the nursing home without signing the arbitration agreement. In that case, the decision to sign the arbitration agreement concerns only the resident’s legal rights. But, if the nursing home conditions the resident’s admission on signing the arbitration agreement then the decision to sign the agreement is a health care decision. In that case, the decision to sign the arbitration agreement is really a decision about whether to receive health care at that specific facility or from a facility that does not require the resident to arbitrate his or her claims. The lawyer, therefore, should review the nursing home’s residential agreement to determine whether or not the arbitration agreement was optional.
2. Once the lawyer determines that the signor did not have actual authority, the lawyer should determine whether or not the agent had apparent authority to sign the arbitration agreement
An agent has apparent authority when the principal’s acts or representations lead a third party to believe that the principal has conferred authority to the agent. To establish apparent authority, a party must show, among other things, that the principal’s actions or conduct manifest the principal’s consent to the agent’s action or the principal knowingly permitted the agent to assume the exercise of such authority.
A principal typically creates apparent authority in three specific ways. First, the principal can create apparent authority by direct statements that lead the third party to believe that the agent has authority to act. Second, the principal can create the apparent authority by allowing an agent to occupy a position, which according to custom, carries that type of authority. Third, the principal can create the appearance of authority by “prior acts.” By allowing an agent to carry out prior similar transactions, a principal creates the appearance that the agent is authorized to carry out such acts in the future.
When litigating this issue, the lawyer should make sure that the court and the parties keep the focus on the principal’s actions that created the apparent authority. The nursing home will often argue that the agent created the appearance of his or her authority be signing the agreement on the signature line for the resident’s personal representative. The law, however, does not allow the agent to create apparent authority through his or her actions. Thus, the lawyer should argue that the agent’s words or actions are irrelevant to the court’s determination of apparent authority.
The lawyer should also determine whether or not the resident was present when the resident’s spouse or family member signed the agreement and, if the resident was not present, whether or not the signor informed the resident that the admission paperwork included an arbitration agreement. If the resident was not present when the spouse or family member signed the agreement and the signor did not inform the resident of the agreement then it will be difficult for the nursing home to prove that the resident gave the appearance that the spouse or family member had apparent authority.
3. The lawyer should also address the nursing home’s argument that the court should compel arbitration because the resident is a third party beneficiary of the arbitration agreement
A third-party beneficiary is a person who is not privy to a contract but who may maintain an action for the breach of the contract as long as the third-party beneficiary establishes that the parties contracted for the third party’s benefit. A lawyer has at least two arguments on why the nursing home cannot enforce the contract against the resident on the basis that the resident is a third-party beneficiary. First, before the nursing home can enforce the contract, the nursing home must establish that there is a contract to enforce. But, if the resident never signed the contract and his or her agent did not sign it on his or her behalf then the nursing home has no contract to enforce. A resident cannot be a third-party beneficiary of a non-existent agreement.
Second, even if the agreement did exist, the nursing home cannot enforce the contract against the resident. A third-party beneficiary is a person who sues to enforce the contract. The courts hold that the third-party beneficiary is bound by the arbitration agreement in the contract because he or she takes the contract subject to the same defenses that existed between the two signatories of the contract. A third-party beneficiary cannot be required to arbitrate a claim unless the third party attempts to enforce the contract containing the arbitration agreement. In a nursing home personal injury case, the resident is enforcing the residential agreement or the arbitration agreement. Rather, the resident’s cause of action is a tort action for common law negligence or violations of statutory regulations.
Many nursing home residential agreements include arbitration agreements. Although a lawyer may have other compelling arguments against the enforceability of the arbitration agreement, the lawyer should take the time to determine who signed the agreement and whether or not that person had the authority to do so. If the resident lacked the capacity to sign the agreement or the resident’s agent lacked authority to sign the agreement then the lawyer may be able to defeat the nursing home’s motion to compel arbitration.
 Tim Dollar is the founding partner of the law firm of Dollar, Burns & Becker, LC in Kansas City, MO (http://www.dollar-law.com/). Tim received his undergraduate degree from the University of Kansas and his law degree from the University of Missouri-Kansas City. The emphasis in Tim's practice is in the area of tractor-trailer accidents, nursing home abuse, insurance bad faith claims, as well as many other areas of general personal injury. You can contact Tim at 816-876-2600 or at email@example.com.
 Tom Hershewe received his law degree from the University of Missouri–Columbia in 2005. While in law school, Tom was a member of the Journal of Dispute Resolution and was inducted into the Order of the Coif. After graduation from law school, Tom clerked at the Missouri Court of Appeals, Western District. Tom now works as an associate at Dollar Burns & Becker, L.C. where he practices in the areas of personal injury litigation, wrongful death, tractor-trailer accidents, motor vehicular accidents, insurance bad faith claims and daycare abuse cases. You can contact Tom at 816-876-2600 or at firstname.lastname@example.org.
 Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 427-28 (Mo. banc 2003). The author relies primarily on Missouri law for the general proposition regarding arbitration and agency law. The author believes that Missouri law is consistent with the law in other states. Of course, a lawyer should verify that his or her state follows the same general propositions as Missouri.
 Greenwood v. Sherfield, 895 S.W.2d 169, 174 (Mo. App. 1995).
 Prickett v. Lucy Lee Hospital, Inc., 986 S.W.2d 947, 948 (Mo. App. 1999).
 Christian Health Care of Springfield W. Park, Inc. v. Little, 145 S.W.3d 44, 52 (Mo. App. 2004).
 Lawrence v. Beverly Manor, 273 S.W.3d 525, 527 (Mo. banc 2009).
 Curto v. Illini Manors, Inc., 940 N.E.2d 229, 234 (Ill. App. 2010) (listing cases from Maryland, Missouri, Nebraska, Mississippi, Kentucky, California, Georgia, and Louisiana); Ward v. Nat'l Healthcare Corp., 275 S.W.3d 236, 237 (Mo. banc 2009).
 Curto v. Illini Manors, Inc., 940 N.E.2d at 234.
 Dickey Co., Inc. v. Kanan, 537 S.W.2d 430, 434 (Mo. App. 1976).
 Hardcore Concrete, LLC v. Fortner Ins. Services, Inc., 220 S.W.3d at 354-55.
 Curto, 940 N.E.2d at 232.
 Id. at 233.
 Hardcore Concrete, 220 S.W.3d at 355.
 Curto, 940 N.E.2d at 232.
 Blankfeld v. Richmond Health Care, Inc., 902 So.2d 296, 301 (Fla. Ct. App. 2005); Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 352 (Tex. Ct. App. 2007).
 Dickerson v. Longoria, 995 A.2d 721, 737-39 (Md. Ct. App. 2010); Life Care Ctrs. of Am. v. Smith, 681 S.E.2d 182, 185 (GA. Ct. App. 2009).
 Lynch v. Helm Plumbing & Elec. Contractors, Inc., 108 S.W.3d 657, 660 (Mo. App. 2002).
 Earl v. St. Louis Univ., 875 S.W.2d 234, 238 (Mo. App. 1994).
 Curto, 940 N.E.2d at 233.
 L.A.C. ex rel. D.C. v. Ward Parkway Shopping Center Co., L.P., 75 S.W.3d 247, 260 (Mo. banc 2002).
 Dickerson, 995 A.2d at 741-42.