Arbitration agreement found unenforceable when signed by person not having authority in nursing home admission and apparent authority nor heath care surrogacy rendered person with authority: MT. HOLLY NURSING CENTER V. CROWDUS (COA 7/25/2008)

DATE RENDERED: 7/25/2008

This case evolves around a mandatory arbitration agreement signed at the time of
a nursing home admission, and the nursing home seeking to enforce that
arbitration agreement for claims of negligence against the home by the
resident.  However, Mary McGauhey was the resident, and Karen Crowdus was
her health care surrogate but not her power of attorney.  At the time of
the nursing home admission, Crowdus was asked and signed "admission
papers"; Crowdus testified that no one from Mt. Holly asked her if she had a power of attorney, if she had been appointed McGaughey’s guardian, or if she had the authority to sign documents on behalf of McGaughey. She was simply asked if she could sign the admission documents.

As noted above, the circuit court denied Mt. Holly’s motion to compel arbitration.
Mt. Holly argued before the circuit court and the COA that Crowdus had the apparent authority to bind McGaughey to the arbitration agreements; that McGaughey was a third-party beneficiary of those agreements and is therefore estopped from challenging their enforceability; and that Crowdus, who currently has a power of attorney from McGaughey, should be estopped from denying the validity of the arbitration agreements.

Crowdus argues that the arbitration agreements are not binding on McGaughey because McGaughey did not sign them; Crowdus was not authorized to sign the agreements on McGaughey’s behalf; McGaughey was not a third-party beneficiary to the arbitration agreements; and the arbitration agreements are not enforceable because they are unconscionable and/or were obtained through fraud.

The existence of a valid arbitration agreement as a threshold matter must first be resolved by the
court.  The court must determine whether an arbitration agreement is “valid, enforceable, and irrevocable, [based] upon such grounds as exist at law for the revocation of any contract.”

Apparent authority “is not actual authority but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely.
Mt. Holly argues that McGaughey cloaked Crowdus with apparent authority when McGaughey permitted Crowdus: (1) to sign admission documents at Jewish Hospital in October of 2005; (2) to sign admission documents at Mt. Holly in October of 2005; and (3) to sign admission documents at Mt. Holly in March of 2006.

In summary, even if the evidence supported Mt. Holly’s contention that Crowdus signed documents to admit McGaughey to Jewish Hospital, there is no evidence that anyone at Mt. Holly knew anything regarding the circumstances of that admission. Therefore, Mt. Holly could not have determined that Crowdus had apparent authority to act on McGaughey’s behalf from her admission to Jewish Hospital.

There is no evidence that Mt. Holly’s admissions officer obtained a power of attorney from Crowdus or any other documentation that would have authorized Crowdus to enter into the arbitration agreement on behalf of McGaughey. Furthermore, there is no evidence that
the admissions officer actually spoke with McGaughey as part of the admission process.

The COA held that Crowdus did not have apparent authority to sign the arbitration agreements on behalf of
McGaughey; arbitration agreements are not valid third-party beneficiary contracts.
Furthermore, there is no dispute that the resident McGaughey was both physically and mentally competent to sign the agreements. Therefore, by the express terms of the agreements, McGaughey’s signature was necessary. If McGaughey had been incompetent, her signature would not have been necessary; however, that is not the case.

Because McGaughey was competent, Crowdus should not have been asked to sign the agreements and her signature could not bind McGaughey to the agreements.

Kentucky’s statute only provides that a health care surrogate may decide whether to consent to or withdraw consent for treatment and/or intervention. KRS 311.621(8).

For the reasons set forth above, the COA held that Crowdus did not have the authority to sign the arbitration agreements on behalf of
McGaughey and that  because the agreements were not properly executed, they were not enforceable, and McGaughey could not have been a third-party beneficiary.

Digested by Michael Stevens

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