AUTHORITY TO SIGN MANDATORY ADR: KINDRED HOSPITALS LIMITED PARTNERSHIP V. LUTTRELL (COA 7/27/2007)

KINDRED HOSPITALS LIMITED PARTNERSHIP V. LUTTRELL
ALTERNATE DISPUTE RESOLUTION:  ARBITRATION AGREEMENTS; AUTHORITY TO ENTER INTO
2006-CA-000221
PUBLISHED: AFFIRMING
PANEL: KELLER PRESIDING; NICKELL, KNOPF CONCUR
DATE RENDERED: 7/27/2007

Kindred appealed from the circuit court’s order denying their motion to dismiss or in the alternative to stay the circuit court proceedings pending completion of alternative dispute resolution (ADR) proceeding arguing that Susan Luttrell, Administratrix of the Estate of Altha Duncan, (the "estate") signed an ADR agreement binding her mother, Altha Duncan (Duncan) to pursue any disputes with Kindred through ADR proceedings. The estate argues that Susan Luttrell (Luttrell) did not have the authority to enter into that agreement on behalf of Duncan; therefore, the estate is not bound by the agreement.  The COA affirmed the agreement and enforced the mandatory arbitration provision, holding that Luttrell did not have the authority, either actual, apparent, implied, or by statute, to bind her mother Duncan or her estate to the ADR agreement.

Luttrell signed on behalf of her mother Duncan various admissions documents upon entering the nursing home; however, beyond believing that the documents were necessary to admit Duncan to Liberty, Luttrell testified that she did not understand the documents she was signing. Luttrell acknowledged that she should have read the documents but did not do so. Furthermore, Luttrell testified that, even  though she did not believe she would have been able to read the documents, she did not ask anyone to read them to her.  Furthermore, the ADR agreement was not a condition to the admission, Luttrell did not have a POA from her mother, and Luttrell had 30 days thereafter to revoke the mandatory ADR.  Luttrell testified that she did not remember if the admission person (Debra) at the nursing home discussed the nature of the ADR agreement with her, but it was noted that Luttrell’s testimony is directly contradicted by Debra, who testified that she read the entire ADR agreement to Luttrell at the time of Duncan’s admission to Liberty.

The ADR agreement states that determining the extent of permissible discovery is left solely to the discretion of the neutral mediator and/or arbitrator. The ADR agreement does not indicate that discovery is subject to the Civil Rules, which are available to litigants in circuit court and which provide certain ground rules regarding discovery.

The Supreme Court noted that a party aggrieved by a circuit court’s ruling on the applicability of an ADR agreement could pursue relief under CR 65.07 or through the regular appeal process under CR 73. The Supreme Court noted that a party seeking relief pursuant to CR 65.07 has a high burden to meet, i.e. immediate and irreparable injury, loss, or damage pending a final judgment, and that this Court had appropriately denied Kindred’s CR 65.07 motion.

The Supreme Court also held that, although a party could choose which avenue of appeal to follow, it could not pursue one path and, if unsuccessful, pursue the other. Id. at 921. However, since this was a new rule, the Supreme Court held that it would not apply to Kindred and Kindred’s CR 73 appeal could move forward.

Before addressing the issues in this case, the COA reviewed the law in Kentucky on arbitration and authority:

Kentucky law generally favors the enforcement of arbitration agreements, and “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .”  However, "the existence of a valid arbitration agreement as a threshold matter must first be resolved by the court."  ADR agreements are "valid, enforceable, and irrevocable, save upon such grounds as exist at law for the revocation of any contract." KRS 417.050. With these legal principles in mind, we will address the primary issue of whether there was a valid and enforceable ADR agreement. “[O]rdinary principles of contract and agency determine which parties are bound by an agreement to arbitrate.”   It is well-established in Kentucky that “[a]gency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”   

A person can grant actual authority to an agent by way of a written document such as a power of attorney, and Kindred next argues that Luttrell, when she advised Debra that she was authorized to sign the admissions for Duncan, cloaked herself with the implied or apparent authority to do so.  Implied authority is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.  Apparent authority on the other hand 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.

The COA concluded there can be no serious argument that signing an ADR agreement is necessary to carrying out the actual limited duties Luttrell had, holding that Luttrell did not have implied authority to sign the ADR agreement

Kindred argues that the assertion by Luttrell that she had the authority to sign documents on her mother’s behalf have Luttrell the apparent authority to do so. However, it is the authority the agent is held out by the principal as having that constitutes apparent authority and the agent cannot create apparent authority, absent some affirmation by the principle, simply by holding herself out as having it. Therefore,  Luttrell did not have apparent authority to sign the ADR agreement on behalf of Duncan.

The ADR agreement does not involve "health care decisions" as defined by KRS 311.621(8). It involves what method parties to the agreement can use to resolve disputes. It does not involve medical procedures, judgments, or interventions. Therefore, KRS 311.631, in and of itself, does not provide any authority for Luttrell to bind Duncan to the ADR agreement.

The COA held that Luttrell did not have the authority, either actual, apparent, implied, or by statute, to bind Duncan or her estate to the ADR agreement.

By Michael Stevens

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