A power of attorney must expressly refer to arbitration agreements before the attorney-in-fact can bind its principal to an arbitration agreement.
Extendicare Homes, Inc. vs. Whisman, Nos. 2013-SC-000426-1 & 2013-SC-000430-1, 478 S.W.3d 306 (Ky., 9/24/15, reh. den. 2/18/16).
Attorneys-in-Fact Abjure Arbitration
This decision by Kentucky’s top Court has made it to the front page. In it, the Kentucky Supreme Court affirms an Appellate Court decision, in a consolidated case context, that declines enforcement of an arbitration agreement entered into by an attorney-in-fact. Extendicare Homes, Inc., dba Shady Lawns, together with an affiliated entity, Kindred Nursing Centers, appealed the denial of their motions to compel arbitration. In each of the three cases at bar, nursing home residents, through their relatives and personal representatives, sue for personal injuries and claims for wrongful death. Relatives or other attorneys-in-fact signed the necessary papers for the patients’ admission to the nursing home and, in each case, the agreements contained an arbitration provision. Plaintiffs all claim that they are not obligated to arbitrate, because the decedent was not a signatory to the pre-dispute arbitration agreement. In essence, they assert that the powers of attorney do not extend to a waiver of a trial by jury.
Wrongful Death Claims
In all cases, the circuit court declined enforcement and the Kentucky Court of Appeals affirmed. “The central issue,” the Kentucky Supreme Court writes, in an Opinion that, together with multiple dissents, spans 110 pages, “is whether, based upon the language of the particular power-of-attorney instrument, an arbitration agreement was validly formed between the respective nursing home facility and the resident whose interests were thereby affected.” At the outset, the Court makes a distinction between the easy case of the wrongful death claims and the harder case of the personal injury claims. Wrongful death claims, under applicable law, are not the property of the decedent, but, rather, his or her beneficiaries. Thus, the decedent and, by extension, the attorney-in-fact, have no right to obligate the beneficiaries to arbitrate claims personal to them.
Personal Injury Claims
As to the personal injury claims in each case, the Court asks whether the contracts were validly formed. Contract formation, rather than the enforceability of the pre-dispute arbitration agreement (PDAA), lies at the heart of the Court's analysis, because the power-of-attorney (POA) is the foundational document determining whether the attorney-in-fact was authorized to sign the PDAA. Comparing the “ancient mode of trial by jury” to other fundamental rights guaranteed by the Constitution, and applying state formation-of-contract law, a 4-3 majority of the Kentucky Supreme Court says “No” to enforceability. The Court finds that “the authority to enter into a pre-dispute arbitration agreement was not among the powers granted to [the] respective attorney-in-fact…. Lacking the essential element of assent, we conclude that the arbitration agreements in those cases were never validly formed.”
The Principal’s Intent
What is needed, the Court says, is “clear and convincing manifestation of the principal’s intention” to submit to arbitration. While the power-of-attorney gave the power to “institute or defend suits” concerning the principal’s property rights, it did not extend to signing a PDAA. Why? Waiver of a fundamental Constitutional right must be express and not inferred. “...[B]ecause none of the power-of-attorney instruments involved in these cases provides a manifestation of the principal's intent to delegate that power to his agent, we conclude that the agent was not so authorized, and that the principal's assent to the waiver was never validly obtained.”
(Guest Author George H. Friedman: *The dissenters argue that SCOTUS decisional law should prevail and that the Federal Arbitration Act preempts state laws singling out PDAAs for disparate treatment. The U.S. Supreme Court may ultimately agree. It granted Defendants' petition for certiorari on October 28 (see SAA 2016-41). In Dkt. No. 16-32, sub nom. Kindred Nursing Centers v. Clark, the question presented is: “Whether the FAA preempts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.” **You can go poor in a hurry betting on SCOTUS cases, but our money is on a reversal, even with the current 4-4 Court composition.) (EIC: Mr. Friedman is an expert on arbitration law. He is a principal of George H. Friedman Consulting, a former FINRA Director of Arbitration, Chairman of Arbitration Resolution Services and a SAC Contributing Editor and Editorial Board Member.)
(SLC Ref. No. 2016-41-04)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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