Arbitration Clauses Are Only As Good As the Signatory’s Power to Bind, Obviously


By: Shaun Daugherty

A name is just a name when it was found on the signature line of an arbitration agreement between a Tift County Georgia nursing home and one of its residents. A U.S. District Judge in the Middle District of Georgia rejected the nursing home’s request to enforce the agreement and move the litigation to arbitration under the Federal Arbitration Act (“FAA”).  Why?  Because the daughter that signed the agreement did not have the power to do so on her mother’s behalf.

A negligence suit1 against the nursing home was filed in state court following the death of the plaintiff’s mother at the facility. The case was removed to federal court and the defendant moved to have the case dismissed and to compel arbitration pursuant to the arbitration agreement that was signed at the time of the admission of the decedent.  The defendant claimed that the FAA applied and preempted state laws that may say otherwise.

The court agreed that the agreement would have been enforceable under the FAA, that is, if it had been a valid agreement. However, in order to determine the validity of the agreement, the court looked to state law first.  Upon the admission of the mother to the nursing home, the daughter signed the admission paperwork that included the arbitration agreement.  Unfortunately for the nursing home, the daughter did not have power of attorney at the time.  In addition, there was no evidence that the mother had given implied authority to the agreement as she was apparently not aware of its existence and was not present when it was signed by the daughter.  These facts led the federal judge to determine that there was no valid or binding agreement between the mother and the facility and the pending litigation remains pending for a potential jury trial.

This could be a costly lesson for this particular facility and should be a valuable example for other long-term care facilities that have implemented arbitration agreements for this very purpose. It seems basic, but it bears repeating, make sure that a person signing an agreement, if not the resident, has the actual power to bind the resident.  Contract law dictates that an enforceable arbitration clause must be valid between the facility and the resident.  If the resident is not the signatory, put a copy of the power of attorney, or other rights-transferring legal document, in the resident’s file.  If there is no such document, get as much evidence of implied authority as possible and follow up often until you get something official in the file.  It could be the evidence that keeps your company out of a courtroom and in front of an arbitrator.

Plaintiffs would prefer to have the case before a jury where sympathy and emotion can be inflamed with strategic evidence presentation, including graphic photographs of the decedent. Indeed, the attorney for the plaintiff in this particular case is quoted as indicating that litigation often leads to fairer outcomes for his clients compared to arbitration.  Reading between the lines, that generally equates to larger jury verdicts versus arbitration awards.  He also indicated that state court allows for more “robust” discovery.  As those of us that have dealt with these cases know, that typically means extensive, expensive discovery requests by the plaintiffs’ counsel in hopes of obtaining some discovery sanction from the court for alleged failure to respond.  Arbitration can be much more focused and streamline the process.  Bottom line, attorneys for injured parties prefer a jury.

The moral of the story is if you want a valid agreement, you must get the right binding signature.

If you have any questions or would like more information, please contact Shaun Daugherty at [email protected].



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