MT. HOLLY NURSING CENTER , ET AL. VS. CROWDUS (KAREN)
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RENDERED: JULY 25, 2008; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-001708-MR
MT. HOLLY NURSING CENTER;
BEVERLY HEALTH AND REHABILITATION
SERVICES, INC.; GOLDEN LIVINGCENTER-MT.
HOLLY; GGNSC LOUISVILLE MT. HOLLY, LLC;
BEVERLY ENTERPRISES, INC.; AND
BEVERLY CALIFORNIA CORPORATION,
AKA BEVERLY ENTERPRISES, INC.,
D/B/A HEALTH AND REHABILITATION
SERVICES, INC.
v.
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE MARTIN F. MCDONALD, JUDGE
ACTION NO. 07-CI-003152
KAREN CROWDUS, POWER OF ATTORNEY AND
NEXT FRIEND OF MARY A. MCGAUGHEY
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: COMBS, CHIEF JUDGE; KELLER, JUDGE; HENRY,1 SENIOR
JUDGE.
Senior Judge Michael L. Henry sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
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KELLER, JUDGE: Mt. Holly Nursing Center; Beverly Health and Rehabilitation
Services, Inc.; Golden Livingcenter-Mt. Holly; GGNSC Louisville Mt. Holly,
LLC; Beverly Enterprises, Inc.; and Beverly California Corporation, AKA
Beverly Enterprises, Inc., D/B/A Health and Rehabilitation Services, Inc.
(hereinafter collectively referred to as Mt. Holly) appeal from the Jefferson Circuit
Court’s order denying their motion to enforce an arbitration agreement. Mt. Holly
argues that Karen Crowdus (Crowdus) signed an arbitration agreement on behalf of
and as an agent of Mary A. McGaughey (McGaughey) and that McGaughey is
bound by that agreement. Crowdus argues that she was not McGaughey’s agent
when she signed the arbitration agreement and that, for a number of reasons, the
arbitration agreement is not valid and therefore not enforceable. For the reasons
set forth below, we affirm.
FACTS
The parties do not dispute the underlying facts. Crowdus is a friend of
McGaughey and, although not related to McGaughey, Crowdus referred to
McGaughey as her aunt. McGaughey, who lived with her elderly mother, suffered
from physical problems related to a cervical fusion, diabetes, arthritis, and
hypertension. In 1999, Crowdus began helping McGaughey by running errands for
her and driving her to her physician’s appointments and to the store. At that time,
Crowdus did not assist McGaughey with any of her business affairs, and she had
no knowledge of McGaughey’s finances.
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In February of 2001, McGaughey designated Crowdus as her health
care surrogate. McGaughey and Crowdus discussed whether McGaughey should
provide Crowdus with a general power of attorney; however, they decided that was
not necessary.
In October of 2005, McGaughey’s mother telephoned Crowdus and
said that McGaughey was “sick.” Crowdus told McGaughey’s mother to call an
ambulance, which she did. Crowdus then went to McGaughey’s house to get
McGaughey’s insurance cards and to Jewish Hospital to help McGaughey “sign
in.” During her deposition, Crowdus could not remember if she signed any
documents related to McGaughey’s admission to Jewish Hospital. However,
Crowdus did remember that hospital personnel advised her that McGaughey would
need care in a nursing home when she was discharged. To assist with that
placement, hospital personnel provided Crowdus with the names of several nursing
homes. Crowdus discussed the options with McGaughey, and they chose Mt.
Holly because it was the one closest to Crowdus’s home.
On October 31, 2005, McGaughey was discharged from Jewish
Hospital and transported to Mt. Holly by ambulance. When Crowdus arrived at
Mt. Holly, which was sometime after McGaughey, a Mt. Holly employee asked
Crowdus if she could sign “admission papers” for McGaughey. According to
Crowdus’s testimony, no one from Mt. Holly explained to her the various
documents she was signing. Crowdus did not read the documents, which she
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believed were “admission papers and . . . to bill [McGaughey’s] insurance . . . .”
Crowdus simply flipped through the documents and signed where indicated.
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.
In January of 2006, McGaughey left Mt. Holly and returned home.
However, in March of 2006, McGaughey was readmitted to Mt. Holly. Crowdus
testified that she again signed the “admission papers.” As with the initial
admission, Crowdus testified that no one explained to her what the documents
were, and she did not read them.
Maggie Stearman (Stearman), Director of Admissions at Mt. Holly,
testified that, as part of her job duties, she assists patients and family members with
the completion of documents necessary to effectuate admission to Mt. Holly.
Stearman is also required to explain those documents.
Stearman did not remember going through the admission process with
either Crowdus or McGaughey. However, she testified that she generally asks the
patient to review and sign the admission documents. If the patient is unable or
unwilling to do so, Stearman asks the patient to provide the name of someone who
is authorized to sign the admission documents. Stearman then reviews the
documents with that person, and obtains that person’s signature. To determine if a
person is authorized to sign on behalf of a patient, Stearman asks “if she is the
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person who signs for” the patient. Generally, Stearman asks to see a power of
attorney and, if provided, keeps a copy for the patient’s file.
As to the arbitration agreement, Stearman testified that she generally
put[s] [it] in front of the family so that they can read it
and understand it. [She] tell[s] them that it is an
arbitration agreement, that if there’s ever any problems or
concerns, they can always come to the director of nursing
or executive director. But if it cannot be resolved, they
are agreeing to go to arbitration instead of filing a
lawsuit.
Jennifer Willis Price (Price), Clinical Liaison for Mt. Holly, testified
that she assumed the duties of director of admissions in the spring of 2006, when
Stearman was on maternity leave. Price handled McGaughey’s admission in
March of 2006; however, like Stearman, Price could not remember it.
Price testified that, like Stearman, she generally attempts to get the
patient to complete the admission documents. However, if the patient will not or
cannot do so, Price will look to someone else. Price did not remember if
McGaughey had authorized Crowdus to sign the admission documents; however,
Price does not believe that Crowdus had a power of attorney when she signed the
admission documents on behalf of McGaughey.
When reviewing the admission documents, Price usually “give[s] a
general explanation of what the document is and then ask[s] them to read it and
then to sign.” Price explains the arbitration agreement as
an agreement between the facility and patient that if there
is a problem or they feel like there is something that has
been done wrong, that they have the right to try to solve
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the problem with the facility. And then if the problem
cannot be solved, that they would go to an arbitration
committee or person without having to obtain – either
party obtain lawyers or go into any kind of court or trial.
Finally, Price reviewed the nursing notes dated near McGaughey’s
two admissions to Mt. Holly. Those notes indicate that McGaughey was alert and
oriented, could understand others, and could make herself understood.
As noted above, the circuit court denied Mt. Holly’s motion to compel
arbitration. Before us, as they did before the circuit court, Mt. Holly argues 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.
STANDARD OF REVIEW
The issues raised by Mt. Holly on appeal are primarily issues of law;
therefore, our review is de novo. Carroll v. Meredith, 59 S.W.3d 484, 489 (Ky.
App. 2001); see also A & A Mechanical, Inc. v. Thermal Equipment Sales, Inc.,
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998 S.W.2d 505, 509 (Ky. App. 1999); Aubrey v. Office of Attorney General, 994
S.W.2d 516, 518-19 (Ky. App. 1998); and Cinelli v. Ward, 997 S.W.2d 474, 476
(Ky. App. 1998).
ANALYSIS
At the outset, we note that Kentucky law generally favors the
enforcement of arbitration agreements. Kodak Mining Co. v. Carrs Fork Corp.,
669 S.W.2d 917, 919 (Ky. 1984). “[A]ny doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration . . . .” Moses H. Cone
Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-5, 103 S.Ct. 927, 941, 74
L.Ed.2d 765 (1983). However, “the existence of a valid arbitration agreement as a
threshold matter must first be resolved by the court.” General Steel Corp. v.
Collins, 196 S.W.3d 18, 20 (Ky. App. 2006) (emphasis omitted). 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.”
Kentucky Revised Statutes (KRS) 417.050. Guided by the preceding, we will
address whether the arbitration agreements signed by Crowdus are valid and
enforceable against McGaughey.
A. Apparent Agency
Mt. Holly argues that Crowdus had the apparent authority to sign the
arbitration agreements on behalf of McGaughey and that it was entitled to rely on
Crowdus’s signature as binding on McGaughey. Apparent authority “is not actual
authority but is the authority the agent is held out by the principal as possessing. It
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is a matter of appearances on which third parties come to rely. Estell v.
Barrickman, [571 S.W.2d 650 (Ky. App. 1978)].” Mill Street Church of Christ v.
Hogan, 785 S.W.2d 263, 267 (Ky. App. 1990). 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. We will address the circumstances of
each admission in chronological order.
Mt. Holly states that Crowdus testified that she signed documents on
behalf of McGaughey when McGaughey was admitted to Jewish Hospital.
Crowdus did testify that she went to Jewish Hospital to “sign [McGaughey] in.”
However, when asked if she recalled if she had signed any documents, Crowdus
testified as follows: “I don’t – I really don’t remember. I could have signed her in.
I – I know I just had to present her insurance cards. I don’t remember if I signed
anything.” This is the only testimony regarding McGaughey’s admission to Jewish
Hospital, and Mt. Holly has not directed us to any documents from Jewish Hospital
that contain Crowdus’s signature. Furthermore, to the extent any such documents
exist, there is nothing in the record indicating that anyone at Mt. Holly possessed
or had access to those documents.
Mt. Holly also argues that Crowdus, after consulting with Jewish
Hospital personnel, chose Mt. Holly for McGaughey. However, Crowdus testified
that, while she did consult with Jewish Hospital personnel, both she and
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McGaughey chose Mt. Holly. Furthermore, there is nothing in the record showing
that anyone at Mt. Holly knew these facts prior to this litigation.
Finally, as to the Jewish Hospital admission, Mt. Holly argues that
Crowdus admitted that personnel from the hospital came to her regarding the
nursing home placement because McGaughey “may have told them to ask me.”
However, that speculation by Crowdus came after she testified that she did not
know why hospital personnel came to her. Furthermore, there is no evidence that
anyone at Mt. Holly knew of or could have known of the alleged conversation
between McGaughey and Jewish Hospital personnel.
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.
As to McGaughey’s October 2005 admission to Mt. Holly, Stearman,
the admissions director at the time, testified that she usually asks the patient to sign
the admission documents. If the patient will not or cannot sign the documents,
then Stearman asks who is authorized to sign on behalf of the patient and obtains
the necessary signatures from that person. However, Stearman could not
remember anything about McGaughey’s admission and could not state that she
spoke with McGaughey. The only testimony is from Crowdus, who testified that
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Stearman asked if she could sign the admission documents for McGaughey.
According to Crowdus, Stearman did not ask for a power of attorney or otherwise
attempt to determine what authority Crowdus had to sign documents on
McGaughey’s behalf. Therefore, as with McGaughey’s admission to Jewish
Hospital, there is no evidence that McGaughey did anything to hold Crowdus out
as having any authority to act on her behalf.
As to McGaughey’s March 2006 admission to Mt. Holly, Price, the
acting director of admissions, testified that she usually asked patients to sign the
admission documents. If a patient would not or could not sign the documents, then
Price would ask who was authorized to sign on behalf of the patient and obtain the
necessary signatures from that person. However, Price could not remember
anything about McGaughey’s admission and could not remember if she spoke with
McGaughey.
Crowdus testified that she was presented with documents to sign,
which she did. There is no evidence that Price 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 Price actually spoke with McGaughey as part of the admission
process. As with McGaughey’s admission to Jewish Hospital and her October
2005 admission to Mt. Holly, there is no evidence that McGaughey did anything in
March 2006 to hold Crowdus out as having any authority to act on her behalf.
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Finally, Mt. Holly argues that McGaughey’s acquiescence to
Crowdus’s signing of the arbitration agreement in October 2005, cloaked Crowdus
with the apparent authority to sign the arbitration agreement in March 2006.
However, there is no evidence that McGaughey ever saw any of the documents
Crowdus signed in October 2005. Therefore, there is no evidence that McGaughey
acquiesced to the waiver of her right to a jury trial by Crowdus.
For the foregoing reasons, we hold that Crowdus did not have
apparent authority to sign the arbitration agreements on behalf of McGaughey.
B. Third-Party Beneficiary
Mt. Holly argues that McGaughey was a third-party beneficiary to the
admission and arbitration agreements and is therefore estopped from denying the
validity of the arbitration agreements. Crowdus argues that the arbitration
agreements are not valid third-party beneficiary contracts and that the case law
cited by Mt. Holly does not apply. For the reasons set forth below, we agree with
Crowdus.
As noted by Crowdus, before we can determine whether McGaughey
was a third-party beneficiary to the arbitration agreements, we must determine if
the arbitration agreements were valid and enforceable. “A written agreement to
submit any existing controversy to arbitration or a provision in written contract to
submit to arbitration any controversy thereafter arising between the parties is valid,
enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract.” KRS 417.050. To determine if an arbitration
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agreement is enforceable, we rely on “rudimentary principles governing contract
law.” General Steel Corp. v. Collins, 196 S.W.3d 18, 20 (Ky. App. 2006). Where
there is no ambiguity, a contract is to be strictly enforced according to its terms,
which are to be interpreted by assigning language its ordinary meaning and without
resort to extrinsic evidence. Island Creek Coal Co. v. Wells, 113 S.W.3d 100, 104
(Ky. 2003).
Looking to the present case, we recognize that each arbitration
agreement states that it is to be signed by the patient unless the patient “is unable to
consent or sign . . . because of physical disability or mental incompetence or [if
she] is a minor.” If the patient falls within one of the preceding categories “an
authorized representative” may sign the agreement. Therefore, the proper parties
to the agreements are: (1) the nursing home and (2) the patient, if competent, or the
patient’s authorized representative.
There is no dispute that 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.
Furthermore, even if McGaughey had not been competent to sign the
arbitration agreements, there is no evidence that Crowdus was authorized to sign
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the agreements in McGaughey’s stead. Therefore, we hold that the arbitration
agreements were not valid or enforceable and we need not reach the question of
whether McGaughey was a third-party beneficiary.
We note that the cases cited by Mt. Holly indicating that a third
person can bind a nursing home patient to an arbitration agreement are
distinguishable.
In JP Morgan Chase & Co. v. Conegie, 492 F.3d 596 (5th Cir. 2007),
Conegie was not competent to sign any documents upon her admission to a
Mississippi nursing home. Therefore, Conegie’s mother signed the admission
agreement on her behalf. The admission agreement contained an arbitration
provision, which Conegie sought to invalidate because the admission agreement
lacked her signature. The Fifth Circuit Court of Appeals held that the arbitration
provision in the admission agreement was binding on Conegie. In doing so, the
Court noted that Conegie was incompetent, that Mississippi law provided that
Conegie’s mother was an appropriate person to make health care decisions for
Conegie, and that Conegie’s mother signed the admission agreement on Conegie’s
behalf.
Conegie is distinguishable on three fronts. First, unlike Conegie,
McGaughey was competent upon admission to Mt. Holly. Second, unlike
Conegie’s mother, who signed the admission agreement for Conegie, Crowdus was
not related to McGaughey. Third, Mississippi law states that a heath care surrogate
may make decisions regarding the selection and discharge of health care providers,
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approval or disapproval of diagnostic tests, and directions as to providing or
withdrawing nutrition and hydration. Mississippi Code Annotated 41-41-203(h)
However, 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).
In Alterra Healthcare Corp. v. Estate of Linton, 953 So.2d 574 (Fla.
App. 2007), Linton was suffering from Alzheimer’s disease when admitted to the
nursing home. Her son signed an arbitration agreement on her behalf. When
Linton died, the estate sought to avoid the arbitration agreement. The Florida
Court of Appeals held that the arbitration agreement was enforceable because
Linton was a third-party beneficiary to the agreement.
Linton is distinguishable on two fronts. First, unlike McGaughey,
Linton was not competent to sign the admission documents. Second, unlike herein,
there was a valid agreement from which Linton could benefit.
As to Trinity Mission of Clinton, LLC v. Barber, 2007 WL 2421720
(Miss. App. 2007), the Supreme Court of Mississippi granted Barber’s motion for
discretionary review on March 13, 2008. Therefore, that decision is not final.
In Mariner Healthcare, Inc. v. Hunt, 2005 WL 1711614 (N.D. Miss.
2005), Viola Crigler signed an arbitration agreement on behalf of Hunt. The court
held that the agreement, absent some unconscionable provisions, was valid and
enforceable. However, the court did not set forth whether Hunt was competent or
in what capacity Crigler was acting when she signed the agreement for Hunt. As
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in Hunt, the court in Mariner Healthcare, Inc. v. Weeks, 2006 WL 2056588 (N.D.
Miss. 2006), did not set forth any of the underlying facts concerning Weeks’s
competency or the authority in place for someone to sign on behalf of Weeks.
In Carraway v. Beverly Enterprises Alabama, Inc., 978 So.2d 27 (Ala.
2007), the patient’s brother signed a number of documents prior to her admission
to a nursing home. After her admission, the patient signed a durable power of
attorney naming her brother as her attorney in fact. After the patient’s death, her
brother attempted to abrogate an arbitration agreement. The court determined that
the agreement was enforceable, noting that the evidence indicated that Carraway
approved of her brother’s acting on her behalf. Unlike Carraway, there is no
evidence herein that McGaughey knew that Crowder was acting on her behalf or
that she approved.
Finally, in Ruesga v. Kindred Nursing Centers, L.L.C., 161 P.3d 1253
(Ariz. App. 2007), the patient had suffered a massive stroke and was unresponsive
when admitted to the nursing home. His wife signed the admission documents,
including an arbitration agreement. When the wife later attempted to invalidate the
arbitration agreement, the nursing home argued that she had the authority to waive
her husband’s right to a jury trial. In doing so, the court noted a history of
Ruesga’s wife’s signing documents on his behalf. Furthermore, the court noted
that, because of the marital relationship, the proof required to establish an agency
relationship was not as significant as that required between non-spouses. Clearly,
this differs from the case herein since Crowdus was not married to McGaughey,
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there was not a long history of Crowdus signing documents on behalf of
McGaughey, and McGaughey was competent when Crowdus signed the arbitration
agreements.
C. Estoppel
Because we have determined that the arbitration agreements were not
valid contracts, we do not need to reach the estoppel arguments raised by Mt.
Holly.
CONCLUSION
For the reasons set forth above, we hold that Crowdus did not have the
authority to sign the arbitration agreements on behalf of McGaughey.
Furthermore, because the agreements were not properly executed, they were not
enforceable, and McGaughey could not have been a third-party beneficiary.
Therefore, we affirm.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
A. Courtney Guild, Jr.
Edward L. Schoenbaechler
Louisville, Kentucky
Jacques G. Balette
Houston, Texas
ORAL ARGUMENT FOR
APPELLANT:
Edward L. Schoenbaechler
Louisville, Kentucky
ORAL ARGUMENT FOR
APPELLEE:
Charles Hessel
Waller, Texas
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