Every time I think the spate of state supreme court opinions about nursing home arbitration surely must be over, another one comes out to prove me wrong. Last week, it was one from Alabama, finding an arbitration agreement was never formed, because the resident lacked capacity and the daughter who signed on his behalf lacked power of attorney.
In Stephan v. Millennium Nursing & Rehab Ctr., 2018 WL 4846501 (Ala. Oct. 5, 2018), the decedent’s estate sued the nursing home for wrongful death. The nursing home moved to compel arbitration. The trial court granted the motion to compel, and the Supreme Court of Alabama reversed.
The decedent’s daughter had signed the admission paperwork in a space provided for “signature of family member responsible for patient.” She did not have power of attorney or any other legal authority to contract in his name. (She also happened to be personal representative of his estate.) In reviewing the record, the court found decedent was incapable of entering into a contract on the date of the admission documents due to his dementia. In addition, the decedent could not have understood the effect of allowing his daughter to agree to arbitrate, so she lacked apparent authority. Furthermore, the daughter was not personally bound to the arbitration clause, and thereby precluded from suing as personal representative, because she signed in her capacity as her father’s relative, not in her own capacity. Therefore, the arbitration agreement never existed and could not be enforced.
One justice dissented, arguing that the daughter essentially fraudulently induced the nursing home to contract.
Here’s the key question: Is this ruling preempted by the FAA, or does it otherwise run afoul of Kindred? I don’t think so. Kindred involved an actual power of attorney document. This case seems to rest on principles that most states would agree with, and would apply generally to contracts of other types. SCOTUS is also unlikely to be interested in this case since Alabama has generally been following federal precepts about arbitration.