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.

Have you heard of the “summer slide“?  It’s the name for how students forget information they learned during the school year over summer vacation, but it’s equally apt for grown ups.  I definitely feel a little less smart when I am reading vampire novels by the pool in 95 degree heat.

Anyhow, Arbitration Nation to the rescue.  We are here to ensure no one loses their sharpness on the Federal Arbitration Act over the summer.  Today’s reminder: the general rule is that an arbitration agreement can only be enforced by the parties to that agreement.  And how better to timely bring that lesson to life than with an international pop star and a World Cup contest?!

Before the last World Cup, Sony sponsored a song-writing contest.  It invited entrants to submit an original song and music video, with a promise that the winning composition would be on the official World Cup Album.  (Didn’t know there was such a thing?  Check out the songs.)  The plaintiff in this case submitted his song, but did not win.  About two years later, Ricky Martin (who had been involved with the World Cup contest) released the song “Vida.”  Plaintiff alleged that the “Vida” music video was similar to plaintiff’s contest video and violated federal copyright/trademark laws.

In response, Ricky Martin moved to compel arbitration.  He relied on the arbitration agreement in the contest rules.  The district court granted his motion, noting that Martin was a third-party beneficiary and referenced in many parts of the contest terms.  On appeal, however, the First Circuit reversed, finding Ricky Martin was a non-signatory who did not fit any exception to the general rule.  Cortes-Ramos v. Martin-Morales, 2018 WL 3134601 (1st Cir. June 27, 2018). In finding no clarity that the contracting parties intended to make the singer a third-party beneficiary, the appellate court focused on two things: the carve-out language in the arbitration agreement which implied that the only parties were the entrants and the co-sponsors; and references to Martin in other parts of the contest rules, but not in the arbitration agreement (suggesting the drafters knew how to reference him when they wanted to).

Nobody Wants To Be Lonely, of course, so let’s be sure to point out that other non-signatories have lost bids to compel arbitration recently:

  • In Olshan Foundation Repair Company of Jackson, LLC v. Moore, 2018 WL 3153353 (Miss. June 28, 2018), a contractor lost its effort to compel arbitration with the daughter of its customers.  The contract was between the contactor and the parents to repair the foundation of the parents’ home.  But the adult daughter also sued the contractor for her emotional distress after the repairs went awry.  The court found she was not a third-party or direct beneficiary of the contract and that estoppel was not appropriate because the daughter’s claims did not rely on the terms of the contract.
  • In Jody James Farms v. The Altman Group, Inc., 2018 WL 2168306 (Tex. May 11, 2018), an insurance agency lost its effort to prove that the arbitration agreement in the insurance policy between the insured and insurer also covered the independent agent.  The court began by finding that incorporating the AAA rules does *not* show a clear and unmistakable intent to arbitrate arbitrability (unlike this 8th Cir. case and most others), so that the court did not have to defer to the jurisdictional ruling already made by the arbitrator.  On the merits, the court found that the insurance policy treated arbitration as only between the insured and insurer, and that the insurance agent also did not prove application of the exceptions for agency (!), third-party beneficiary, or estoppel.
  • In Huckaba v. Ref-Chem, L.P., 2018 WL 2921137 (5th Cir. June 11, 2018), an employer lost its effort to compel arbitration of a former employee’s claims.  In a wake up call for employers everywhere, the employer lost because it did not counter-sign the employment agreement.  The court found that under Texas law, the parties intended not to be bound unless both parties signed the agreement.  They demonstrated that intent by: including a signature block for the employer, noting that “by signing this agreement the parties are giving up any right they may have to sue each other,” and requiring any modifications be signed by all parties.

Okay, today’s refresher course is complete.  Go back to your summer fun.