Arbitration Agreement Unenforceable Without Valid Contract

Frequently, nursing homes and assisted living facilities will hide arbirtation agreements in their admissions agreement. The purpose is to prevent you from seeking justice in front of a jury if they hurt or kill you or your loved one. It is important to read those documents carefully and either cross-out or refuse to sign those agreements unless you want to risk having a bean-counter decide how much justice your family deserves.

On May 19, 2023, the Kentucky Court of Appeals decided Paducah Center for Health and Rehabilitation v. Penix. Although this is a Kentucky case, it is worth reviewing because contract principles allowed the Court to reject a motion to compel arbitration.

Terry Penix was a resident at the Paducah Center for approximately one year prior to his death in March 2021. He went home on hospice and, after his death, his estate filed an ation for wrongful death, negligence, loss of consortium, and punitive damages. The nursing home filed a motion to dismiss and to compel arbitration. The trial court denied both motions.

When Mr. Penix was admitted to the nursing home, his wife, Teresa, signed the Admissions Agreement. The agreement included varios defintions, including a defintion for “Sponsor.” Teresa signed the agreement and, where it requested that she state her relation, she wrote “wife.” Sponsor was defined as someone who was a conservator or who held a power of attorney.

The 12 page agreement included a section entitled “disputes.” In that section, residents are asked to agree to resolve all disputes exclusively through mandatory mediation, followed by binding arbitration. The language from the agreement is on page four of the decision.

The Kentucky Court found that arbitration agreement, being contracts, are subject to the principles governing contract law. Although both federal and State law favor arbitration (or at least do not disfavor it), both require the existence of a valid contract for arbitration can be compelled. Nothing in the Federal Arbitration Act, 9 U.S.C.§§ 1-402, modifies basic principles of state contract law.

In reviewing the agreement, the trial court notied that although Teresa was Terry’s agent under a power of attorney and health care advance directive, the issue was whether she signed the agreement in that capacity. The trial court found she did not, and the Court of Appeals agreed. Even where Teresa signed as sponsor, she wrote “Terry L. Penix,” not her own name. Teresa argued that she never signed the agreement in her capacity as attorney-in-fact; she signed as wife. The Court cited Cambridge Place Group, LLC v. Mundy, 617 S.W.3d 838, 840 (Ky. App. 2021), as a strikingly similar case. There, the Court held that an arbitration agreement was invlid because the resident’s spouse wrote “wife” above a line entitled “Legal Representative Capacity.”

The Court affirmed the trial court, concluding:

Based upon general contract principles and upon ample authorities upholding a resident’s fundamental right to a jury trial, unless clearly released by a power of attorney granting full authority to do so, the trial court properly applied the law in finding that Stonecreek did not meet its burden of  establishing a valid, enforceable agreement.