Arbitration Agreement Enforced; Trial Court erred in looking beyond HCAD to determine competency

In Welch v. Oaktree Health and Rehabilitation Center (2/28/2022), the Tennessee Court of Appeals reversed a trial court’s determination that an arbitration agreement could not be enforced.

David Welch was a nursing home resident. Prioer to his death, he executed a power of attorney for health care, designating his brother, James Welch, as his health agent. When David was admitted to the nursing home, James signed an admission agreement which included an arbitration agreement. Later, following David’s death, James filed claims against the nursing home for health care liability, ordinary negligence, and wrongful death.

Oaktree filed a motion to compel arbitration. James responded claiming enforcement of the arbitration agreement would be unconscionable because the agreement was signed without authority since David was incompetent when he signed the power of attorney for health care. David was born with Down Syndrome so James argued he could not possibly have been competent to sign the document. James claimed he took it upon himself to secure the document when David needed cataract surgery.

James testified that he found the form online and learned that in Mississippi, where David resided, the document did not have to be notarized but did require a witness. James said he printed the form and had David sign his name on the final page but that David “had absolutely no concept of what this was all about.” According to James, “I just said, ‘Write your name here, David.’”

After a hearing, the trial court entered an order that it would look beyond the power of attorney for health care to determine whether David was competent to sign the document. Following discovery, the trial ourt found David was not competent and refused to compel arbitration.

Citing Owens v. National Health Corp., 263 S.W.3d 876 (Tenn. 2007), the Court of Appeals held that the trial court erred by allowing discovery and looking beyond the power of attorney to determine competency. There was nothing in the document limiting its application or suggesting it was not executed in compliance with the law. It “was signed by the principal and two witnesses with the required attestation clauses. Therefore, it must be given effect in this state pursuant to the HCDA.”

The portion of Owens relied upon appears in a modified decision (footnote 4 of the linked decision) as follows:

The plaintiff also questions whether [the patient] was incompetent to sign the nursing-home agreement when [the attorney-in-fact] executed the
contract pursuant to the power of attorney. The plaintiff asserts that the trial court should have permitted discovery regarding the circumstances
surrounding the execution of both the nursing-home contract and the power of attorney, which was executed only twenty-one days later. We agree that discovery concerning whether [the patient] was incompetent to sign the nursing-home agreement should be permitted on remand. Discovery should not be permitted, however, concerning the validity of the power of attorney or the circumstances surrounding its execution. See Tenn. Code Ann. § 34-6-208 (providing immunity to health care providers who rely on decisions “made by an attorney in fact who the health care provider believes in good faith is authorized” to make health care decisions). (Emphasis added).

In the context of a guardianship case, the Kentucky Supreme Court recently went the other direction, holding that a guardian did not have authority to enter into a binding pre-injury arbitration agreement. In Jackson v. Legacy Health Services, Inc. (2/24/2022), the Court found “[t]here is nothing in the applicable statutes to remotely suggest that, when the ward is deprived of the ability to enter into contracts on their own behalf by operation of the appointment of a guardian, the authority to enter any and all contractual relationships on the ward’s behalf automatically vests to the guardian.” Guardians have the authority to bind their ward to contracts that limit or deprive the civil rights of their ward only to the extent necessary to provide needed care and services to the ward, as clearly indicated by the plain language of the statute.