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Does Your Agent Have the Power?
Extending the Power of Agents to Bind Principals to Arbitration
Practitioners in Tennessee have hotly debated the issues of pre-injury arbitration agreements in health care, particularly in nursing home admission contracts. In the recent Owens v. National Health Corp. issued on Nov. 8, 2007, the Tennessee Supreme Court held that pre-dispute arbitration agreements in nursing home contracts are not per se invalid in Tennessee.
The court decided that an arbitration agreement is a "health care" and not a "legal" decision within the scope of an agent's health care power to bind his or her principal. In upholding the validity of pre-dispute arbitration agreements in nursing home contracts, the Tennessee Supreme Court clearly sided with the national policy favoring arbitration and the modern views of the U.S. Supreme Court. On the heels of the Owens decision, the Court of Appeals rapidly released six decisions from November to December 2007, addressing several thorny issues that occur when a surrogate or agent signs an arbitration agreement on behalf of the patient: Does the patient have to be incapacitated before the agent's power "springs" into effect under a written Durable Power of Attorney? If so, is the patient's incapacity based on physical or mental incapacity? Does a general oral authorization to sign admission papers implicitly give the agent the authority to waive the patient's right to a jury trial and be bound to arbitration? While unconscionability and other issues were addressed in the Owens and subsequent decisions, this article will focus on those issues specifically related to the principal's capacity and the scope and effectiveness of the agent's power to bind the patient to arbitration. It will then provide practice pointers and suggest that clients be informed about the timing of the agent's power and the advantages and disadvantages of arbitration during estate and advance directive planning conferences.
Scope of the Power
The following issues involve the principal's capacity, the creation and scope of agent's authority, when the agent's power becomes effective, and who has the burden of proving the principal's capacity (or lack thereof).
1. Which law governs arbitration clauses in health care contracts " state or federal law? The first step in deciding the validity of an arbitration provision is to determine what law governs the arbitration contract. The Federal Arbitration Act  can apply where there is a requisite connection with interstate commerce. According the U.S. Supreme Court, the parties may elect to be governed by state law through the terms of their agreement to arbitrate. The question of whether the Tennessee Uniform Arbitration Act or the Federal Arbitration Act controls is important because when the Tennessee act applies, contract formation questions are decided by the court, and not by the arbitrator. The Owens court determined that state law applied in that case since the agreement specifically stated that it was governed by the law of the state in which the center was licensed even though the drafter, NHC, tried to argue that federal law should apply.
2. When an agent is acting under a Durable Power of Attorney for Health Care, is the decision to waive a trial by jury and to submit a dispute to arbitration a "health care" decision that is authorized by the health care agency appointment or a "legal" decision that is beyond the scope of the agent's authority? The answer requires construing the written instrument according to the rules for the interpretation of written instruments generally; principles governing the law of agency, and the authorizing act. In Tennessee, there are two alternative statutes that can apply to health care directives. The older statute is The Durable Power of Attorney for Health Care Act (DPAHCA) passed in 1990 and the newer act is The Tennessee Health Care Decisions Act (HCDA) passed in 2004. The Owens case involved a power governed by the DPAHCA, and the court held the decision to arbitrate was a "health care" decision under the power of attorney and its governing act.
In the Owens case, King's power of attorney authorized the attorneys-in-fact "to make health care decision [sic] for me if I am incapacitated or otherwise unable to make such decisions for myself" and also authorized them to "execute on my behalf any waiver, release or other document which may be necessary in order to implement the health care decisions that this instrument authorizes my Attorney-in-Fact to assist me to make." The court then considered the definitions for "health care" and "health care decision" under the DPAHCA. Tenn. Code Ann. Section 34-6-204(b) provides that the attorney in fact may make decisions "to the same extent as the principal " if the principal had the capacity to do so. The court concluded that Daniel was authorized to sign the arbitration provision in the nursing home contract because King herself could have decided to sign the nursing home contract containing an arbitration provision had she been capable.
The court also explained that an admissions contract, even one without an arbitration provision, is technically a "legal" decision. Therefore, trying to distinguish permissible legal decisions from impermissible legal decisions would be untenable and could leave the patients in legal limbo.
A form governed by the HCDA has not yet been addressed, but arguably, the result should be the same (in the absence of contrary language in the power of attorney) because the definitions of "health care" and "health care decision" are essentially the same in both acts.
3. Can agents with only oral authorization, but without specific written authorization, bind their principal to arbitration? Yes, according to the Court of Appeals in Necessary v. Life Care Centers of America Inc. The issue here was whether the husband's oral express authority to sign admission documents encompassed the authority to waive a constitutional right (trial by jury) and bind the husband to arbitration. Plaintiff, wife, had to find a nursing home for her husband who was being discharged from another facility and needed immediate care. The plaintiff stated that the husband was mentally competent and gave her the authority to sign since she had to quickly find a home. She claimed this was the only nursing home in that part of the state with the resources and beds available. Plaintiff claimed that she was about to leave town on business, and therefore, everything had to be signed and completed that day. Plaintiff signed a two-page stand-alone arbitration agreement as the "legal representative." The plaintiff admitted that she did not read the entire agreement because she was in a hurry and did not understand much of it. The trial court denied the motion to compel arbitration, finding that the wife lacked the authority to give up her husband's constitutional right to a trial by jury.
In reversing the trial court, the Court of Appeals recited the Owens rationale that the distinction between legal and health care decisions fails to appreciate that signing a contract for health care services is itself a "legal decision," and could leave an incapacitated principal in "legal limbo." The Court of Appeals applied the same rationale to this situation where the husband gave his wife oral authority to sign all admission documents and make all of the decisions regarding his nursing home admission. Basically, the claim that she could make all decisions, except the authority to sign an arbitration agreement, was untenable.
Timing of the Power Based on Principal's Incapacity
1. When is the agency appointment effective? Must the principal be incapacitated before the agent's powers "spring" into effect? The answers to these important questions depend again on the language of the power of attorney and its governing act. Under the DPAHCA, the statute provides that, subject to any limitations in the durable power of attorney, the agent may make health care decisions for the principal to the same extent as the principal "if the principal had the capacity to do so." If the form is prepared by a person other than the principal, the statute requires a rather ominous warning that includes the retention of the principal's right to make decisions as long as the principal can give informed consent. As discussed in the cases below, this is interpreted to mean that the power only "springs" into effect if the patient is mentally incapacitated and only for as long as the patient is incapacitated. With forms governed by the more recent HCDA, the governing statute is more direct in stating that, unless otherwise specified in the advance directive, "the authority of the agent becomes effective only upon the determination that the principal lacks capacity." Thus, it is possible to draft a power that is concurrent with the principal's capacity, but this practice is probably rare since the default (and the model forms) is a "springing" power.
a. Cabany v. Mayfield Rehabilitation and Special Care Center. Mr. Cabany signed a preprinted form designating his wife as his health care agent. The language stated that Ms. Cabany could act for Mr. Cabany only "when I can't make my own medical decisions." The notice, as required under the DPAHCA, provided that "[n]otwithstanding this document, you have the right to make medical and other healthcare decisions for yourself so long as you can give informed consent with respect to the particular decision." The Court of Appeals interpreted this to mean that Ms. Cabany was not authorized to sign NHC's contract of admission unless Mr. Cabany was unable to make medical decisions himself.
In essence, the court interpreted this power to be a "springing" power, retaining in the principal the sole authority to make health care decisions as long as the principal was mentally competent. There was no evidence in the record to indicate whether Mr. Cabany was competent. In fact, there was a notation on the contract that Mr. Cabany was not physically able to sign. To the court, this indicated that Mr. Cabany was not mentally incapacitated. There was no indication in the record that NHC made any efforts to determine his capacity. Thus, the case was remanded to determine Mr. Cabany's capacity (or lack thereof) at the time the admission contract was signed by Ms. Cabany.
b. Hendrix v. Life Care Centers of America Inc. The daughter, who had signed the arbitration provision, contended that she was not authorized to sign at that time because her mother was still able to make her own medical decisions. The trial court agreed and the Court of Appeals affirmed. The report from the hospital from which the mother transferred indicated that the mother was alert and oriented. Upon arrival at the nursing home, the nursing home employee relied on the daughter who said she was the POA and who then signed the admission documents. However, on the same day, the mother signed a "Do Not Resuscitate" form. The employee stated that the mother signed this form voluntarily and with understanding of what she was doing. Since the DPAHC only became effective when the mother could not make her own decisions (indicating mental incapacity), and there was evidence to indicate her competence, the Court of Appeals affirmed the trial court's finding.
2. If the health care power is not yet in effect, can the agent act instead under a general power of attorney that is in effect? Probably not, according to the reasoning in Hendrix v. Life Care Centers of America Inc. Here, the DPAHC was effective upon mental incapacity, while the general power of attorney was effective upon incapacity OR inability to manage the principal's affairs. Arguably, the general power of attorney was effective under either physical or mental incapacity. However, the general POA also had a provision that stated that if there was a conflict between her health care power and the general POA, the Durable Power of Attorney for Health Care would control. Thus, the court decided that the health care power, and its more restrictive definition of capacity, controlled the issue. As another alternative theory, the defendants contended that the daughter acted under apparent authority. However, there was no evidence that the mother had taken any actions to confer apparent authority on her daughter and the nursing home could not simply rely on the daughter's statement that she was the power of attorney.
3. Who has the burden of proving incapacity " and is this decided by a judge, jury or arbitrator? According to the decisions below from the Court of Appeals, this is to be determined by the judge (if the Tennessee Uniform Arbitration Act governs) and the burden is on the person making the claim.
a. Cabany v. Mayfield Rehabilitation and Special Care Center. The Court of Appeals considered the issue of whether this "springing" power of attorney was in effect based on the principal's incapacity. As discussed above, there was no evidence in the record to indicate whether Mr. Cabany was competent. The Court of Appeals declared that the burden is on the party seeking to rely on the individual's incapacity and remanded the case to determine if Mr. Cabany was mentally incapacitated at the time his wife signed the admission contract. In making this determination, the court cited the express provision under the HCDA that states that an individual is presumed to have capacity to make health care decisions. Under In re Conservatorship of Groves, this presumption does not wane as a person ages. The court cited cases from several other jurisdictions in holding that the burden is on the party seeking to rely on an individual's incapacity.
b. Raines v. National Health Corporation. The granddaughter possessed a durable power of attorney for her grandmother who was transferred to an NHC nursing facility. The administrator of Ms. Raines' estate filed suit against NHC, and NHC responded with a motion to compel arbitration. The plaintiff contended that Ms. Raines was mentally incapable of executing the power of attorney; the arbitration agreement was beyond the powers granted under the power; and that the agreement was unconscionable. The trial court followed a summary judgment standard and denied the motion to compel, without obtaining evidence or making findings on these issues. The Tennessee Supreme Court has not explicitly addressed the issue of whether an evidentiary hearing by the trial court is required when facts related to an arbitration agreement are disputed. However, the appellate court held that the summary judgment standard was erroneous and that the trial court must act as the trier of fact to resolve these issues. To quote the United States Supreme Court, "certain gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy." Prior Tennessee decisions have also illustrated the necessity of such a hearing. The Court of Appeals referenced a California case in which that court had explained that the petitioner bears the burden of proving the existence of a valid agreement, and the party opposing the petition bears the burden of proving any fact necessary to its defense. The trial court sits as the trier of fact and no jury is available. If the matter requires resolution of factual issues, such as issues of unconsionability, fraud, or lack of authority, the trial court must act as the trier of fact to resolve such issues and make a clear ruling as to whether or not the agreement is enforceable. In concluding, the Raines court held that "the trial court must proceed expeditiously to an evidentiary hearing when it faces disputed issues of fact that are material to a party's motion to compel arbitration; it may not decline to resolve the question until trial of the underlying case." The trial court was instructed to follow the law as set out in the case In re Conservatorship of Davenport  and apply it to the facts of this case to determine whether Ms. Raines was competent when she executed the power of attorney.
c. Reagan v. Kindred Healthcare Operating Inc. In this case, the nursing home resident herself signed the arbitration agreement. Ms. Rayborn was transferred to Masters Health Care Center from the hospital for rehabilitation. Once she was settled into her room, two nursing home employees spent a couple of hours discussing her admission and documents that needed to be signed in the presence of her son, Mr. Reagan. Mrs. Rayborn said it was difficult for her to see the signature line and asked if it was okay for her son to sign for her. The son then went to an office with an employee and signed some admission documents. Later that day, an employee returned to Ms. Rayborn's room, explaining that there were additional documents she needed to sign to finish up the admission process. Ms. Rayborn then signed an eight-page, stand-alone alternative dispute resolution document. The employee specifically recalled telling Ms. Rayborn that if she chose to sign the ADR Agreement, she would be waiving the right to a jury trial and that she could revoke the agreement within 30 days. Ms. Rayborn later told her son that she had signed additional documents but did not specify what these documents contained.
As evidence of capacity, the defendants submitted the affidavit of Dr. Miller who reviewed Ms. Rayborn's medical records. Dr. Miller opined that the records reflected that Ms. Rayborn was alert and oriented and the medications would not have impaired her cognitive ability. The nursing assessment was also in the record and described Ms. Rayborn was alert and not disoriented, with adequate vision and hearing. She also passed a "Mini-Mental State Exam" with a score of 24 out of 27, only losing points when she was asked to spell a word backwards.
The Court reasoned that granting the oral express authority to Mr. Reagan to sign some documents did not make Ms. Rayborn unable to contract for herself. In light of all of the facts, the Court held that the Agreement was not unconscionable, oppressive or unenforceable.
The issue of the validity to enforce a pre-injury arbitration provision in a consumer health care contract is settled for now in Tennessee. A bill introduced this past session would extend the reach of arbitration even further by allowing any person who is authorized to be designated as a surrogate under Tenn. Code Ann. Section 68-11-1806 to enter into an arbitration agreement on the patient's behalf and by allowing nursing homes to condition admission upon signing an arbitration agreement.
The issue concerning the timing of the agent's power is problematic, both as a practical and legal matter. From the patient's perspective, autonomy in health care decision-making is a valuable right. As stated by the Cabany court, "[p]ersonal autonomy " an adult's right to live independently and in accordance with his or her own personal values " is a fundamental right." The forms in widespread use contain what is now interpreted as a "springing" power, and thus, retain the sole decision-making authority in the patient until the patient is mentally incapacitated. However, this may not be the common-sense understanding of the terms of the written power. The assistance of a trusted agent to complete the paperwork and assist in decision-making may be a welcome relief to some patients, especially when faced with an overwhelming amount of information, choices and experts with whom to discuss a medical course of treatment. Does the person signing the health care power in advance really understand that it is not effective until the person is mentally incapacitated? Do patients assume that their agent can act for them when they are preoccupied with more pressing issues, such as transferring into a nursing home?
The language in most durable powers is sufficiently confusing that it baffles admissions personnel and lawyers alike. Adding to the confusion is the vast number of forms available and in use in Tennessee, from Appointment of Health Care Agent to Advance Care Plans to Durable Powers of Attorneys for Health Care. One possible solution for persons who want a concurrent power is to use the form prepared by Charles Key, in collaboration with William King Self Jr., presented in the December 2006 issue of the Tennessee Bar Journal. Their form gives the patient the clear choice of checking whether the agency appointment is effective immediately so that the agent can assist in connection with the patient's health care.
Another interesting idea to consider is whether a mentally capable patient with a written "springing" health care power simply can give an oral authorization to her agent to sign the admission papers, in the absence of a contrary provision in the written power. In the Necessary case, the husband's oral express authority to sign all admission paperwork was upheld. In the Reagan case, the mother authorized her son to sign admission papers, but later in the day, she signed the arbitration contract. The court found that granting authority to her son did not make the patient unable to contract for herself. The statutory provisions also support the idea that the patient can give oral authorization in addition to the written authority. A provision of the DPAHCA specifically provides that "[n]othing in this part affects any right the person designated as attorney in fact may have, apart from the durable power of attorney for health care, to make or participate in the making of health care decision on behalf of the principal." The HCDA provides that an adult or emancipated minor may give an individual instruction that is either oral or written.
Applying the Lessons
At least three lessons can be drawn from these cases on these issues. One, since most powers are likely to be "springing" powers, the provider should be prepared to prove that the patient was mentally incapable if an agent signs an arbitration agreement. In three of the six appellate decisions, the cases turned on the lack of evidence to prove the patient's incapacity.
Second, if the patient signed the agreement, the plaintiff will have the burden of proving the patient was not mentally capable. Because of the importance of autonomy, adult persons are presumed to be sane and capable to direct their personal affairs until satisfactory evidence to the contrary is presented. As stated in the case In re Conservatorship of Groves, [t]he force of these presumptions does not wane as the person ages." Kindred Healthcare prevailed on its motion to compel arbitration with solid evidence in the record that included a nursing assessment that the patient was not disoriented and a passing score by the patient on a mini-mental state exam. Likewise, an agent who claims he did not understand the agreement will have to prove otherwise: A person is presumed to understand the contents of the contract he signs, unless the record suggests the agent's educational background or abilities prohibited him from understanding the agreement.
Finally, the best time for the patient to discuss the authority of his or her agent is when he or she signs an advance directive. If the patient so chooses, the power can be drafted as a concurrent one, where the agent has the authority to make decisions even when the patient is capable. If an attorney is preparing the instrument for the client, this is also the opportune time to discuss alternative dispute resolution in health care contracts, including the advantages of an arbitral forum that can result in a faster resolution of claims or the disadvantages if the provisions are one-sided or cost-prohibitive. This should, hopefully, prompt estate planners, elder care attorneys, and any other attorneys advising clients about advance directives to become educated on the issue of alternative dispute resolution in health care to better assist clients in making their own informed choices.
SANDRA S. BENSON has been involved in the health care industry for more than 20 years, 10 years as a health care business attorney in her own firm and with prior experience in health care information systems management and consulting. She is currently an assistant professor at Middle Tennessee State University in Murfreesboro where she continues research, teaching and consulting in health care regulations and alternative dispute resolution solutions for the health care industry. She may be contacted at 615-848-3525.
1. __ S.W.3d __, 2007 WL 3284669 (Tenn.2007).
2. The U.S. Supreme Court has continuously expanded the scope of the Federal Arbitration Act since the 1980s. See generally, Stephan Landsman, supra note 2, at 1603-1604 (tracing the history).
3. Cabany v. Mayfield Rehabilitation and Special Care Center, 2007 WL 3445550 (Tenn.Ct.App.); Necessary v. Life Care Centers of America Inc,. 2007 WL 3446636 (Tenn.Ct.App.); Raines v. National Health Corporation, 2007 WL 4322063 (Tenn.Ct.App.); Philpot v. Tennessee Health Management Inc., 2007 WL 4340874 (Tenn.Ct.App.); Reagan v. Kindred Healthcare Operating Inc., 2007 WL 4523092 (Tenn.Ct.App.); Hendrix v. Life Care Centers of America Inc., 2007 WL 4523876 (Tenn.Ct.App.).
4. 9 U.S.C. Section 2 et seq. (1999).
5. Volt Inf. Scis. Inc. v. Bd of Trs. Of Leland Stanford Junior Univ., 489 U.S. 468 (1989).
6. Tenn. Code Ann. Section 29-5-301 et. seq.
7. See Owens, supra note 1, at *4.
8. Id. at *5.
9. Id. at *6 (quoting 3 AmJur.2d Agency, Section 27 (2007)).
10. Tenn. Code Ann. Section 34-6-201 - 218.
11. Tenn. Code Ann. Sections 68-11-1801 - 1815.
12. Owens, supra note 1, at *5.
14. Compare Tenn. Code Ann. Sections 34-6-201(2) through (3) with Tenn. Code Ann. Sections 68-11-1802(6) and (7). There is an additional provision in the HCDA pertaining to "otherwise affects," but this should not change the result.
15. Necessary, supra note 3.
16. Id. at *1.
17. Id. at *3.
18. Id. (quoting Owens, supra note 1, at *6).
19. Id. at *5.
20. Tenn. Code Ann. Section 34-6-204(b)(2007).
21. The pertinent part of the warning set forth in Tenn. Code Ann. Section 34-6-205 states: "Notwithstanding this document, you have the right to make medical and other health care decisions for yourself so long as you can give informed consent with respect to the particular decision."
22. Tenn. Code Ann. Section 68-11-1803(c) (2007).
23. Cabany, supra note 3.
24. Id. at *4.
27. Id. at *7.
28. Hendrix, supra note 3.
29. Id. at *1-*2.
30. Id. at *4 - *5.
32. Id. at *3.
34. Id. at *5 - *6.
35. Cabany, supra note 3.
36. Id. at *5.
37. Tenn. Code Ann. Section 68-11-1812(b) (2006).
38. 109 S.W.3d. 317, 330 (Tenn.Ct. App.2003).
39. Raines, supra note 3.
40. Id. at *1.
41. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003).
42. Howell v. NHC Healthcare-Fort Sanders Inc., 109 S.W.3d 731, 732-35 (Tenn.Ct. App.2003); Raiteri v. NHC Healthcare/ Knoxville Inc., 2003 WL 23094413, at *4 (Tenn.Ct.App. Dec. 30, 2003).
43. Rosenthal v. Great Western Fin. Sec. Corp., 926 P.2d 1061 (Calif.1996).
44. Raines, supra note 3 at *6.
45. 2005 WL 3533299, at *17-19 (Tenn.Ct.App. Dec. 27, 2005).
46. Raines, supra note 3, at *8.
47. Reagan, supra note 3.
48. Id. at *1 - *2.
49. Id. at *5.
50. Id.. at *3.
51. Id. at *6.
52. Id.at *15.
53. Proposed legislation by Senator Tracy and Representative Rinks, if passed, would extend the ability of agents to sign arbitration agreements in the nursing home context: "(b) Any person designated, or any person who is authorized to be designated, as a surrogate pursuant to § 68-11-1806, or any agent, guardian, conservator, or attorney-in-fact appointed by a court or designated by the patient as having authority to enter into any arbitration agreement with a long-term facility on the patient's behalf." Proposed Amendment to Section 29-26-303(b) in Senate Bill 4075/ House Bill 4053.
54. Cabany, supra note 3, at *5 (quoting In re Conservatorship of Groves, supra note 38 at 327-38).
55. Charles Key, "Who Will Decide? Helping Your Clients with End-of-Life Directives," Tennessee Bar Journal, December 2006. This excellent article eloquently explains history of advance directives, the issues in cases with national attention, the confusion in the Tennessee forms, and presents innovative solutions in sample forms.
56. Necessary, supra note 3.
57. Reagan, supra note 3.
58. Tenn. Code Ann. Section 34-6-204(c). The language in the power itself could limit this. For example, in the Hendrix case, the principal had signed both a durable power of attorney for health care and a general power of attorney. The Court held that the health care power, and its more restrictive definition of capacity, controlled because the general POA specifically stated that if there was a conflict between her health care power and the general POA, the health care power would control.
59. Tenn. Code Ann. Section 68-11-1803(a).
60. In re Conservatorship of Groves, supra note 38 at 329-30.
62. Philpot, supra note 3. This case was not discussed above because the main issues in this case were whether the agreement to arbitrate was unenforceable as a contract of adhesion or because of oppressive or unconscionable provisions. The son had signed the contract to arbitrate and the appellate court found it was enforceable and ordered that arbitration be compelled.