The Kentucky Court of Appeals recently denied Kindred’s attempt to take away the right to a jury trial for a resident who sued them for neglect.  The case is Kindred v. Brown.

Relevant facts:

Maurice Childress is an incapacitated adult suffering from a variety of serious medical conditions which require full-time skilled nursing care. Childress was a resident of Bashford East Health Care1 (“Bashford”), a nursing home, from February 16, 2008, to September 11, 2008.

Teresa Brown, Childress’s mother, admitted Childress to Bashford due to Childress being of unsound mind.  At the time of admission, Brown was not Childress’s legal guardian. During the
admission process, Brown signed an Alternative Dispute Resolution (“ADR”) Agreement in her own name. This agreement listed Childress as the resident of the facility and had a line for the signature of the resident or legal representative with instructions for the representative to list in what capacity they were signing; i.e, spouse, guardian, durable power of attorney, etc. As noted,

Brown signed her name and not Childress’s and did not list what, if any, legal capacity she had to act as the representative of Childress.

While a resident at Bashford, Childress allegedly sustained numerous injuries which prompted Brown, in her new capacity as Guardian, to file a Complaint in the Jefferson Circuit Court alleging negligence, medical negligence, corporate negligence, and violations of Long Term Resident’s Rights.  Brown was appointed as the legal guardian of Childress on March 3, 2009.

Following a hearing, the trial court denied the Appellants’ motion on the basis that the ADR agreement was signed by Brown prior to her appointment as Childress’s guardian; that she lacked the authority to execute the agreement on Childress’s behalf; and that she asserted his rights rather than her own in denying the validity of the ADR agreement. Thus, the court determined that Childress cannot be compelled to waive his right to a jury trial and thereby arbitrate his claims against the Appellants.

The Appeal:

On appeal, Appellants present five arguments, namely, (1) the law favors enforcement of ADR agreements; (2) Brown is estopped from denying her authority to execute the ADR agreement under Kentucky law; (3) Childress is estopped from avoiding the ADR agreement under the Federal Arbitration Act (“FAA”); (4) Childress is bound by the ADR agreement executed by his mother under the principle of apparent authority; (5) Brown ratified the execution of the ADR agreement by her post-guardianship conduct.

The Court went through each argument and explained why each failed.

1. Public policy

"While it is true that Kentucky law generally favors the enforcement of arbitration agreements, the existence of a valid arbitration agreement is a threshold matter which must first be resolved by the court. Moreover, the burden of establishing the existence of an arbitration agreement that conforms to statutory requirements rests with the party seeking to enforce it."

2.  Estoppel

"The trial court found that the ADR agreement was signed by Brown prior to her appointment as Childress’s guardian, and that as a result, she lacked the authority to execute the agreement on Childress’s behalf. Moreover, the court found that Brown asserted Childress’s rights rather than her own in denying the validity of the ADR agreement; and as such, Childress cannot be compelled to waive his right to a jury trial and arbitrate his claims against the Appellants.
“[E]stoppel is a question of fact to be determined by the circumstances of each case.”  Under the doctrine of equitable estoppel, certain conduct by a party is viewed as being so offensive that it precludes the party from later asserting a claim or defense that would otherwise be meritorious.  In order to prevail on a theory of estoppel, there must be proof not only of an intent to induce action or inaction on the party to be estopped, but also of reasonable reliance by the party claiming the estoppel."

"We disagree and find that the Appellants could not reasonably rely upon Brown’s signature alone without an explanation of her legal authority to bind Childress.  Given that Childress was mentally incapacitated at the time the ADR was signed and that Brown did not purport to be the legal representative5 of Childress, then the provision by its own language does not support the Appellants’ argument because at the time of signing Brown was not the legal guardian."

3.  FAA

"We likewise disagree with the third argument asserted by the Appellants that Childress is estopped from avoiding the ADR agreement under the FAA.  We do not believe that applying the FAA would render a different result."

4.  Apparent Authority

"Apparent authority is created when the principal holds out to others that the agent possesses certain authority that may or may not have been actually granted to the agent.  (“It is a matter of appearances on which third parties come to rely.”). Moreover, “[i]t is a rule, universally recognized, that the declarations of an agent are inadmissible to prove the fact of agency or that he was acting within the scope of his authority in a particular transaction.  There is no allegation that Childress did anything to imbue Brown with any authority whatsoever. Further, even if Childress had taken some action consistent with the establishment of apparent or actual authority, we must
remember that Childress was not of mental capacity to act on his own behalf.
Accordingly, he was incapable of denying such acts of his own volition. The failure of Childress to deny the actions of another, here Brown, when Childress is incapable of making such a denial can hardly be taken as acquiescence to or validation of those actions. 

5.  Ratification

We now turn to the Appellants’ last argument, namely, that Brown ratified the execution of the ADR agreement by her post-guardianship conduct. In support thereof, Appellants argue that Brown did not disavow the ADR agreement, and that prior to being appointed legal guardian of Childress, she had signed five additional ADR agreements when Childress was admitted to Kindred Hospital of Louisville. The Appellee disagrees and argues that there is no evidence of
ratification by her on behalf of Childress. In support thereof, Appellee explains that the ADR agreement could not be revoked after 30 days of its being executed and that the other ADR agreements are not relevant to the ADR in dispute as they were for admission to the hospital.

In Capurso, the law is clear that ratification or adoption of a prior agreement entered into by a purported agent, here Brown, for an alleged principal, here Childress, requires ratification or adoption by the principal. Again, as discussed supra, Childress was incapable of taking any action whatsoever and, thus, cannot be found to have adopted or ratified any agreement.