The South Carolina Court of Appeals issued a decision in Thompson v. PruittCorp et al. confirming the trial court’s denial of a motion to compel arbitration. A big win for justice in South Carolina.
On January 11, 2011, Respondent, Mae Ruth Davis Thompson (Daughter), and her brother, Andrew Phillip Davis (Son), had their mother, Eula Mae Davis (Mother), transferred from Piedmont Medical Center to a nursing home facility owned and operated by UniHealth Post Acute Care-Rock Hill (UniHealth). A UniHealth employee presented an Admission Agreement, an Arbitration Agreement (AA), and several other documents to Son for his signature on behalf of Mother, who suffered from dementia.
Within five hours of being admitted to UniHealth, Mother died as a result of falling out of a bed with a malfunctioning side rail. Subsequently, Daughter filed a wrongful death and survival action against UniHealth. UniHealth filed a motion to dismiss Daughter’s action and to compel arbitration of Daughter’s claims or, in the alternative, to compel arbitration and stay Daughter’s action.
The circuit court denied the motion to compel on the ground that Son did not have authority to execute the AA on Mother’s behalf under either common law agency principles or the Adult Health Care Consent Act, S.C. Code Ann. §§ 44-66-10 to – 80 (2002 & Supp. 2012)).
In Coleman v. Mariner Health Care, Inc., 407 S.C. 346, 350, 755 S.E.2d 450, 453 (2014),, our supreme court held an arbitration agreement signed by the surrogate in that case was separate from the agreement to admit the patient to a health care facility and “concerned neither health care nor payment, but instead provided an optional method for dispute resolution between [the facility] and [the patient or her surrogate] should issues arise in the future.” 407 S.C. at 353-54, 755 S.E.2d at 454. The court further held, “Under the Act, [the surrogate] did not have the capacity to bind [the patient] to this voluntary arbitration agreement.” Id. at 354, 755 S.E.2d at 454.
However, the Act does not confer such authority with respect to an Arbitration Agreement such as the one in issue in this case. See Coleman v. Mariner Health Care, Inc., Supreme Court, Opinion No. 27362, filed March 12, 2014. As the Arbitration Agreement does not deal with healthcare decisions, the provisions of the Act do not apply to establish the necessary principal-agent relationship. Id.
To establish apparent authority, the proponent must show (1) “the purported principal consciously or impliedly represented another to be his agent;” (2) the proponent relied on the representation; and (3) “there was a change of position to the [proponent’s] detriment.” Froneberger v. Smith, 406 S.C. 37, 47, 748 S.E.2d 625, 630 (Ct. App. 2013) (quoting Graves v. Serbin Farms, Inc., 306 S.C. 60, 63, 409 S.E.2d 769, 771 (1991)).
Apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe the principal consents to have the act done on his behalf by the person purporting to act for him.
“A third-party beneficiary is a party that the contracting parties intend to directly benefit.” Helms Realty, Inc. v. Gibson-Wall Co., 363 S.C. 334, 340, 611 S.E.2d 485, 488 (2005). However, there can be no third-party beneficiary unless a valid contract exists. See Dickerson, 995 A.2d at 742 (“Before one can enforce a contract, however, whether as a party to the contract or as a third-party beneficiary, there must be a contract to enforce.”). Here, Son was not authorized to execute the AA on Mother’s behalf. Therefore, she could not be the third-party beneficiary of the alleged AA between herself and Appellants.
Here, Daughter is not attempting to enforce the AA on behalf of Mother’s estate. Rather, she has asserted tort claims against Appellants arising out of the patient-provider relationship created by the separate Admission Agreement. Further, Mother’s diminished mental capacity prevented her from assenting to the AA’s terms. Therefore, her estate cannot be bound by the AA. See Drury v. Assisted Living Concepts, Inc., 262 P.3d 1162, 1166 n.5 (Or. Ct. App. 2011) (“[U]nless the third-party beneficiary in some way assents to a contract containing an arbitration clause, the contracting parties have waived the beneficiary’s right to a jury trial without her consent.”).
Initially, we note the recent conflict between the United States Supreme Court and our state courts concerning the application of state law in determining whether a non-signatory is bound by an arbitration agreement. Compare Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630, 632 (2009) (holding that a nonparty to an agreement is entitled to invoke the Federal Arbitration Act (FAA) “if the relevant state contract law allows him to enforce the agreement”), and id. at 631 (“Because ‘traditional principles’ of state law allow a contract to be enforced by or against nonparties to the contract through ‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel,’ the Sixth Circuit’s holding that nonparties to a contract are categorically barred from [FAA] relief was error.” (citation omitted)), with Pearson, 400 S.C. at 289-90, 733 S.E.2d at 601 (decided in 2012 and holding “[b]ecause the determination of whether a non[-]signatory is bound by a contract presents no state law question of contract formation or validity, the court looks to the federal substantive law of arbitrability to resolve the question”). Nonetheless, the doctrine of equitable estoppel does not apply to Mother’s estate under either South Carolina law or federal substantive law concerning arbitrability.
In other words, “[w]hen ‘a signatory seeks to enforce an arbitration agreement against a non-signatory, the doctrine estops the non-signatory from claiming that he is not bound to the arbitration agreement when he receives a “direct benefit” from a contract containing an arbitration clause.'” Id. at 295, 733 S.E.2d at 604 (quoting Jackson v. Iris.com, 524 F. Supp. 2d 742, 749-50 (E.D. Va. 2007)). Notably, in those opinions addressing equitable estoppel in the arbitration context, the nonsignatory’s contractual benefit is not typically an alleged benefit of arbitration such as “avoiding the expense and delay of extended court proceedings” or being “capable of enforcing the [AA],” as touted by Appellants in the present case—rather, the contractual benefit typically arises from another provision of the same contract that includes the arbitration provision. See Pearson, 400 S.C. at 296-97, 733 S.E.2d at 605 (ability to work at the defendant’s hospital facility and receive payment for work); see also Int’l Paper Co., 206 F.3d at 418 (warranty provisions); Jackson, 524 F. Supp. 2d at 750 (entitlement to retain a $150,000 payment pursuant to the contract’s liquidated damages provision); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (lower insurance rates on a yacht and the ability to sail under the French flag); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993) (continuing use of a name).
Here, the AA is not incorporated into the Admission Agreement; therefore, Appellants’ assertion that Mother received benefits under the Admission Agreement, i.e., being admitted to the facility and receiving medical care, is of no moment. The two agreements are independent of one another, as reflected in the language of the AA indicating its execution is not a condition for being admitted to the nursing home. Further, any possible benefit emanating from the AA alone is offset by the AA’s requirement that Mother waive her right to access to the courts and her right to a jury trial. Therefore, equitable estoppel under federal substantive law has no application to the present case.
Under South Carolina law, the elements of equitable estoppel as to the party to be estopped are (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, they are: (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance upon the conduct of the party estopped; and (3) action based thereon of such a character as to change his position prejudicially. Boyd v. Bellsouth Tel. Tel. Co., 369 S.C. 410, 422, 633 S.E.2d 136, 142 (2006) (emphases added). Here, Mother had dementia prior to being admitted to UniHealth. Therefore, her incapacity prevented her from forming the intent or having the requisite knowledge to mislead Appellants or to assent to the AA’s terms.