Tennessee Supreme Court Unanimously Upholds Nursing Home Arbitration Contracts

In a decision released November 8^th, the Tennessee Supreme Court upheld the use of pre-dispute arbitration agreements in Tennessee nursing home contracts.  The key holdings affirmed that an attorney-in-fact under a durable power of attorney can execute an arbitration agreement and that pre-dispute arbitration agreements in the health care context are not contrary to public policy or other laws.

Background

In Owens v. National Health Care Corp., No. M2005-01272-SC-R11-CV (Tenn.  Nov. 8, 2007), the nursing home patient had executed a Durable Power of Attorney for Health Care (“DPAHC”) naming two attorneys-in-fact prior to her admission to the nursing home in August, 2003.  The DPAHC authorized the attorneys-in-fact to make health care decisions if she was unable to make decisions for herself and to execute any waiver, release or other document necessary to implement those health care decisions.  Three weeks later, the patient’s attorney-in-fact signed an Admission and Financial Contract on the patient’s behalf and she was admitted to a NHC Healthcare nursing home in Murfreesboro , Tennessee .  The Admission and Financial Contract listed he attorney-in-fact as “Legal Representative” and indicated that the “Type” of legal representative was “Power of Attorney.”   The contract was signed by the attorney-in-fact and by the patient’s brother.

The nursing home admission contract signed by the attorney-in-fact included a section providing for binding arbitration and the waiver of a jury trial for all contract, tort, statutory, and other claims.  The arbitration section provided that any dispute would “be resolved by binding arbitration administered by either the American Arbitration Association or the American Health Lawyers Association. . . .   This agreement for binding arbitration shall be governed by and interpreted in accordance with the laws of the state where the Center is licensed.”

In February 2005, the patient’s conservator filed a suit against the nursing home and its owners for negligence, medical malpractice and other causes of action.  The defendants filed a motion to compel arbitration and stay proceedings based on the terms of the nursing home contract and the DPAHC’s signature to the arbitration agreement.  The plaintiff resisted arbitration asserting a number of arguments against the enforceability of the arbitration agreement.

Court’s Decision and Holdings

The Tennessee Supreme Court made several favorable rulings for nursing homes and other health care providers.  Those rulings included:

1. An individual authorized to make health care decisions under a DPAHC can sign and authorize an arbitration agreement on behalf of an incapacitated nursing home resident.
2. Requiring a nursing home resident to sign an arbitration agreement upon admission is not “requiring additional consideration” that is prohibited by federal law.
3. Pre-dispute arbitration agreements in nursing home contracts do not violate public policy.
4. An arbitration agreement is not unenforceable solely because the chosen arbitration forum no longer administers pre-dispute arbitration, as the trial court can supply an alternative forum.
5. No facts supported the Plaintiff’s argument that a nursing home has a fiduciary duty with a resident prior to admission so as to prohibit the facility from requiring an arbitration agreement to be signed.
6. The contract was determined to be controlled by the Tennessee Arbitration Act because of the language contained in the contract stating that “this agreement for binding arbitration shall be governed by and interpreted in accordance with the laws of the state where the Center is licensed.”

Discussion and Importance of Decision

The case is an important victory for nursing home providers for a number of reasons, not the least of which is that these broad public policy issues are being actively litigated across the country.   Through Owens, the Tennessee Supreme Court reaffirmed the principle that the decision to admit an individual to a nursing home is in fact a “health care decision,” and, therefore, within the powers granted through a durable power of attorney for health care decisions under Tennessee law absent specific limiting language in the document itself. The Supreme Court decision also reinforces the holding from the earlier Tennessee Court of Appeals decision in Conley v. Life Care Centers of America, --- S.W.3d ----, 2007 WL 34828 (Tenn. Ct. App. Jan. 4, 2007), perm. app. denied (Tenn. June 18, 2007.). 

Expressly endorsing the holdings in several cases from other jurisdictions, the Supreme Court found plaintiff’s argument in favor of restricting the authority of an attorney-in-fact to sign the arbitration agreement was “without merit” and that “such a result would defeat the very purpose of a durable power of attorney for health care.”    The plaintiff had argued that signing the arbitration agreement and waiving the jury trial was a legal decision and not a health care decision; therefore, the power of attorney did not authorize the attorney-in-fact to waive the patient’s “legal rights.” 

The Supreme Court did not, however, rule on the issue of whether this particular arbitration agreement in the nursing-home contract was a contract of adhesion and, if so, unenforceable on the grounds that it was unconscionable.  Under Tennessee law, a contract may be unconscionable if the provisions are so one-sided that the contracting party is denied an opportunity for a meaningful choice.  With respect to this factual question, the case was sent back to the trial court for discovery.  The Supreme Court expressed no opinion, however, as to the resolution of the unconscionability issue on remand.

Boult Cummings attorneys Chris Puri and Patricia Head Moskal participated in the drafting of the amicus brief filed on behalf of the Tennessee Health Care Association, a statewide association of Tennessee ’s nursing homes.   The opinion is available on the Tennessee Supreme Court website at http://www.tsc.state.tn.us/OPINIONS/CURRENT/OwensDOPN.pdf.

If you have questions about the impact of the case on your arbitration agreements or the use of arbitration agreements, please contact Chris Puri or any of Boult Cummings Conners and Berry , PLC’s Senior Housing and Long Term Care team.