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Pennsylvania Superior Court Voids Arbitration Provision in Nursing Home Admission Agreement

· 7 min read
Recently, in McIlwain v. Saber Health Care Group(“Saber”), the Pennsylvania Superior Court voided an arbitration provision contained in a nursing home admission finding no lawful relationship between the signor of the agreement and the resident. Norman Franks suffered from a diagnosis of schizophrenia and dementia, and was incapable of making decisions on his own. The Superior Court of California granted Chalena McIlwain letters of temporary conservatorship of Franks’ person and estate. The temporary conservatorship was set to expire on July 31, 2013. On May 13, 2013, Franks entered Saber nursing home in Pennsylvania. McIlwain signed Franks’ admission papers in the space designated “Authorized Representative,” and the box next to “Conservator” was checked. Additionally, McIlwain signed a “Resident and Facility Arbitration Agreement,” which provided that the parties to the agreement would submit to arbitration if there was a dispute. On July 30, 2013, the Court of Common Pleas of Montgomery County, Orphans’ Court Division, appointed McIlwain as permanent guardian for Franks. On July 31, 2013, the letters of temporary conservatorship from the Superior Court of California expired. Franks was a resident at Saber from May 13, 2013 until September 18, 2016. During his stay at Saber, Franks suffered multiple falls and urinary tract infections. Franks died on October 24, 2016 after falling and hitting his head while living at Saber. On August 7, 2017, McIlwain filed a complaint against Saber alleging negligence, wrongful death and survival claims. Saber filed preliminary objections arguing that the dispute was subject to binding arbitration. McIlwain responded by claiming that there was no evidence the temporary conservatorship was transferred from California to Pennsylvania pursuant to the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA), and therefore, the conservatorship was not valid in Pennsylvania. Saber argued that the conservatorship was valid, in part because of the Full Faith and Credit clause of the United States Constitution. The trial court sustained Saber’s preliminary objections as to the survival claims, and, therefore, bifurcated the survival claims and sent them to arbitration. The trial court overruled Saber’s objections pertaining to the wrongful death and negligence claims, finding that McIlwain did not agree to arbitrate her own claims against Saber. McIlwain appealed the court’s decision relative to the survival claims. In 2007, the National Conference of Commissioners on Uniform State Laws drafted the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (Uniform Act) to specifically address jurisdiction and related issues in adult guardianship and protective proceedings, including problems relating to transferring a guardianship from one state to another and recognition of an out-of-state guardianship/conservatorship order. SeeUniform Adult Guardianship and Protective Proceedings Jurisdiction Act (2007) at 1-2.5. Pennsylvania enacted its version in 2012 known as the UAGPPJA. 20 Pa.C.S. § 5901. “The Act applies only to court jurisdiction and related topics for adults for whom the appointment of a guardian or conservator or other protective order is being sought or has been issued.”The UAGPPJA provides two ways that an out-of-state guardianship/conservatorship can be recognized in Pennsylvania. Section 5922 provides for a transfer of the jurisdiction of the guardianship from another state into Pennsylvania. Section 5931 provides for an out-of-state guardian/conservator to register its guardianship/conservatorship order in Pennsylvania. In this case, McIlwain did not follow either procedure. Accordingly, the Pennsylvania Superior Court found that because McIlwain did not follow either of the procedures outlined in the UAGPPJA, the temporary conservatorship granted in California did not give McIlwain the authority to sign the arbitration agreement on behalf of Franks. The Court further found that the Full Faith and Credit clause of the United States Constitution is not offended, because the underlying judgment of incapacity is not disturbed upon following the procedures provided in the UAGPPJA. See 20 Pa.C.S. § 5922(g); see also § 5933(a). Nonetheless, this was not the end of the Court’s inquiry - it still needed to determine whether an agency relationship existed between McIlwain and Franks that would provide an independent authority for McIlwain to have executed the arbitration agreement on behalf of Franks. “Agency is the relationship which results from the consent of one person that another may act on his behalf.” Lincoln Avenue Industrial Park v. Norley, 677 A.2d 1219, 1222 (Pa. Super. 1996). “The creation of an agency relationship requires no special formalities.” Walton, 66 A.3d at 787. “The existence of an agency relationship is a question of fact.” Id. “The party asserting the existence of an agency relationship bears the burden of proving it by a fair preponderance of the evidence.” Id. An agency relationship may be created by any of the following: (1) express authority, (2) implied authority, (3) apparent authority, and/or (4) authority by estoppel. Express authority exists where the principal deliberately and specifically grants authority to the agent as to certain matters. Implied authority exists in situations where the agent’s actions are “proper, usual and necessary” to carry out express agency. Apparent authority exists where the principal, by word or conduct, causes people with whom the alleged agent deals to believe that the principal has granted the agent authority to act. Authority by estoppel occurs when the principal fails to take reasonable steps to disavow the third party of their belief that the purported agent was authorized to act on behalf of the principal. Walton, 66 A.3d at 786 (citations omitted) (emphasis added). “The basic elements of agency are the manifestation by the principal that the agent shall act for him, the agent’s acceptance of the undertaking and the understanding of the parties that the principal is to be in control of the undertaking.” Walton, 66 A.3d at 787 (citation omitted). Here, the Court found that there was no express, implied, or apparent authority, nor authority by estoppel to establish an agency relationship between McIlwain and Franks in relation to signing the arbitration agreement. Specifically, the Court reasoned that authority for an agency relationship emanates from the words and actions of the principal, here, Franks. The Court found no facts to show that Franks was present when McIlwain signed the arbitration agreement or gave express consent to McIlwain to sign the agreement on his behalf. In fact, Saber states that due to Franks’ severe cognitive defects, he was incapable of making decisions on his own. In response, Saber claimed that McIlwain, by her words and conduct, held herself out as Franks’ agent and Saber was justified in relying on her words and conduct. Specifically, Saber alleges that because McIlwain signed the admission agreement, consent for physician care, and authorization and acknowledgement of receipt on behalf of Franks, she had apparent authority to sign the arbitration agreement. However, the Court determined that an agent cannot simply, by her own words, invest herself with apparent authority. Turnway Corp. v. Soffer, 336 A.2d 871, 876 (Pa. 1975). Such authority emanates from the action of the principal and not the agent. Id. Thus, the Court determined that because Saber did not rely on the words or conduct of Franks, no apparent authority exists. Additionally, the Court declined to assume agency by a mere showing that one person does an act for another. Walton, 66 A.3d at 787. “Agency cannot be inferred from mere relationships or family ties.” Wisler v. Manor Care of Lancaster PA, LLC, 124 A.3d 317, 323. Moreover, the Court found that Saber was not misled by any words or conduct of Franks. A party who deals with an agent must “take notice of the nature and extent of the authority conferred.” Wisler, 124 A.3d at 324. “Parties are bound at their own peril to notice limitations upon the grant of authority before them, whether such limitations are prescribed by the grant’s own terms or by construction of law.” Id. “If a person dealing with an agent has notice that the agent’s authority is created or described in a writing which is intended for his inspection, he is affected by limitations upon the authority contained in the writing, unless misled by conduct of the principal.” Id. Thus, the Court held that Saber had the duty to confirm the extent of McIlwain’s purported authority to sign the arbitration agreement as Franks’ agent at the time of reliance. Saber neglected to do so at its own peril. Therefore, the Court reversed the trial court’s order bifurcating the survival claims, and remanded for further proceedings.    
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