KINDRED HEALTHCARE INC LLC v. CHEROLIS

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Court of Appeals of Kentucky.

KINDRED HEALTHCARE, INC.; Kindred Nursing Centers Limited Partnership, d/b/a Hillcrest Health Care Center; Kindred Nursing Centers East, LLC; Kindred Hospitals Limited Partnership; Kindred Healthcare Operating, Inc.; and Kindred Rehab Services, Inc., d/b/a Peoplefirst Rehabilitation, Inc., Appellants v. Artie CHEROLIS, as Executrix of the Estate of Thelma Fuqua, Deceased, Appellee.

No. 2012–CA–002074–MR.

    Decided: October 11, 2013

Before CLAYTON, MAZE and NICKELL, Judges.Donald L. Miller, II, Louisville, KY, for Appellants. Carl R. Wilander, Tampa, FL, Robert E. Salyer, Lexington, KY, for Appellee.

OPINION

Kindred Healthcare, Inc. and associated entities (collectively “Kindred”) appeal from an order of the Daviess Circuit Court denying its motion to compel arbitration of claims brought by Artie Cherolis, as Executrix of the Estate of Thelma Fuqua, Deceased. Kindred argues that the trial court erred in finding that Cherolis lacked authority under a power of attorney to execute an arbitration agreement on her mother's behalf. Kindred also contends that the restrictive interpretation of an agent's authority to enter into arbitration contracts violates the Kentucky Uniform Arbitration Act, the Federal Arbitration Act, and Section 250 of the Kentucky Constitution. We conclude that the facts of this case are distinguishable from those of the recent decision by the Kentucky Supreme Court in Ping v. Beverly Enterprises, 376 S.W.3d 581 (Ky .2012), because the power of attorney in this case permitted Cherolis to execute the arbitration agreement. Consequently, the trial court erred by denying Kindred's motion to compel arbitration. Hence, we reverse and remand for additional proceedings.

The underlying facts of this action are not in dispute. On October 23, 2009, Thelma Fuqua executed a document, styled “Power of Attorney,” which provided as follows:

I, Thelma Lee Fuqua, ․, hereby constitute and appoint my daughter, Artie Joan Cherolis, ․, and my son, Luther Burk Fuqua, ․, or either of them, my true and lawful attorneys in fact, acting either jointly or independently, with full power for me and in my name, place, and stead, in their sole discretion, to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way.

Without limiting or derogating from this general power, I specifically authorize my attorneys in fact for me and in my name, place, and stead, in their sole discretion:

To make contracts;

To lease, sell, or convey any real or personal property that I many now or hereafter own;

To make gifts of any real or personal property that I may now or hereafter own to my attorneys in fact and to others;

To receive and receipt for any money which may now or hereafter be due to me;

To draw, make, and sign in my name any and all checks, promissory notes, contracts, or agreements;

To invest or reinvest my money for me;

To institute or defend suits concerning my property or rights;

To file all tax returns (including, without limitation, state and federal income tax returns;

To enter all safe deposit boxes;

To transfer assets of mine to any trust created for me for addition to trust principal; and

Generally to do and perform for me and in my name all that I might do if present.

Also, without limiting or derogating from this general power, I authorize my attorneys in fact to make all decisions regarding my healthcare and medical treatment.

This power of attorney shall not be affected by my disability as principal.

The rights, power, and authority of my attorneys in fact shall commence upon execution of this instrument and shall remain in full force and effect until revoked in writing or death of principal.

I hereby adopt and ratify all of the acts of my said attorneys in fact done in pursuance of the power hereby granted as fully as if I were acting in my own proper person.

Thereafter, on November 23, 2009, Thelma Fuqua was admitted to the Hillcrest Health Care Center, a residential nursing home facility in Owensboro, Kentucky. The Hillcrest facility is owned and operated by Kindred. As part of the admission process, Cherolis executed a number of documents on her mother's behalf. One of these documents was styled “Alternative Dispute Resolution Agreement Between Resident and Facility (Optional),” (hereafter “ADR Agreement”) and provided, in pertinent part, as follows:

Any and all claims or controversies arising out of or in any way relating to this ADR Agreement (“Agreement”) or the Resident's stay at the Facility including disputes regarding interpretation of this Agreement, whether arising out of State Federal law, whether existing or arising in the future, whether for statutory, compensatory or punitive damages and whether sounding in breach of contract, tort or breach of statutory duties (including, without limitation, any claim based on violation of rights, negligence, medical malpractice, any other departure from the accepted standards of health care or safety or the Code of Federal Regulations or unpaid nursing home charges), irrespective of the basis for the duty or of the legal theories upon which the claim is asserted, shall be submitted to alternative dispute resolution in the Commonwealth of Kentucky as described in this Agreement.

Thelma Fuqua was a resident of Hillcrest until December 15, 2010, and died the following day at Owensboro Medical Health System. After her death, Cherolis was appointed as executrix of the estate and instituted this action. The complaint asserted claims for negligence, medical negligence, personal injury, wrongful death, and violation of the long-term care resident's rights statute, Kentucky Revised Statutes (KRS) 216.515. Kindred moved to compel arbitration based upon the terms of the ADR Agreement.

After considering the motion and the estate's response, the trial court denied Kindred's motion on November 5, 2012. The trial court relied on the recent decision of the Kentucky Supreme Court in Ping v. Beverly Enterprises, Inc., supra, which held that a general power of attorney was insufficient to bind the principal or her estate to an optional arbitration agreement. The trial court found no circumstances which distinguished the facts of this case from those in Ping. The trial court further found no evidence that Cherolis had it in her authority to bind successors in interest to arbitration, or that Kindred had acted in reliance on her apparent authority.

Kindred now appeals from the trial court's order denying its motion to compel arbitration. Ordinarily, such orders are interlocutory and are not immediately appealable. However, an order denying a motion to compel arbitration is immediately appealable. KRS 417.220(1). See also Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 340 (Ky.App.2001). The enforcement and effect of an arbitration agreement is governed by Kentucky Uniform Arbitration Act (KUAA), KRS 417.045 et seq., and the Federal Arbitration Act, (FAA) 9 U.S.C. §§ 1 et seq. “Both Acts evince a legislative policy favoring arbitration agreements, or at least shielding them from disfavor.” Ping, 376 S.W.3d at 588.

But under both Acts, a party seeking to compel arbitration has the initial burden of establishing the existence of a valid agreement to arbitrate. Id. at 589. That question is controlled by state law rules of contract formation. Id. at 590. The FAA does not preempt state law contract principles, including matters concerning the authority of an agent to enter into a contract and which parties may be bound by that contract. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009). Since this matter is entirely an issue of law, our standard of review is de novo. Conseco, 47 S.W.3d at 340.

The central question in this case concerns the application of the Ping holding to the facts of this case. As an intermediate appellate court, this Court is bound by published decisions of the Kentucky Supreme Court. Rules of the Supreme Court (SCR) 1.030(8)(a). The Court of Appeals cannot overrule the established precedent set by the Supreme Court or its predecessor Court. Smith v. Vilvarajah, 57 S.W.3d 839, 841 (Ky.App.2000). However, we are not bound by precedents which are factually or legally distinguishable from those in the current case.

In most respects, Ping is factually similar to this case. As in the current case, the daughter, Donna Ping, served as the attorney-in-fact for her mother, Mrs. Duncan. Ping, 376 S.W.3d at 586. In that role, Ping entered into an arbitration agreement on behalf of her mother with the nursing home where Mrs. Duncan was a resident. Id. When Mrs. Duncan died in the facility, Ping brought a wrongful death action on behalf of the estate. Id. The nursing home sought to compel arbitration of the claim under the terms of an arbitration agreement Ping signed on her mother's behalf upon admission to the facility.

Ultimately, the Kentucky Supreme Court refused to compel arbitration, finding that the power of attorney did not vest Ping with authority to execute the arbitration agreement on behalf of her mother. The power of attorney granted Ping broad authority to manage Mrs. Duncan's property and finances, and authorized Ping “to do and perform, any, all, and every act and thing whatsoever requisite and necessary to be done, to and for all intents and purposes, as I might or could do if personally present.” Id. at 586. In addition, the document also authorized Ping to make medical decisions for her mother's care, including

any and all decisions of whatever kind, nature or type regarding my medical care, and to execute any and all documents, including, but not limited to, authorizations and releases, related to medical decisions affecting me; and [t]o generally do any and every further act and thing of whatever kind, nature, or type required to be done on my behalf.

Id. at 587.

After examining the scope of authority granted in the power of attorney, the Court concluded that the document only authorized Ping to make financial and health-care decisions for her mother. Id. at 591. In addition, the general expressions of authority for Ping to act in these matters were to “ ‘every act and thing whatsoever requisite and necessary to be done,’ and again to ‘every further act and thing of whatever kind, nature, or type required to be done on my behalf.’ “ Id. at 592 (emphasis omitted). The Court interpreted this language as limiting Ping's authority to those acts which were necessary or required to give effect to the financial and health-care authority expressly created. The Court concluded that Ping's decision to sign the arbitration agreement did not fall within the scope of these powers because it was not a prerequisite for admission to the nursing home. Id.

Kindred first argues that Ping is factually distinguishable based upon the different language of the power of attorney in this case. Unlike in Ping, the power of attorney executed by Thelma Fuqua does not contain any limiting language such as “requisite and necessary to be done.” Rather, the power of attorney granted Cherolis broad and unrestricted authority to execute contracts and agreements. More significantly, the power of attorney authorized Cherolis to “[i]nstitute or defend suits concerning my property or rights,” and granted her power to “[g]enerally do and perform for me and in my name all that I might do if present.” Given this expansive grant of authority, Kindred maintains that Cherolis had the authority to execute the optional ADR Agreement, even under the high standard established in Ping.

As an initial matter, we note that the Ping decision did not turn entirely on the particular language of the power of attorney. The Court in Ping pointed out that wrongful death claims in Kentucky are afforded a great deal of protection under our Constitution, Ky. Const. § 241, and by statute. KRS 411.133. Furthermore, since a wrongful death claim accrues to the benefit of the wrongful death beneficiaries, the Court in Ping held that a decedent or her agent cannot bind those beneficiaries to arbitrate their wrongful death claim. Id. at 599. Kindred concedes that this interpretation would bar enforcement of the ADR Agreement with respect to the estate's wrongful death claim.

However, Kindred notes that the Court in Ping drew a distinction between wrongful death claims and personal injury claims. The Court held that, in Kentucky, wrongful death claims are not derivative of personal injury claims. Consequently, the estate may be bound by a valid agreement to arbitrate the personal injury and negligence claims. Id. at 598–99. Consequently, we return to the central question concerning the scope of the authority granted to Cherolis under the power of attorney.

On that question, we agree with Kindred that the power of attorney in this case is much broader than the one in Ping. Unlike in Ping, Thelma Fuqua's power of attorney broadly granted Cherolis the authority “to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way.” The document specifically authorized Cherolis to enter into contracts and to institute or defend suits regarding Thelma Fuqua's property or rights. The power of attorney does not limit the exercise of this authority in any way.

Nevertheless, Cherolis notes that the Court in Ping held that an agent's authority under a power of attorney is to be construed with reference to the types of transactions expressly authorized in the document. Id. at 591–92. The Court pointed to the Restatement (Third) of Agency, § 2.02 (2006), which provides that

(1) An agent has actual authority to take action designated or implied in the principal's manifestations to the agent and acts necessary or incidental to achieving the principal's objectives, as the agent reasonably understands the principal's manifestations and objectives when the agent determines how to act.

Thus, the Court in Ping went on to find that a general grant of authority will be limited in scope to those actions which are reasonably necessary to carry out the powers granted by the agency. The Court held that this limitation is particularly applicable to collateral acts which create legal consequences for a principal that are significant and separate from the transaction specifically directed by the principal. Id. at 592, citing Restatement (Third) of Agency § 2.02 cmt. h. In the absence of any express authorization for Ping to waive legal rights or settle disputes on Mrs. Duncan's behalf, the Court concluded that the parties never anticipated that Ping would possess the authority to waive Mrs. Duncan's rights to seek redress of grievances in a court of law. Id. Likewise, Cherolis argues that the authority to enter into arbitration agreements should not be inferred from the broad and general language in the power of attorney.

However, the Court's discussion in Ping on this point is not applicable to the power of attorney executed in the current case. While the power of attorney in Ping included broad general language, Mrs. Duncan had limited the scope of the agency to matters relating to management of her property and financial affairs and to assuring that health-care decisions could be made on her behalf. Id. at 592. The Supreme Court in Ping concluded that the broad authority expressed in the general language must be interpreted in light of these stated objectives.

In contrast, the power of attorney executed by Thelma Fuqua has no limitation on its scope or objectives. Rather, Cherolis was authorized to perform any act which Thelma Fuqua might do in her own name. Furthermore, the power of attorney specifically provides that its recitation of specific powers does not limit the agent's scope of authority granted by the initial clause. Although the power of attorney did not expressly authorize Cherolis to enter into an arbitration agreement, we can find no reasonable interpretation of the document which would limit her authority to do so. The power of attorney clearly anticipated that the agent could make decisions with legal implications for the principal. Consequently, the holding of Ping is not applicable in this case.

Under the facts presented in this case, Cherlois had the authority to execute the ADR Agreement, except as it related to the wrongful death claim. Therefore, the trial court erred by denying Kindred's motion to compel arbitration to the estate's negligence and personal injury claims. In light of this holding, we need not address whether the FAA preempts the holding of Ping, or Kindred's argument under Section 250 of the Kentucky Constitution.

Accordingly, the order of the Daviess Circuit Court is reversed and this matter is remanded for entry of an order granting Kindred's motion to compel arbitration of the negligence and personal injury claims.

MAZE, Judge.

ALL CONCUR.

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