ADR CASELAW: selected ADR cases of interest to Tennessee attorneys and ADR professionals (2008-2009 archive) by Marnie Huff*
1. Non-signatories to Arbitration Agreement May Appeal Denial of Stay Motion.
2. Collective Bargaining Agreement Provision Requiring Arbitration of Age Discrimination Claims Enforceable
3. Federal Question Jurisdiction Issue Resolved
4. FAA Overrides State Statute Vesting Initial Jurisdiction in State Agency
- Dispute Resolution through Metro Nashville Human Rights Commission Not Available to Terminated NES Employee
- Binding vs. non-binding decision of mediator appointed as “Parenting Arbitrator”
- Confidentiality
- Fraudulent “Mediated” Settlement Set Aside
- Res judicata.
- Settlement Agreement Upheld; Mediator’s Letter Admitted into Evidence
- Party to Mediated Settlement Filed with Court Cannot Renege Through Nonsuit
- Special Master’s Fees for Mediation Disallowed
- Workers Comp mediation; exhaustion of administrative mediation process.
- Enforcement of Arbitration Award to Bank
- Hall Street Aftermath
- Home Inspection Company Fails to Separately Sign or Initial Arbitration Clause
- Jurisdiction: no jurisdiction in Tennessee to enforce arbitration agreement, under unusual facts
- Legal malpractice suit against attorney representing party in NASD arbitration
- Nursing Home Admission Contracts with Arbitration Clauses
- Scope of Arbitrator’s Authority
- Teacher Grievance Arbitrations
- Waiver of Mandatory Arbitration
Margaret Huff Mediation
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Archive: ADR Caselaw
A.U.S. Supreme Court Arbitration Cases
U.S. Supreme Court Arbitration CasesNon-signatories to Arbitration Agreement May Appeal Denial of Stay Motion. In a 6-3 decision reversing the Sixth Circuit Court of Appeals, Arthur Andersen LLP et al v. Carlisle et al, No. 08-146, 556 U.S. ___ (May 4, 2009), the U.S. Supreme Court held that: 1) appellate courts have jurisdiction under §16(a) of the Federal Arbitration Act (FAA) to review denials of stays requested by litigants who were not parties to the relevant arbitration agreement, regardless of whether the litigant is actually eligible for a stay; and 2) if applicable state contract law allows a litigant to enforce the arbitration agreement, then even a litigant who was not a party to the arbitration agreement may invoke FAA §3.
Collective Bargaining Agreement Provision Requiring Arbitration of Age Discrimination Claims Enforceable. In at 5-4 decision, the Court held in 14 Penn Plaza LLC v. Pyett, No. 07-581, 556 U.S. ___ (April 1, 2009) that "a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law." Relying on Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) and other cases favoring arbitration, the Court resolved a question left unanswered in Wright v. Universal Maritime Service Corp., 525 U.S. 70, 82 (1998) where the waiver at issue was not "clear and unmistakable" and narrowed the reach of Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974).
Federal Question Jurisdiction Issue Resolved. In Vaden v. Discover Bank, No. 07–773. 556 U.S. ___ (March 9, 2009), the U.S. Supreme Court considered two issues: 1. “Whether a suit seeking to enforce a state-law arbitration obligation brought under Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, “aris[es] under” federal law, see 28 U.S.C. § 1331, when the petition to compel itself raises no federal question but the dispute sought to be arbitrated—a dispute that the federal court is not asked to and cannot reach— involves federal law”; and 2. “If so, whether a “completely preempted” state-law counterclaim in an underlying state-court dispute can supply subject matter jurisdiction.” Vaden v. Discover Bank, No. 07-773 (questions presented). The Court took the case to resolve a split in the circuits on the authority of courts under Section 4 of the FAA to "look through" to underlying claims to determine federal question jurisdiction. In an opinion authored by Justice Ginsburg reversing the Fourth Circuit Court of Appeals, the Court held that a federal court may “look through” a §4 petition to determine whether it is predicated on a controversy that “arises under” federal law. In keeping with the well-pleaded complaint rule as amplified in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U. S. 826 however, a federal court may not entertain a §4 petition based on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal-court adjudication.
FAA Overrides State Statute Vesting Initial Jurisdiction in Administrative Agency. In Preston v. Ferrer, No. 06-1463, 556 U.S. ___ (February 20, 2008), the Court decided whether the Federal Arbitration Act "overrides not only state statutes that refer certain state-law controversies initially to a judicial forum, but also state statutes that refer certain disputes initially to an administrative agency." The case involved a dispute between an attorney seeking unpaid fees and a client, a TV personality who claimed their contract was void and unenforceable because the attorney had served as an unlicensed talent agent. The client sought a stay of any arbitration, pending a decision from the California Labor Commissioner in an administrative proceeding. Following Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the U.S. Supreme Court held that when parties agree to arbitrate all questions arising under a contract, the FAA supercedes state laws that lodge primary jurisdiction in another forum, whether judicial or administrative. Unlike the situation in Volt Information Services, Inc. v. Bd. of Trustees, 489 U.S. 468 (1989), in Preston there was no third party who was not bound by the parties' arbitration agreement. The parties' contract adopted an American Arbitration Association rule that the arbitrator had the power to decide the existence or validity of their contract, but it also had a choice of law clause incorporating California state law. Relying on Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), the Court decided the best way to harmonize these provisions is to read the adoption of California law as governing the parties' substantive rights, but not California rules limiting the arbitrator's authority. To do otherwise would undercut the FAA's basic policy to achieve efficiency through agreements to arbitrate. The Court declined to take up Preston's invitation to overrule Southland Corp. v. Keating, 465 U.S. 1 (1984) (holding that FAA requires application of federal substantive law regarding arbitration in state as well as federal courts).
B.Tennessee Cases (cases available on Tennessee AOC website; Tennessee Bar Association members may access cases through the TBA website - click on Court Opinions tab).
Tennessee Cases (cases available on Tennessee AOC website; Tennessee Bar Association members may access cases through the TBA website - click on Court Opinions tab).1. Miscellaneous: Dispute Resolution through Metro Human Rights Commission Not Available to Terminated NES Employee. In Metropolitan Electric Power Board a/k/a Nashville Electric Service (NES) v. The Metropolitan Government of Nashville and Davidson County (Tenn. Ct. App. Dec. 10, 2008), a terminated NES employee filed a discrimination complaint with the Metro Nashville Human Rights Commission. NES filed a declaratory judgment action claiming the Metro Charter prevented the Commission from investigating the complaint. It relied on Article 42, Section 24 of the Charter (no “officer, . . . or commission of the metropolitan government shall have or exercise any authority whatsoever over the electric power board . . ., other and except to the extent herein expressly provided . . . .”) as giving it exclusive authority regarding employment. The Court of Appeals affirmed the chancery court’s decision in favor of NES, rejecting Metro’s claims that: 1) it had authority over NES pursuant to Article 2, Section 2.01.40 of the Charter; 2) investigations and non-binding recommendations by the Commission did not constitute “exercising authority”; or 3) the case was not ripe for review. 2. Tennessee Mediation CasesBinding vs. non-binding decision of mediator appointed as “Parenting Arbitrator.” In Elizabeth Sams Tuetken v. Lance Edward Tuetken, No. W2008-00274-COA-R3-CV (Tenn. Ct. App. Aug. 5, 2009), the trial court modified an arbitrator's award in a dispute over the parties' parenting plan and child support obligations. On appeal, the Court rejected the argument that the Uniform Arbitration Act did not permit modification of the decision of the court-appointed “Parenting Arbitrator” (a Rule 31 mediator), appointed by the trial court in an order that stated the arbitrator’s decision “shall be binding on the parties pending the resolution of the matter by the Trial Court.” The Court of Appeals concluded that the Uniform Arbitration Act did not apply. Instead, this was a non- binding dispute resolution proceeding governed by Tennessee Supreme Court Rule 31. The requirements listed in Team Design v. Gottlieb, 104 S.W.3d 512 (Tenn. Ct. App. 2002) for a final and binding ADR proceeding under Rule 31 were not met.
Confidentiality.
In State of Tennessee v. William Jeffery Sweet, No. E2008-00100-CCA-R3-CD (Tenn. Crim. App. July 21, 2009), a presentence report on the defendant in a criminal case included a letter prepared during mediation of one of the victim’s civil suits against the defendant. Upon the defendant’s objection, the trial court expunged the letter. On appeal, the Court rejected the defendant’s claim that expungement was insufficient to cure the letter’s prejudicial effect on the defendant.
In Larry Lynn Averitt, Sr. v. Lynn Binkley Averitt, No. M2008-02047-COA-R3-CV - (Tenn. Ct. App. July 24, 2009), the parties signed a handwritten mediated agreement that essentially divided their assets equally, but excluded one of the wife’s retirement benefits from the calculation. On appeal, the Court rejected the wife’s apparent argument that the trial court had erroneously set aside part of the mediation agreement. Without discussing the confidentiality of mediation (there is no indication that any party or the trial court raised the issue), the Court of Appeals addressed the parties’ dispute as to what was communicated during the mediation process. The Court also noted that it applies contract law to determine whether a judgment may be entered in a case based on a mediated agreement. The party seeking to invalidate the contract bears the burden of proving adequate grounds to invalidate.
In Beth Ann Mason v. Thaddeaus Scott Mason, No. M2007-02059-COA-R3-CV (Tenn. Ct. App. Mar. 3, 2009), the Court affirmed the trial court’s denial of a Rule 60 motion to alter or amend a final divorce decree, and did not need to reach the issue of whether evidence submitted by the moving party was inadmissible hearsay or inadmissible under Tenn. R. Evid. 408 and Tenn. S. Ct. Rule 31(7) as part of settlement negotiations conducted during a mediation.
Fraudulent “Mediated” Settlement Set Aside. In Deborah Gail Davis Morgan Everett v. Charles Scotty Morgan (Tenn. Ct. App. January 16, 2009), a mother petitioned to have her former husband held in contempt for failure to pay child support. Shortly thereafter, she was contacted by a person who claimed he was connected with the court system and had been contacted by her former husband to mediate the child support claim. However, this person, a friend of the father, was not connected to the court system and was not a certified mediator. He convinced the mother to discharge her attorney, “mediated” the claim in a courthouse conference room, and persuaded the mother the most a court would award was $8,750.00. An Agreed Decree entered by the trial court incorporated the settlement from the “mediation.” The mother filed a Rule 60.02 motion to set aside the Agreed Decree on the basis of fraudulent misrepresentations made by the “mediator” and/or her former husband. The Court of Appeals affirmed the trial court’s judgment.
Party to Mediated Settlement Filed with Court Cannot Renege Through Nonsuit. In Rebecca Stafford Shell v. Jon E. Shell, (Tenn. Ct. App. July 9, 2008), the parties resolved all issues in a mediated settlement. After the mediator filed a Final Report in court, the plaintiff voluntarily nonsuited, and refiled on the same date. The Court of Appeals held that the trial court properly set aside the nonsuit, tried the issues raised, approved the mediated settlement, and granted the parties a divorce. The right to a voluntary nonsuit is subject to exceptions in Tenn. R. Civ. P. 41.01(1) and the implied exception prohibiting nonsuit when it would deprive a defendant of a vested right acquired during a lawsuit. Here, the defendant’s right to property awarded in the mediation agreement vested during the original suit. Also, the plaintiff failed to establish at trial that the mediated agreement was “’so inadequate as to shock the conscience of the Court.’”
Res judicata. In Zoran Djordjevic v. Grozdana Djordjevic, No. E2008-01793-COA-R3-CV (Tenn. Ct. App. Aug. 19, 2009), the Court noted, among other things, that a temporary parenting plan pursuant to a mediated agreement is not a final order and therefore not res judicata, distinguishing the case from Hoalcraft v. Smithson, 19 S.W.3d 822 (Tenn. Ct. App. 1999)
Settlement Agreement Upheld; Mediator’s Letter Admitted into Evidence. In Lauren Diane Tew v. Daniel V. Turner et al, (Tenn. Ct. App. Jan. 29, 2009), one of the parties to a mediated settlement moved to set aside an agreed judgment signed by his attorney, on the grounds that he had not authorized his attorney to sign it. The Court of Appeals affirmed the trial court’s order denying the motion because an agreement was reached at the mediation. The mediator apparently did not testify at trial; a letter from the mediator, admitted in evidence, stated that “[t]hrough the efforts of all parties, all claims . . . were settled . . . .” The Court does not indicate whether the mediator resisted providing evidence on mediation confidentiality grounds.
Special Master’s Fees for Mediation Disallowed. In Jefferson C. Pennington III and Dan Alan Goostree v. Boundry, Inc.; South Street, Inc.; Chumi, LLC; Lewis Investment Co., Inc.; and James A. Lewis and Bradford Jason Lewis, Ginger Lewis Dollarhide, and James Bryan Lewis v. Boundry, Inc.; South Street, Inc.; and Jefferson C. Pennington III (Tenn. Ct. App. May 1, 2008), the trial court had appointed a special master to investigate facts related to a lawsuit seeking judicial dissolution and intervention to prevent future losses. During the investigation, the special master acted as a mediator and conducted settlement discussions. On appeal, one of the issues was whether the portion of the special master’s fees awarded for mediation services should be disallowed as outside the scope of the order of reference. The Court of Appeals held that the special master's mediation efforts, even with the consent of the parties, were outside the scope of the special master's authority. Also, the trial court could not ratify the special master’s mediation activities after the fact; having the special master attempt to act as a mediator, “while at the same time investigating and preparing a report to the trial court on other issues, is especially problematic.” The special master as a judicial officer is expected to report findings and conclusions to the trial court, but a mediator is required under Rule 2.4(c)(4) of the Rules of Professional Conduct to protect information as confidential and refrain from using that information to the disadvantage of the parties to the mediation. The Court reversed the portion of the fee awarded for the mediation activities.
Workers Comp mediation; exhaustion of administrative mediation process. As noted in The Holland Group v. Audrey Sotherland, et al., No. M2008-00620-SC-WCM-WC (Tenn. April 24, 2009), parties who have a workers comp dispute involving injuries occurring after January 1, 2005 must exhaust an administrative mediation process (the benefit review conference). In this case, the employee has filed a “Request for Assistance” pursuant to Tenn. Comp. R. & Regs. 0800-2-5.01(13), but not a “Request for Benefit Review Conference” pursuant to to Tenn. Comp. R. & Regs. 0800-2-5.01(14). After the Tennessee Dept. of Labor and Workforce Development ordered medical treatment and benefits, the employer filed suit against the employee and the Second Injury Fund, seeking reimbursement for the benefits paid. Because the parties had not exhausted the administrative mediation process, the trial court properly dismissed the suit for lack of jurisdiction.
3.Tennessee Arbitration CasesEnforcement of Arbitration Award to Bank. In MBNA America Bank, N.A. v. Charles Hendricks (Tenn. Ct. App. February 14, 2008), the bank sued to enforce an arbitration award for a debt owed by a former credit card holder. The Court of Appeals affirmed the summary judgment against the pro se debtor, who did not timely apply to vacate or object to the arbitration award. Moreover, a trial court’s ability to correct an arbitration award is severely limited under the Uniform Arbitration Act, TCA §29-5-313(a) and 29-5-314(a).
Hall Street aftermath. In Pugh’s Lawn Landscape Company, Inc. v. Jaycon Development Corporation, No. W2008-01366-COA-R3-CV (Tenn. Ct. App. April 23, 2009), the Court of Appeals considered Hall Street Assocs. LLD v. Mattel, Inc., 128 S.Ct. 1396 (2008), the split of authority in post-Hall Street decisions, and the strong indication in Arnold v. Morgan Keegan & Co., Inc., 914 S.W.2d 445 (Tenn. 1996) that judicial review of arbitration awards is statutorily limited in Tennessee. Based on those considerations, the Court of Appeals held that the Tennessee arbitration statutes, TCA § 29-5-313(a)(1)-(5) and § 29-5-314(a)(1)-(3), do not permit parties in an arbitration to expand the scope of judicial review of an arbitration award.
Home Inspection Company Fails to Separately Sign or Initial Arbitration Clause. In Abby Wells v. Tennessee Homesafe Inspections, LLC (Tenn. Ct. App. Dec. 15, 2008), a homeowner's suit against a home inspection company, the trial court properly denied the company's motion to compel arbitration because the arbitration clause was not signed or initialed by a company representative as required by TCA 29-5-302(a) (“A written agreement to submit . . . to arbitration . . . is valid . . . provided that for contracts relating to farm property, structures or goods, or to property or structures utilized as a residence of a party, the clause providing for arbitration shall be additionally signed or initialed by the parties.”). The Court of Appeals distinguished three cases relied upon by the inspection company, including Hubert v. Turnbery Homes, LLC, 2006 WL 2843449 (Tenn. Ct. App. Oct. 4, 2006) (holding that Section 2 of Federal Arbitration Act preempted TCA 29-5-302(a)). The Court stated that there was no evidence of interstate commerce and a preemption argument, not raised below, was waived.
Jurisdiction: no jurisdiction in Tennessee to enforce arbitration agreement, under unusual facts. In Michael J. Hogan v. Janet Katherine Hogan, No. W2008-01750-COA-RV-CV, (Tenn. Ct. App. August 27, 2009), a parenting plan had been filed in a Washington court. The plan provided that the mother and children would live in California and included an arbitration clause. The parties later agreed that the children would live with the father in Tennessee on a temporary basis. The father sought modification of the plan in a Tennessee court. The Court of Appeals held that under these circumstances: 1) Tennessee courts do not have jurisdiction to enforce the parties' arbitration agreement or to modify the plan under Tennessee’s Uniform Arbitration Act and 2) although the plan provided for arbitration of disputes, placement of that provision in the plan did not result in Tennessee court jurisdiction under Tenn. Code Ann. 36-6-204(3).
Legal malpractice suit against attorney representing party in NASD arbitration. In Joseph Barna v. Preston Law Group, P.C. et al., No. M2008-02560-COA-R3-CV (Tenn. Ct. App. Aug. 25, 2009), the Court reversed the summary dismissal of a legal malpractice action against plaintiff’s former attorney who had represented plaintiff in a National Association of Securities Dealers arbitration hearing.
Nursing Home Admission Contracts with Arbitration Clauses. After the Tennessee Supreme Court addressed nursing home arbitration clause issues in the Owens case in 2007, appellate courts have decided a number of nursing home contract cases. In summary, a pre-dispute arbitration clause in such contracts is not per se against public policy and does not violate federal laws governing facilities that participate in Medicaid. Depending on the facts and circumstances, however, the contract may be unenforceable.
The Tennessee Supreme Court case, Dorothy Owens, as Conservator of Mary Francis King, an Incapacitated Person v. National Health Corporation, et al. (Tenn. Nov. 8, 2007), addresses several issues. First, applying Volt Info. Sciences., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989) to this case, where a nursing home contract specified that the arbitration agreement was governed by the laws of the state where the nursing home was licensed, the Court held that the Tennessee Uniform Arbitration Act applied, not the Federal Arbitration Act. Second, the Court found that the power of attorney at issue, which included the power to "execute on my behalf any waiver, release or other document which may be necessary in order to implement” health care decisions, authorized the attorney-in-fact to sign the arbitration agreement on behalf of the principal, notwithstanding the argument that the waiver of a jury trial and agreement to arbitrate were not “health care” decisions. Third, the Court rejected the plaintiff's argument that the arbitration agreement was unenforceable because a material term (selecting certain arbitration providers) was incapable of performance. The provision was not so material to the contract that it must fail if the arbitrators were available. Also, one of the arbitration providers will arbitrate cases such as this one involving a pre-dispute arbitration agreement, if ordered to do so by a court. Fourth, the arbitration agreement requiring a nursing home admittee to agree to arbitrate any future disputes with the nursing home is not equivalent to charging an additional fee or other consideration, which would violate federal laws governing facilities that participate in the Medicaid program. Fifth, pre-dispute arbitration agreements in nursing-home contracts do not per se violate public policy. Sixth, given the scant factual record, the Court remanded the case for the trial court to decide whether the arbitration agreement was an unconscionable, and thus unenforceable, adhesion contract. Seventh, discovery on remand should not include discovery on the claim that the nursing home violated a fiduciary duty since no such fiduciary duty exists as to a potential patient prior to execution of the contract.
In Ginger Wise, Individually, and as Next of Kin of Anne Smith, Deceased, v. Heritage Assisted Living d/b/a/ Heritage Home For Seniors, LP, No. E2008-02710-COA-RV-CV (Tenn. Ct. App. Sept. 9, 2009), a nursing home filed a motion to compel arbitration in a wrongful death action. Affirming the trial court’s denial of the motion, the Court of Appeals found that 1) the holder of a power of attorney (POA) was not authorized to sign a nursing home residency agreement containing an arbitration clause: the decedent had not been found incompetent by a physician, as required by the POA, so the POA did not become effective; 2) the holder of the POA did not have express authority under the POA to sign the agreement. The Court declined to determine whether the arbitration clause was unconscionable.
In Casey Barclay, as Next of Kin of Odis Doyle Barclay, Jr., Deceased, and on behalf of the Wrongful Death Beneficiaries of Odis Doyle Barclay, Jr. v. Kindred Healthcare Operating, Inc., et al., No. W2008-02828-COA-R3-CV (Tenn. Ct. App. August 26, 2009), the decedent was competent at the time his nephew signed the optional arbitration agreement. The Court reversed the trial court’s decision that decedent's nephew had express oral authority to bind the decedent to the arbitration agreement, and declined to decide whether the arbitration agreement was unconscionable. Regarding the case’s procedural posture, the Court noted that the correct procedure in a trial court (if a motion to compel arbitration is granted) is to stay the matter pending arbitration pursuant to TCA § 29-5-303(d), not dismiss it. Dismissal of the case, making the trial court judgment a final judgment under TRAP 3, is an “end run” around the statute. When a trial court decides a dispute is subject to arbitration, the “correct procedure to be followed by the trial court is to stay the matter and permit an interlocutory appeal of its judgment on the gateway issue(s) or make its judgment on . . . [those issues] final pursuant to Tennessee Rules of Civil Procedure 54.02.” After a brief discussion of dicta in Green Tree Fin. Corp. - Alabama v. Randolph, 531 U.S. 79, 89 (2000) (if federal trial court had entered stay and not order dismissing case, the order would not be appealable under Federal Arbitration Act), the Court invited the Tennessee Supreme Court and General Assembly to “address the procedural mechanism that best reconciles Tennessee’s statutory provisions, the court’s role as adjudicator of gateway issues, and the Tennessee Rules of Appellate Procedure.”
In Corine Broadnax, Individually and as heir and on behalf of the Estate of Mary Alice Johnson v. Quince Nursing And Rehabilitation Center, LLC, et al., No. W2008-02130-COA-RC-CV (Tenn. Ct. App. Aug. 10, 2009), the parties to a nursing home admission agreement disputed enforceability of the agreement’s arbitration provision. The Court reversed the trial court’s grant of summary judgment and remanded for entry of an order compelling arbitration. The Court reasoned that: 1) the trial court erred in applying a subjective “meeting of the minds” standard, rather than the objective “reasonable person” test for mutual assent to the contract; 2) where the arbitration agreement is not a contract of adhesion (here, it was not a precondition to nursing home admission and could be rescinded within 30 days), the nursing home is not required to prove that the parties bargained over its terms, distinguishing this case on its facts from Howell v. NHC Healthcase-Fort Sanders, Inc., 109 S.W.3d 731 (Tenn. Ct. App. 2003); 3) accordingly, the arbitration agreement is enforceable, even if the plaintiff did not read it and even if the nursing home did not explain its terms.
In Deborah Mitchell, as Executrix of Gaynell Metts, Deceased v. Kindred Healthcare Operating, Inc., et al., No. W2008-01643-COA-R3-CV (Tenn. Ct. App. June 17, 2009), the plaintiff signed an arbitration agreement when her mother was admitted to the nursing home, after the plaintiff told nursing home employees that she had a power of attorney. When the nursing home later sought to enforce the arbitration agreement, the plaintiff claimed she was not actually authorized to act as her mother's attorney-in-fact. On appeal, the Court affirmed the trial court’s refusal to enforce the arbitration agreement because the daughter lacked authority to sign it. The Court rejected the nursing home claims that: 1) the daughter was authorized to sign the arbitration agreement due to a document stating the mother “would like” to make the daughter her power of attorney; or 2) even if the document was ineffective, the daughter had actual authority. The Court declined to consider a new theory of implied actual authority not raised at the trial court level.
In Rheaetta F. Wilson, et al. v. Americare Systems, Inc. et al., No. M2008-00419-COA-R3-CV (Tenn. Ct. App. Mar. 31, 2009), a nursing home filed a motion to arbitrate more than 3 years after plaintiff had filed suit. The Court of Appeals affirmed the trial court’s denial of the motion because the nursing home failed to prove the arbitration agreement was enforceable: the nursing home resident was not incompetent at the time of admission; the resident did not designate anyone as a surrogate to make health care decisions; and no designated physician made any determination of incapacity. The Court also rejected the nursing home’s argument that the daughter had apparent authority. But the Court vacated the trial court’s additional ruling that the nursing home had waived any right to arbitration, given the incomplete record on that issue.
In Estate of Elizabeth Mooring v. Kindred Nursing Centers, et al. (Tenn. Ct. App. January 20, 2009) the decedent’s husband signed an arbitration agreement when the decedent was admitted to a nursing home. The Court of Appeals vacated the trial court’s decision denying the nursing home’s motion to compel arbitration and remanded for further proceedings. The arbitration agreement was not a contract of adhesion: it was a separate document; it was optional; and it allowed the patient to revoke the contract within 30 days. Therefore, the nursing home was not required to prove that the parties actually bargained over the terms or prove that the terms were reasonable. The lower court did not make any findings on the nursing home’s claims that the decedent’s husband had express or implied actual authority or that the court should apply the doctrine of ratification.
In NHC Healthcare, Inc. v. Betty Fisher and Aisha Fisher, as Power of Attorney for Betty Fisher (Tenn. Ct. App. Dec. 30, 2008), the Court of Appeals affirmed a trial court's confirmation of an arbitration award against respondents, a mother and daughter. The daughter had signed a nursing home admission and arbitration agreements on behalf of her mother as the mother's power of attorney. After the mother incurred over $50,000 in charges, the nursing home filed an arbitration action against the mother and her daughter, as power of attorney, seeking an award for the amount owed. An arbitration award in favor of the nursing home was confirmed by the trial court. On appeal, the daughter challenged the trial court's decision, claiming it held her individually liable for the amount due on her mother's debt. The Court of Appeals affirmed the trial court's confirmation of the arbitration award because the respondents failed to challenge the award within 90 days, as required under TCA 29-5-313 (unless corruption, fraud or other undue means are proven). The Court did note, however, that neither the final arbitration decision nor the trial court's order held the daughter liable in her individual capacity.
In Dwight Barbee, as Administrator of the Estate of Faye Glenn v. Kindred Healthcare Operating, Inc. et al (Tenn. Ct. App. Oct. 20, 2008), the decedent’s son signed nursing home admission documents which included an arbitration agreement. In this suit alleging neglect and abuse, the nursing home moved to dismiss and compel arbitration. The trial court granted the motion, finding that the agreement was not unconscionable and that the son had apparent authority to sign the agreement in view of his mother's incompetence and exigent circumstances. The Court of appeals reversed, holding that the son was not his mother's agent and did not have apparent authority to sign on her behalf. Agency status “stems from the actions of the principal” whether alleged to establish actual or apparent authority. Also, under the Tennessee Health Care Decisions Act, the son was not his mother's surrogate, and did not have authority to bind her to the arbitration agreement. At the time of the nursing home admission, no physician had made the required determination that the decedent lacked the capacity to make health care decisions.
In Lovie Mitchell, as Executrix of the Estate of Mack Mitchell, Deceased v. Kindred Healthcare Operating, Inc., et al. (Tenn. Ct. App. Nov. 19, 2008), the Court of Appeals reversed the trial court’s denial of the nursing home’s motion to compel arbitration. The patient's wife had authority to sign the agreement under the terms of a power of attorney. The contract, identical to the one addressed in Reagan v. Kindred Healthcare Operating Inc., 2007 WL 4523092 (Tenn. Ct. App. Dec. 20, 2007) is not unconscionable. The wife failed to prove that she lacked the mental capacity to sign the arbitration.
In Cheryl Mclemore Hearn, et al. v. Quince Nursing And Rehabilitation Center, LLC, et al. (Tenn. Ct. App. Oct. 16, 2008), the trial court found that an arbitration agreement was unenforceable because the nursing home's agent incorrectly told the patient’s daughter that one could still sue in court if she signed the agreement. Not reaching the merits of the trial court's decision on that issue, the Court of Appeals affirmed because the patient's daughter did not have apparent authority to sign the agreement on her father's behalf. The agreement was signed before passage of the Tennessee Health Care Decisions Act, so the Act does not apply.
In Merry Leshane, as Next of Kin of Winnie Brumley, Deceased v. Quince Nursing and Rehabilitation Center, LLC (Tenn. Ct. App. Oct. 14, 2008), the trial court denied a motion to compel arbitration. The Court of Appeals vacated and remanded for further proceedings on the issue of whether the decedent’s daughter had authority to sign an arbitration agreement with the nursing home.
In Virginia L. Ricketts et al. v. Christian Care Center of Cheatham County, Inc. et al. (Tenn. Ct. App. Aug. 15, 2008), the trial court upheld enforceability of an arbitration agreement in a nursing home admission contract. The Court of Appeals reversed, finding that the person who signed the admission agreement did not have authority to act for the decedent. Rejecting the nursing home’s arguments on appeal, the Court held that: 1) the Tennessee Health Care Decisions Act does not operate retroactively; 2) the decedent was not a third party beneficiary of the contract because there was no valid contract, finding certain caselaw from other jurisdictions unpersuasive.
In Nina McKey, Administratrix of the Estate of Ruby Irene Brewer, Deceased v. National Healthcare Corp. et al., (Tenn. Ct. App. Aug. 15, 2008), the Court of appeals refused to enforce an arbitration agreement. The Court rejected the defendants’ claim that they had complied with the Tennessee Healthcare Decisions Act, TCA 68-11-1801, et seq. The Act requires that: 1) a designated physician make a prior determination that the patient lacked capacity to sign the contract; 2) no agent or guardian has been appointed or is reasonably available, and 3) the supervising health care provider identifies a patient’s surrogate.
In Matthew Thornton, et al. v. Allenbrooke Nursing and Rehabilitation Center, LLC, et al., (Tenn. Ct. App. July 3, 2008), the decedent's daughter had signed all the paperwork for the decedent's nursing home admission, including an arbitration agreement, as a “designated representative.” The trial court properly denied the nursing home’s motion to stay the case and compel arbitration because the daughter did not have authority to waive decedent's constitutional right to a jury trial. The nursing home failed to determine whether the decedent was competent to sign the arbitration agreement. There was no actual or apparent agency relationship between the decedent and the daughter. The decedent did not ratify the contract through her inaction, since ratification would require that a party acquiesce after full knowledge of the material facts. Although the decedent received the benefits of healthcare and residence at the nursing home, this did not constitute mutual assent to the terms of the contract.
In Bill Heath, as Administrator of the Estate of Hazel Christine Heath, Deceased, and on behalf of the Wrongful Death Beneficiaries of Hazel Christine Heath v. National Health Corporation, et al. (Tenn. Ct. App. July 1, 2008), the decedent’s representative challenged the enforceability of an arbitration agreement allegedly signed by the decedent upon her admission to the defendants' nursing facility. Plaintiff alleged unconscionability and disputed the authenticity of the decedent’s signature on the contract. After limiting discovery to the issue of the decedent’s competence, the trial court found the decedent had signed the contract and was competent. The Court of Appeals vacated the trial court's order and remanded the case for additional discovery and an evidentiary hearing on the validity and enforceability of the arbitration agreement.
In Bridgett Hill, et al. v. NHC Healthcare/Nashville, LLC, et al. (Tenn. Ct. App. April 30, 2008), the nursing home filed a motion to compel arbitration, relying on an agreement to arbitrate in the admissions agreement signed by the decedent. Affirming the trial court, the Court of Appeals held that the arbitration clause was an unconscionable adhesion contract and unenforceable under the facts and circumstances of that case, distinguishing the Philpot and Reagan cases. Among other things, the Court relied on the trial court’s finding that, under the contract, the decedent’s family would have experienced prohibitive up-front costs of arbitration, perhaps reaching $18,000, that unreasonably favored the nursing home.
In Janie Cabany v. Mayfield Rehabilitation and Special Care Center et al. (Tenn. Ct. App. November 15, 2007) the trial court declined to compel arbitration, concluding that the durable power of attorney for health care at issue applied only to medical decisions and that the decision to waive the right to a jury trial was a legal, not a medical, decision. Following the Owens case, the Court of Appeals held that the trial court erred in interpreting the power of attorney too narrowly, remanding the case on the issue of whether the patient’s spouse was authorized to sign the admission contract. The durable power of attorney allowed the spouse to act for the patient only when the patient was not able make his own medical decisions.
Dorothy Necessary v. Life Care Centers of America, Inc. d/b/a Life Care Center of Jefferson City (Tenn. Ct. App. Nov. 16, 2007) involved validity of an arbitration agreement signed by the plaintiff while signing documents on her husband's behalf to have him admitted to a nursing facility. Although the husband had not appointed her attorney-in-fact in a durable power of attorney, he had given oral express authority for her to sign all necessary admission paperwork. Citing Owens v. National Health Corp. as dispositive, despite the different facts, the Court of Appeals held that the arbitration agreement was enforceable.
In Gary Philpot v. Tennessee Health Management, Inc., et al., (Tenn. Ct. App. Dec. 12, 2007), the decedent’s son signed an arbitration agreement on behalf of his mother. Under the arbitration agreement, both parties waived jury trials and agreed to arbitration of all claims, except small claims court claims. The trial court ruled the arbitration agreement was an unenforceable contract of adhesion. The Court of Appeals held that the case was governed by the Tennessee Uniform Arbitration Act and that pre-dispute arbitration agreements in nursing home contracts are not per se invalid on public policy grounds, following the Owens case. As for enforceability of the contract at issue, the court noted that any urgency in getting the plaintiff's mother admitted in the nursing home was due primarily to the plaintiff wanting to attend to the matter during his lunch break, the claim that the arbitration agreement was not explained by nursing home staff was contradicted by an affidavit filed by the nursing home, and the arbitration provision was not hidden in the contract. Rejecting the trial court’s conclusion of lack of mutuality, the Court found no legal or factual basis for the plaintiff's argument that the practical effect of the contract was to put all plaintiff claims in arbitration because they would always be for dollar amounts larger than General Session Court limits, while all nursing home claims would be expected to be within the General Sessions Court’s jurisdictional limits. The Court further held that the record was not sufficient to support the trial court’s finding that the arbitration procedure specified in the agreement - the party bringing a claim must initially advance all arbitration fees and costs - would be cost prohibitive. The only evidence the plaintiff presented on this point, the AAA fee schedule, was not relevant because the arbitration agreement did not require using an AAA arbitrator and the AAA will not honor pre-dispute arbitration agreements in the context of a medical services contract. Finally, the Court found that the 10 day revocation clause of the arbitration agreement was indicative of the reasonableness of the agreement, citing Buraczynski v. Eyring, 919 S.W. 2d 314, 320-321 (Tenn. 1996) (involving arbitration agreement between a physician and patient).
In a lengthy opinion cataloging cases on arbitration agreements executed upon admission to nursing homes, the Court in Ira Lynn Reagan, as conservator of the property and person of Hazel Rayborn, an incapacitated person v. Kindred Healthcare Operating, Inc., et al. (Tenn. Ct. App. Dec. 20, 2007) reversed a trial court decision denying a motion to compel arbitration. The mentally competent nursing home resident executed the arbitration agreement after her son, who had signed other admission documents with his mother’s oral permission, left the nursing home. Despite the son’s numerous requests, the nursing home did not provide to the son copies of the documents signed by the resident. The plaintiff argued that: 1) the arbitration agreement was incapable of performance for failure of an essential term; 2) the nursing home breached fiduciary duties it owed to the resident by obtaining her signature on the agreement; 3) the agreement was an unconscionable contract of adhesion; and 4) the resident was unable knowingly to agree to arbitrate disputes and waive her right to a jury trial. Without holding an evidentiary hearing or making any findings of fact or conclusions of law, the trial court dismissed the motion. The Court of Appeals rejected the impossibility of performance and breach of fiduciary duty arguments. Certain facts presented on the alleged procedural unconscionability were outweighed by other facts in the case. In any event, the terms of the contract did not shock the conscience.
In Eva Hendrix, et al. v. Life Care Centers Of America, Inc., et al. (Tenn. Ct. App. Dec. 21, 2007), plaintiff daughter of a deceased nursing home patient successfully resisted the nursing home's demand for arbitration despite an arbitration clause signed by the plaintiff when her mother was admitted to the nursing home. The Plaintiff was not authorized to act as her mother's attorney-in-fact at that time because her mother was able to make her own medical decisions. There was no actual or apparent agency relationship between the plaintiff and her mother, even though the plaintiff had treated the power of attorney document as though it was effective.
Scope of Arbitrator’s Authority. In Pierre Pons, et al. v. Barry Harrison d/b/a B. Harrison Housewright (Tenn. Ct. App. July 9, 2008), defendant homebuilder left plaintiff homeowners' job site before completing construction of their residence. The homebuilder appealed the chancery court's confirmation of an adverse arbitration award, arguing that the arbitrator exceeded his authority by refusing to enforce a provision of the contract that would have time barred the homeowners' suit. The limitation provision applied to suits for defective improvements to real estate. The Court of Appeals, recognizing the severe limits of judicial review of arbitration awards, found that this was a breach of contract action due to partial performance, not defective performance; therefore, the contractual limitation period did not apply.
Teacher Grievance Arbitrations. The Tennessee Supreme Court and the Court of Appeals have addressed arbitration of teacher grievances.
In Lawrence County Educ. Ass’n. v. Lawrence County Bd. of Educ., 244 S.W.3d 302 (Tenn. 2007), a Lawrence County tenured teacher and the Lawrence County Education Association primarily sought reinstatement of the teacher's additional role as a high school coach. The court held, among other things, that although the collective bargaining agreement at issue had an arbitration clause that teachers could invoke with regard to transfers, the teacher - in his capacity as coach - was not entitled to an arbitration hearing under the agreement, with respect to his transfer from coaching. The court noted that an arbitrator's decision cannot be in contravention of statutes and in this case the arbitrator should not have interceded with respect to the decision of the director of schools regarding the coaching position. Under the unique facts of this case, however, where the board of education adopted the arbitrator's recommendations at a board meeting, the board thereby established a policy granting contract rights to the teacher which he did not otherwise possess under the collective bargaining agreement.
In Metropolitan Nashville Education Association, et al v. The Metropolitan Board of Public Education, No. M2008-00405-COA-RM-CV (Tenn. Ct. App. Mar. 30, 2009), the Tennessee Supreme Court had remanded the case to the Court of Appeals for reconsideration in light of Lawrence Co. Education Assn. v. Lawrence Co. Bd. of Education, 244 S.W.3d 302 (Tenn. 2007). Rejecting the teacher and MNEA’s attempts to distinguish Lawrence Co., the Court held that, when the arbitrator resolved a dispute over the teacher losing his coaching position, the arbitrator exceeded his authority in this dispute between a math teacher and a board of education.
In Cannon County Board of Education v. Goldy Wade and Cannon County Education Association (Tenn. Ct. App. July 31, 2008), an arbitrability issue arose in the context of the Education Professional Negotiation Act (EPNA), TCA 49-5-601 et seq., and a local school board’s non-renewal of its contract with a probationary teacher. The Court of Appeals held that the locally negotiated agreement could not be interpreted to delegate to an arbitrator the decision of whether to renew a probationary teacher's contract because state statutes and other legal authority, including Lawrence County Educ. Ass’n v. Lawrence County Bd. of Educ., 244 S.W.3d 302 (Tenn. 2007) reserve that decision to local school officials. Although the EPNA authorized inclusion of arbitration clauses in a collective bargaining agreement between a school board and a professional employees’ organization, it also provided that the Tennessee Arbitration Act did not govern. Therefore, neither the Tennessee Arbitration Act’s statutory policy favoring arbitration, nor the same policy in the Federal Arbitration Act, apply here. Unlike private parties who may agree to any legal method for dispute resolution in a contract, the school board is limited by statute.
Waiver of Mandatory Arbitration. In Wendy Wilson et al. v. Battle Creek Milling & Supply, Inc. (Tenn. Ct. App. Dec. 19, 2008), the plaintiffs sought to domesticate a default judgment awarded in a Virginia Circuit Court for breach of contract. The defendant moved to dismiss and require arbitration. It contended that the Virginia court lacked jurisdiction because the contract contained a mandatory arbitration provision. The Tennessee trial court properly denied the defendant’s motions and domesticated the foreign judgment. The defendant waived any right to arbitration by not demanding it in the Virginia court.
ADR Caselaw Update is by Marnie Huff, Past Chair of the TBA Dispute Resolution Section and Co-Chair of the ABA DR Section Ethics Committee. Ms. Huff has an ADR practice in Nashville, TN.
Copyright Margaret M. Huff (2009-2010). All rights reserved.
Go to article on recent Tennessee cases about alternative dispute resolution.
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