Paducah Center for Health and Rehabilitation, LLC D/B/A Stonecreek Health and Rehabilitation v. Terry Lance Penix, as of the Estate of Terry Lynn Penix ( 2023 )

RENDERED: MAY 19, 2023; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0993-MR
PADUCAH CENTER FOR HEALTH
AND REHABILITATION, LLC D/B/A
STONECREEK HEALTH AND
REHABILITATION; CLEARVIEW
HEALTHCARE MANAGEMENT KY,
LLC D/B/A CLEARVIEW
HEALTHCARE MANAGEMENT;
PADUCAH CONSULTING, LLC;
PADUCAH PROPCO; AND SARAH
STEWART, IN HER CAPACITY AS
ADMINISTRATOR OF
STONECREEK HEALTH AND
REHABILITATION APPELLANTS
APPEAL FROM MCCRACKEN CIRCUIT COURT
v. HONORABLE TIMOTHY KALTENBACH, JUDGE
ACTION NO. 22-CI-00042
TERRY LANCE PENIX, AS
EXECUTOR OF THE ESTATE OF
TERRY LYNN PENIX, DECEASED
AND TERESA PENIX,
INDIVIDUALLY APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CETRULO, JONES, AND TAYLOR, JUDGES.
CETRULO, JUDGE: This is an appeal from a ruling of the McCracken Circuit
Court, which denied a motion to compel arbitration filed by the Paducah Center for
Health and Rehabilitation, LLC d/b/a Stonecreek Health and Rehabilitation
(“Stonecreek”); Paducah Consulting, LLC; Clearview Healthcare Management
KY, LLC d/b/a Clearview Healthcare Management; Paducah Propco; and Sarah
Stewart, in her capacity as Administrator of Stonecreek Health and Rehabilitation.
The underlying action was one for wrongful death, negligence, loss of consortium,
and punitive damages filed against Stonecreek, a nursing home, and its corporate
entities and administrator. Terry Lynn Penix (“Terry”) had been a resident of
Stonecreek for approximately one year prior to his death in March 2021. The suit
was filed through his executor, Terry Lance Penix, and his wife, Teresa Penix
(“Teresa”). Stonecreek filed a motion to dismiss. The trial court did not dismiss
the complaint nor compel arbitration, finding that Stonecreek did not meet its
burden of establishing a valid agreement to arbitrate. For the reasons set forth
below, we affirm.
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FACTS
In 2014, Terry executed a Living Will Directive and Advance
Directive (“POA”) naming Teresa as his health care power of attorney. In 2020,
Terry was admitted as a resident to Stonecreek. The record does not contain any
information as to his physical or mental status at that point, but as part of the
admission process, Teresa executed an Admissions Agreement (“the Agreement”).
She did so by signing her name at the end of the document, above a line which
read “Resident – Individual or by Legal Representative.” This was in response to a
provision acknowledging that the Agreement had been read and understood.
A second provision at the end of the Agreement required a
“sponsor’s” name and signature acknowledging that the person “agreed to the
personal undertakings of the sponsor, as provided for in the Agreement[.]” Teresa
wrote her name below that acknowledgement, not on a signature line, but next to a
line that read “Sponsor.” Below that, she entered the word “wife” next to a line
that read “Relation.” However, on the first page of the document, she had written
“Terry L. Penix,” as sponsor.1 In another section of the Agreement, “sponsor” was
defined as “a person legally responsible for the [r]esident or must be in the process
1
It is not clear whether Teresa intended “Terry L. Penix” to refer to “Terry Lance Penix,” the
executor listed in the complaint filed a year later, or to her husband “Terry Lynn Penix.”
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of obtaining such status, including a guardian, a person holding a durable power of
attorney and/or a conservator.”
Elsewhere in the 12-page agreement, there was a section entitled
“Disputes.” That section read, in part, that:
(i) To the fullest extent allowed by law, Resident and/or
the Resident’s legally authorized representative who signs
this Agreement, on behalf of the Resident, the Resident’s
heirs, assigns, and all others acting or purporting to act for
the Resident or the Resident’s estate, and Facility agree
that all civil claims arising in any way out of this
Agreement or the nursing care that Facility, its
employees, or agents provide to Resident, other than
claims by the Facility to collect unpaid bills for services
rendered, or to involuntarily discharge the Resident, shall
be resolved exclusively through mandatory mediation,
and, if such mediation does not resolve the dispute,
through binding arbitration using the commercial
mediation and arbitration rules and procedures of
JAMS/Endispute. . . . (ii) Resident and Facility also agree
that, to the greatest extent allowed by law, both
Resident and Facility shall seek only actual damages in
any such mediation or arbitration, and that neither of
them will pursue any claim for punitive damages,
treble damages or any other type of damages the
purpose of which are to punish one party in an amount
greater than the actual damages allegedly caused by
the other party[.]
A little over a year later in March 2021, Terry left the nursing home.
He died a few weeks later. On January 23, 2022, Terry’s estate filed a complaint
alleging negligence, wrongful death, and spousal consortium claims against
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Stonecreek.2 Stonecreek answered and then filed the motion to dismiss and
compel arbitration, based upon the “Disputes” provision, the signatures referenced
above, and the power of attorney for health care. In response, the estate argued
that Teresa had signed the Agreement in her capacity as wife to Terry, that she
lacked the authority to bind him or the estate to the arbitration provision of the
Agreement, and that enforcement of the same would deprive the estate of its
constitutionally protected right to a trial by jury. The trial court denied the motion
to compel arbitration, resulting in this appeal.
LEGAL ANALYSIS
Arbitration agreements are contracts; therefore, to determine if an
arbitration agreement is enforceable, a court must look to principles governing
contract law. Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 591 (Ky. 2012); see
also General Steel Corp. v. Collins, 196 S.W.3d 18, 20 (Ky. App. 2006). The
enforcement and effect of an arbitration agreement is governed by the Kentucky
Uniform Arbitration Act (“KUAA”), Kentucky Revised Statutes (“KRS”)
2
The parties agree that the wrongful death claim asserted in the complaint was not subject to
arbitration, regardless, because it belongs to the beneficiaries under Kentucky’s wrongful death
statute, Kentucky Revised Statute 411.130. An agreement to arbitrate claims against a skilled
nursing facility operator did not bind wrongful death beneficiaries to arbitrate her wrongful death
claim against operators. Diversicare of Nicholasville, LLC v. Lowry, 213 F. Supp. 3d 859,
869-70 (E.D. Ky. 2016). See also Kindred Nursing Centers Ltd. Partnership v. Cox, 486 S.W.3d
892, 893 (Ky. App. 2015) (“Under Kentucky precedent, wrongful death claims are not subject to
arbitration.”).
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417.045-417.240, and the Federal Arbitration Act (“FAA”), 9 U.S.C.3 §§ 1-402.
“Both Acts evince a legislative policy favoring arbitration agreements, or at least
shielding them from disfavor.” Ping, 376 S.W.3d at 588.
Further, the Kentucky Supreme Court explained that under both Acts,
the party “seeking to compel arbitration has the initial burden of establishing the
existence of a valid agreement to arbitrate.” Id. at 590 (citations omitted). Then,
“[u]nless the parties clearly and unmistakably manifest a contrary intent, that initial
showing is addressed to the [trial] court . . . and the existence of the agreement
depends on state law rules of contract formation.” Id. (citations omitted). This
Court reviews the trial court’s application of those rules de novo. However, we
review any factual findings for clear error. Id. (citation omitted).
Importantly, nothing in the FAA modifies the basic principles of state
contract law regarding the scope of agreements and who is bound by them. Golden
Gate Nat’l Senior Care, LLC v. Rucker, 588 S.W.3d 868, 870 (Ky. App. 2019).
(citation omitted). Therefore, “[o]rdinary contract principles govern the validity of
an arbitration agreement.” GGNSC Stanford, LLC v. Rowe, 388 S.W.3d 117, 121
(Ky. App. 2012). Moreover, arbitration agreements “constitute a waiver of the
right to a trial by jury, which is a fundamental right.” Jackson v. Legacy Health
3
United States Code.
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Servs., Inc., 640 S.W.3d 728, 735 (Ky. 2022) (citations omitted); see also KY.
CONST. § 7.
As discussed, we must first determine whether the party seeking to
compel arbitration – here, Stonecreek – met its burden of establishing the existence
of a valid agreement to arbitrate. Ping, 376 S.W.3d at 590. In Kentucky, to form a
valid and enforceable agreement, “there must be voluntary and complete assent by
parties having the capacity to contract.” Cambridge Place Group, LLC v. Mundy,
617 S.W.3d 838, 840 (Ky. App. 2021) (citation omitted). The trial court found that
Stonecreek failed to meet its burden.
While the trial court noted that Terry had named Teresa as his health
care surrogate in 2014, it framed the issue as determining whether she signed the
Agreement in that capacity. The trial court found that she had not done so,
relying in large part on an unpublished opinion of this Court, Providence
Healthcare of Pine Meadows, LLC v. Roark, No. 2020-CA-0117-MR, 2020 WL
7086083 (Ky. App. Dec. 4, 2020). We agree that Roark is quite analogous and
thus bears further discussion.
In Roark, a nursing home resident had executed a power of attorney
naming his son as his health care attorney-in-fact. Roark, 2020 WL 7086083, at
*1. During Roark’s admission to the facility, his son had executed a document
similar to the Agreement herein, which included an arbitration agreement. Id.-7-
However, as here, the son had signed the documents with his name only and did
not indicate his status as attorney-in-fact. Id. This Court upheld the trial court’s
ruling that the nursing facility had failed to meet its burden of establishing the
existence of a valid arbitration agreement. Id. at *3.
Here, Stonecreek initially asserts that this Court should not rely upon
an unpublished opinion, and secondly, that the Roark decision is distinguishable
from this case. As Stonecreek points out, Teresa did fill in her name or initial this
document in a few other places next to the line, “Sponsor Name.” Additionally,
Stonecreek’s contract did define the term “sponsor” earlier in the document as “a
person legally responsible for the [r]esident or [sic] must be in the process of
obtaining such status, including a guardian, a person holding a durable power of
attorney and/or a conservator.”
However, as the trial court noted, Teresa did not sign at any time as
attorney-in-fact or power of attorney. Moreover, on the first page of the document,
she wrote “Terry L. Penix” as sponsor, rather than her own name. Therefore, she
argues she did not sign the Agreement in her capacity as a health care attorney-in-
fact or as sponsor, but as his wife. Like the trial court, we find the Roark opinion
to be indistinguishable from this case. Moreover, we also rely upon several
published opinions that address such arbitration clauses in nursing home scenarios.
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In Ping, our Supreme Court clarified that legal representatives may
execute arbitration agreements on behalf of a facility’s resident. Ping, 376 S.W.3d
at 593. However, an attorney-in-fact does not have the authority to bind principals
to pre-dispute arbitration agreements unless such authority is clearly stated in the
durable power of attorney. Genesis Healthcare, LLC v. Stevens, 544 S.W.3d 645,
651 (Ky. App. 2017).
In Genesis, this Court followed our Supreme Court’s directive in
Ping, noting that:
an agent’s authority under a power of attorney is to be
construed with reference to the types of transaction
expressly authorized in the document and subject always
to the agent’s duty to act with the utmost good faith. Ping,
376 S.W.3d at 592, citing Wabner v. Black, 7 S.W.3d 379,
381 (1999), and Restatement (Second) of Agency, § 37
(1958). Consequently, general expressions of authority
must be construed in furtherance of the specific powers
granted by the POA. Id. at 592-93.
Id.
Here, the POA designated Teresa as the Agent and provided the
“powers conferred upon a health care Agent by KRS 311.629,”4 which it explained
applied “only as to those health care decisions for which [Terry is] unable to give
informed consent.” The POA went on to detail specific preferences concerning
such “health care decisions,” including mechanical ventilation, dialysis, antibiotics,
4
KRS 311.629 details the powers of health care surrogates, which specifically notes powers
including making health care, treatment, and nutrition decisions.
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and artificial nutrition and hydration. Additionally, the POA provided the Agent –
i.e., Teresa – with authority to “[t]ake any lawful actions that may be necessary to
carry out these decisions, including, but not limited to: (i) signing, executing,
delivering, and acknowledging any agreement, release, authorization, or other
document that may be necessary, desirable, convenient, or proper in order to
exercise and carry out any of these powers . . . .” Thus, here, we must determine
whether the POA provided authority for Teresa to enter an arbitration agreement,
thereby waiving Terry’s right to a jury trial.
In Rowe, we held that even though parents of an incompetent person
had the right to make health care decisions under KRS 311.621 – Kentucky’s
Living Will Directive Act – entering into an arbitration agreement was not a health
care decision as defined by the statute. Rowe, 388 S.W.3d at 124. Specifically, the
statute provides that “‘Health care decision’ means consenting to, or withdrawing
consent for, any medical procedure, treatment, or intervention.” Id. (citing
KRS 311.621(8)). There, we noted, the arbitration agreement did not concern “any
type of medical treatment, procedure, or intervention[,]” and like here, addressed
“only means of dispute resolution[.]” Id. Importantly, we explained that the
arbitration agreement was not a necessary part of the agreement to admit the
resident, but instead was “separate and ancillary.” Id.-10-
Here, we have found nothing within the body of the Agreement that
states it was mandatory for admission. While that was briefly suggested by
Stonecreek’s counsel at the hearing on the motion, it was not addressed by the trial
court in its opinion, nor did the parties discuss this in their briefs.
Similarly, in Rucker, this Court noted that a provision in the power of
attorney enabling the agent to “institute, maintain, defend, settle and dismiss legal
proceedings . . . did not expressly authorize [the agent] to enter into an arbitration
agreement, which would have the effect of waiving [the resident-principal’s] right
to a jury trial.” Rucker, 588 S.W.3d at 871 (emphasis added). Again, citing to
Ping, we held that “[a]bsent authorization in the [power of attorney] to settle
claims and disputes or some such express authorization addressing dispute
resolution, authority to make such a waiver is not to be inferred lightly.” Id.
(quoting Ping, 376 S.W.3d at 593). There, the trial court had acknowledged, like
here, the power of attorney did not suggest that the principal’s intent was to
authorize the agent to make such waivers on the principal’s behalf; “therefore, no
actual or apparent authority existed to sign the arbitration agreement.” Id.
Furthermore, in Mundy, 617 S.W.3d at 841, this Court addressed a
strikingly similar case involving a wife who signed an admissions agreement for
her husband to enter a nursing home and listed her relation as “wife” rather than
power of attorney. We held that the arbitration agreement signed by the resident’s
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spouse was invalid, in part, because she specifically wrote “wife” above a line
entitled “Legal Representative Capacity (i.e., guardian, spouse, child, Attorney-in
Fact, etc.)” stating:
While Cambridge is correct that Kentucky law does not
require a party to explicitly state they are acting as an
attorney-in-fact, the issue herein is not [the agent’s]
silence but rather her affirmative avowal that she was
acting in a separate capacity. In her capacity as wife, [the
agent] was authorized to make limited decisions on behalf
of [the principal]; however, the pre-dispute arbitration
agreement was outside that scope.
Id. (citing Rowe, 388 S.W.3d at 124) (emphasis added). Accordingly,
we found the trial court had not erred when it found there was not a valid
arbitration agreement. Id.Similarly, here, Teresa not only failed to designate herself as the
power of attorney, but she also specifically indicated that she was acting as Terry’s
wife. As in Mundy, the trial court here found such indication suggested Teresa was
signing the agreement in her “wife” capacity, not as power of attorney. As in
Mundy, the trial court did not err in finding there was not a valid arbitration
agreement.
Indeed, our review of the plethora of cases arising out of nursing home
arbitration agreements reveals that the vast majority have ruled that such
agreements are not enforceable for a host of reasons. We are mindful of the recent
decision in LP Louisville East, LLC v. Patton, 651 S.W.3d 759, 770 (Ky. 2020), as
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modified on denial of reh’g (Apr. 29, 2021), which did enforce an arbitration
agreement executed by a son admitting his father into a nursing facility. However,
that agreement, entitled “Agreement to Informally Resolve and Arbitrate All
Disputes,” stated that it required “all new residents and/or their legal
representatives to read, agree, and sign” the agreement as a condition of admission
to the facility. Id. at 762. We find no such requirement here.
Further, there, the power of attorney that the son provided to the
facility specifically authorized him to “submit to arbitration, settle, and propose or
accept a compromise with respect to a claim or litigation[.]” Id. at 763. Again,
here, there is no such authorization in the POA.
Finally, subsequent to Patton, our Supreme Court held that a nursing
home resident’s fundamental right to trial by jury was denied by her son’s
signature as guardian on a voluntary arbitration agreement. In Jackson, our
Supreme Court reversed a panel of this Court in a matter of first impression,
specifically stating that the fundamental right to a jury trial was limited beyond the
extent necessary to provide needed care and services, because the arbitration
agreement in that case was not a condition of the patient receiving care or being
admitted to the facility. Jackson, 640 S.W.3d at 735. The Supreme Court found
that because release of that right was not necessary for services, the guardian
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lacked the authority to enter into the arbitration agreement, so it was not binding,
and void. Id.
Here, similarly, the Agreement does not state that the arbitration
agreement was required as a condition for admission to Stonecreek. The POA did
not specifically authorize Teresa to agree to arbitration. Teresa had only signed the
Agreement in her capacity as wife, under KRS 311.621, not as power of attorney.
Finally, the Agreement, while signed or initialed by Teresa in a few locations next
to the line “Sponsor,” also specifically listed “Terry L. Penix” as sponsor on the
first page. Based upon general contract principles and upon ample authorities
upholding a resident’s fundamental right to a jury trial, unless clearly released by a
power of attorney granting full authority to do so, the trial court properly applied
the law in finding that Stonecreek did not meet its burden of establishing a valid,
enforceable agreement. Accordingly, we affirm the denial of the motion to compel
arbitration.
ALL CONCUR.
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BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEES:
A. Pete Pullen Brian M. Jasper
Leah T. Scharff Louisville, Kentucky
Louisville, Kentucky
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