Regina Edwards v. Allenbrooke Nursing and Rehabilitation Center, LLC

10/26/2017
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
September 18, 2017 Session
REGINA EDWARDS v. ALLENBROOKE NURSING AND
REHABILITATION CENTER, LLC
Direct Appeal from the Circuit Court for Shelby County
No. CT-000601-16 James F. Russell, Judge
No. W2016-02553-COA-R3-CV
This appeal involves an arbitration agreement executed in connection with a nursing
home admission. The trial court found no evidence that the individual who signed the
arbitration agreement on behalf of the resident had authority to do so, and that, in any
event, the form itself was not properly completed. Accordingly, the trial court denied the
nursing home’s motion to compel arbitration. The nursing home appeals and argues that
the trial court erred in deciding these issues because they should have been resolved by
an arbitrator. We affirm and remand for further proceedings.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed and
Remanded
BRANDON O. GIBSON, J., delivered the opinion of the court, in which ARNOLD B.
GOLDIN, and KENNY ARMSTRONG, J.J., joined.
Craig Creighton Conley and Michael T. Goodin, Memphis, Tennessee, for the appellant,
Allenbrooke Nursing and Rehabilitation Center, LLC.
Thomas R. Greer, Memphis, Tennessee, for the appellee, Regina Edwards.
OPINION
I. FACTS & PROCEDURAL HISTORY
This appeal arises out of a wrongful death and health care liability suit. The
plaintiff, Regina Edwards, instituted the action as daughter and next of kin of Naomi
Edwards (“Mother”), on behalf of all wrongful death beneficiaries. The named defendant
was Allenbrooke Nursing and Rehabilitation Center, LLC. Allenbrooke filed a motion to
compel arbitration, asserting that Mother and Allenbrooke entered into an arbitration
agreement in connection with her admission to the facility. Allenbrooke claimed that
Mother was bound by the arbitration agreement because another daughter, Theresa
Edwards, “signed the Agreement on her behalf, with authority to do so pursuant to an
Appointment of Surrogate form[.]”
Allenbrooke attached the Appointment of Surrogate form to its motion to compel
arbitration. The form reflects that Theresa Edwards signed it on April 18, 2012, in the
section entitled, “Acceptance of Surrogate Selection,” which stated:
I accept the appointment as surrogate for this Resident and understand I
have the authority to make all health care related decisions for Theresa
Edwards [sic] including the signing of an arbitration agreement.
(The handwritten name “Theresa Edwards” was erroneously placed in the blank above
instead of Mother’s name, Naomi Edwards.) Mother signed the Appointment of
Surrogate form the next day, beneath the statement, “I, Naomi Edwards, make the
decision to appoint Theresa Edwards as my surrogate.” The arbitration agreement, a
separate document, was signed by Theresa Edwards on April 18, the day before Mother
signed the Appointment of Surrogate form.
In its motion to compel arbitration, Allenbrooke argued that Theresa Edwards had
authority to sign the arbitration agreement on behalf of Mother as her health care
surrogate pursuant to the Appointment of Surrogate form and the Tennessee Health Care
Decisions Act, Tenn. Code Ann. § 68-11-1801, et seq. Allenbrooke also argued that in
the event any disputes arose regarding the arbitration agreement itself, including disputes
regarding its enforceability, those disputes must be referred to arbitration because the
agreement required arbitration of “any disputes arising out of or in any way relating to
this Agreement (its enforceability)[.]”
Plaintiff Regina Edwards filed a response asserting that Theresa Edwards did not
have legal authority to bind Mother to the arbitration agreement on the date the document
was signed. Plaintiff noted that Mother did not sign the Appointment of Surrogate form
until April 19, the day after Theresa Edwards signed the Appointment of Surrogate form
and the arbitration agreement. Plaintiff claimed that the trial court was required to decide
whether a valid contract existed, not an arbitrator.
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The trial court held a hearing on the matter on September 23, 2016, although we
do not have a transcript of this hearing in the appellate record. On November 4, 2016, the
trial court entered a written order denying Allenbrooke’s motion to compel arbitration
with an attached and incorporated transcript of the trial judge’s oral ruling. The trial
court acknowledged Allenbrooke’s argument that the arbitration agreement provided for
any disputes regarding its enforceability to be decided in the arbitral forum. However,
the court also noted Plaintiff’s argument that “there was never any binding arbitration
agreement in the first place” because Mother had not signed the Appointment of
Surrogate form at the time when Theresa Edwards signed it and the arbitration
agreement.
The trial court ultimately found that Theresa Edwards did not have the authority to
make a health care decision on behalf of Mother pursuant to the Tennessee Health Care
Decisions Act, regardless of any discrepancy about the dates on the relevant documents.
The trial court discussed the language of Tennessee Code Annotated section 68-11-1806,
which provides, in pertinent part:
(a) An adult or emancipated minor may designate any individual to act as
surrogate by personally informing the supervising health care provider.
The designation may be oral or written.
(b) A surrogate may make a health care decision for a patient who is an
adult or emancipated minor, if, and only if:
(1) The patient has been determined by the designated physician to lack
capacity; and
(2) No agent or guardian has been appointed or the agent or guardian is not
reasonably available.
(Emphasis added.) The trial court noted that the Appointment of Surrogate form at issue
in this case was signed by Mother’s designated physician on April 20, and the physician
made an express finding that Mother “has capacity to understand the significant benefits,
risks, and alternatives to proposed health care and to make and communicate a health
care decision.” Without any evidence in the record to indicate that a physician had
determined that Mother lacked capacity, the trial court concluded that Theresa Edwards
did not have the authority to sign the arbitration agreement on Mother’s behalf as her
surrogate. The trial court also found that the Appointment of Surrogate form was not
properly completed because it erroneously stated that Theresa Edwards had “authority to
make all health care related decisions for Theresa Edwards.” As a result, the court
concluded that the “acceptance [] was flawed and as such void from the very beginning.”
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For these reasons, the trial court denied Allenbrooke’s motion to compel arbitration.
Allenbrooke timely filed a notice of appeal.
II. ISSUES PRESENTED
At the outset, we emphasize that the issue raised by Allenbrooke on appeal is
narrow:
Whether the trial court erred in deciding issues related to the enforceability
of the Arbitration Agreement, when the trial court failed to recognize that
the plain language of the Agreement states that the Federal Arbitration Act
governs the Agreement and the parties agreed that an arbitrator would
decide all questions regarding the enforceability of the Agreement?
Notably, Allenbrooke does not challenge the substantive merit of the conclusions reached
by the trial court. Allenbrooke’s brief states, “Whether the Agreement is, or is not,
enforceable is not relevant to the issue before this Court. Instead, the question is whether
the trial court should have made the decision at all.” In its reply brief, Allenbrooke
further noted, “A large section of Plaintiff’s Brief is devoted to whether the Surrogate
Form is valid and enforceable. . . . Whether the Surrogate Form is valid or enforceable is,
however, not relevant to the issues before this Court.” In accordance with these
representations and the narrow issue listed in Allenbrooke’s brief, we will limit our
review on appeal to whether the trial court erred in deciding these threshold issues
regarding the arbitration agreement rather than referring them to an arbitrator.
III. DISCUSSION
On appeal from a denial of a motion to compel arbitration, we apply the standard
of review applicable to bench trials and review issues of law de novo without a
presumption of correctness. Webb v. First Tenn. Brokerage, Inc., No. E2012-00934-
COA-R3-CV, 2013 WL 3941782, at *14 (Tenn. Ct. App. June 18, 2013).
The arbitration agreement in this case provided that the arbitrator would apply
Tennessee law “except that the parties expressly stipulate that the Federal Arbitration
Act, 9 U.S.C. §§ 1-16 shall exclusively govern the enforcement of this Agreement.” On
appeal, Allenbrooke maintains that under the Federal Arbitration Act, “parties to an
arbitration agreement may agree to refer issues regarding the enforceability of the
arbitration agreement to an arbitrator.” Allenbrooke relies on this Court’s statement in
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Berkley v. H & R Block Eastern Tax Services, Inc., 30 S.W.3d 341, 344 (Tenn. Ct. App.
2000), that “the parties may contract to arbitrate the question of the validity and
enforceability of the arbitration clause itself.” Allenbrooke claims that the parties here
did just that because the arbitration agreement provided that the parties would arbitrate
“any disputes arising out of or in any way relating to this Agreement (its
enforceability)[.]” We do not disagree with the statement from Berkley, but the particular
dispute at issue in this case is not the type of dispute that is to be decided by the
arbitrator.
In the context of an arbitration agreement, an agreement to arbitrate threshold
issues concerning the arbitration agreement is known as a delegation provision. Clayton
v. Davidson Contractors, LLC, No. E2013-02296-COA-R3-CV, 2015 WL 1880973, at *4
(Tenn. Ct. App. Apr. 24, 2015) (no perm. app. filed) (citing Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. 63, 68 (2010)). The Federal Arbitration Act “requires courts to
enforce delegation provisions just as they are required to enforce arbitration agreements.”
Id. (citing Rent-A-Center, 561 U.S. at 70)). “However, ‘the making of the agreement’
must not be at issue.” Id. (quoting 9 U.S.C.A. § 4 (2009)). The Federal Arbitration Act
provides in section 4 that the court must be “satisfied that the making of the agreement
for arbitration . . . is not in issue.” 9 U.S.C.A. § 4.
In Clayton, for example, the plaintiffs claimed that they did not enter into the
contract at issue (which was governed by the Federal Arbitration Act). Id. at *5. The
contract contained an arbitration agreement and a delegation provision stating that any
disputes concerning “the enforceability” of the arbitration agreement would be decided
by an arbitrator. Id. This Court was tasked with deciding, in light of the delegation
provision, whether the court or the arbitrator should decide the plaintiffs’ claim that there
was no agreement. Id. We examined several cases from the United States Supreme
Court interpreting the Federal Arbitration Act. In those cases, the United States Supreme
Court had recognized a distinction between issues regarding an agreement’s “validity”
and issues regarding whether any agreement “was ever concluded” in the first place. Id.
at *5-6 (citing Rent-A-Center, 561 U.S. at 70 n.2; Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1 (2006)). And, in Granite Rock Co. v. International
Brotherhood of Teamsters, 561 U.S. 287 (2010), the Supreme Court specifically
addressed the arbitrability issue in light of a party’s claim that an agreement between the
parties was never concluded. Id. at *6. We noted that in Granite Rock, the Supreme
Court reiterated that “‘a court may order arbitration of a particular dispute only where the
court is satisfied that the parties agreed to arbitrate that dispute.’” Id. (quoting Granite
Rock, 561 U.S. at 297); see 9 U.S.C.A. § 4. In order to satisfy itself that such an
agreement exists, the court must first resolve “any issue questioning the formation of the
parties’ arbitration agreement.” Id. (citing Granite Rock, 561 U.S. at 299). In other
words, “a court, rather than an arbitrator, must resolve the parties’ formation dispute.”
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Id. at *7 (citing Granite Rock, 561 U.S. at 303). “Although there is a federal policy
favoring arbitration, that policy does not override the principle of consent.” Id. (citing
Granite Rock, 561 U.S. at 302). Accordingly, a “challenge to the formation of a
contract” is a question to be resolved by the court. Id.1
In sum, “when a party claims it never concluded an agreement at all, it is for the
court, not the arbitrator, to determine whether the parties agreed to the arbitration
provision upon which the party seeking arbitration relies.” Id. (citing Granite Rock, 561
U.S. at 299-300). As a practical matter, the Clayton court observed that requiring a trial
court to resolve a claim that a contract was never formed was “sound policy.” Id. at *8.
Compelling a party to arbitrate whether he actually agreed to arbitrate would be
“‘hopelessly circular.’” Id. (quoting Bruni v. Didion, 73 Cal. Rptr. 3d 395, 408 (Cal. Ct.
App. 2008)). It would also lead to a “bootstrapping” problem with the arbitrator
determining his own authority to decide the dispute. Id.
Returning to the facts in Clayton, the court concluded that the parties in that case
presented “a classic formation issue” by arguing that “a contract was never formed.” Id.
at *7. This was an issue that the court was required to resolve before compelling
arbitration. Id. at *8. Therefore, this Court remanded the case to the trial court for
consideration of whether a contract was formed. Id.2
Like the agreement in Clayton, the arbitration agreement in this case contains a
delegation provision providing that issues of “enforceability” would be determined by the
arbitrator. However, that does not mean that the arbitrator must decide issues of contract
formation. The trial court must resolve “any issue questioning the formation of the
parties’ arbitration agreement.” Id. at *6; see 9 U.S.C.A. § 4. In Clayton, this Court
recognized that “[t]he line between contract formation issues and contract validity issues
is a fine one.” Id. at *7 (citing In re Morgan Stanley, 293 S.W.3d 182, 192 (Tex. 2009)
(Willett, J., concurring)). However, examining the same precedent from the United
States Supreme Court, we found that the Court had provided “some guidance . . . as to
which contractual defenses are formation issues to be considered by the courts,” and
those formation issues include lack of a signature on a contract, the signor’s lack of
authority to bind the principal, and mental capacity to assent. Id. (citing Buckeye, 546
1
Tennessee law also contemplates judicial resolution of contract formation issues. Frizzell Constr. Co. v.
Gatlinburg, L.L.C., 9 S.W.3d 79, 85 (Tenn. 1999).
2
The Granite Rock decision was also discussed at length in Mid-South Maintenance Inc. v. Paychex Inc.,
No. W2014-02329-COA-R3-CV, 2015 WL 4880855 (Tenn. Ct. App. Aug. 14, 2015) (no perm. app.
filed). There, we likewise concluded from Granite Rock that “questions of contract formation must be
determined by the court, rather than the arbitrator.” Id. at *9. “[T]he issue of whether a contract
containing an arbitration provision was formed remains a question that must be determined by the court as
a threshold matter.” Id.
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U.S. at 444 n.1). In the case at bar, the trial court considered issues regarding the signor’s
lack of authority to bind the principal and whether her acceptance of the agreement was
void due to the error in the language of the agreement. Applying the principles from
Granite Rock and Clayton, the trial court did not err in deciding these issues rather than
referring them to an arbitrator.3 See Wilson v. Americare Sys., Inc., No. M2008-00419-
COA-R3-CV, 2009 WL 890870, at *4-5 (Tenn. Ct. App. Mar. 31, 2009) (finding “there
was [not] a valid arbitration agreement for the trial court to enforce” when the record did
not indicate that the signor was ever designated as a surrogate and the patient was not
determined by a physician to lack capacity, as required by the Tennessee Health Care
Decisions Act); Barbee v. Kindred Healthcare Operating, Inc., No. W2007-00517-COA-
R3-CV, 2008 WL 4615858, at *1 (Tenn. Ct. App. Oct. 20, 2008) (finding that the
statutory requirements for a son to be considered his mother’s surrogate under the Health
Care Decisions Act were not met and therefore he did not have authority to bind her to
the arbitration agreement).
In its brief on appeal, Allenbrooke claims that the trial court erred by basing its
decision “entirely on the validity of the Appointment of Surrogate form” and “fail[ing] to
consider the other various ways in which Theresa Edwards could obtain the actual or
apparent authority to sign the Agreement on behalf of [Mother].” However, the record
before us contains nothing to suggest that Allenbrooke raised these issues in the trial
court. As the proponent of the arbitration agreement, Allenbrooke had the burden of
establishing that Theresa Edwards had authority to sign the agreement on Mother’s
behalf. See Mitchell v. Kindred Healthcare Operating, Inc., No. W2008-01643-COA-
R3-CV, 2009 WL 1684647, at *3 (Tenn. Ct. App. June 17, 2009); Barbee, 2008 WL
4615858, at *12; see also Webb, 2013 WL 3941782, at *19 (acknowledging that the
defendant who filed the motion to compel arbitration had the burden to show that the
plaintiff agreed to arbitrate). In its motion to compel arbitration, Allenbrooke
unequivocally alleged that “[t]he signing of the Surrogate Form by Theresa Edwards gave
her the authority to sign the Arbitration Agreement for Naomi Edwards on April 18,
3
In its reply brief, Allenbrooke seems to suggest that the Supreme Court’s recent decision in Kindred
Nursing Centers Ltd. Partnership v. Clark, 137 S. Ct. 1421, 1428 (2017), might require a different
approach. We respectfully disagree. In Clark, the Kentucky Supreme Court had fashioned a “clear-
statement rule” by which a general grant of power of attorney did not include the power to enter into an
arbitration agreement without specific authority to that effect. Id. at 1426. The United States Supreme
Court held that this rule singled out arbitration agreements for disfavored treatment in violation of the
Federal Arbitration Act. Id. at 1425. In its discussion, the Court rejected an argument that states have
“free rein” to decide all contract formation issues and that the Federal Arbitration Act “had nothing to say
about contract formation.” Id. at 1428. However, the Court did not say that contract formation issues
must be decided by an arbitrator, as Allenbrooke claims in this case. In fact, the United States Supreme
Court remanded for the state court to decide whether the language of the power of attorney was
sufficiently broad to authorize the execution of the arbitration agreement in a manner that was
independent of its impermissible “clear-statement rule.” Id. at 1429.
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2012.” Allenbrooke only argued that Theresa Edwards was authorized to sign as a health
care surrogate pursuant to the Tennessee Health Care Decisions Act, and it did not rely
on any other theory of agency or authority in support of its motion. As a result, we
cannot say that the trial court erred in failing to consider any other available theories that
might have existed. Allenbrooke did not carry its burden of establishing that Theresa
Edwards had authority to execute the arbitration agreement on Mother’s behalf under any
alternative theory.4
Allenbrooke also suggests in its brief on appeal that the trial court should have
allowed it “to conduct additional discovery in the arbitral forum” in order to explore
whether actual or apparent authority may have existed. (Emphasis added.) Here, again, it
is important to note what Allenbrooke does not argue. Allenbrooke does not contend that
discovery should have taken place in the trial court. In its motion to compel arbitration,
Allenbrooke asked the trial court to require the parties to arbitrate and to immediately
“stay all proceedings in this action, including all discovery proceedings, pending
resolution of arbitration.” If anything, Allenbrooke’s motion to compel arbitration
suggested that no discovery should take place in the trial court:
The FAA requires state courts to stay proceedings, including
discovery, on an issue referable to arbitration under an arbitration
agreement. See 9 U.S.C. § 3; Tenn. Code Ann. § 29-5-303; Southeast
Drilling & Blasting Serv.’s, Inc. v. BRS Constr. Co., No. 01A01-9706-CH-
00272, 1997 WL 399387 (Tenn. Ct. App. July 16, 1997) (reversing trial
court’s order compelling discovery while defendant’s motion to compel
arbitration was pending). . . .
This Court should also stay all proceedings immediately in order to
promote judicial economy and efficiency. If this Court grants
Allenbrooke’s Motion to Compel, it will not need to address the merits of
Plaintiff’s Complaint. Because the merits of Plaintiff’s lawsuit would
become moot, all discovery relating to the merits of the case would
likewise become moot. To order Allenbrooke to respond to the Complaint
or to any discovery in this case would not promote judicial economy.
4
Allenbrooke’s reply brief states, “Plaintiff appears to argue that . . . a valid surrogate form is necessary
before an agent can enter into an arbitration agreement on behalf of a principal,” and Allenbrooke claims
such a rule would be barred by the United States Supreme Court’s recent Clark decision. Its reply brief
states, “To the extent that Plaintiff in this case argues that a general grant of authority by a principal to an
agent is insufficient to authorize the agent to enter into an arbitration agreement on behalf of the principal,
Plaintiff’s argument is directly contradicted by the United States Supreme Court’s decision [in] Kindred.”
However, Plaintiff clearly is not advocating for such a rule in this case. The limited nature of the issue
decided by the trial court was directly traceable to the limited issue presented in Allenbrooke’s motion to
compel arbitration.
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Instead, it would unnecessarily impose a needless burden on Allenbrooke. .
. . Accordingly, Allenbrooke respectfully requests that this action, including
all discovery, be stayed pending arbitration of this matter.
Even in its brief on appeal, Allenbrooke insists that it is “entitled to pursue arbitration
related discovery in the arbitral forum” pursuant to the “clear language of the
[arbitration] Agreement.” (Emphasis added.) Allenbrooke suggests that if it is “unable to
establish that [Theresa] Edwards had the authority to sign the Agreement on behalf of her
mother following discovery in the arbitral forum, the case would then return to the trial
court.” However, Allenbrooke insists that it should not be required to conduct such
discovery in the trial court. According to Allenbrooke, “Requiring Defendant to engage
in extensive discovery in the trial court regarding the enforceability of the Agreement is
to force Defendant to engage in the very conduct the parties contracted to avoid.”
However, this argument assumes that “the parties contracted” to do anything. The issues
of contract formation must be resolved by the trial court on the front end. To use the
language from Clayton, it would be “hopelessly circular” to compel a party to arbitration
to engage in discovery regarding whether he or she agreed to arbitrate. Due to the trial
court’s findings regarding the contract formation issues discussed above, which
Allenbrooke does not challenge, Allenbrooke is not entitled to enforce the provisions of
the arbitration agreement regarding discovery. Simply put, if the arbitration agreement
was not legally binding between the parties, neither was its provision regarding
discovery. We discern no basis for granting relief to Allenbrooke regarding this issue.
IV. CONCLUSION
For the aforementioned reasons, the decision of the circuit court is hereby affirmed
and remanded for further proceedings. Costs of this appeal are taxed to the appellant,
Allenbrooke Nursing and Rehabilitation Center, LLC, and its surety, for which execution
may issue if necessary.
_________________________________
BRANDON O. GIBSON, JUDGE
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