Factual and Procedural Background
Trudy Maxwell lived in Atria Park, a nursing home operated by Atria Management Company, LLC in San Mateo. In 1999, she had signed a durable power of attorney that named her husband as her agent-in-fact with her son, James Maxwell the III, named as the successor, and Marybeth as the second successor in the interest of the DPOA. In 2005, Trudy signed an advanced healthcare directive in which she named her husband as her agent-in-fact for healthcare decisions and listed her son, James Maxwell III, as the first alternate and her daughter, Marybeth, as the second alternate.
In 2015, she again signed an advanced healthcare directive and named her husband as the person with authority to make healthcare decisions. In this one, she listed Marybeth as her first alternate and named Melanie, another daughter, as her second alternate. She also executed a DPOA to grant decision-making authority over her business and financial concerns on the same day. The DPOA also granted authority to pursue litigation on her behalf. For the DPOA, Trudy appointed her husband as her agent and named James Maxwell III as the first alternate and Marybeth as the second alternate.
Trudy was diagnosed with dementia in 2018 and admitted to Atria Park in 2020 after her son, Maxwell III, signed the residency agreement for her instead of Marybeth, her healthcare agent-in-fact. In 2021, James Maxwell III executed an arbitration agreement with Atria Management through his POA.
When Trudy was 93 years old, she drank a glass of industrial cleaner a staff member had poured into several drinking glasses and served to Maxwell and a few other residents. She died on Aug. 22, 2022, after drinking the cleaner provided to her by the staff. Trudy’s eight children filed a lawsuit against Atria Management Company on Sept. 29, 2022, for wrongful death, negligence, and elder abuse and neglect law violations.
On Oct. 26, 2022, Atria filed a motion to compel arbitration and to stay the legal proceedings. It argued that James Maxwell III voluntarily signed the arbitration agreement as Trudy’s agent-in-fact and that the agreement was binding. Trudy’s eight children filed oppositions to the motion to compel in their capacity since they weren’t parties to the arbitration agreement. They also argued that no proof that Trudy’s husband had passed had been submitted to Atria, making the DPOA Maxwell III held unenforceable. Finally, they argued that the arbitration agreement itself was unconscionable and unenforceable under sect. 1281.2(c) and was a matter to be decided by the court instead of Atria Management’s arbitrator.
The court requested supplemental briefs on March 24, 2023. about whether sect. 1281.2(c) was preempted by the Federal Arbitration Act (FAA). The parties submitted briefs, and the court held a hearing on May 25, 2023. The court issued an order denying Atria’s motion to compel arbitration on June 9, 2023. The judge noted that the arbitration agreement failed to expressly assign authority to decide enforceability to an arbitrator with clear language. The judge also found that James Maxwell III did not have the authority to sign the arbitration agreement because it was a part of the admissions process, and Marybeth held the healthcare power of attorney. Finally, the court held that the FAA did not preempt sect. 1281.2(c) because Trudy’s admission and death did not involve interstate commerce.
Atria Management filed an appeal.
Issue: Whether Atria’s arbitration agreement was valid, conscionable, and enforceable, and whether James Maxwell III had the authority to enter it?
The Court of Appeal decided two main issues, including whether the arbitration agreement signed by Atria and James Maxwell III was valid, conscionable, and enforceable, and whether James Maxwell III had the authority to sign it since his sister, Marybeth Maxwell, had her mother’s healthcare power of attorney and James had a general durable power of attorney. Atria Management argued that the arbitration agreement was valid and that the arbitrator and not the court had the authority to determine its enforceability. It also argued that James Maxwell III, as his mother’s DPOA, had the authority to sign the arbitration agreement. Finally, it argued that all of the children’s wrongful death claims were derivative actions and thus subject to the provisions of the arbitration agreement.
Rule: California favors arbitration and generally resolves disputes in favor of arbitration, but there are some limits.
California’s public policy favors arbitration because it helps to resolve disputes more efficiently than court litigation. Generally, courts resolve disputes about arbitration agreements in favor of arbitration, but there are some limits.
Analysis
The Court of Appeal first pointed out that the state and federal governments each favor arbitration as a matter of public policy. Courts use contract law to determine whether a purported agreement is binding and enforceable. The party wanting to enforce an arbitration agreement must first prove that a valid agreement exists. As an initial matter, the question about the arbitration agreement, in this case, was whether it was a healthcare decision and thus should have been signed by Marybeth as the healthcare agent in fact or if it was a business or financial decision, making it okay for James Maxwell III to sign.
The trial court relied on an appellate decision to determine whether the arbitration agreement was a healthcare decision, but the California Supreme Court issued a decision that made the determination less clear. In Harrod v. Country Oaks Partners, LLC, 15 Cal.5th 939 (2024), the Supreme Court held that signing an arbitration agreement was not a healthcare decision, so the relative who signed it and had a healthcare POA did not have the authority to do so. In this case, however, Marybeth Maxwell had a healthcare POA, but James Maxwell III is the person who signed the agreement as Trudy’s agent-in-fact under the DPOA. The Court of Appeal noted the decision did not address situations in which two different people held separate powers of attorney or whether the agreement itself was validly executed since Trudy’s husband’s death certificate was never attached.
The court next considered whether the eight children’s wrongful death claims were derivative actions and thus subsumed into the mandatory arbitration agreement. It noted that none of the other children was a party to the agreement and thus was not subject to it. It also noted that in James Maxwell III’s wrongful death claim, he was acting in his individual rather than representative capacity, so his wrongful death claim could also proceed in court.
In terms of the wrongful death claims, the court determined sect. 1281.2(c) was not preempted by the FAA because the individual children were not parties to the arbitration agreement, so their wrongful death lawsuits could proceed. The court found the FAA did not preempt sect. 1281.2(c).
Conclusion
The Court of Appeal reversed the lower court’s decision to deny the motion to compel arbitration. It instructed the court to consider whether Maxwell III had the authority to sign the arbitration agreement when Marybeth held the healthcare power of attorney. It also ordered the court to consider whether the arbitration agreement was executed correctly and valid given that Trudy’s husband’s death certificate wasn’t attached. The wrongful death claims were able to proceed further in court. Both parties were ordered to pay their own costs on appeal.
Consult an Experienced Los Angeles Injury Lawyer
If your loved one was seriously injured in a nursing home because of abuse or neglect, and there is an arbitration agreement, you should contact an attorney at the law firm of Steven M. Sweat, Personal Injury Lawyers, APC. Our attorneys can review the arbitration agreement and assess whether it is likely valid and enforceable or whether you might have grounds to proceed with litigation in court. Call us today to schedule a free consultation at (866) 966-5240.