Loveday et al v. SSC Andersonville Operating Company LLC (TV3)

Filing 18

REPORT AND RECOMMENDATIONS re 4 MOTION to Compel Arbitration and to Stay Lawsuit. The undersigned RECOMMENDS2 that the Defendants Motion to Compel Arbitration and Stay Lawsuit 4 be DENIED.Signed by Magistrate Judge C Clifford Shirley, Jr on 01/08/2014. (KAW)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
SANDRA LOVEDAY, as Administrator of the
Estate of BONNIE ELLEN JONES, and
individually, as next of kin and for the wrongful
death of BONNIE ELLEN JONES,
Plaintiff,

)
)
)
)
)
)
v.
)
)
SSC ANDERSONVILLE OPERATING CO., LLC, )
d/b/a NORRIS HEALTH AND
)
REHABILITIATION CENTER,
)
Defendant.
)

No. 3:13-CV-333
(VARLAN/SHIRLEY)

REPORT AND RECOMMENDATION
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court,
and the referral of the District Judge. Now before the Court is Defendant’s Motion to Compel
Arbitration and Stay Lawsuit [Doc. 4], (“Motion to Compel”). This motion is fully briefed, and
the parties presented oral arguments to the undersigned at a hearing conducted December 6,
2013. The Court finds that the Motion to Compel is ripe for adjudication, and for the reasons
stated herein, the undersigned will RECOMMEND that it be DENIED.

I.

BACKGROUND
Plaintiff Sandra Loveday brings the instant suit as next of kin for her deceased mother,

Bonnie Ellen Jones. At the time of her death, Ms. Jones was a resident of the Norris Health and
Rehabilitation Center (“NHRC”), which is operated by SSC Andersonville Operating Company
(“SSC”). Ms. Loveday presents claims for negligence against both NHRC and SSC relating to
the death of Ms. Jones.

The background relevant to the instant motion relates to Ms. Jones’s admission to NHRC.
At the time of the admission, Ms. Loveday, on behalf of Bonnie Ellen Jones, executed various
documents so that Ms. Jones would be admitted to the NHRC.

The documents executed

included a Dispute Resolution Program (“DRP”) [Doc. 5-1], which contained an agreement to
submit to disputes relating to Ms. Jones’s stay at the facility to binding arbitration. The title of
the document is: DISPUTE RESOLUTION PROGRAM. [Id. (emphasis in the original)]. The second
paragraph of the document begins by stating: BY AGREEING TO PARTICIPATE IN THE DRP,
THE PARTIES WAIVE THEIR RIGHT TO A JUDGE OR JURY TRIAL. [Id. (emphasis in
the original)]. The DRP defines the parties to the agreement as: “[A] the resident and all family
members who would have a right to bring a claim in state court on behalf of the resident or the
resident’s estate, a legal representative, or any other person that may have a cause of action relating
to the resident’s stay in the facility.” [Id. at 2].
The DRP offered three alternative signature lines to Ms. Loveday or Ms. Jones. First, Ms.
Jones, if physically able and mentally competent, could sign the DRP herself on a line described as
“Signature of Resident.” Second, if Ms. Jones was competent but not physically able to sign, Ms.
Loveday could sign the DRP on a line described as “Signature of Representative.” Finally, a third
alternative stated that if Ms. Jones was “adjudged incompetent,” Ms. Loveday could sign at a line
described as “Signature of Legal Representative or Family Member.” This third line was preceded
by a statement attesting that the signatory had authority to sign the agreement on behalf of the
resident.

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Ms. Loveday elected to sign at the third signature line, and her signature on the DRP appears
as:

Ms. Loveday also executed a Resident Admission Agreement (“RAA”) [Doc. 5-2].
Again, the RAA offered a variety of signature lines. Ms. Loveday declined to sign as either Ms.
Jones’s legal representative or to sign as her agent, and instead, she signed a “Responsible
Party,”

e.g.

“[f]amily

member.”

Her

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signature

on

the

RAA

appears

as:

II.

POSITIONS OF THE PARTIES
Defendant SSC, who does business as NHRC, maintains that the DRP is enforceable

under the Federal Arbitration Act and argues that both federal and state law favor arbitration.
[Doc. 5 at 2-5]. SSC argues that Ms. Loveday had apparent authority to act as Ms. Jones’s agent,
and therefore, both Ms. Jones and Ms. Loveday (as administrator of Ms. Jones’s estate) are
bound by Ms. Loveday’s signature. [Id. at 6-7]. SSC maintains that the arbitration provision
contained in the DRP is valid and is not unconscionable. [Id. at 9-10].
Ms. Loveday argues that she did not have actual or apparent authority to execute the DPR
on behalf of her mother. [Doc. 7 at 3]. Ms. Loveday has filed an affidavit stating that an
employee of NHRC asked if she had a power of attorney for Ms. Jones, and Ms. Loveday replied
that she did not. [Doc. 7-1 at ¶ 4]. The same employee asked if Ms. Jones had a living will, and
Ms. Loveday stated that Ms. Jones did not have a living will. [Id.].
Ms. Loveday cites the Court to Robinson v. SSC Newport Operating Co., LLC, No. 2:10CV-265, 2011 WL 4431103 (E.D. Tenn. Sept. 22, 2011), in which the Honorable J. Ronnie
Greer, United States District Judge, addressed the issue of whether a wife could sign the same
DRP form and thereby bind her husband, who was to be a resident of a the facility. Judge Greer
found that the wife did not bind her husband, and he declined the request by the defendant in
Robinson to refer the case to arbitration.1 Ms. Loveday alleges that the facility in Robinson is a
sister facility to the facility in this case and that the DRP is identical. Ms. Loveday cites
Robinson and other Tennessee state-court cases in support of her position. [Doc. 7 at 6-8]. She
also argues that the DRP was a contract of adhesion under the circumstances in which it was
presented to her. [Id. at 9-11].
1

Attorney David Eaton served as co-counsel for the defendant in Robinson. Mr. Eaton also serves as counsel for
the Defendant in the instant case. The Defendant did not, however, cite the Court to Robinson in their opening brief,
see Doc. 5.
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The Defendant replies that the DRP is not unconscionable and is not a contract of
adhesion. [Doc. 8 at 2-5]. The Defendant reiterates that Ms. Loveday had authority to bind Ms.
Jones. [Id. at 6-7]. In its reply, Defendant did not discuss Judge Greer’s decision in Robinson or
attempt to distinguish it.
On the day before the hearing, Ms. Loveday filed a supplemental brief [Doc. 16], stating
the rate of arbitration fees, and the undersigned has considered the same to the extent it is
relevant.

III.

ANALYSIS
The undersigned finds the decision in Robinson v. SSC Newport Operating Co., LLC,

No. 2:10-CV-265, 2011 WL 4431103 (E.D. Tenn. Sept. 22, 2011) to be persuasive authority on
this issue. In this case, the undersigned finds that the Defendant has failed to demonstrate that
Ms. Loveday had authority to bind Ms. Jones, and as a result, the undersigned finds that the
Motion to Compel is not well-taken.
While the parties address a variety of defenses to contract in their filings, the Court finds
that Ms. Loveday’s authority to bind Ms. Jones must be decided as an initial matter. With regard
to actual agency, the Tennessee Court of Appeals has explained:
A common-law agency arises when the principal assents for the
agent to act on the principal’s behalf, and the agent agrees. A
person who is not in a mental condition to contract is not
competent to appoint an agent for the purpose of contracting. An
agency relationship is created only “at the will and by the act of the
principal and its existence is a fact to be proved by tracing it to
some act of the alleged principal and turns on facts concerning the
understanding between the alleged principal and agent.”
Barbee v. Kindred Healthcare Operating, Inc., 2008 WL 4615858, at *6 (Tenn. Ct. App. 2008)
(internal citations omitted). With regard to apparent agency, “a principal is responsible for the
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acts of an agent within his apparent authority only where the principal himself by his acts or
conduct has clothed the agent with the appearance of authority, and not where the agent's own
conduct has created the apparent authority.” Id. (citing S. Ry. Co. v. Pickle, 197 S.W. 675, 677
(Tenn.1917)).
In Raiteri v. NHC Healthcare/Knoxville Inc., 2003 WL 23094413 (Tenn. Ct. App., Dec.
30, 2003), a wife was admitted to the defendant’s nursing home, and her husband signed an
admission agreement on her behalf. The admission agreement included an arbitration provision.
At the time the documents were signed by the husband, the wife was physically infirm. Id. at *2.
She had not, however, been adjudged to be mentally incompetent. The Court of Appeals found
that the contract was unenforceable as a contract of adhesion and also found that the husband did
not have actual or apparent authority to bind the wife to the arbitration provisions. Id. at *9.
Judge Greer cited Raiteri in finding that the defendant in Robinson had not demonstrated
that the signatory to the DRP had authority to bind the plaintiff. 2011 WL 4431103 at *2. In
Robinson, Nathaniel Robinson was admitted to Newport Health and Rehabilitation Center. At
the time of admission, he needed assistance to walk, to transfer from a bed to a chair, to sit up, or
to turn over in bed. Id. at *1. On the day after his admission, Mr. Robinson’s wife was
presented with a stack of paper work to sign, including a DRP. Ms. Robinson signed the DRP on
the signature line for the resident; Mr. Robinson did not sign the form. Id. Judge Greer found
that there was no evidence that Ms. Robinson had the express authority of Mr. Robinson to act
on his behalf. Id. at *3. Moreover, Judge Greer found that Mr. Robinson’s “act of allowing his
wife to handle the admissions process” was not sufficient to demonstrate authority, where he
took no other action to clothe her in the appearance of authority. Id.

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Judge Greer found Necessary v. Life Care Centers of America, Inc., 2007 WL 3446636
(Tenn. Ct. App. Nov. 16, 2007), to be distinguishable.

In Necessary, a wife executed an

admissions agreement, which contained an arbitration agreement, on behalf of her husband. Id.
at *1. The wife did not have a power of attorney. She argued that she had authority to sign all of
the admission documents and make all of the decisions regarding her husband’s admission,
except she did not have his authority to sign an arbitration agreement. Id. at *5. The court in
Necessary found such position untenable, and vacated the trial court’s finding that the wife
lacked authority to execute the arbitration agreement. Id. Judge Greer found that Necessary was
distinguishable from the facts in Robinson because the wife in Robinson did not argue that she
had express oral authority to sign any portion of the admission documents, and the defendant had
not brought forth evidence demonstrating, by the preponderance of the evidence, that the wife
had such authority. 2011 WL 4431103 at *3.
Ms. Loveday alleges and SSC apparently concedes that the DRP in the instant case is
identical to the DRP in Robinson, because SSC and the defendant in Robinson are related
business entities. The only potentially relevant distinction between Robinson and the instant
case is that in Robinson the wife did not sign on the third signature line. The Court finds,
however, that Ms. Loveday’s use of the third signature line in the instant matter is
inconsequential to the agency question for four reasons.
First, the DRP, in contrast to the RAA, offered only one signature line for any person
other than the resident to sign the DRP regardless of his or her legal status. Stated differently,
whereas the RAA offered a separate signature line for a legal representative, a separate signature
line for an agent/power of attorney, and a separate signature line for a “Responsible
Party”/family member, the DRP lumped all of these various capacities together and required

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persons falling within any of these categories to execute on the third signature line. Thus, Ms.
Loveday, who was only a family member, was forced to sign under a heading that covered
“spouse, responsible party, legal guardian or power of attorney,” and she was not afforded the
opportunity to differentiate her status. The Court finds that the absence of alternative signature
lines diminishes the relevance of the fact that Ms. Loveday signed on the third signature line.
Second, and in the same vein, the Court finds that the heading over the third signature
line, which states that the third signature line is for a “spouse, responsible party, legal guardian
or power of attorney,” is ambiguous. SSC, who drafted and provided this document, drafted the
third signature line in a manner that does not distinguish between any of these statuses. SSC
now attempts to use this ambiguity to its favor, despite black-letter law that any such ambiguity
must be interpreted against the drafter, see Hanover Ins. Co. v. Haney, 425 S.W.2d 590, 592
(Tenn. 1968). The Court cannot and will not interpret Ms. Loveday’s signature on this line as
deeming her a “legal guardian or power of attorney,” where it is equally likely that she endorsed
the third signature line simply as a “responsible party.”
Third, Ms. Loveday has submitted a sworn statement to the Court attesting to the fact that
she told SSC through NHRC personnel that she was not a power of attorney. [See Doc. 7-1, ¶ 4].
SSC has not submitted any sworn testimony to the contrary. Thus, to the extent her signature on
the third signature line is or was ambiguous, Ms. Loveday has introduced an uncontroverted,
sworn statement that she clarified to NHRC personnel that she was not a power of attorney.
Finally, on the same date, Ms. Loveday signed the RAA agreement as a “Responsible
Party,” and declined to sign as either a “Legal Representative” or an “Agent Signature.” The
Court finds that this implicit representation that she was not a legal representative or an agent

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undercuts SSC’s position that Ms. Loveday had apparent authority based upon her signature on
the DRP.
For the reasons stated above, the Court finds that Ms. Loveday’s signature on the third
signature line cannot support a finding of apparent authority. More importantly, however, the
Court finds that SSC has not brought forth any evidence to demonstrate that Ms. Jones acted in a
manner that “clothed [Ms. Loveday] with the appearance of authority.” See Barbee, 2008 WL
4615858, at *6. Apparent agency is judged based upon the principal’s actions, not the agent’s
actions. Id. Thus, to the extent that Ms. Loveday’s signature might possibly be interpreted as an
act giving the appearance of agency, the act was that of Ms. Loveday (the agent) not Ms. Jones
(the principal). Such an act cannot serve as the basis for finding apparent agency. Moreover, the
Court finds that Ms. Jones’s act of allowing Ms. Loveday to handle the admissions process was
not sufficient to demonstrate authority, where she took no other action to clothe Ms. Loveday in
the appearance of authority. See Robinson, 2011 WL 4431103 at *3.
Finally, at the hearing, SSC argued that the Court should equate a diagnosis of dementia
to an adjuration of incompetency. SSC made this argument while referring generally to medical
records that were not filed with its motion. At the time of the hearing, SSC’s Motion to Compel
had been pending for approximately six months, but SSC had not filed these medical records
either with the motion or as a supplement to the motion. Moreover, when asked why this line of
argument was not contained in SSC’s motion or brief, counsel for SSC stated that the Motion to
Compel was filed as a “placeholder motion” to allow further development of SSC’s basis for
relief after filing.
The Court finds, first, that SSC has failed to bring forth any legal or medical basis for
equating a diagnosis of dementia to a finding of incompetency. Second, the Court finds that SSC

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did not timely file any evidence of such diagnosis in relation to the Motion to Compel. Third,
the Court finds that SSC’s failure to develop this argument in its filings and failure to mention
the argument prior to oral arguments constitutes waiver of this position.
Based upon the foregoing, the Court finds that, as in Robinson, SSC has not brought forth
evidence demonstrating by the preponderance that Ms. Loveday had actual authority or apparent
authority to act on Ms. Jones’s behalf in agreeing to the DRP. Therefore, the undersigned finds
that the request to compel arbitration and to stay this suit is not well-taken. Because the Court
finds that Ms. Loveday lacked authority to enter into the DRP on Ms. Jones’s behalf, the Court
finds that it is unnecessary to address the allegations of adhesion and unconscionably.

IV.

CONCLUSION
Accordingly, the undersigned RECOMMENDS2 that the Defendant’s Motion to Compel

Arbitration and Stay Lawsuit [Doc. 4] be DENIED.

Respectfully Submitted,
s/ C. Clifford Shirley, Jr.
United States Magistrate Judge

2

Any objections to this Report and Recommendation must be served and filed within fourteen (14) days
after service of a copy of this recommended disposition on the objecting party. Fed. R. Civ. P. 72(b)(2).
Such objections must conform to the requirements of Rule 72(b), Federal Rules of Civil Procedure.
Failure to file objections within the time specified waives the right to appeal the District Court’s order.
Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466 (1985). The district court need not provide de novo review
where objections to this report and recommendation are frivolous, conclusive or general. Mira v.
Marshall, 806 F.2d 636 (6th Cir. 1986). Only specific objections are reserved for appellate review. Smith
v. Detroit Federation of Teachers, 829 F.2d 1370 (6th Cir. 1987).
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