Another day, another decision by the California Court of Appeal making it more difficult for residential care facilities for the elderly (“RCFEs”) to enforce their arbitration agreements.

Upon admission to virtually any RCFE, a new resident will be asked to sign a stack of documents including an agreement to submit any future dispute to arbitration.  Most RCFEs, understandably, would prefer to resolve their disputes in the relatively controlled environs of arbitration rather than take their chances on the unpredictable nature of courtroom litigation.

Notwithstanding that preference, a series of recent decisions have complicated matters for California RCFEs by curtailing the enforcement of arbitration agreements.  The courts have held that arbitration agreements signed on a resident’s behalf by family members, conservators, and even attorneys-in-fact may not be enforceable against the resident.

Now, in Rogers v. Roseville SH, LLC (2022) 75 Cal.App.5th 1065, the Court of Appeal has examined the issue from a common law agency perspective, and held that, absent some affirmative conduct by the resident to indicate that an agency relationship exists, a family member signing an arbitration agreement on the resident’s behalf is not acting as the resident’s agent, and the arbitration agreement is unenforceable.

The Case Against Meadow Oaks

The RCFE in Rogers was Meadow Oaks, a facility in Roseville, California.  Claude Rogers was admitted to Meadow Oaks in December 2017.  On the day of admission, the facility administrator informed Claude’s son Richard, who had accompanied Claude, that she had some papers for him to sign in order for Claude to be admitted.  The papers, which identified Claude as “the resident” and Richard as the resident’s “representative,” included an arbitration agreement.

It appears to be undisputed that while Claude suffered from mild cognitive impairment, he did not have dementia and could read, write, understand, and sign documents at the time of his admission.  Claude never asked Richard to sign anything for him, nor did he tell Richard that he had authority to sign documents on his behalf.  For their part, the Meadow Oaks administrator never asked Richard whether he had a power of attorney or any other express authority to sign documents on Claude’s behalf.

In the subsequent litigation, Claude’s family members, including Richard, alleged that Meadow Oaks was neglectful and did not provide Claude with adequate supervision.  They frequently found Claude unattended outside in his wheelchair, and Claude was unable to reenter the facility by himself.  In June 2018, Claude was left outside for several hours, allegedly causing him to suffer heatstroke.  He died two weeks later.

Claude’s family members sued Meadow Oaks and its affiliates for elder abuse, fraud, and wrongful death.  Defendants filed a petition to compel plaintiffs to arbitrate their claims, relying on the arbitration agreement signed by Richard on Claude’s behalf.  The trial court denied the petition, and the defendants appealed.

Not Every “Representative” Is an “Agent”

The Third District Court of Appeal in Sacramento agreed with the trial court that the defendants would have to show either that Claude lacked mental capacity at admission or that Richard was authorized to act as Claude’s agent at the time he signed the arbitration agreement.

The defendants argued that Richard had been acting as Claude’s agent when he signed the agreement.  They alleged that Claude allowed Meadow Oaks to believe that Richard had authority to sign the documents on his behalf because (1) Richard signed the agreement as Claude’s “representative,” and (2) neither Claude nor Richard informed Meadow Oaks at the time of the signing that Richard did not have authority to sign on Claude’s behalf.

The Court of Appeal rejected the defendants’ argument, noting that an agency relationship arises only through some affirmative conduct of the principal.  That is, either Claude would have had to do or say something to cause Richard to reasonably believe that Claude consented to Richard acting as his agent (actual agency), or Claude would have had to do or say something to cause Meadow Oaks to reasonably believe that Richard was acting as Claude’s agent (ostensible agency).

The defendants couldn’t show either.  They could not point to anything that Claude had done or said that led them to justifiably believe that Richard had authority to act on Claude’s behalf.  Richard’s apparent belief that he could sign on his father’s behalf (evidenced by the signing itself) was irrelevant – only Claude’s conduct could create an agency relationship.  Richard’s signing the agreement as Claude’s “representative” was thus irrelevant unless it was accompanied by some corresponding word or deed from Claude.

Nor could the defendants prevail by citing Claude’s apparent failure to object to the agreement, either at the time of signing or thereafter.  Indeed, the defendants could not even show that Claude was ever informed that an arbitration agreement existed.  Obviously, the court would not put much weight on Claude’s failure to object to an agreement of which he was unaware.

Takeaways

The Rogers decision, consistent with other recent cases, shows that the burden falls on the RCFE to verify that the person signing its arbitration agreement actually has the authority to do so.

The case also suggests a solution that might have saved the defendants a lot of trouble.  At admission, an RCFE should not assume that their new resident lacks mental capacity.  Instead, the RCFE should assume (consistent with Probate Code section 810) that the resident may sign the admission papers, while perhaps also seeking an additional signature from a duly authorized agent.