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Alabama tries to extend special protections for children and the mentally incompetent.  The Alabama Supreme Court recently applied these protections to a dementia patient whose daughter had signed onto an arbitration agreement on her father’s behalf.  After a medical facility tried to enforce the arbitration agreement and kick the daughter’s lawsuit from court to arbitration, the Supreme Court ruled that in the father’s clear state of dementia the medical facility couldn’t rely on the daughter’s signature on behalf of her incapacitated father.  As a result, the case was sent back to the trial court with instructions to ignore the arbitration clause.

In The Estate of Hicks v. Millennium Nursing and Rehab Center, Inc. the Supreme Court considered the admission process of an elderly gentleman who had dementia and had recently undergone some significant surgery.  His daughter signed the admission documents on his behalf.  Those admission documents had an otherwise enforceable arbitration clause.  Some time after he was admitted, the gentleman was found unresponsive at the rehab center, and died shortly thereafter.   The cause of death was septic shock that allegedly occurred as a result of the rehab center’s negligence, for which the gentleman’s daughter sued the nursing home.

The nursing home sought to invoke the arbitration clause.  The trial court agreed and kicked the matter to arbitration.  The Alabama Supreme Court reversed, essentially on the basis that the gentleman with dementia lacked contract capacity to waive his right to a trial and agree to arbitration.  Interestingly, the Supreme Court first examined whether he was suffering from permanent incapacity, which it suggested would have voided the contract outright.  It found the evidence for permanent incapacity lacking, but did determine from the record that he lacked contractual capacity.  Because he lacked contract capacity, the arbitration agreement could not be enforced against his estate, and his wrongful death suit was permitted to proceed in court.

Important to the Supreme Court’s decision was the lack of a power of attorney.  The daughter essentially signed as the gentleman’s next of kin, but she did not have any formal appointment as someone entitled to make decisions for him and bind him to agreements.  The Court distinguished other precedent and suggested that had the daughter been his power of attorney a different result would have been reached.

Arbitration agreements are favored by corporations in all manner of contracts, but especially employment and consumer services contracts.  By and large state and federal courts have allowed an increased use of arbitration agreements, even where the relative bargaining power of the parties is uneven – like take it or leave it employment or credit contracts.  (Indeed, arbitration clauses have recently made their way into higher education employment agreements.) So it is significant that the Alabama Supreme Court in this case rejected the medical provider’s attempt to force this case into arbitration.

Read the Alabama Supreme Court’s decision on nursing home arbitration clauses here and contract Browne House Law about issues related to elder care, contracts, and appeals.