Adequate Evidentiary Showing Needed to Bring Nonsignatory into Arbitration

Arbitration

You may be surprised that a party doesn’t have to sign an arbitration agreement to nevertheless be bound to it and compelled to arbitrate their lawsuit under agency/principal law.  In determining whether the agent has authority to act on behalf of the principal, the key is what the principal says or does, not the agent. Otherwise supposed “agents” could make all sorts of claims about who they are authorized to act on behalf of (as in, “on behalf of Elon Musk, I am authorized to accept your sizable investment …”).

The rule is that “an agency cannot be created by the conduct of the agent alone; rather, conduct by the principal is essential to create the agency.” (Lopez v. Bartlett Care Ctr., LLC (2019) 39 Cal.App.5th 311, 317.)

This issue was recently presented in Garcia v. KND Development 52, LLC, which was decided on 12/15/2020. (58 Cal.App.5th 736.) Ramiro Garcia was admitted to the hospital for gall bladder surgery and later transferred to another hospital. At each hospital, his son, Mike, and then his wife, Maria, signed arbitration agreements as part of the “admissions packets”.  Ramiro sued for negligence, claiming the hospital staffs failed to properly turn him in his hospital beds, causing him to develop sores, and he later died, with his widow continuing the case as a wrongful death suit.

The hospitals filed petitions to compel the case to arbitration, arguing that Ramiro’s son and wife, as agents, signed arbitration agreements on behalf of Ramiro, who authorized them to do so. Each arbitration agreement made clear, in italics at the top of the form, that signing the agreement was “not a precondition” to receiving services, and in bold at the bottom of the form they reiterated that “this Agreement is optional.”

But the hospitals’ evidence was problematic.

The first hospital didn’t present a declaration from the employee who admitted Garcia and signed the arbitration form for the hospital, but rather from the hospital’s Chief Financial Officer, who stated that he was the admitting associate’s supervisor. He added that her custom and practice would have been to make sure that, where a patient cannot themselves sign, that they will nod or shake their head to confirm that their next of kin is authorized to sign on their behalf. Moreover, she would explain the arbitration agreement (if requested to do so), and that he (the CFO) had no reason to believe the admitting associate would have deviated from this standard practice.

The second hospital submitted a declaration from the admitting associate who stated that she did “not specifically recall” Ramiro’s admission to the hospital or the signing of the agreement. However, she did say that her custom, habit and practice was also to make sure that the patient responded in the affirmative (with a nodding or shaking of the head) and that their next of kin was authorized to sign on their behalf, as well as to explain the arbitration agreement (if requested to do so). Again, she stated that she did not remember the specifics of this incident. 

The trial court was unpersuaded that the hospital’s declarations proved either that Ramiro shook his head, or that, in shaking his head, he intended to authorize his son and wife to sign arbitration agreements on his behalf, and it denied the motion to compel arbitration. The Court of Appeals agreed, finding that the validity of an arbitration agreement, like any other contract executed by a purported agent, must be established by an “adequate evidentiary showing that the agreement falls within the scope of authority, if any, conferred by the principal.” The hospital’s showing simply wasn’t adequate.

The takeaway? In law school we learned the adage that bad facts make bad law. Here, bad declarations made for bad rulings (for the hospitals).

Laine Mervis is a partner at the Los Angeles law firm Eanet, PC. Laine represents businesses, business operators and investors in a variety of commercial, real estate and employment disputes.

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