Bluegrass Business Law

July 29, 2007

When alternative dispute resolution agreements meet agency law

Filed under: Business — G.A. Napier @ 5:57 pm

Businesses often rely on arbitration agreements in their contracts with clients/customers to reduce the expense of potential litigation. When done correctly, these are legally binding contracts and, as noted in Kindred Hospitals Limited Partnership v Luttrelly, 2006-CA-000221-MR (July 27, 2007)(to be published), Kentucky law favors enforcement of such agreements. In fact, the U.S. Supreme Court has stated: “‘any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .’ Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).” Id. at 9.

So, Kindred Hospitals thought they were on solid ground when they sought enforcement of an arbitration agreement signed by Susan Luttrell. Susan had signed the agreement on behalf of her mother, Altha Duncan upon admission to Liberty Care Center (owned by Kindred). However, Susan did not have power of attorney and the only authority her mother had granted her was that of cashing checks and depositing money into Altha’s savings account. This meant that Susan did not have actual authority to bind Altha under the arbitration agreement.

Kindred next argued that Susan had either implied or apparent authority. Kentucky defines these two concepts as:

    Implied authority is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated. Estell v. Barrickman, Ky.App., 571 S.W.2d 650 (1978). Apparent authority on the other hand is not actual authority but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely. Estell v.Barrickman, supra. Mill Street Church of Christ v. Hogan, 785 S.W.2d 263, 267 (Ky.App. 1990). Id. at 11

So, the implied authority of an agent covers those situations where things were not spelled out, but the authority follows in line with what the agent is supposed to do. For very simplistic example, a purchasing agent for a company may specifically be authorized to buy certain products, but no one said he or she could authorize payment of shipping costs. Well, you cannot get the product unless you can have it shipped so the authority to authorize payment for shipping is implied. Since none of Susan’s actual authority came close to covering the signing of contracts, implied authority could not exist.

Apparent authority was probably Kindred’s best shot, but they failed to establish that either. Apparent authority would have arisen if Altha had done something, or failed to act where one normally would have acted, that would have lead a reasonable person to believe Susan had authority to sign such a contract. For example, if Altha had been present and in a competent state of mind when the agreement was signed and she said nothing to indicate Susan lacked authority, apparent authority would have arisen and she would have been bound to it.

Now, business associations professor, Bif Campbell, may argue with the precise definitions of implied and apparent authority, but the real point would remain the same. Always check to see if the person signing your arbitration agreement, or any contract really, has the authority to form such a contract.

July 21, 2007

Employment (or loss thereof) at Will Doctrine

Filed under: Business,Solo & Small Firm — G.A. Napier @ 10:49 pm

A recent Kentucky Court of Appeals decision, Follett v. Gateway Regional Healthcare System, Inc, 2006-CA-000855-MR (July 20, 2007)(to be published), provides illumination on an exception to the employment at will doctrine in Kentucky. In this case Sharon Follett, the Director of Nursing at Mary Chiles Hospital, was fired by Patrick Romano, CEO of Gateway (which owns Mary Chiles). Ostensibly, the termination was for insubordination due to Sharon Follett giving raises to two nurses.

I do not even need foreshadowing to tip you off to the next event. Sharon Follett claimed the firing was actually for some whistleblowing she did the preceding year. She cited two events:

    The first situation involved her reporting suspicions that an emergency room doctor was under the influence of alcohol while on duty. The other situation involved her involvement in reporting suspected emergency room billing irregularities at the hospital. Id. at 2.

Ordinarily in Kentucky, and employer can fire an employer for a good reason or just because they feel like it. Usually, a firing can occur even for a morally indefensible, but legal, reason. However, a narrow exception to this fire at will doctrine is when taking such an action violates a fundamental and well-defined statutory or constitutional public policy. In this case, Sharon Follett argued that the firing was due to her unwillingness to violate KRS 311.550(1):

    Conviction of willfully resisting, preventing, impeding, obstructing, threatening, or interfering with the or any of its members, or of any officer, agent, inspector, or investigator of the board or the Cabinet for Health and Family services, in the administration of any of the provisions of KRS 311.550 to 311.620 shall be a Class A misdemeanor.

In looking at Follett’s claim, which was a non-civil rights claim for wrongful discharge, used a three prong approach. She had to show that: 1) she was engaged in a statutorily protected activity, 2) a termination occurred (this seems a bit obvious to actually be its own prong, but there it is), and 3) that there is a connection between the activity and the termination. Furthermore, for the third prong, she had to show that the protected activity was “a substantial and motivating factor but for which the employee would not have been discharged.” Id. at 6citing Zarebidaki, 867 S.W.2d at 188.

The Court then reviewed many of the facts set forth at the trial court level. This included the events around Sharon Follett’s reporting the problems and evidence indicating she, in fact, did have authority from Romano to give the raises. As a result, the Court vacated the trial court’s summary judgement and reinstate the action.

Moral of the story: Even though Kentucky has an employment at will doctrine that strongly favors employers, be sure to review ALL the surrounding circumstances when a firing is questionable. If you are a small business without in-house counsel, it is worth paying a consultation fee to an attorney to perform such a review.

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