It was only a matter of time before arbitrability (the enforceability of an agreement to arbitrate) put a South Carolina courts in the position to construe the language in a power of attorney ("POA"). And this opinion did.
I try to view these decisions through the lens of how an attorney practicing in South Carolina might learn from them. And this decision, like some others involving the FAA and arbitrability, (for example, Grant v. Kuhn Chevrolet or Herron v. Century BMW , had the litigator and the drafter in me scratching my head.
Or at least I was confused until I learned about what had happened legislatively in the time since the POAs at issue in Arredondo were scrutinized by three (3) South Carolina courts. This decision, involving a POA executed before January 1, 2017, is likely an anomaly or a one-off, as going forward the S.C. Uniform Power of Attorney Act (SCUPOA) provides a guide for the creation of POAs that may avoid the necessity for so much judicial scrutiny.
But I'll go ahead and discuss the case anyway.
In 2012, Ms. Arredondo decided to place her father (Hubert Whaley) in the Ashley River Plantation assisted living facility in Charleston. She held both a General Durable Power of Attorney (GDPOA) and a Health Care Power of Attorney (HCPOA). A "general" power of attorney gives broad authority to an agent to act on a principal's behalf. Or at least I thought it did before I read this case. A "durable" power of attorney kicks in when the principal is incapacitated. Mr. Whaley was incapacitated.
Among other documents Arredondo signed during the admission process was an arbitration agreement.
In 2014, Mr. Whaley was admitted to the hospital, where he died six days later. Arredondo brought a wrongful death and survival action against a host of entities. Ashley River moved to compel arbitration, and several years of litigation ensued.
|And Without Authority...|
The S.C. Supreme Court ruled (contrary to the trial court and the S.C. Court of Appeals) that Ms. Arredondo lacked authority to execute an arbitration agreement because 1) Mr. Whaley had no "property right" (specifically enumerated as a basis of authority under the GDPOA) in a cause of action at the time of execution; and 2) those rights (to a jury trial, punitive damages, and appeal) she waived by executing the arbitration agreement did not involve a "transfer" of anything for which the GDPOA granted authority.
In other words, the GDPOA gave Ms. Arredondo some authority to act on Mr. Whaley's behalf. but not the particular authority to execute an arbitration agreement. The GDPOA couched the powers granted to Ms. Arredondo in terms of property rights that can be transferred, generally via some sort of document or process.
The Weird: (At Least from a Practice Perspective)
|Am I Hashtagging?|
It's a little strange to encounter a party in litigation claiming that a written instrument gives her fewer rights, especially after Ms. Arredondo in fact acted as if she had the right to enter into the arbitration agreement by, well, executing it. And, as fleshed out a bit below, it is odd to have a third-party (Ashley River) arguing that Ms. Arredondo has more power than she claims she has.
Also strange is the fact that the lawyer who drafted the GDPOA benefitted the estate by creating a POA that 1) did not address clearly those granted and withheld powers; and 2) contained at least one archaic term ("chose in law"). Justice Few (in concurrence) scolds the drafter of the POA for using the term "chose in action," based on the idea that the term "has no precise meaning in modern law."
Generally speaking, the party who drafts a less than concise instrument does not walk out of the courthouse (in this case the S.C. Supreme Court) as a prevailing party.
However, I don't know that I can disagree with the reading of the GDPOA performed by the S.C. Supreme Court on a purely textual basis, regardless of whether that is in fact what the drafter and/or Mr. Whaley intended. And you certainly can't blame any third-party for relying on the GDPOA, given that it took so long for a final decision on the meaning of its language.
POA Authority and the "Clear Statement Rule"
Once again, and as described in Arredondo, the United States Supreme Court (SCOTUS) has stepped in to tell state courts how the Federal Arbitration Act (FAA) mandates that these courts construe instruments.
Several Kentucky cases involving the power of an agent under a POA to agree to submit claims to arbitration made their way to SCOTUS. The Supreme Court of Kentucky ruled that an agent is authorized to sign an arbitration agreement depriving the principal of an adjudication by judge or jury only if the power of attorney "expressly so provided."
In Kindred Nursing Centers v. Clark, SCOTUS reversed, ruling that the "clear-statement rule" violated the FAA by "failing to put the arbitration agreements on an equal plane with other contracts."
I don't have much trouble with prohibiting the "clear statement rule" as applied in those Kentucky cases. I find it highly unlikely that any drafter of a POA would be so specific as the Kentucky Supreme Court would require, and it does appear that the "clear statement rule" singled out arbitration agreements. As a result, Clark does not handcuff state judges nearly as much as Lamps Plus or Stolt-Nielsen .
On the other hand, don't we encourage parties to say what they mean in written documents?
For some reason, the "clear statement rule" as used in Kentucky reminds me of the drunk driving tests Steve Martin was put through in this clip from "The Man With Two Brains":
And so the S.C. Supreme Court could not have determined that the absence of express language in the GDPOA granting the power to sign an arbitration agreement demonstrated that no such power was granted.
I guess the "clear statement" rule means you can't force a principal to be more specific with respect to arbitration than it would have to be in listing out the authority to execute other contracts.
But what if a state's law encouraged or actually required a principal to make a "clear statement" of those powers granted to an agent by a POA? Hint: one such state's law does so.
Sidebar: Takeways for the Drafter of a POA?
|I Really Should Be Ashamed of Myself|
Notably, one of the POAs before SCOTUS did pass muster as authorizing arbitration, based on the following broad language:
"to transact, handle, and dispose of all matters affecting me and/or my estate in any possible way" and "[g]enerally to do and perform for me and in my name all that I might do if present."
Isn't that the type of broad and non-specific language any principal would want to create in case she became incapacitated? Well, if Mr. Whaley had created a GDPOA with the above language, Ms. Arredondo would be in arbitration- exactly the result she successfully avoided based on the GDPOA. Something about getting punished for drafting a broad one-sentence POA, as opposed to a wordier and less clear POA, strikes me as odd.
In any event, presumably such a broad grant of authority is the final word on an agent's powers, right? Meaning that no power would need to be explicitly or expressly articulated in a POA as long as sweeping and brief language is employed?
What if a state's law encourages or actually requires a principal to make a "clear statement" of those powers granted to an agent by a POA?
A Menu of Powers: the SCUPOA
|Hey, It's Based in Myrtle Beach|
The General Assembly enacted the The South Carolina Uniform Power of Attorney Act , effective to all POAs executed after January 1, 2017. The GDPOA in Arredondo is not covered by the SCUPOA. The SCUPOA has a menu of various actions a POA could authorize, and merely incorporating by reference one or more of those statutory provisions incorporates those powers into a POA.
For example, by referencing "Section 62-8-212. Claims and Litigation.", a POA would authorize an agent to "submit to alternative dispute resolution . . . . " .
This menu makes determining those powers in a POA much more of a simple process for all parties involved, particularly those third parties who may need to know (without going through multiple years of litigation) whether a POA grants certain authority.
So one takeaway is to draft a POA by reference to the SCUPOA in order to be clear about what is covered- and excluded.
What About a Legislative "Clear-Statement Rule"?
One other part of the SCUPOA caught my eye:
Section 62-8-201. Authority that requires specific grant; grant of general authority.
It's pretty clear, isn't it? If a POA does not "expressly grant" the agent the power to do certain enumerated acts, then the agent cannot exercise that authority.
What if the General Assembly added another subsection to Section 62-8-201 adding arbitration agreements to the list? Arbitration agreements would be on exactly the same plane as the numerous contracts listed therein.
Would a legislative "clear statement rule" violate the FAA?
Does it Make Sense to Use Contract Construction Principles In Construing a POA?
The Arredondo decision noted that in South Carolina, courts read POAs the way they do contracts. "The cardinal rule of contract interpretation is to ascertain and give effect to the intention of the parties, and, in determining that intention, the court looks to the language of the contract." Stott v. White Oak Manor.
There are, however, a number of pretty significant differences between contracts and POAs. A POA does not have multiple parties, insofar as the term "party" means someone who negotiates and executes a document. A POA has one party, the principal. As a result, the parties to this dispute were not one or more contracting parties, but instead the agent (Ms. Arredondo) and various third parties (the Respondents). As a result, there is certainly no negotiation between parties that shapes the formation of a POA.
Moreover, as described above, the Arredondo decision appears to reward imprecise drafting. In a contract context, an ambiguity in a contract is construed against the drafter. Myrtle Beach Lumber Co. v. Willoughby . (I know, the opinion said none of these terms were ambiguous).
Perhaps some of those contract principles could be made more flexible to take into account those unique characteristics of a POA.
I am hung up on wondering why a POA created by a principal who became incapacitated would hold back any power, especially if there was some chance that a third party might be in the position to challenge the agent's authority. But that doesn't necessarily mean that idea could overcome the language in the GDPOA.
And since the SCUPOA now encourages and requires more clarity, perhaps going forward there will be a good bit less of this type of confusion.