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Florida Supreme Court Rejects Third-Party Beneficiary Theory of Enforcing Arbitration Clauses

Imagine that you are an elderly patient being admitted to a nursing home. Your son signs the admission contract. You don’t see the contract, much less sign it. Unbeknownst to you, the contract contains an arbitration clause. Now imagine that you develop an eye infection while in the nursing home, and your eye has to be removed. Can you sue the nursing home in court, or are you bound by the arbitration clause? Several principles of appellate practice are illustrated by the process leading up to the answer to that question.

In 2012, the trial court in Miami ruled that the arbitration clause was binding on the father. The Third DCA affirmed in 2014, holding that the father was the intended third-party beneficiary of the contract and was bound to the arbitration clause even though he never signed the contract.

The First DCA in Tallahassee had previously reached the same conclusion in a similar case based on the third-party beneficiary doctrine. However, the Second, Fourth and Fifth DCAs took a different view, applying agency principles and holding that a resident was not bound by a contract that he or she did not sign, if the person who signed it did not act on the resident’s behalf or lacked the authority to act for the resident.

The conflict among the districts provided an opportunity to seek review by the Florida Supreme Court by filing a notice to invoke discretionary jurisdiction on the basis of express and direct conflict with other district courts of appeal – one of the six bases for discretionary Supreme Court jurisdiction under Fla. R. App. P. Rule 9.030(a)(2)(A). The Florida Supreme Court accepted jurisdiction to resolve the conflict.

In its opinion, the Florida Supreme Court emphasized that the third-party beneficiary doctrine provides that under certain circumstances, a person may sue to enforce a contract even though the person is not a party to the contract; it does not enable two parties to bind a third person without the third person’s agreement merely by conferring a benefit on the third person. Thus, the Supreme Court quashed the Third DCA’s opinion and held that the nursing home admission contract signed by the son did not bind the father to arbitration and the father’s mental capacity does not impact the outcome. Mendez v. Hampton Court Nursing Center, LLC, Case No. SC14-1349 (Fla. Sept. 22, 2016).

The Supreme Court did not remand for findings as to whether the son was the agent of the father (although the son signed on a signature line indicating “signature of resident’s representative”) because the nursing home had expressly disclaimed reliance on agency principles and relied on a Florida Statute regarding nursing home contracts.

The decision was not unanimous. Two justices wrote dissenting opinions. Justice Canady raised a procedural issue, suggesting that “no ground has been presented to justify quashing the decision on review” because “the view adopted by the majority concerning the scope of the third-party beneficiary doctrine as the ground for quashing the district court’s decision is not based on any argument presented by the Petitioner.” Rather, the nursing home had argued that the third-party beneficiary doctrine was displaced by a statute. Justice Polston also dissented, asserting that there was actually no express and direct conflict among the districts upon which to accept jurisdiction. He also disputed the majority’s interpretation of contract law and concluded that he would not deny the nursing home the right to arbitrate with “the same person who signed the contract as the representative for his father.” Of course, the majority opinion is the binding decision of the Court.

In terms of appellate practice, one interesting aspect is the amount of time it took the case to work its way through the review process. The notice to invoke discretionary jurisdiction was filed July 3, 2014. After jurisdictional briefing, the Florida Supreme Court accepted jurisdiction Dec.16, 2014. After merits briefing, an oral argument was held Oct. 7, 2015. The opinion was issued nearly a year later Sept. 22, 2016. As of this writing, the process is still not finished because the nursing home filed a motion for rehearing Oct. 7, 2016. The decision will not be final until the Court disposes of that motion. Parties may be surprised at how long the appellate process can take, but the seal of the Florida Supreme Court bears a helpful Latin phrase: “Sat cito si recte” (justice is soon enough if correct).

By coincidence, a few days after the Mendez decision, the federal Centers for Medicare and Medicaid Services issued a new rule Sept. 28, 2016, precluding nursing homes that receive federal funding from requiring residents in future admissions to resolve disputes through arbitration. Robin Bresky

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