Opinion
NO. 03-16-00514-CV
12-01-2016
Oak Crest Manor Nursing Home, LLC; Day Life Corporation; Terry Rowan; Norma Elemento; and Grover Moore, Appellants v. Peggy Barba, as Guardian of S. F., Appellee
FROM THE PROBATE COURT NO. 1 OF TRAVIS COUNTY
NO. C-1-PB-16-000776, HONORABLE GUY S. HERMAN, JUDGE PRESIDINGMEMORANDUM OPINION
In this interlocutory appeal, Oak Crest Manor Nursing Home, LLC (Oak Crest); Day Life Corporation; Terry Rowan; Norma Elemento; and Grover Moore appeal the probate court's order denying their motion to compel arbitration and stay proceedings in the underlying action filed by Peggy Barba, as guardian of Shawn Frank, for injuries that Frank sustained after fleeing from Oak Crest, where he was a resident. We will affirm the probate court's order.
Oak Crest operates its nursing home under the name of "Oakcrest Manor Nursing Home," but we will refer throughout this opinion to the entity and nursing home collectively as "Oak Crest."
BACKGROUND
Barba's original petition alleged that Frank, her forty-year-old son, was admitted to Shoal Creek Hospital in October 2013 to undergo treatment for depression, schizophrenia, and bipolar disorder after he jumped off a freeway overpass in a suicide attempt. Her petition further alleged, "For [Frank's] safety . . . on or about December 13, 2013, he was transferred to [Oak Crest] because it held itself out to be able to care for patients with risks of flight and elopement" and that Frank's "admission and continued residency [at Oak Crest] were predicated upon the determination by his treating physician that he required full-time nursing and/or assisted living care, which was purportedly being offered by Defendants." Barba also alleged that Oak Crest was aware of Frank's "tendencies, proclivities, and risks" because a care plan was developed at the time of his admission due to his multiple psychiatric conditions, history, and prior suicide attempts.
Barba's petition alleged that on or about January 14, 2014, Frank was "negligently permitted to leave [Oak Crest] and wandered around the neighborhood before returning . . . and reporting the incident to . . . Barba," who reported the incident to Oak Crest staff members, several of whom are named defendants. The petition alleged that Oak Crest and the other defendants were "put on notice that [Frank] exited and returned to the [] [f]acility through the only window in his room," which was unlocked and remained unmonitored on the following day, on which Frank "was again negligently permitted to leave the [facility] through his window" and jumped off another highway overpass, suffering serious bodily injuries. Barba's petition asserted causes of action against all defendants for negligence, negligence per se, and gross negligence, and against Oak Crest for breach of contract.
Barba filed her lawsuit against Oak Crest; Day Life Corporation (the owner and landlord of the building and property on which Oak Crest operated its nursing home); three named individuals (Terry Rowan, Norma Elemento, and Grover Moore), who were, respectively, the Administrator/CEO, Director of Nursing, and Assistant Director of Nursing at Oak Crest during the relevant time period; and several unnamed employees of Oak Crest ("John and Jane Does").
Just two days before Frank sustained the injuries that are the subject of this lawsuit, Barba filed an application in the probate court to be appointed guardian of his person and was so appointed on March 13, 2014. Barba later filed an application to be appointed guardian of Frank's estate as well, which the probate court granted in December 2015, shortly after which she filed this lawsuit in district court. On Barba's motion, the cause was transferred a few months later to the probate court because of that court's continuing jurisdiction over Frank's guardianship and its determination that the case concerns "matters related to the guardianship proceeding."
Appellants filed a motion to compel arbitration and stay the proceedings, asserting that Frank "voluntarily admitted himself into Oakcrest Manor" and thereupon reviewed and executed a standard "Facility Admission Agreement" (the Agreement), which set forth the terms and conditions of his residency at the facility, including his rights as a resident and the obligations of the facility, and contained a provision wherein the parties agreed that "[a]ny dispute relating to this Agreement will be settled by binding arbitration." In her response and at the hearing on appellants' motion, Barba contended that due to Frank's psychological and mental disorders (evidenced by the probate court's adjudication of him as "totally incapacitated" and other documents), he lacked capacity to enter into an enforceable contract and, therefore, the Agreement and its arbitration provision are unenforceable and void. After the hearing and reviewing the evidence of both parties, and without making findings of fact or conclusions of law, the probate court denied the motion to compel and stay, and appellants filed this interlocutory appeal.
DISCUSSION
In their first issue, appellants contend that the probate court erred in denying their motion to compel arbitration because the evidence establishes that Frank "possessed the requisite capacity" to enter into a valid and enforceable contract and, therefore, the arbitration agreement is enforceable. See Turner v. Hendon, 269 S.W.3d 243, 247-48 (Tex. App.—El Paso 2008, pet. denied) (noting that burden of proving incapacity is on party attempting to void contract). To establish mental capacity to execute a contract, a party "must have had sufficient mind and memory at the time of execution to understand the nature and effect of [his] act," Harrell v. Hochderffer, 345 S.W.3d 652, 661 (Tex. App.—Austin 2011, no pet.) (also noting that any evidence from before or after date contract was executed must be "near enough in time" to be probative of mental capacity on execution date); Jones v. LaFargue, 758 S.W.2d 320, 325 (Tex. App.—Houston [14th Dist.] 1988, writ denied) ("Evidence of incompetency [to contract] at other times [than on day of contract execution] can be used to establish incompetency on the day the [contract] was executed if it is demonstrated that the condition had some probability of being the condition of the [executor] at the time the [contract] was executed.").
In reviewing the denial of a motion to compel arbitration, "we apply a no-evidence standard to the trial court's factual determinations and a de novo standard to legal determinations." Sidley Austin Brown & Wood, L.L.P. v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.—Dallas 2010, no pet.) (describing this standard as "the same as the abuse of discretion standard of review"); see also Sun Fab Indus. Contracting, Inc. v. Lujan, 361 S.W.3d 147, 150 (Tex. App.—El Paso 2011, no pet.) ("A trial court abuses its discretion when it refuses to compel arbitration pursuant to a valid and enforceable arbitration agreement."). Whether the parties agreed to be bound to an arbitration agreement is a contract-formation question that we review de novo, deferring to the trial court's findings of historical fact as between the parties so long as those determinations are supported by evidence. United Rentals, Inc. v. Smith, 445 S.W.3d 808, 812 (Tex. App.—El Paso 2014, no pet.). While a trial court's determination of the formation, validity, and enforcement of an arbitration agreement is ordinarily a question of law subject to de novo review, see J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003), the extent to which a person knows or understands the nature and consequences of executing a contract (and therefore has contractual capacity) is a question of fact, Fox v. Lewis, 344 S.W.2d 731, 739 (Tex. Civ. App.—Austin 1962, writ ref'd n.r.e.); see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268-69 (Tex. 1992) (noting that motions to compel arbitration are ordinarily decided in summary proceedings "on the basis of affidavits, pleadings, discovery, and stipulations"); In re Bunzl USA, Inc., 155 S.W.3d 202, 208 (Tex. App.—El Paso 2004, orig. proceeding) ("A summary motion to compel arbitration is essentially a motion for partial summary judgment, subject to the same evidentiary standards.").
Accordingly, we will review the record to determine whether there was legally sufficient evidence to support the probate court's implied factual finding that Frank did not have sufficient capacity to enter into the Agreement. See Kmart Stores of Tex., L.L.C. v. Ramirez, ___ S.W.3d ___, No. 08-15-00094-CV, 2016 WL 1055870, at *3 (Tex. App.—El Paso Mar. 16, 2016, pet. filed); Sidley Austin Brown & Wood, 327 S.W.3d at 863 (noting that when trial court conducts evidentiary hearing on enforceability of arbitration agreement, appellate court reviews trial court's findings for legal sufficiency); see also Paragon Indus. Applications, Inc. v. Stan Excavating, L.L.C., 432 S.W.3d 542, 548 (Tex. App.—Texarkana 2014, no pet.) ("In a nonjury proceeding, when no findings of fact or conclusions of law are filed or requested, we infer that the trial court made all the necessary findings to support its judgment."). "When the inferred findings of fact are supported by the evidence, the appellate court must uphold the judgment on any theory of law applicable to the case." Paragon Indus., 432 S.W.3d at 549.
The following evidence supports the probate court's implied determination that Frank did not possess the requisite capacity to enter into the Agreement:
• Oak Crest's admission and discharge records, indicating that upon admission on December 13, 2013 Frank had then-current diagnoses of bipolar disorder, depression, schizophrenia, and neurotic disorder.
• Oak Crest's nurse's notes, created upon Frank's admission, indicating that he was a 40-year old "schiz[ophrenic]" with a "long Hx [history] of mental illness" and violence and that he was "suicidal," having jumped from a bridge the previous month.
• Oak Crest's progress notes and social-services assessment, both created on December 17, 2013, indicating that Frank had a history of multiple psychiatric admissions since he had jumped off a bridge, a "25 (+)- year Hx of MI [mental illness] with multiple psych st. [stops]," and that he denied having mental illness.
• The affidavit of David E. Mansfield, M.D., who attested that he reviewed the medical records of Frank for this proceeding and, relying on his expertise after 40 years of practicing medicine, opined that someone with Frank's conditions (1) "would have difficulty distinguishing between what is real and what is imaginary," (2) "may have delusions, hallucinations and/or disordered thinking," and (3) "can even appear lucid, responsive and as if they have full capacity when, in fact, they do not." He further opined that "to a reasonable degree of medical probability, Shawn Frank was totally incapacitated on December 13, 2013."
• The guardianship application filed by Barba exactly one month after Frank's admission into Oak Crest in which she attested that Frank is in imminent danger of "serious impairment to his . . . physical health or safety" and that because of his mental condition, he is "substantially unable to" provide food, clothing, or shelter for himself; care for his own physical health; and manage his own financial affairs.
• The affidavit of Barba, who attested that Frank was admitted to Oak Crest by a case worker, not voluntarily, and that he had suffered from the same mental illnesses for at least 15 years prior to his admission.
• The "Physician's Certificate of Medical Examination" completed by David McRoberts, M.D., only 49 days after Frank's admission to Oak Crest in which Dr. McRoberts found Frank to be "totally without capacity (1) to care for himself . . . and (2) to manage his . . . property" and "legally incapacitated" within the legal definition of section 1002.017 of the Texas Estates Code.
In contrast, Appellants cite the following evidence in the record to support Frank's alleged capacity to contract:
• CEO Rowan's affidavit, in which he attested that on the date of Frank's admission and signing of the Agreement, Frank "was lucid during our conversation and was able to ask, and did ask me questions concerning Oakcrest's operations as they related to him [and] appeared to understand my questions and statements to him, and he responded appropriately." Rowan further attested that Frank "appeared to understand and appreciate the effect of his actions, as well as the nature and consequences of the . . . Agreement he signed and the business he transacted."
• Oak Crest's nurse's notes, created upon Frank's admission, in which a nurse indicated that Frank was alert, cooperative, oriented and that he answered questions readily and had quick comprehension.
• Oak Crest's nurse's notes from the day after his admission, in which he was noted as being cooperative, "independent mostly," and showing "no behavior problem[s]."
• Oak Crest's social-services assessment, created on December 17, 2013, in which Frank appears to have understood and provided answers to several background questions and had an attitude of "accept[ance] for now" with respect to his illness and placement.
Oak Crest contends that the evidence of Frank's capacity to contract on the date of his admission or within days thereof is more probative than that from weeks or months later and indicates that, at the very least, Frank experienced a "lucid interval" on December 13, 2013. See In re Gray's Estate, 279 S.W.2d 936, 939 (Tex. Civ. App.—El Paso 1955, writ ref'd n.r.e.) ("[E]ven people of admitted unsound mind may have lucid intervals, and in such lucid interval be possessed of testamentary capacity, so . . . it must be remembered that it is the testatrix' mental condition at the time of executing the will that is of primary importance."). However, Dr. Mansfield's affidavit—while attested to over two years after Frank's admission to Oak Crest—opines that, based on Frank's medical records and the particular illnesses and diagnoses at issue and that were present in Frank upon his admission, Frank was totally incapacitated on the date of execution of the Agreement. Dr. Mansfield's affidavit, in conjunction with Barba's affidavit and Oak Crest's own records (created either at the precise date and time of his admission or only days later), demonstrate that upon admission Frank had already been long suffering from the precise mental conditions that were the basis of the probate court's determination just a few months later that he was incapacitated as a matter of law.
While the time of execution of a contract is indeed the relevant time for ascertaining competency to contract, evidence of competency from other periods is probative to establish competency at the time of execution if there is evidence that the later mental condition had some probability of being the same condition at the time of execution. See Jones, 758 S.W.2d at 325. Dr. McRoberts's report, issued only 49 days after the Agreement's execution, is probative of Frank's mental condition on the date of execution in light of the other evidence in the record indicating that Frank's psychiatric diagnoses were already present and were the same as when Dr. McRoberts examined him. We conclude that the record contains legally sufficient evidence to support the probate court's implied determination that Frank did not possess the requisite capacity to contract when he signed the Agreement, and the probate court did not abuse its discretion in refusing to compel arbitration on this basis. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005) (noting test for legal sufficiency is whether evidence would enable reasonable and fair-minded people to make same findings as factfinder, crediting favorable evidence if reasonable factfinder could, and disregarding contrary evidence unless reasonable factfinder could not). Accordingly, we overrule appellants' first issue.
In their second issue, appellants contend that even if Frank did not possess the requisite capacity to enter into the Agreement, the Agreement is merely voidable rather than void, see Gaston v. Copeland, 335 S.W.2d 406, 409 (Tex. Civ. App.—Amarillo 1960, writ ref'd n.r.e.) ("We believe it is the settled law in this state that a contract of an insane person is not void but only voidable."), and Barba has "waived her right to void" the arbitration provision "because she has asserted an affirmative claim for relief [in her original petition] based on an alleged breach of the same contract she now seeks to avoid," see Oram v. General Am. Oil Co. of Tex., 513 S.W.2d 533, 534 (Tex. 1974) (per curiam) (holding that where lease was entered into by party's guardian during period of party's temporary mental incapacity and party later regained capacity and demonstrated full awareness of lease terms and accepted rental payments thereunder, party waived any right to rescind or attack validity of lease and instead ratified it by her acts). However, the supreme court has held that when the issue of mental capacity to contract is raised, "the 'very existence of a contract' is at issue," as with other contract-formation issues, and therefore the court's determination that a party lacked the capacity to contract would render that contract non-existent and void rather than merely voidable. See In re Morgan Stanley & Co., Inc., 293 S.W.3d 182, 186-87 (Tex. 2009) (orig. proceeding) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 448 (2006)); Sanders v. Sanders, No. 02-08-00201-CV, 2010 WL 4056196, at *1 (Tex. App.—Fort Worth Oct. 14, 2010, no pet.) (mem. op.) ("Mental incapacity is a common law contract formation defense.").
Because Frank's alleged incapacity implicates the issue of contract formation, the contract is void by virtue of the probate court's implied finding that Frank was incapacitated when he signed the Agreement and that there was, accordingly, no contract and no agreement to arbitrate. See In re Morgan Stanley, 293 S.W.3d at 186-87. The unpublished opinion cited by appellants as requiring "active steps" to "disaffirm" a contract signed by an incapacitated person is irrelevant in light of the supreme court's more recent holding in In re Morgan Stanley and, in any case, involves factual circumstances distinguishable from those here. See Price v. Golden, No. 03-99-00769-CV, 2000 WL 1228681, at *4-5 (Tex. App.—Austin Aug. 31, 2000, no pet.) (not designated for publication) (holding that legal-services agreement signed by incapacitated party, when party had both attorney in fact and attorney ad litem authorized to act on her behalf who both approved of agreement, was enforceable).
Even if the Agreement at issue were merely voidable rather than void, Oak Crest has cited no authority for its assertion that Barba's mere pleading a cause of action for breach of contract and reciting in her original petition that Oak Crest "entered into a contract" with Frank constitutes ratification of the long-since terminated Agreement or a waiver of her right to contest the enforceability of the arbitration provision, nor have we found any such authority. Under applicable caselaw, it follows that ratification of a contract requires more than merely filing a pleading asserting a claim for breach of contract.See Missouri Pacific R.R. Co. v. Lely Dev. Corp., 86 S.W.3d 787, 792 (Tex. App.—Austin 2002, pet. dism'd) (noting that ratification occurs if party with knowledge of all relevant facts recognizes validity of contract by acting or performing under it or by otherwise affirmatively acknowledging it by its conduct). Moreover, parties may amend their pleadings freely, see Tex. R. Civ. P. 69, and plead alternative facts, theories, and remedies, even if they are inconsistent, see Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851-52 (Tex. 1980); see also Major Invs., Inc. v. De Castillo, 673 S.W.2d 276, 278 (Tex. App.—Corpus Christi 1984, writ ref'd n.r.e.) (noting that plaintiff below had filed underlying suit contending that contract at issue was void and unenforceable or, alternatively, that defendant below had breached contract). We conclude that Barba did not waive any right to contest the enforceability of the arbitration provision by asserting a cause of action for breach of contract.
Frank resided at Oak Crest for just over one month—between the date of his admission and signing of the Agreement, on December 13, 2013, and the date of his second overpass jump and resulting discharge, on January 15, 2014, upon which discharge the Agreement was terminated.
Nor could Barba's statement in her original pleading that Oak Crest and Frank "entered into a contract" constitute ratification by judicial admission, even if a pleading could constitute ratification, because the question of whether an enforceable contract exists is one of law, not fact, see Advantage Physical Therapy, Inc. v. Cruse, 165 S.W.3d 21, 24 (Tex. App.—Houston [14th Dist.] 2005, no pet.), and a party cannot judicially admit a legal conclusion, see TX Far West, Ltd. v. Texas Invs. Mgmt., Inc., 127 S.W.3d 295, 307-08 (Tex. App.—Austin 2004, no pet.).
Although not evidenced in the record before us, both appellants and appellee have stated in their briefs that Barba has since nonsuited (without prejudice) her breach-of-contract claims.
In the same issue, appellants contend that Barba may not avoid the arbitration provision due to the "direct benefits estoppel" doctrine because Frank "accepted benefits" under the Agreement (such as room, board, and nursing care) for the month that he resided at Oak Crest. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739-40 (Tex. 2005) (orig. proceeding) (explaining doctrine as applying when non-signatory plaintiff seeks benefits of contract and simultaneously attempts to avoid contract's burdens, such as arbitration provision). However, appellants' attempt to invoke the direct-benefits-estoppel doctrine under the circumstances here begs the question: was a contract formed in the first place? Because we have determined that due to Frank's incapacity no contract existed between the parties, it follows that neither Frank nor Barba could seek to "derive a direct benefit from" that non-existent contract.See id. at 740 (holding that non-signatory plaintiff may be compelled to arbitrate its claims if claims are based on and stem directly from contract containing arbitration clause); see also In re Morgan Stanley, 293 S.W.3d at 184 n.2 (explaining that doctrine is inapplicable when benefit party is seeking is merely "indirect" to contract containing arbitration provision and substance of claim arises from general obligations imposed by state law and federal law, including torts and common-law duties). We overrule appellants' second issue.
Conversely, even if a contract had been formed (either because Frank had capacity or because Barba "waived her right to void the contract," both of which contentions we have rejected), the doctrine would still be inapplicable because it operates to estop non-signatories from asserting that their lack of signature on an agreement precludes enforcement of its arbitration clause, and Frank did sign the Agreement (and Barba, as guardian of his estate, stands in his stead as a signatory for purposes of this lawsuit, see Tex. Estates Code § 1151.101 ("[T]he guardian of the estate of a ward is entitled to . . . bring and defend all suits by or against the ward.")). --------
Because we conclude that, in light of the evidence demonstrating Frank's incapacity to contract, the probate court did not err in denying the motion to compel arbitration, we need not reach appellants' third issue, in which they contend that because the Agreement "implicates interstate commerce," it is governed by the Federal Arbitration Act, which preempts the Texas Arbitration Act and has fewer requirements for an enforceable arbitration provision under these circumstances than Texas law.
CONCLUSION
We affirm the probate court's denial of appellants' motion to compel arbitration and to stay the proceedings.
/s/_________
David Puryear, Justice Before Justices Puryear, Pemberton, and Field Affirmed Filed: December 1, 2016