Drury v. Assisted Living Concepts Inc.

• Decision Date: 31 August 2011
• Docket Number: 080405881; A141068.
• Parties: Eddie E. DRURY, former Personal Representative for the Estate of Dorothy J. Drury, Deceased, Plaintiff below,andDouglas M. Fellows, Personal Representative for the Estate of Dorothy J. Drury, Deceased, Plaintiff–Respondent,v.ASSISTED LIVING CONCEPTS, INC. and Kim Maree Lewis, Defendants–Appellants,andStefany Camenisch, Defendant below.
• Court: Oregon Court of Appeals

245 Or.App. 217

262 P.3d 1162

Eddie E. DRURY, former Personal Representative for the Estate of Dorothy J. Drury, Deceased, Plaintiff below,andDouglas M. Fellows, Personal Representative for the Estate of Dorothy J. Drury, Deceased, Plaintiff–Respondent,

v.ASSISTED LIVING CONCEPTS, INC. and Kim Maree Lewis, Defendants–Appellants,andStefany Camenisch, Defendant below.

080405881; A141068.

Court of Appeals of Oregon.

Argued and Submitted Sept. 28, 2010.Decided Aug. 31, 2011.

Thomas W. Sondag, Portland, argued the cause for appellants. With him on the briefs was Lane Powell, PC.Patrick L. Block, Portland, argued the cause for respondent. With him on the brief was Rogers & Block, LLP.Before ORTEGA, Presiding Judge, and SERCOMBE, Judge, and LANDAU, Judge pro tempore.ORTEGA, P.J.

Defendants appeal from an order denying their petition to compel arbitration of plaintiff's claims for wrongful death. ORS 36.730(1)(a). Because we conclude that plaintiff is not bound by the contract containing the arbitration provision on which defendants rely, we affirm.

We understand the following facts to be undisputed. Defendant Assisted Living Concepts, Inc. (ALC) owns an assisted living facility. Defendant Kim Maree Lewis was the executive director of the facility. The arbitration provision at issue appears in the Residency Agreement that was executed when Dorothy Drury (decedent) was admitted as a resident of the facility. The Residency Agreement provides, in part, that the parties agree to binding arbitration of all claims or disputes “arising out of or in any way relating to this Agreement or breach of this Agreement, [and] the services or care provided to You by Us.”

Decedent did not sign the Residency Agreement. Instead, all of the admission paperwork, including the Residency Agreement, was completed by her son, Eddie Drury, though he was not then decedent's guardian, conservator, personal representative, or trustee and did not have power of attorney for decedent.

Decedent's mental functioning was severely impaired at that time. About a week before execution of the Residency Agreement, decedent's physician had indicated that decedent needed to move into an assisted living facility because she suffered from dementia and was unable to manage her own affairs, including activities of daily living, medical decisions, and financial matters. Medical records from later that month also indicate that decedent had experienced worsening memory loss, was slow to respond and appeared at times to be sleeping, had abnormal cognitive functioning, and was confused. A nursing assessment of decedent from the following month likewise noted dementia, chronic confusion, and memory impairment.

After about one year in the assisted living facility, decedent died as the result of injuries sustained in a fall. Plaintiff, the personal representative of decedent's estate, sued defendants for wrongful death, and defendants moved to compel arbitration.¹ Plaintiff responded, in part, that decedent was not bound by the Residency Agreement. Because the trial court denied defendants' motion on the basis of unconscionability, it did not decide whether decedent was bound by the Residency Agreement.²

On appeal, defendants argue, among other things, that the agreement binds plaintiff because decedent was a third-party beneficiary of the Residency Agreement. Plaintiff contends that decedent's estate is not bound by that agreement, because decedent never executed it, Eddie Drury had no authority to execute it on her behalf, and she is not bound by it as a third-party beneficiary. We agree with plaintiff that, under these circumstances, plaintiff is not bound by the Residency Agreement, to which decedent never assented. See Outdoor Media Dimensions Inc. v. State of Oregon, 331 Or. 634, 659–60, 20 P.3d 180 (2001) (explaining that, under “right for the wrong reason” principle, reviewing court may affirm lower court on an alternative basis if evidentiary record is sufficient, which requires “(1) that the facts of record be sufficient to support the alternative basis for affirmance; (2) that the trial court's ruling be consistent with the view of the evidence under the alternative basis for affirmance; and (3) that the record materially be the same one that would have been developed had the prevailing party raised the alternative basis for affirmance below”).

We begin with the basic principles at issue in this case. ³ Arbitration arises as “a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Technologies v. Communications Workers, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (citation and internal quotation marks omitted). To form a contract, there must be “a meeting of the minds of the parties, a standard that is measured by the objective manifestations of intent by both parties to bind themselves to an agreement.” Rick Franklin Corp. v. State Dept. of Transportation, 207 Or.App. 183, 190, 140 P.3d 1136, rev. den., 342 Or. 116, 149 P.3d 138 (2006) (citation omitted).

Where parties enter into a contract and intend to benefit a third party, the third party may assert a claim on the promise made for his or her benefit. Sisters of St. Joseph v. Russell, 318 Or. 370, 374–75, 867 P.2d 1377 (1994). “In such case the third party acquires an equitable interest in the property, fund, or thing; and the law, acting upon the relationship of the parties and their treatment of the fund, establishes the requisite privity, creates a duty, and implies a promise which will support the action [.]” Feldman v. McGuire, 34 Or. 309, 311, 55 P. 872 (1899) (citations omitted). In other words, the law implies a relationship between the contracting parties and the intended third-party beneficiary.

Where the third-party beneficiary seeks to enforce rights under a contract, the beneficiary's assent to be bound by the contract may be presumed. Thus, in Erickson v. Grande Ronde Lbr. Co., 162 Or. 556, 576–78, 92 P.2d 170, on reh'g, 162 Or. 556, 94 P.2d 139 (1939), where the defendants contended that the plaintiff was barred from asserting his rights as a third-party beneficiary because he had not accepted the contract within a reasonable time, the court concluded that the beneficiary's assent is presumed from his assertion of rights under the contract:

“For instance, in Baker and Smith v. Eglin, 11 Or. 333, 8 P. 280 [ (1884) ], this court said:

“ ‘The assent of the third person, for whose benefit the contract is made, will be presumed.’

“From Schneider [ Schnider] v. White, 12 Or. 503, 8 P. 652 [ (1885) ], we quote:

“ ‘That an action can be maintained by A upon a promise made by B upon a consideration moving from C to pay A a sum of money, even though A was not informed thereof until afterwards, is too well settled to require authority to support the proposition.’

“From 12 Am.Jur., Contracts, p. 841, § 288, we quote:

“ ‘No express assent or formal acceptance by the plaintiff is necessary. His assent and acceptance will be presumed.’

“Page on Contracts, § 2392, states:

“ ‘His act in maintaining an action upon such contract is a sufficient assent.’ ”

Erickson, 162 Or. at 577–78, 92 P.2d 170.

Thus, under proper circumstances, an arbitration provision may be enforced against a third-party beneficiary.⁴See, e.g., Arthur Andersen LLP v. Carlisle, 556 U.S. 624, ––––, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009) (noting that traditional principles “allow a contract to be enforced by or against nonparties to the contract through ‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel’ ” (quoting 21 R. Lord, Williston on Contracts § 57:19, 183 (4th ed. 2001))). Consistently with general contract principles, however, “[a] third party beneficiary might in certain circumstances have the power to sue under a contract; it certainly cannot be bound to a contract it did not sign or otherwise assent to.” Comer v. Micor, Inc., 436 F.3d 1098, 1102 (9th Cir.2006) (citations omitted; emphasis in original). In Comer, therefore, a participant in an Employee Retirement Income Security Act (ERISA) plan was not compelled to arbitrate his claims for breach of fiduciary duty, brought on behalf of the plan against investment advisors; although the plan trustees and the investment advisors had agreed to arbitrate claims, the plan participant did not sign the agreement, seek to enforce it, or take advantage of the agreement. Id. at 1100, 1102.

Here, defendants are correct that decedent was a third-party donee beneficiary of the Residency Agreement, which specifically provided for services to be provided to her, and that she could have asserted rights under that contract. See Sisters of St. Joseph, 318 Or. at 375, 867 P.2d 1377 (explaining that donee beneficiary status arises where a promisee, with intent to make a gift to or confer a right on the beneficiary, obtains a promisor's promise to perform, and the promisee does not owe that performance to the beneficiary). Some courts have treated that as the end of the matter, simply holding that an intended third-party beneficiary is bound by the terms of the contract without addressing whether the beneficiary assented to the contract. See, e.g., JP Morgan Chase & Co. v. Conegie ex rel. Lee, 492 F.3d 596, 600 (5th Cir.2007) (concluding that a nursing home resident was bound by the arbitration clause of a contract that she did not sign where she was an intended third-party beneficiary of that contract); Forest Hill Nursing Center, Inc. v. McFarlan, 995 So.2d 775, 782–83 (Miss.Ct.App.2008) (ordering arbitration of personal injury claims asserted by a nursing home resident who did not sign the contract at issue but...