GGNSC Vanceburg, LLC v. Taulbee
Filing
16
OPINION AND ORDER: It is ordered, A) Taulbee's 6 Motion to Dismiss is DENIED. B) Golden Living's 8 motion to compel arbitration and enjoin Taulbee from pursuing her State Court Action is GRANTED. Taulbee is ENJOINED from pursuing the pe nding state court action before the Lewis Circuit Court. C) Matter is DISMISSED WITHOUT PREJUDICE, and following the arbitration, either party may petition the Court to take appropriate action. Signed by Judge Karl S. Forester on 8/7/2013.(SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
CIVIL ACTION NO. 5:13-CV-71-KSF
GGNSC VANCEBURG, LLC d/b/a
GOLDEN LIVING CENTER – VANCEBURG, et al.
vs.
PLAINTIFF
OPINION AND ORDER
LOIS TAULBEE
DEFENDANT
********
This matter is before the Court on the motion of Defendant Lois Taulbee (“Taulbee”) to
dismiss this action and the motion of Plaintiff Golden Living Center – Vanceburg (“Golden Living”)
to compel arbitration and enjoin Taulbee from pursuing litigation in state court. For the reasons
discussed below, the motion to dismiss will be denied, and the motion to compel will be granted.
I.
FACTUAL AND PROCEDURAL HISTORY
Defendant, Lois Taulbee, was a resident of a Golden Living Center’s Vanceburg, Kentucky,
location from February 20, 2012 to December 24, 2012. While a resident, Ms. Taulbee suffered
physical and emotional trauma due to the alleged negligent care given to her by Golden Living.
Taulbee alleges that this inadequate care caused her physical condition to deteriorate beyond the
normal aging process.
Taulbee had given her daughter, Sheila Gay Osborne, a General Power of Attorney on
September 10, 2009. DE 1-2. Based on that power of attorney, Osborne signed an Alternative
Dispute Resolution Agreement (“ADR Agreement”) between Taulbee and Golden Living in 2012.
DE 1-1.
On February 15, 2013, Taulbee filed suit in state court against Golden Living, alleging
negligence, medical negligence, corporate negligence, and a violation of the long-term-care
resident’s rights. Golden Living answered that the state court claims are subject to the binding
ADR Agreement between the parties and demanded the dispute be referred to arbitration and the
state court case dismissed with prejudice.
Golden Living then filed a complaint with this Court, alleging federal jurisdiction by way of
diversity. It argues that the ADR Agreement is valid and enforceable and asks this court to compel
Taulbee to arbitrate her state claims and to enjoin her from further pursuing her claims in state
court. Taulbee filed a motion to dismiss alleging lack of subject matter jurisdiction, abstention,
equitable estoppel and failure to state a claim upon which relief can be granted. Taulbee’s
opposition to arbitration focuses primarily on the scope of the power of attorney and whether it
encompasses an agreement to arbitrate.
II.
MOTION TO DISMISS
A.
Applicable Jurisdiction and Abstention Standards
Before ruling on the merits of any case, jurisdiction must be established as a threshold
matter. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 95 (1998). Federal courts are courts
of limited jurisdiction, and subject matter jurisdiction may be obtained only with the existence of
diverse parties or a federal question. Heartwood, Inc. v. Agpaoa, 628 F.3d 261, 266 (6th Cir.
2010); 28 U.S.C. §§ 1331, 1332. When subject matter jurisdiction is challenged, the party claiming
jurisdiction bears the burden of establishing its existence. Ohio Nat. Life. Ins. Co. v. United States,
922 F. 2d 320, 324 (6th Cir. 1990). When dealing with factual challenges to subject matter
jurisdiction, courts have significant leeway to consider evidence outside of the pleadings to resolve
the matter. O’Bryan v. Holy See, 556 F.3d 361, 376 (6th Cir. 2009). Furthermore, when diversity
jurisdiction is invoked in a case involving a limited liability company (“LLC”), the court must examine
the citizenship of each of the LLC’s members to determine citizenship of the LLC. Delay v.
Rosenthal Collins Group, LLC, 585 F.3d 1003, 1005 (6th Cir. 2009).
Even where federal courts properly have jurisdiction over the matter, a district court may
abstain from exercising its jurisdiction and refrain from hearing a case in limited circumstances.
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Saginaw Hous. Comm'n v. Bannum, Inc., 576 F.3d 620, 625 (6th Cir. 2009). This exception is
narrow because a district court presented with a case that arises under its original jurisdiction has
a “virtually unflagging obligation” to exercise the jurisdiction conferred upon it by the coordinate
branches of government and duly invoked by litigants. Colorado River Water Conservation Dist.
v. United States, 424 U.S. 800, 817 (1976). Abstention is an “extraordinary and narrow exception
to the duty of a district court to adjudicate a controversy properly before it.” Id. at 813.
Taulbee argues that Colorado River abstention is applicable here. Under Colorado River,
the threshold issue is whether there are parallel proceedings in state court. Crawley v. Hamilton
County Comm’rs, 744 F.2d 28, 31 (6th Cir. 1984). Once a court has determined there are parallel
proceedings, the Supreme Court identified eight factors that a district court must consider when
deciding whether to abstain from exercising its jurisdiction due to the concurrent jurisdiction of state
court. PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir. 2001). Those factors are:
(1) whether the state court has assumed jurisdiction over any res or property; (2)
whether the federal forum is less convenient to the parties; (3) avoidance of
piecemeal litigation; (4) the order in which jurisdiction was obtained; (5) whether the
source of governing law is state or federal; (6) the adequacy of the state court
action to protect the federal plaintiff’s rights; (7) the relative progress of state and
federal proceedings; and (8) the presence or absence of concurrent jurisdiction.
Id. When examining these factors, the court must not issue an opinion based upon “a mechanical
checklist, but on a careful balancing of the important factors as they apply in a given case, with the
balance heavily weighted in favor of the exercise of jurisdiction.” Id. at 207 (emphasis added).
B.
Subject Matter Jurisdiction
Taulbee argues that Golden Living’s Complaint should be dismissed pursuant to Rule
12(b)(1) for lack of subject matter jurisdiction. Specifically, Taulbee asserts that the parties are not
diverse, and there is no federal question involved in the case. This Court agrees there is no
federal question, but the parties are diverse and jurisdiction does exist.
Golden Living rightfully notes that the Federal Arbitration Act (“FAA”), which governs the
alleged ADR Agreement, does not by itself create subject matter jurisdiction. American Federation
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of Television and Radio Artists v. WJBK-TV, 164 F. 3d 1004, 1007 (6th Cir. 1999). Taulbee is
incorrect, however, in arguing that the parties lack diversity. In support of this assertion, Taulbee
relies on Golden Living’s annual reports filed with the Kentucky Secretary of State, which list four
members in 2011, one of whom is Melissa S. Bentley, a Kentucky resident. Taulbee argues there
is no diversity because both Golden Living and Taulbee are Kentucky citizens. The 2012 annual
report does not provide an address for Ms. Bentley or any other officer, but lists 1017 Fairlane Dr.,
Vanceburg, KY 41179 as Golden Living’s principal office address.
Golden Living responds that Ms. Bentley’s employment with the company ended on August
9, 2012 before the current suit was filed, and that her status as a member of the company ended
at the same time. No member is currently a citizen of Kentucky. In addition, Golden Living
correctly points out that Taulbee misconstrues the purpose and meaning of annual reports filed with
the Kentucky Secretary of State. Annual reports do not provide evidence of citizenship for diversity
purposes. Rizzo v. GGNSC Holdings, LLC., No. 10–45–HRW, 2010 WL 3724216, at *1 (E.D. Ky.
Sept. 15, 2010). LLC’s are required to file annual reports in order to comply with KRS 275.115,
which in turn requires that LLC’s maintain a registered office in Kentucky. Id.
The annual reports in this case only prove that Golden Living is operating in Kentucky, but
do not provide evidence of citizenship for the purpose of diversity jurisdiction. Here, Golden Living
has demonstrated that the parties are diverse and subject matter jurisdiction is present.
C.
Colorado River Abstention
As noted above, a court considering whether to apply Colorado River abstention must first
determine if there are parallel state court proceedings and then apply the eight-factor test. PaineWebber, 276 F.3d at 206. Taulbee correctly argues that this case is parallel to the state court
action. The parties are nearly identical, both cases involve the same claims of personal injury, and
both cases focus on the validity of the ADR Agreement. “Exact parallelism is not required; it is
enough if the two proceedings are substantially similar.” Romine v. Compuserve Corp., 160 F.3d
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337, 340 (6th Cir. 1998). Having found that the proceedings are parallel, the Court will next
consider the Colorado River factors to determine if abstention is warranted.
Both parties agree that the case does not involve any real property nor any assumed
jurisdiction over any res or property, but disagree as to how this factor should apply. Golden Living
argues this factor should count in its favor, and their position is supported by the case law. When
there is no property in issue, the factor weighs in favor of the exercise of jurisdiction and against
abstention. Romine v. Compuserve Corp., 160 F.3d 337, 341 (6th Cir. 1998). Thus, the lack of
property in this case favors federal court jurisdiction.
The next Colorado River factor is whether the federal forum is less convenient to the
parties. This factor weighs in favor of Taulbee. The state court action is currently taking place in
Lewis County and the federal forum is 100 miles away. For potential witnesses in the case, such
as facility staff, doctors, and other residents in the Lewis County area, to travel that distance would
likely pose a substantial burden to them. In addition, the Golden Living facility and principal office
are located in Lewis County. Relevant records and other forms of evidence are most likely located
in Lewis County. Additionally, the alleged ADR Agreement and the alleged negligence arose in
Lewis County. Under these facts, the second Colorado River factor weighs in favor of abstention.
The third Colorado River factor is avoidance of piecemeal litigation. The Court recognizes
that, should the federal case and state case continue simultaneously, there is a chance of
inconsistent outcomes. Cases dealing with similar situations have found, however, that the
negative consequence of piecemeal litigation is necessary in FAA cases because of the law’s policy
favoring and encouraging arbitration. PaineWebber, 276 F.3d at 207 (“the desire to avoid litigating
a single issue in multiple forums is insufficient to overcome the strong federal policy supporting
arbitration.”). It should be noted that “relevant federal law requires piecemeal resolution when
necessary to give effect to an arbitration agreement.” Moses H. Cone Memorial Hosp. v. Mercury
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Construction Corp., 460 U.S. 1, 20 (1983) (emphasis in original). Thus, the third factor also weighs
against abstention.
The fourth factor is the order in which jurisdiction was obtained. When considering this
factor “priority should not be measured exclusively by which complaint was filed first, but rather in
terms of how much progress has been made in the two actions.” Id. at 21. Here the state court
obtained jurisdiction before the federal court action was filed, but the federal action was filed very
quickly thereafter. The Sixth Circuit held that “minimal temporal delay is insignificant.”
PaineWebber, 276 F.3d at 207. In Moses H. Cone, the Supreme Court held that a delay of
nineteen days was not enough to weigh in favor of abstention. 460 U.S. at 21. Here, Taulbee filed
the state court action on February 15, 2013, and Golden Living filed its federal action on March 14,
2013. The passage of twenty-seven days is also too insignificant to justify the use of abstention,
especially when both cases remain in the early pleading stage. Thus, the fourth factor weighs
against abstention.
The fifth factor, whether state or federal law governs, initially appears to be a mixed
question. State law governs the scope of Taulbee’s power of attorney, but if state law singles out
arbitration agreements in the context of contracts generally, the FAA will preempt that state law.
Inland Bulk Transfer Co. v. Cummins Engine Co., 332 F.3d 1007, 1014 (6th Cir. 2003). The FAA
is the source of law for interpreting the arbitration agreements or clauses. PaineWebber, 276 F.3d
at 208. “Although in some rare circumstances the presence of state-law issues may weigh in favor
of that surrender [of jurisdiction], the presence of federal-law issues must always be a major
consideration weighing against surrender.” Moses H. Cone, 460 U.S. at 26. “State and federal
courts must enforce the Federal Arbitration Act ... with respect to all arbitration agreements covered
by that statute.” Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201, 1202 (2012). A
court’s “task in cases such as this is not to find some substantial reason for the exercise of federal
jurisdiction by the district court; rather, the task is to ascertain whether there exist ‘exceptional’
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circumstances, the ‘clearest of justifications,’ that can suffice under Colorado River to justify the
surrender of that jurisdiction.” Id. at 25-26, (emphasis in original). Accordingly, this factor weighs
heavily in favor of federal court jurisdiction.
The next consideration is whether the state court will adequately protect the federal
plaintiff’s interests. This factor weighs in favor of abstention. In PaineWebber, the Sixth Circuit
held that “[t]he FAA extends Congress' legislative authority to the maximum extent permitted under
the Commerce Clause, and is therefore binding on state courts that interpret contracts involving
interstate commerce.” 276 F.3d at 208. While Golden Living correctly points out that some state
courts have refused to enforce arbitration agreements, it has not demonstrated that the Lewis
Circuit Court would be unfairly prejudiced against them. Under the Supremacy Clause, a state
court is bound by the requirements of the FAA. Id. Given the ability of the state court to protect
Golden Living’s rights, the sixth factor weighs in favor of abstention.
The seventh factor is the relative progress of the state and federal proceedings. Unlike the
previous factor, this one weighs against abstention. Here, Golden Living’s Complaint was filed the
day after its Answer in the state court action. Neither action has proceeded past the initial
pleadings stage.
In Romine, where the Sixth Circuit found this factor weighed in favor of
abstention, the state court action had proceeded past the pleading stage and entered into
discovery. Romine, 160 F.3d at 342. Here, the limited progress in the state court weighs against
abstention.
The final factor under Colorado River is the presence or absence of concurrent jurisdiction.
While there is concurrent jurisdiction, this fact only marginally favors abstention, if at all. As noted
above, the governing law is the FAA, which “expresses a preference for federal litigation.” The
existence of concurrent jurisdiction “is insufficient to justify abstention” under the circumstances.
PaineWebber, 276 F.3d at 208-9.
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The foregoing analysis demonstrates that only the second and sixth factors favor
abstention. All other factors favor federal jurisdiction. Neither the fact that the state forum would
be slightly more convenient to the parties, nor the existence of concurrent jurisdiction is an
“exceptional” circumstance necessary to compel this Court to abandon the “virtually unflagging
obligation of the federal courts to exercise the jurisdiction given them.” Colorado River, 424 U.S.
at 817-18. It must also be kept in mind that “the balance [is to be] heavily weighted in favor of the
exercise of jurisdiction.” Moses H. Cone, 460 U.S. at 16. Accordingly, this Court holds that
Colorado River abstention is not warranted in this matter.
D.
Equitable Estoppel
Taulbee argues that equitable estoppel compels this Court to dismiss Plaintiff’s complaint
under Rule 12(b)(6). Taulbee says Golden Living orally agreed that it would not remove future
cases to federal court if Taulbee would not sue Golden Living’s Kentucky administrators in state
court. DE 6 at 9 - 11. Taulbee did not sue the administrators in her state court action.
She
maintains that Golden Living was thus able to circumvent the forum defendant rule and proceed
in federal court under diversity jurisdiction. She claims she would have sued the administrators if
she had known that Golden Living intended to proceed in federal court. Accordingly, she claims
Golden Living should be equitably estopped from proceeding with its federal court action to compel
arbitration.
“A party triggers equitable estoppel by conduct inconsistent with a position later adopted
that prejudices the rights of the other party who detrimentally relied on the prior conduct.” Horton
v. Ford Motor Co., 427 F.3d 382, 388 (6th Cir. 2005). There are several problems with Taulbee’s
equitable estoppel argument. First Golden Living did not “remove” the state court action to federal
court. Instead, it filed an original complaint in this Court to compel arbitration. Any party to an
arbitration agreement may petition a United States District Court to compel arbitration. 9 U.S.C.
§ 4. No forum defendant rule was involved. Golden Living could have filed the same petition in
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this Court no matter who was named in the state court action. Its ability to do so is a matter of
federal law, not some advantage it gained through any agreement with Taulbee.
Second, Taulbee has not shown any prejudice. She could still move to amend her state
court complaint and name the administrators if she believes it is desirable to do so. She has failed
to demonstrate any “detriment” to her as a result of Golden Living’s representation about removal.
See Horton, 427 F.3d 382, 388 (elements of equitable estoppel). Accordingly, Taulbee’s equitable
estoppel argument is without merit.
III.
MOTION TO COMPEL ARBITRATION
In its Answer in state court, Golden Living asserted that all of Plaintiff’s claims are subject
to the binding ADR Agreement and demanded the dispute be referred to arbitration. The same
argument is made in its Motion to Compel before this Court. Taulbee’s Motion to Dismiss and
Response to Golden Living’s Motion to Compel argue that the arbitration Agreement is not valid
because (1) the power of attorney did not authorize Taulbee’s daughter to agree to arbitration; (2)
it is unconscionable and void as against public policy; and (3) it fails to evidence a contract
involving commerce.
The Federal Arbitration Act was enacted “to ensure judicial enforcement of privately made
agreements to arbitrate,” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20 (1985). The
FAA preempts any contradictory state law and applies to any contract that evidences an intention
to settle any controversy arising from the transaction through arbitration.
Stuler v. T.K.
Constructors Inc., 448 F.3d 343, 345 (6th Cir. 2006). The FAA provides that an agreement to
arbitrate will be enforceable except for “such grounds as exist at law or in equity for the revocation
of any contract.” Id. State law governing the validity, revocability and enforceability of contracts
applies to arbitration clauses. Id. State laws applicable only to arbitration agreements, however,
are preempted by the FAA. Great Earth Cos., Inc. v. Simons, 288 F.3d 878, 889 (6th Cir.2002).
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“Therefore, state law governs generally applicable contract defenses [to an arbitration agreement],
such as fraud, duress, or unconscionability.” Id.
A motion to compel arbitration requires a court to “determine whether the parties agreed
to arbitrate the dispute at issue.” Stout v. J.D. Byrider, 228 F. 3d 709, 714 (6th Cir. 2000). Courts
should “examine the language of the contract in light of the strong federal policy in favor of
arbitration.” Id. Next, a court must consider the scope of the arbitration agreement. Id. If the court
finds that the agreement to arbitrate “is not ‘in issue,’ it must compel arbitration.” Great Earth, 288
F.3d at 889. In order to prevent enforcement of the arbitration agreement, a party “must show a
genuine issue of material fact as to the validity of the agreement to arbitrate.” Id. (citation omitted).
The standard “mirrors that required to withstand summary judgment.” Id.
Taulbee does not raise any factual questions regarding the ADR Agreement. Instead, she
presents only questions of law for the Court to decide. “Generally, the interpretation of a contract
... is a question of law for the courts....” Lexicon, Inc. v. Safeco Ins. Co. of America, Inc., 436 F.3d
662, 670 (6th Cir. 2006).
A.
The Arbitration Agreement
The ADR Agreement provides that it “applies to any and all disputes arising out of or in any
way relating to this Agreement or to the resident’s stay at the Facility....” DE 1-1 at 1. “Covered
Disputes include but are not limited to all claims in law or equity arising from ... tort; ... negligence;
gross negligence; malpractice; and any alleged departure from any applicable federal, state, or
local medical, health care, consumer or safety standards.” Id. at 1-3. It cautions in bold capitals
that it governs important legal rights and should be read carefully and in its entirety before signing.
Id. at 5. It explains that the Resident “has the right to seek advice of legal counsel concerning this
Agreement” and that signing the Agreement is not a condition of admission. Id. It states that it
shall be “governed by and interpreted under the Federal Arbitration Act, 9 U.S.C. § § 1 et seq.” Id.
The first page of the Agreement also states in bold capital letters:
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THE PARTIES UNDERSTAND, ACKNOWLEDGE, AND AGREE THAT THEY ARE
SELECTING A METHOD OF RESOLVING DISPUTES WITHOUT RESORTING TO
LAWSUITS OR THE COURTS, AND THAT BY ENTERING INTO THIS
AGREEMENT, THEY ARE GIVING UP THEIR CONSTITUTIONAL RIGHT TO
HAVE THEIR DISPUTES DECIDED IN A COURT OF LAW BY A JUDGE OR
JURY, THE OPPORTUNITY TO PRESENT THEIR CLAIMS AS A CLASS ACTION
AND/OR TO APPEAL ANY DECISION OR AWARD OF DAMAGES RESULTING
FROM THE ADR PROCESS EXCEPT AS PROVIDED HEREIN.
Id. The Supreme Court has become emphatic in its rulings regarding state hostility to arbitration
agreements and the preemption of hostile state law. In AT&T Mobility, LLC v. Concepcion, 131 S.
Ct. 1740 (2011), the court held definitively that the FAA preempts state laws, including a state
court’s application of contract defenses, that run counter to its purposes and that pertain only to
arbitration agreements.
Taulbee does not claim that the ADR Agreement is inapplicable because it does not cover
the nature of the dispute. Instead, she contends that the ADR Agreement is not binding because
her power of attorney did not give Osborne the authority to enter into the ADR Agreement on her
behalf.
B.
Power of Attorney
Taulbee relies heavily on the recent Kentucky Supreme Court decision of Ping v. Beverly
Enterprises, Inc., 376 S.W. 3d 581 (Ky. 2012). Ping is factually similar to the present case in many
respects, but there are critical distinctions in the authority granted through the powers of attorney.
Ping was also the daughter of a woman admitted to a nursing home, and she signed all documents
for her mother, including an arbitration agreement, pursuant to a power of attorney. After her
mother died, Ping filed a wrongful death action against the facility. When the facility demanded
arbitration, Ping argued that she was not authorized to waive her mother’s right to litigation.
The power of attorney Ping received authorized her to make financial decisions on behalf
of her mother, including:
acts pertaining to the management of Mrs. Duncan’s property and finances, such
as “tak[ing] possession of any and all monies, goods chattels, and effects belonging
to me, wheresoever found; ... receiv[ing], deposit[ing], invest[ing] and spend[ing]
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funds on my behalf; ... tak[ing] charge of any real estate which I may own in my own
name or together with other owners....
Id. at 586-87. It also authorized Ping to make:
any and all decisions of whatever kind, nature or type regarding my medical care,
and to execute any and all documents, including, but not limited to, authorizations
and releases, related to medical decisions affecting me; and [t]o generally do any
and every further act and thing of whatever kind, nature or type required to be done
on my behalf.
Id. at 587. Finally, it included a “catch-all” that gave Ping authority “to do and perform, all, and
every act and thing whatsoever requisite and necessary to be done, to and for all intents and
purposes as I might or could do if personally present.” Id. at 586.
The Supreme Court of Kentucky agreed with Ping that the catch-all provision did not
authorize Ping to execute the arbitration agreement. The court reasoned that “Mrs. Duncan’s
power of attorney related expressly and primarily to the management of her property and financial
affairs and to ensuring that health-care decisions could be made on her behalf.” Id. at 592. The
arbitration agreement was not a condition of admission to the facility, so it did not fall within the
provision for health care decisions. Id. at 593. Moreover, the “catch-all” provision “did not give Ms.
Ping a sort of universal authority beyond those express provisions.” Id.
In the present case, by contrast, the power of attorney contained multiple specific
authorizations that are much broader in scope than Ping’s, including authority to: “make contracts”;
“draw, make and sign in my name any and all checks, promissory notes, contracts or agreements”;
“institute or defend suits concerning my property or rights”; and a catch-all “generally to do and
perform for me and in my name all that I might do if present.” DE 1-2. These powers are more
than adequate to allow Osborne to bind Taulbee to an arbitration agreement under Ping.
Judge Thomas B. Russell in the Western District of Kentucky recently analyzed a similar
power of attorney under Ping and reached the same conclusion:
Ping is distinguishable from the present action for one obvious and significant
reason: the power of attorney in Ping did not contain an express provision granting
the attorney-in-fact authority “to draw, make and sign any and all checks, contracts,
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or agreements.” This clause, as contained in the power of attorney, grants Delores
authority to act beyond the categories of healthcare or financial decisions. If such
language would have been included in the power of attorney at issue in Ping, it is
highly likely that the Kentucky Supreme Court would have enforced the arbitration
agreement.
Oldham v. Extendicare Homes, Inc., No. 5:12-cv-199, 2013 WL 1878937 at *5 (W.D. Ky. 2013).
Unlike Ping, Delores and Osborne were vested with the authority to enter into contracts on behalf
of their principals. An arbitration agreement is a contract. The power of attorney must be read in
accordance with its express terms and in light of the strong federal policy favoring arbitration. This
Court finds that Osborne had the authority to execute the arbitration agreement on behalf of
Taulbee. Taulbee’s claims for negligence are unquestionably included within the scope of the
arbitration agreement. When faced with a valid arbitration agreement and Osborne’s authority to
execute it on behalf of Taulbee, this Court is required by the Federal Arbitration Act to grant Golden
Living’s motion to compel arbitration.
Taulbee’s arguments that arbitration agreements are different and require more than the
general power to contract for authorization to execute one are of no help to her. That line of
reasoning would simply result in preemption of such a requirement under the FAA.
C.
Unconscionability and Public Policy
Taulbee argues that, even if the arbitration agreement was within the authority of the power
of attorney, it is unconscionable and thus invalid. DE 10 at 15-17. This argument is without merit.
The Supreme Court recently considered an argument that arbitration agreements were
unconscionable in Concepcion. It expressed the focus of its review as follows:
When state law prohibits outright the arbitration of a particular type of claim, the
analysis is straightforward: The conflicting rule is displaced by the FAA. But the
inquiry becomes more complex when a doctrine normally thought to be generally
applicable, such as duress or, as relevant here, unconscionability, is alleged to have
been applied in a fashion that disfavors arbitration. In Perry v. Thomas, 482 U.S.
483 (2008), for example, we noted that the FAA’s preemptive effect might extend
even to grounds traditionally thought to exist “at law or in equity for the revocation
of any contract.” Id. at 492, n. 9. We said that a court may not “rely on the
uniqueness of an agreement to arbitrate as a basis for a state-law holding that
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enforcement would be unconscionable, for this would enable the court to effect what
... the state legislature cannot.” Id. at 493, n. 9.
131 S. Ct. at 1747 (citations omitted). While § 2 of the FAA preserves applicable common law
contract defenses, the Concepcion Court warned that the grounds available under § 2 must not be
construed to include a state’s policy preference for procedures incompatible with arbitration:
Although § 2's savings clause preserves generally applicable contract defenses,
nothing in it suggests an intent to preserve state-law rules that stand as an obstacle
to the accomplishment of the FAA’s objectives. ... As we have said, a federal
statute’s saving clause ... “cannot in reason be construed as allowing a common law
right, the continued existence of which would be absolutely inconsistent with the
provisions of the act.”
Id. at 1748 (citations omitted).
Moreover, the arbitration agreement is not void against public policy. First, it should be
noted that there is “an emphatic federal policy in favor of arbitral dispute resolution.” KPMG LLP
v. Cocchi, 565 U.S. ___, 132 S.Ct. 23, 25 (2011). Recently, the Supreme Court specifically
rejected an argument that arbitration agreements can be voided for public policy reasons. Marmet
Health Care Center, Inc. v. Brown, _____ U.S._____, 132 S.Ct. 1201, 1203-4 (2012). The West
Virginia Supreme Court had held that predispute agreements to arbitrate personal-injury or
wrongful-death claims against nursing homes violated state public policy. Id. at 1203.
The case arose from three negligence suits against nursing homes in West Virginia. In
each case, a family member of the resident signed an arbitration agreement, which required the
parties to arbitrate all disputes except those involving late payments. Id. In reversing the West
Virginia Supreme Court, the United States Supreme Court held: “[w]hen state law prohibits
outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting
rule is displaced by the FAA.” Id. (quoting Concepcion, 131 S.Ct. 1740, 1747 (2011)). Accordingly,
any public policy precluding the arbitration of claims against nursing homes or precluding persons
with the power to contract from entering into an arbitration agreement, would be preempted by the
FAA.
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D.
Contract Involving Commerce
Taulbee also contends that the ADR Agreement is unenforceable because it does not
evidence a transaction involving commerce. The FAA requires enforcement, except upon grounds
for revocation of any contract, of “a contract evidencing a transaction involving commerce” for
settlement “by arbitration [of] a controversy thereafter arising out of such contract or transaction.”
9 U.S.C. § 2.
When interpreting the term “involving commerce” in the FAA, courts should treat the terms
as having “the functional equivalent of the more familiar term ‘affecting commerce’ – words of art
that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power.”
Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). Because the FAA “provides for the
enforcement of arbitration agreements within the full reach of the Commerce Clause, it is perfectly
clear that the FAA encompasses a wider range of transactions than those actually ‘in commerce’that is, ‘within the flow of interstate commerce.’” Id. (citations omitted). When determining whether
arbitration agreements signed by residents of nursing homes affect commerce, courts have
considered various factors. In re Nexion Health at Humble, Inc., 173 S.W.3d 67 (Tex. 2005), held
that the nursing home’s acceptance of Medicare was sufficient for the court to establish the
arbitration agreement involved commerce. Id. at 69. The District Court of New Mexico reached
the same conclusion last year. THI of New Mexico at Hobbs Center, LLC v. Spradlin, 893 F. Supp.
2d 1172, 1184 (D. N.M. 2012), citing numerous similar cases. The purchase of goods from out-ofstate vendors by nursing homes was sufficient to prove the requirement of “involving commerce”
was met. Owens v. Coosa Valley Health Care, Inc., 890 S0. 2d 983, 987-88 (Ala. 2004).
In the present case, the Arbitration Agreement itself states: “The parties to this Agreement
acknowledge and agree that upon execution by Resident, this Agreement becomes part of the
Admission Agreement, and that the Admission Agreement evidences a transaction in interstate
commerce governed by the Federal Arbitration Act.” DE 1-1 at 1. Golden Living’s web site shows
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that it accepts Medicare. www.goldenlivingcenters.com/expert-thinking/paying-for-healthcare.aspx.
Accordingly, this Court holds that Taulbee’s claim that the transaction does not involve commerce
is without merit.
E.
Enjoining State Court Litigation
Golden Living also moves this Court to enjoin Taulbee from proceeding with her state court
action. While the FAA requires a federal court to stay their own proceedings, it does not
specifically authorize federal courts to stay pending state court cases. Great Earth Co., Inc. v.
Simons, 288 F.3d 878, 893 (6th Cir. 2002). The federal court’s authority to enjoin state-court
proceedings is subject to the legal and equitable standards for injunctions generally, including the
Anti-Injunction Act, 28 U.S.C. § 2283.
The Sixth Circuit found the district court’s injunction of state-court proceedings after
compelling arbitration did not violate the Anti-Injunction Act. Great Earth, 288 F.3d at 894. The
court held that the injunction fell “within the exception for injunctions ‘necessary ... to protect or
effectuate [district court] judgments.’” Id. It concluded “[a]n injunction of the state proceedings
[was] necessary to protect the final judgment of the district court on this issue.” Id. Since enjoining
the state proceeding is not barred by the Anti-Injunction Act and such injunction would serve to
protect or effectuate this Court’s judgments, Taulbee is enjoined from pursuing the pending state
court action before the Lewis Circuit Court.
IV.
CONCLUSION
IT IS ORDERED that:
A.
Taulbee’s motion to dismiss [DE 6] is DENIED.
B.
Golden Living’s motion to compel arbitration and enjoin Taulbee from pursuing her
State Court Action [DE 8] is GRANTED. Taulbee is ENJOINED from pursuing the pending state
court action before the Lewis Circuit Court.
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C.
This matter is DISMISSED WITHOUT PREJUDICE, and following the arbitration,
either party may petition the Court to take appropriate action.
This August 7, 2013.
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