Preferred Care of Delaware, Inc. et al v. Konicov
Filing
68
MEMORANDUM OPINION & ORDER: (1) Dft's 23 Motion to Dismiss and 21 and 31 Motions for Summary Judgment are DENIED. (2) Plas' 8 Motion to Compel Arbitration and Enjoin the State Court proceedings is GRANTED. (3) Preferred Care Health Facilities, Inc. 25 and Richmond Health Facilities - Kenwood GP, LLC's 28 Motions to Dismiss are GRANTED. (4) Dft Billie Konicov is COMPELLED to submit her claims to arbitration according to the terms of her agreement and ENJOINED from proceeding with her state court action. (5) All other pending motions are DENIED AS MOOT. (6) The Court will stay this proceeding until the ordered arbitration concludes. Signed by Judge Karen K. Caldwell on May 4, 2016. (AWD) cc: COR
Eastern D1striot of Xentuoky
FILED
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
PREFERRED CARE OF DELAWARE,
INC., et al.,
MAY - 4 2016
AT LEXINGTON
ROBERT R. CARR
CLERK U.S. DISTRICT COURT
CIVIL ACTION NO. 5:15-cv-88-KKC-EBA
Plaintiffs,
MEMORANDUM OPINION AND
ORDER
v.
BILLIE KONICOV, AS ATTORNEY-INFACT OF BARRIE KONICOV,
Defendant.
*** *** ***
This matter is before the Court on multiple motions submitted by the parties.
I. BACKGROUND
Despite the extraordinary number of filings in this case, the central dispute giving
rise to this litigation is remarkably straightforward. On July 24, 2014, Barrie Konicov was
admitted to a health care facility operated by Preferred Care of Delaware, Inc. (DE 1-2 at
2.) In connection with that admission, Mr. Konicov's wife, Billie Konicov, signed a number
of documents, including an Alternative Dispute Resolution Agreement ("Arbitration
Agreement"), in her capacity as attorney-in-fact for her husband. (DE 1-1.) Preferred Care
alleges that Ms. Konicov had authority to execute the Arbitration Agreement under a
"Durable Power of Attorney for Finance," which was validly executed by Mr. Konicov on
August 28, 2008. (DE 4-1.) While at the health care facility, Mr. Konicov was afflicted by a
number of ailments, purportedly resulting from Preferred Care's wrongful conduct. (DE 1-2
at 8.) On January 22, 2015, Ms. Konicov filed suit in Madison County Circuit court seeking
relief for Preferred Care's alleged torts. (DE 1-2.)
On April 6, 2015, Preferred Care responded by filing the instant action to compel
arbitration pursuant to the Arbitration Agreement. (DE 1.) There is no dispute that Ms.
Konicov actually signed the Arbitration Agreement. Nor is there a claim that Ms. Konicov's
state court claims fall outside the scope of the Arbitration Agreement. The only real factual
dispute here is Ms. Konicov's claim that she was fraudulently induced into signing the
agreement. (DE 4.) Ms. Konicov does allege lack of authority to submit claims to arbitration
on her husband's behalf, indefiniteness of the Agreement's terms, and lack of consideration
as defenses to enforcement. However, these are legal issues, not factual ones.
Ms. Konicov asserts fraud claims-fraud in the inducement and as part of a larger
conspiracy to defraud-both as a defense to enforcement of this agreement, and as the basis
for independent counterclaims. (DE 4.) In support, Ms. Konicov submits an affidavit in
which she claims that Preferred Care's employee, subsequently identified as Meghan Mills,
gave her multiple documents and stated "that all of the papers had to be signed or that Mr.
Konicov would not be allowed to remain" at Preferred Care's facility. (DE 19-1 at
ii 6.) Ms.
Konicov avers that Ms. Mills characterized all of the documents as "standard admissions
documents ... that concerned payment arrangements for Mr. Konicov's stay at the facility,
his eligibility for Medicaid, and the services that he would receive." (DE 19-1 at
ii 7.) Ms.
Mills also allegedly hurried Ms. Konicov through the documents without "an opportunity to
review them or ask questions about them," instead informing Ms. Konicov what the pages
were and indicating where signatures were necessary. (DE 19-1 at
ii 9.) The process was
purportedly completed in around ten minutes during which the "word arbitration was never
mentioned, and the concept of arbitration was never explained or even discussed." (DE 19-1
at
ii 9, 11.) Consequently, Ms. Konicov states she "had no idea that by signing the
admissions paperwork on behalf of Mr. Konicov [she] was agreeing to arbitration or in any
2
way forfeiting" any rights to bring claims against Preferred Care in a court of law, and that
if she had known, she would not have signed. (DE 19-1 at iJ 12.)
In reply, Preferred Care points to several portions of the Arbitration Agreement
itself that allegedly contradict Ms. Konicov's claims. First, this statement atop the
Agreement's first page: "(SIGNING THIS AGREEMENT IS NOT A CONDITION OF
ADMISSION TO OR CONTINUED RESIDENCE IN THE FACILITY)." (DE 30 at 3.)
Second, Ms. Konicov's initials just below a paragraph including the following: "THE
PARTIES UNDERSTAND, ACKNOWLEDGE, AND AGREE THAT BY ENTERING
INTO THIS AGREEMENT THEY ARE GIVING UP THEIR CONSTITUTIONAL
RIGHT TO HAVE THEIR DISPUTES DECIDED BY A COURT OF LAW[.]" (DE 30 at
3.) Finally, Ms. Konicov's signature shortly following this language: "BY SIGNING THIS
AGREEMENT, the Parties acknowledge that they have read this agreement [and] have
had an opportunity to seek legal counsel and to ask questions regarding this
Agreement[.]"(DE 30 at 4.) Preferred Care has also submitted Meghan Mills' affidavit,
which rebuts, in some detail, every one of Ms. Konicov's allegations that might support a
fraud claim. (DE 37-1.)
This Court's analysis will proceed by addressing (1) whether Preferred Care failed to
join indispensable parties; (2) whether this Court has jurisdiction over two of the
defendants named in Ms. Konicov's counterclaim; (3) the facial constitutionality of the FAA;
(4) which of Ms. Konicov's challenges are properly submitted to an arbitrator rather than
this Court; (5) whether any challenge properly before this Court is prima facie valid; (6) the
FAA's constitutionality as applied here; and (7) the propriety of an injunction prohibiting
further pursuit of Ms. Konicov's State Court action.
3
II. ANALYSIS
A. INDISPENSABLE PARTIES
Ms. Konicov argues that five parties are indispensable to Preferred Care's claim and,
thus, the complaint must be dismissed under Federal Rule of Civil Procedure 19 because
Preferred Care did not name them. The allegedly indispensable parties are two of Preferred
Care's employees - Mills and Glenn Cox - and three corporations. Ms. Konicov named all of
these parties except Mills as defendants in her state-court action.
"Rule 19 of the Federal Rules of Civil Procedure establishes a three-step analysis for
determining whether a case should proceed in the absence of a particular party."
PaineWebber, Inc. v. Cohen, 276 F.3d 197, 200 (6th Cir. 2001). The first step is to determine
whether a party not joined is necessary under Rule 19(a). Id. Second, if the party is
necessary, the court must next determine whether joinder is feasible, considering whether
the party is subject to personal jurisdiction and if joinder will destroy the court's subjectmatter jurisdiction. Id. Third, if joinder will destroy subject-matter jurisdiction-for
instance, through joinder of a non-diverse party-the court must examine "whether in
equity and good conscience the action should proceed" without the nonjoined party, i.e.,
whether the party is "indispensable." Id. If an indispensable party cannot be feasibly joined,
the action must be dismissed. However, if the party is not indispensable, the action may
proceed in that party's absence. See GGNSC Vanceburg, LLC, v. Hanley, Civil Action No.
13-106-HRW, 2014 WL 1333204, *3 (E.D.Ky. Mar.28, 2014).
For purposes of this opinion, the Court will assume that each of the five parties is
necessary. Turning to the second step, feasibility, it is clear that joining the two individuals
- Cox and Mills - would destroy complete diversity and divest this Court of subject-matter
jurisdiction. Further, as discussed below, this Court does not have personal jurisdiction
4
over two of the corporations - Richmond Health Facilities-Kenwood GP, LLC or Preferred
Care Health Facilities, Inc. Consequently, their joinder is also infeasible.
Third, this Court must address whether these four parties are indispensable such
that the action must be dismissed rather than proceeding without them. Contrary to Ms.
Konicov's position, a party is neither necessary nor indispensable simply because they are
an alleged joint tortfeasor. Temple v. Synthes Corp., Ltd., 498 U.S. 5, 8 (1990) ("As potential
joint tortfeasors ... [they] were merely permissive parties."). Rule 19(b) provides four factors
to consider when determining whether a non-joined party is indispensable:
(1) the extent to which a judgment rendered in the person's absence
might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be
adequate; and
(4) whether the plaintiff would have an adequate remedy if the action
were dismissed for nonjoinder.
Fed. R. Civ. P. 19(b). The central question here is whether the necessary parties' interests
in the arbitration agreement render them indispensable parties to this enforcement action.
The Sixth Circuit has expressly rejected the argument that duplicative litigation and
potentially inconsistent legal conclusions over an arbitration agreement are grounds for
finding a party indispensable. In Paine Webber, the plaintiff sought to compel the heirs of its
former employee to submit their state-law tort claims to arbitration. Like the instant case,
Paine Webber sought an injunction in federal court rather than relying on a ruling from the
state court. And, as here, the defendant objected to the suit on the grounds that a nondiverse employee sued in the underlying state action was indispensable because of "the
potentially inconsistent legal obligations that might result from conflicting interpretations
5
of the arbitration clauses by state and federal courts." Paine Webber, 276 F.3d at 202. The
Sixth Circuit rejected the defendant's argument, stating that:
Although we acknowledge the seriousness of [the defendant's]
concerns, his characterization of the risks fails to take into
account several important factors. These considerations
indicate that the potential prejudice to [the defendant] or [the
nonjoined party] if this action proceeds without [the nonjoined
party] is minimal.
As an initial matter, the possibility of having to proceed
simultaneously in both state and federal court is a direct result
of [the defendant's] decision to file suit naming [the plaintiff]
and [the nonjoined party] in state court rather than to demand
arbitration under the [parties'] Agreement.
Even if the parallel proceedings were not the result of [the
defendant's] pending state court action, the possibility of
piecemeal litigation is a necessary and inevitable consequence
of the F AA's policy that strongly favors arbitration.
[The possibility that] the federal and state courts will reach
conflicting interpretations of the arbitration clauses does not
present the degree of prejudice necessary to support a
conclusion that [the nonjoined party] is an indispensable party.
Id. at 202-03 (internal citations omitted).
Applying the Paine Webber analysis, another district court within this Circuit held
that a nursing-home administrator was not an indispensable party, notwithstanding the
administrator's status as a co-defendant in the underlying :state-tort action. See GGNSC
Louisville Hillcreek, LLC, v. Warner, 2013 WL 6796421, at *3-4 (W.D. Ky. December 19,
2013) (finding that "on balance, the factors do not dictate that the Court find [the
administrator] is an indispensable party"). This Circuit's precedent is clear; the possibility
of inconsistent rulings coupled with the burden on the defendant in pursuing duplicative
litigation are not sufficiently prejudicial to find a party indispensable. Paine Webber, 276
F.3d at 202-03. Thus, although there might be some prejudice and it is certainly true that
6
the state court could provide adequate relief to Preferred Care, the Court finds that none of
the necessary parties are indispensable to Preferred Care's claims under Rule 19(b) and
those claims may proceed without them.
B. PERSONAL JURISDICTION
Ms. Konicov names Richmond Health Facilities-Kenwood GP, LLC, and Preferred
Care Health Facilities, Inc. as defendants on her counterclaims. They both move to dismiss
the counterclaims against them for lack of personal jurisdiction. "When a federal court sits
in diversity, it may exercise personal jurisdiction over an out-of-state defendant only if a
court of the forum state could do so." Newberry v. Silverman, 789 F.3d 636, 641 (6th Cir.
2015) (internal citation omitted). Personal jurisdiction in Kentucky is determined by a twostep analysis:
First, review must proceed under KRS 454.210 to determine if
the cause of action arises from conduct or activity of the
defendant that fits into one of the statute's enumerated
categories. If not, then in personam jurisdiction may not be
exercised. When that initial step results in a determination
that the statute is applicable, a second step of analysis must be
taken to determine if exercising personal jurisdiction over the
non-resident defendant offends his federal due process rights.
Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011). In relevant part,
Kentucky's long-arm statute provides for personal jurisdiction over an out-of-state
corporation when a claim "arises from":
(1) Transacting business in this Commonwealth;
(2) Contracting to supply services or goods
Commonwealth;
m
this
(4) Causing tortious injury in this Commonwealth by an act or
omission outside this Commonwealth if he regularly does or
solicits business, or engages in any other persistent course of
conduct, or derives substantial revenue from goods used or
consumed or services rendered in this Commonwealth,
provided that the tortious rn)ury occurrmg m this
7
Commonwealth arises out of the doing or soliciting of business
or a persistent course of conduct or derivation of substantial
revenue within the Commonwealth
KRS § 454.210(2)(a); Hinners v. Robey, 336 S.W.3d 891 (Ky. 2011). Ms. Konicov has made
only conclusory allegations regarding the corporations' contacts with Kentucky. Because
she has not sufficiently alleged that any of her claims "arise from" any in-state activity by
Richmond Health Facilities-Kenwood GP, LLC, or Preferred Care Health Facilities, Inc.,
this Court lacks jurisdiction under Kentucky's long arm statute.
In responding to a rule 12(b)(2) motion to dismiss for lack of jurisdiction the
"plaintiff bears the burden of establishing that jurisdiction exists." Theunissen v. Matthews,
935 F.2d 1454, 1458 (6th Cir. 1991). When, as here, a defendant has submitted a wellsupported motion for dismissal, "the plaintiff may not stand on his pleadings but must, by
affidavit or otherwise, set forth specific facts showing that the court has jurisdiction." Id. A
court deciding a rule 12(b)(2) motion on pleadings alone must view the facts in the light
most favorable to the plaintiff, and may only require a prima facie showing. Id. at 1459.
However, mere conclusory allegations will not satisfy the "specific facts" requirement. See
Tall v. Comcast of Potomac, LLC, 729 F. Supp. 2d 342, 346 (D.D.C. 2010) aff'd sub nom.
Tall v. Credit Prot. Ass'n, 439 F. App'x 1 (D.C. Cir. 2011) ("plaintiffs must allege 'specific
facts upon which personal jurisdiction may be based,' . . . and they cannot rely on
conclusory allegations"); cf Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) ("the tenet that a
court must accept a complaint's allegations as true is inapplicable to threadbare recitals of
a cause of action's elements, supported by mere conclusory statements.").
A pervasive issue with the facts Ms. Konicov alleges in support of jurisdiction is
their lack of "reasonable particularity." Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d
883, 887 (6th Cir. 2002) (holding that a prima facie jurisdictional showing requires a
8
plaintiff to establish "with reasonable particularity sufficient contacts between [a proposed
defendant] and the forum state to support jurisdiction"). For instance, Ms. Konicov points to
an industry magazine stating that "Preferred Care is the 10th largest nursing home
operator in the country." (DE 36 at 8-9.) Upon closer inspection, the attached article does
not mention the specific entities challenging jurisdiction here. Similarly, Ms. Konicov refers
to her prior allegation that "the Preferred Care Entities promulgated policies and
procedures," and that "these parties operated to deceive, mislead, and defraud the residents
... of Kenwood." (DE 36 at 7.) She further states that the "Preferred Care entities certainly
had fair warning that they may be subject to suit in Kentucky ... they appointed a local
registered agent," but overlooks that none of the entities with registered agents in the state
dispute jurisdiction. (DE 36 at 11 n.1; DE 36-2.)
Only three factual allegations are specifically directed toward one or both of the
parties challenging jurisdiction. First, Ms. Konicov provides evidence that all of the
corporations named as defendants on her counterclaim "operate out of adjoining principal
locations" in Plano, Texas. (DE 36 at 9.) Second, Ms. Konicov demonstrates that each entity
shares a corporate officer. (DE 36 at 9.) Finally, Ms. Konicov points out that one of the
entities challenging jurisdiction is the general partner of one of the Kentucky-based
corporate Plaintiffs. Based on these three facts, she asserts that the "Preferred Care
entities, including the movants, are inter-related, hold significant interests in Kenwood
Health and Rehabilitation Center, and collectively operated the facility." (DE 36 at 9.) Only
the final conclusion, if supported, would definitively confer jurisdiction. However, Ms.
Konicov's factual premises do not support a finding that the Preferred Care entities
collectively operated Kenwood Health and Rehabilitation Center.
9
As this District recently explained "[i]t is well established in this circuit that the
mere ownership by a foreign parent company of an in-state subsidiary does not in itself
subject the parent to the jurisdiction of such courts." Modern Holdings, LLC v. Corning Inc.,
No. CIV. 13-405-GFVT, 2015 WL 1481443, at *5 (E.D. Ky. Mar. 31, 2015) (quoting Miller v.
Trans World Airlines, Inc., 302 F.Supp. 17 4, 178 (E.D. Ky. 1969)). Interrelatedness with
and ownership of corporations amenable to suit in Kentucky cannot alone justify
jurisdiction over the related or parent corporations. Ms. Konicov must demonstrate that the
two entities challenging jurisdiction, on their own, had sufficient contacts to fall within
Kentucky's long-arm statute. Id.
Ms. Konicov cites precedent from several courts to support her premise that "in the
operation of nursing home facilities, multiple corporate defendants may operate a facility as
one business." (DE 36 at 7-8.) However, the possibility of jurisdiction on that basis is not
disputed, the issue is, as the Counter-Defendant's note, that "[t]hese cases do nothing to
support the claim that this Court may exercise personal jurisdiction" in this case. (DE 44 at
5.) For instance, the Pennsylvania case cited by Ms. Konicov does not address personal
jurisdiction, but upheld corporate negligence "as a basis for liability" against the defendant
corporation where there was evidence that "it was the entity that managed all aspects of
the operation of the nursing facility." Scampone u. Grane Healthcare Co., 2010 PA Super
124,
~
71, 11 A.3d 967, 990 (2010) aff'd in part on other grounds sub nom. Scampone u.
Highland Park Care Ctr., LLC, 618 Pa. 363, 57 A.3d 582 (2012) (finding that corporate
defendant "established and administered a quality assurance program to ensure the
nursing facility provided quality nursing care . . . includ[ing] establishing an operating
budget" and "employees of [defendant] worked at the nursing facility and oversaw the daily
operation of the nursing staff'). Certainly, if Ms. Konicov set forth specific facts tending to
10
establish Richmond Health Facilities-Kenwood GP, LLC, and Preferred Care Health
Facilities, Inc. exercised a similar level of control over the Kentucky facility, jurisdiction
would be warranted. However, Ms. Konicov's filings provide no such specifics.
The specific facts Ms. Konicov has alleged, even viewed in a light most favorable to
her position, cannot support her contention that Richmond Health Facilities-Kenwood GP,
LLC, or Preferred Care Health Facilities, Inc. controlled and trained the employees that
were obtaining signatures for arbitration agreements. (DE 36 at 9.) Nor do they provide a
prima facie showing that the "Preferred Care entities ... collectively operated the facility"
where the arbitration agreement was signed. (DE 36 at 9.) Ms. Konicov does not dispute
that Richmond Health Facilities-Kenwood GP, LLC, and Preferred Care Health Facilities,
Inc. are separately incorporated and located in Texas, or that neither company is or has
ever been licensed to do business in the commonwealth.
The most that could be reasonably inferred from the facts provided "is that [the
corporations] 'do[] business' in Kentucky indirectly through" related corporations. Modern
Holdings, LLC, 2015 WL 1481443, at *7 (E.D. Ky. Mar. 31, 2015) (emphasis in original).
However, in the absence of an alter-ego relationship, which Ms. Konicov does not allege, one
corporation's acts within a forum cannot be imputed to a related corporation to establish
jurisdiction. Id. "Kentucky courts have [consistently] required a course of direct, affirmative
actions within a forum that that result in or solicit a business transaction." Id. at *6
(collecting cases). Facts tending to show direct, affirmative actions in Kentucky are
precisely what Ms. Konicov has failed to allege.
In sum, both Richmond Health Facilities-Kenwood GP, LLC, and Preferred Care
Health Facilities, Inc., have submitted well-supported motions to dismiss for lack of
personal jurisdiction. In response, Ms. Konicov simply repeats her generalized conclusory
11
allegations of a conspiracy to commit fraud by "the Preferred Care Entities," and offers
several facts that either provide no actual support for those allegations, or as a matter of
Kentucky law, do not support a finding of personal jurisdiction. Thus, Ms. Konicov failed to
satisfy the burden of setting forth specific facts that establish a prima facie jurisdictional
showing. Accordingly, the counterclaims against Preferred Care Health Facilities, Inc. and
Richmond Health Facilities - Kenwood GP, LLC, will be dismissed.
C. FACIAL CONSTITUTIONALITY OF THE FAA
Ms. Konicov contends that the FAA is unconstitutional in so far as it substitutes
state contract law for the knowing, intentional, and voluntary standard for waiver of
constitutional rights-in particular, the right to trial by jury. The challenge is directed
toward both the FAA's facial constitutionality and also as applied herein. For Ms. Konicov
to advance a successful facial attack, she would have to establish "that no set of
circumstances exists under which [§ 2] would be valid," United States u. Salerno, 481 U.S.
739, 745 (1987), or that the statute lacks any "plainly legitimate sweep," Washington u.
Glucksberg, 521 U.S. 702, 7 40, n. 7 (1997) (Stevens, J., concurring in judgments) (internal
quotation marks omitted).
Ms. Konicov argues that, by applying traditional contract standards to enforcement
of arbitration agreements, the FAA permits jury-trial waivers that are not necessarily
knowing and voluntary. This Circuit's precedent makes clear, however, that the FAA does
not foreclose challenges based on the absence of a "knowing and voluntary" waiver.
Hergenreder u. Bickford Senior Living Group, LLC 656 F.3d 411, 420 (6th Cir. 2011).
Facially, the FAA neither violates separation of powers nor alters the standard for a valid
Seventh Amendment waiver.
12
D. CHALLENGES SUBJECT TO ARBITRATION
Challenges to arbitration agreements can generally be placed into one of three
categories: (1) challenges to whether any agreement between the parties was actually ever
concluded, (2) challenges to the validity of a contract, containing an arbitration agreement,
as a whole, and (3) challenges to the validity of an arbitration agreement or provision.
Janiga v. Questar Capital Corp., 615 F.3d 735, 741 (7th Cir. 2010).
Challenges of the first type are clearly given to the Courts, and three of the challenges
here arguably fall in this group: "whether the signor lacked authority to commit the alleged
principal," whether the material terms were too indefinite to form a contract, and whether
the promises were supported by mutual consideration. Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1 (2006); see Gibson v. Neighborhood Health Clinics, Inc.,
121 F.3d 1126, 1131 (7th Cir. 1997) (analyzing consideration as a judicially-determined
issue under Indiana law); Restatement (Second) of Contracts § 33 cmt. a (1981) ("If the
essential terms are so uncertain that there is no basis for deciding whether the agreement
has been kept or broken, there is no contract."). Because they potentially address whether
or not an agreement was ever consummated, these three issues are properly before this
Court and they will be analyzed in subsequent sections.
Challenges of the second type, validity of an agreement containing an arbitration
provision, are properly submitted to an arbitrator. Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 404 (1967) ("the statutory language does not permit the federal
court to consider claims of fraud in the inducement of the contract generally"). No challenge
of this type is levied here because the arbitration agreement at issue is an entirely separate
contract.
13
Finally, challenges of the third type, validity of an arbitration agreement, are normally
addressed to the court. Milan Exp. Co. v. Applied Underwriters Captive Risk Assur. Co., 590
F. App'x 482, 485 (6th Cir. 2014). Such challenges may, however, be submitted to an
arbitrator if the agreement contains a separate provision delegating determination of such
challenges to an arbitrator, and if that provision is not specifically challenged. Rent-A-Ctr.,
W., Inc. v. Jackson, 561 U.S. 63, 70 (2010). This possibility is available even for "gateway
questions of arbitrability, such as (1) whether the parties have a valid arbitration
agreement or (2) are bound by a given arbitration clause, and (3) whether an arbitration
clause in a concededly binding contract applies to a given controversy." Momot v. Mastro,
652 F.3d 982, 987 (9th Cir. 2011).
Ms. Konicov's fraud claims challenge the validity or enforceability of an existing
agreement. Such challenges fall under the broad heading of "arbitrability." See Burden v.
Check Into Cash of Kentucky, LLC, 267 F.3d 483, 488-89 (6th Cir. 2001) (explaining the
distinction between claims of fraud in the inducement and fraud in the factum, the former
resulting in a voidable contract and the latter resulting in a void or "nonexistent" contract);
Radioshack Corp. v. ComSmart, Inc., 222 S.W.3d 256, 261 (Ky. Ct. App. 2007) ("Where an
individual is induced to enter into the contract in reliance upon false representations, the
person may maintain an action for a rescission of the contract.") (emphasis added); Janiga
v. Questar Capital Corp., 615 F.3d 735, 742 (7th Cir. 2010) (arguments that signor of
arbitration agreement "did not get a copy of the contract, []never read it, [] could not read
it if he tried, and [ ] did not know what he agreed to do ... left only ... the question
whether that contract is enforceable, and that is the kind of issue that Prima Paint,
Buckeye, and Rent-A-Center put squarely in the arbitrator's box.").
14
This Circuit has required "clear and unmistakable evidence that contracting parties
intended an arbitrator (rather than a court) to resolve questions of arbitrability." Milan
Exp. Co. v. Applied Underwriters Captive Risk Assur. Co., 590 F. App'x 482, 483-84 (6th
Cir. 2014). This, of course, flips the usual presumption, which favors arbitrability.
If such a "delegation provision" is properly established the Supreme Court has
stated that the "agreement to arbitrate a gateway issue is simply an additional, antecedent
agreement the party seeking arbitration asks the federal court to enforce, and the FAA
operates on this additional arbitration agreement just as it does on any other." Rent-A-Ctr.,
W., Inc. v. Jackson, 561 U.S. 63, 70 (2010). Consequently, this additional agreement is
presumed valid save upon the "grounds as exist at law or in equity" under the FAA. 9
U.S.C. § 2. In such circumstances, "a party's challenge to another provision of the contract,
or to the contract as a whole, does not prevent a court from enforcing a specific agreement
to arbitrate." Rent-A-Ctr., 561 U.S.at 71.
Rent-A-Ctr. is particularly relevant for the instant dispute because it specifically
addressed the applicability of this "severability" doctrine in the context of a challenge to an
entire arbitration agreement. Id. There, the Court held that, before a court may intervene,
a challenge must be specifically directed to the delegation provision. Id. at 71-72. There is
no such challenge here.
Each of Ms. Konicov's challenges is captioned with a heading beginning "The
Arbitration Agreement Is Invalid." No challenge is addressed to the "clear and
unmistakable" delegation of fraud and misrepresentation claims to the arbitrator. Closer
examination of the arbitration agreement reveals the clarity of this delegation. The
"Alternative Dispute Resolution Agreement" provides in relevant part that:
15
The parties voluntarily agree that any disputes covered by this
Agreement (herein after referred to as "Covered Disputes") that
may arise between the Parties shall be resolved exclusively by
an ADR process that shall include ... binding arbitration.
The Parties' recourse to a court of law shall be limited to an
action to enforce a binding arbitration decision entered in
accordance with this Agreement or to vacate, modify or correct
such a decision[.]
Covered Disnutes. This Agreement applies to any and all
disputes out of or in any way relating to this Agreement ...
that would constitute a legally cognizable cause of action in a
court of law sitting in the Commonwealth of Kentucky and
shall include, but not be limited to . . . fraud; [and]
misrepresentation . . . Covered Dispute shall include the
determination of the scope of or applicability of this Agreement.
(DE 21-2 at 1-2 (emphasis added).) Though the Agreement does not specifically state that
"enforceability" of the Agreement as a whole is directed to the arbitrator, Preferred Care's
assertion of arbitrability of that issue is far from "wholly groundless." Douglas u. Regions
Bank, 757 F.3d 460, 463 (5th Cir. 2014) (Fifth Circuit applies a "two step process: (1) did
the parties unmistakably intend to delegate the power to decide arbitrability to an
arbitrator, and if so, (2) is the assertion of arbitrability wholly groundless."). In short, under
this Agreement arbitrability is arbitrable.
The Agreement covers "any and all disputes out of or in any way relating to this
Agreement," at minimum including fraud claims "that would constitute a legally cognizable
cause of action" in a Kentucky court. Ms. Konicov's counterclaims further clarify that the
fraud alleged here is precisely such a dispute. See also Radioshack Corp. v. ComSmart, Inc.,
222 S.W.3d 256, 261 (Ky. Ct. App. 2007) ("Where an individual is induced to enter into the
contract in reliance upon false representations, the person may maintain an action for a
rescission of the contract, or may affirm the contract and maintain an action for damages
suffered on account of the fraud and deceit.") Were this not enough, the Agreement strictly
16
limits the "Parties' recourse to a court of law" to enforcement, modification, and vacatur
proceedings for arbitration decisions. (DE 21-2.) There is clear and unmistakable evidence
that the Arbitration Agreement "in fact ... is broad enough in scope to encompass claims
such as fraudulent inducement." Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850, 855 (Ky.
2004).
However, even if the delegation of enforceability determinations were not so clear,
what is beyond dispute is that determining the "scope of or applicability" of the Agreement
is directed to the arbitrator and that provision also goes unchallenged. Thus, it is for the
arbitrator to decide in the first instance whether the issue of fraud regarding the
enforceability of the Agreement as a whole was validly delegated. Cf Rhine v. Union
Carbide Corp., 343 F.2d 12, 16 (6th Cir. 1965) ("The function of the court is very limited
when the parties have agreed to submit all questions of contract interpretation to the
arbitrator. It is confined to ascertaining whether the party seeking arbitration is making a
claim which on its face is governed by the contract."). Absent a challenge to this specific
provision, Ms. Konicov's fraud claims are not for this Court to decide. As both the Supreme
Court and the Agreement make clear, this specific portion of the agreement is severable
and thus, enforceable. (DE 21-2 at 3); Rent-A-Ctr., 561 U.S.at 70, 72 ("a party's challenge to
another provision of the contract, or to the contract as a whole, does not prevent a court
from enforcing a specific agreement to arbitrate" and that the "underlying contract is itself
an arbitration agreement ... makes no difference").
In sum, only Ms. Konicov's challenges to her authority to contract on behalf of her
husband, to the definiteness of terms, and to the validity of consideration would impact
whether a contract was actually formed between the parties. Those disputes, along with
the as-applied challenge, are the only remaining issues properly before this Court. Ms.
17
Konicov's fraud allegations, or at mm1mum her allegation that the agreement does not
clearly and unmistakably delegate determination of the fraud claims to the arbitrator, must
be addressed to an arbitrator. 1
E.
CHALLENGES SUBJECT TO JUDICIAL DETERMINATION 2
"The party seeking to enforce an arbitration agreement has the burden of
establishing its existence, but once pnma facie evidence of the agreement has been
presented, the burden shifts to the party seeking to avoid the agreement[;] the party
seeking to avoid the arbitration agreement has a heavy burden." Louisville Peterbilt, Inc. v.
Cox, 132 S.W.3d 850,857 (Ky. 2004) (citation omitted).
1. Authority
Preferred Care makes several challenges to the validity of the Kentucky Supreme
Court's recent decision regarding the ability of attorneys in fact to bind principals to
arbitration. Extendicare Homes, Inc. v. Whisman, No. 2013-SC-000426-1, 2015 WL 5634309
(Ky. Sept. 24, 2015), as corrected (Oct. 9, 2015). This Court need not reach the substance of
those disputes because, in any event, the power of attorney at issue here satisfies the
standard announced by Whisman. Under the heading "Power relating to claims and
litigation,'' the Power of Attorney authorized Ms. Konicov to "submit to arbitration, settle,
and propose or accept a compromise with respect to a claim or litigation." (DE 19-3 at 8-9.)
1
There is of course the possibility that an Arbitrator might find that the fraud determinations were
not clearly and unmistakably delegated to arbitration. Whether such a decision could be vacated
based on the language herein is not at issue before this Court.
2 Preliminarily, it should be noted that, as stated previously, these challenges only "arguably"
address whether formation occurred at all. To the extent that they do not, they-like the fraud
claim-would be subject to the Rent-A-Ctr. delegation and severability analysis. However, given that
these arguments are insufficient to avoid arbitration as a matter of law, such analysis would not
impact this Court's final determination on the motion to compel. Consequently, this Court will not
attempt to apply Rent-A-Ctr. for claims that, unlike fraud claims, are not as obviously delegated to
the arbitrator by the Arbitration Agreement. This decision is further supported by the dearth of
binding precedent interpreting Rent-A-Ctr. and the "clear and unmistakable" delegation requirement
upon which this Court could rely.
18
"[T]he principal's explicit grant of authority delineated in the power-of-attorney
document is the controlling factor in assessing the scope of the powers of the attorney-infact." Whisman, 2015 WL 5634309 at *15. Kentucky's highest court has previously
indicated that "[a] reasonable agent should consider whether the principal intended to
authorize the commission of collateral acts fraught with major legal implications for the
principal." Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581, 593 (Ky. 2012). It is unclear
what a reasonable agent could have inferred by being empowered to "submit to arbitration"
other than that Mr. Konicov intended to authorize his wife to do just that. Though
authority to contract is a formation issue, Ms. Konicov has not established a well-founded
claim that authority was lacking. Accordingly, no attendant right to a hearing attaches to
this defense. Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002)
(entitlement to a hearing when formation is "in issue" under the FAA requires "the party
opposing arbitration [to] show a genuine issue of material fact").
2. Definiteness of Terms & Terms Incorporated by Reference
Ms. Konicov challenges the Arbitration Agreement's "Arbitration Process and
Procedure" section as being too indefinite for there to have been a meeting of the minds
necessary for contract formation. (DE 21 at 9.) Ms. Konicov points out that the procedures
"cannot be found anywhere within the four corners of the agreement" and that to the extent
the section seeks to incorporate terms by reference they do not do so with adequate clarity.
(DE 21 at 7.) This, Ms. Konicov claims, means that the agreement "failed to set out the
material terms" and, thus, this Court could not "determine what the terms of this
agreement require of the parties or if those terms have been breached." (DE 21 at 9.) This
Court cannot agree.
19
"Almost never are all the connotations of a bargain exactly identical for both parties;
it is enough that there is a core of common meaning sufficient to determine their
performances with reasonable certainty or to give a reasonably certain basis for an
appropriate legal remedy." Restatement (Second) of Contracts § 20 (1981); See also
Restatement (Second) of Contracts § 33 cmt. b. (1981) ("The test is not certainty as to what
the parties were to do nor as to the exact amount of damages due to the plaintiff;
uncertainty may preclude one remedy without affecting another."). "A court should provide
a remedy if the parties intended to make a contract and the contract's terms provide a
sufficiently certain basis for determining both that a breach has in fact occurred and the
nature of the remedy called for." Texas v. New Mexico, 482 U.S. 124, 129 (1987) (citing
Restatement (Second) of Contracts § 33(2)); accord Walker v. Keith, 382 S.W.2d 198, 200
(Ky. 1964) ("Like other contracts ... the provision for a renewal must be certain in order to
render it binding and enforceable ... the certainty that is required is such as will enable a
court to determine what has been agreed upon.").
This contract, signed by both parties, leaves no doubt that the parties agreed to
arbitrate. It contains a statement in all capital letters directly above the initials of both
parties certifying that:
THE PARTIES UNDERSTAND, ACKNOWLEDGE, AND
AGREE THAT BY ENTERING INTO THIS AGREEMENT
THEY ARE GIVING UP THEIR CONSTITUTIONAL RIGHT
TO HAVE THEIR DISPUTES DECIDED BY A COURT OF
LAW OR TO APPEAL ANY DECISION OR AWARD OF
DAMAGES RESULTING FROM THE ADR PROCESS
EXCEPT AS PROVIDED HEREIN.
(DE 21-2 at 4.) The nature of the remedy called for is unmistakably "an ADR process that
shall include mediation and, where mediation does not successfully resolve the dispute,
binding arbitration." (DE 21-2 at 1.)
20
Moreover, "as a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract." Consultants & Builders, Inc. v.
Paducah Fed. Credit Union, 266 S.W.3d 837, 840 (Ky. Ct. App. 2008) (quoting Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. at 445-46 (2006)). "Whether the agreement to
arbitrate is entire or severable turns on the parties' intent at the time the agreement was
executed, as determined from the language of the contract[.]" Great Earth Companies, Inc.
v. Simons, 288 F.3d 878, 890 (6th Cir. 2002). The contract explicitly includes a severability
provision clarifying that if "any provision of this Agreement is determined ... to be invalid .
. . the remainder of this Agreement ... shall remain valid, enforceable, and binding on the
parties." (DE 21-2 at 3.) Thus, to the extent the mediation provisions challenged here are
vague, they are readily severed.
As stated above, the language of this contract clearly indicates that the parties
intended to resolve their disputes through arbitration. The Agreement identifies a method
for selecting an arbitrator. (DE 21-2 at 1-2.) The method for selecting an arbitration
location is fully set forth. (DE 21-2 at 3.) The parties' right to counsel, right to discovery,
and the arbitrator's ability to subpoena witnesses during that process are explicitly noted.
(DE 21-2 at 3.) This Court cannot justifiably find that no agreement to arbitrate was ever
formed purely by virtue of the Agreement's failure to incorporate "Rules of Procedure" that
are referenced almost exclusively in the Agreement's "Mediation" section. (DE 21-2 at 3.)
The terms of the Agreement are sufficiently certain to enable this "court to determine what
has been agreed upon." Walker v. Keith, 382 S.W.2d 198, 200 (Ky. 1964). The parties, at
minimum, agreed to arbitrate.
21
3. Validity of Consideration
Ms. Konicov's final contention, that "[t]he consideration allegedly supporting this
contract simply does not exist," is equally unpersuasive. (DE 21 at 14.) The Agreement
provides that:
The Parties agree that the speed, efficiency and costeffectiveness of the ADR process, together with their mutual
undertaking to engage in that process, constitute good and
sufficient consideration for the acceptance and enforcement of
this Agreement.
(DE 21-2 at 1.) Ms. Konicov's argument ignores the majority of this provision claiming only
that the "cost-effectiveness allegedly bargained for in this agreement is illusory, the
contract is not supported by consideration." (DE 21 at 15.) However, both Kentucky and
federal courts agree that mutual promises to submit equally to arbitration constitute
adequate consideration. Energy Home, Div. of S. Energy Homes, Inc. v. Peay, 406 S.W.3d
828, 835 (Ky. 2013); cf Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 379 n.6,
380 (6th Cir. 2005); see also Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir.
1985) ("If the agreement of one party to arbitrate disputes is fully supported by the other
party's agreement to do likewise, there is no need to look elsewhere in the contract for
consideration for the agreement to arbitrate[.]").
F. AS-APPLIED CONSTITUTIONALITY OF THE FAA
Ms. Konicov argues that the FAA is unconstitutional as applied to her and her
husband because she did not knowingly, voluntarily and intelligently waive her husband's
right to a jury trial in a civil case when she signed the arbitration agreement on his behalf.
However, Ms. Konicov's husband did not have a right to a jury trial with regard to future
disputes with the nursing home at the time Ms. Konicov signed the arbitration agreement.
22
"[T]he Seventh Amendment was never intended to establish the jury as the exclusive
mechanism for factfinding in civil cases." Atlas Roofing Co. v. Occupational Safety & Health
Review Comm 'n, 430 U.S. 442, 460 (1977). "[T]he right to a jury trial turns not solely on the
nature of the issue to be resolved but also on the forum in which it is to be resolved." Id. at
460-61. Constitutional rights are not omnipresent. Kirby v. Illinois, 406 U.S. 682, 688
(1972) ("a person's Sixth and Fourteenth Amendment right to counsel attaches only at or
after the time that adversary judicial proceedings have been initiated against him"). The
Seventh Amendment provides only that "[i]n Suits at common law, where the value in
controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S.
Const. amend. VII (emphasis added); cf U.S. Const. amend. VI ("In all criminal
prosecutions, the accused shall enjoy the right to a speedy and public trial ... and to have
the Assistance of Counsel for his defence.") (emphasis added). Thus, the right to trial by
jury is only preserved for "suits" properly heard in a judicial forum.
Disputes within the ambit of an arbitration agreement do not carry a right to a trial by
jury because no "suit" within the meaning of the Seventh Amendment ever arises.
Hergenreder u. Bickford Senior Living Grp., LLC, 656 F.3d 411, 421 (6th Cir. 2011) ("Yet
'[i]f the claims are properly before an arbitral forum pursuant to an arbitration agreement,
the jury trial right vanishes."') (quoting Cooper v. MRM Inv. Co., 367 F.3d 493, 506 (6th
Cir.2004)). As one district court from a sister circuit has explained: "The Seventh
Amendment does not confer the right to a trial, but only the right to have a jury hear the
case once it is determined that the litigation should proceed before a court." Cremin v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 957 F. Supp. 1460, 1471 (N.D. Ill. 1997).
As a matter of federal law, this Circuit has held that "in the context of an express
contractual waiver the objecting party should have the burden of demonstrating that its
23
consent to the prov1s10ns was not knowing and voluntary;" a presumption of validity is
given "in the interest of liberty of contract." K.M.C. Co., 757 F.2d at 758 (internal citations
omitted). If a delegation provision goes unchallenged, this presumption controls, and
arbitration is the appropriate forum. Accordingly, properly delegated claims present no
'"legal' action before a tribunal customarily utilizing a jury as its factfinding arm." Atlas
Roofing Co. u. Occupational Safety & Health Review Comm'n, 430 U.S. 442, 461 n.16
(1977). Delegation of factfinding in such actions is all that the Seventh Amendment
exempts from congressional authority. Id. The F AA's application to claims properly before
an arbitrator cannot infringe on the jury trial right because those disputes carry no such
right.
The FAA preserves the right to trial by jury if and when a well-founded challenge to
formation of an agreement is raised. 3 No such challenge exists here. See supra Part E. Nor
was a challenge to the delegation provision ever raised. A valid delegation provision, as was
found here, does not waive the right to a trial by jury because that right only attaches if the
dispute is found to be non-arbitrable. The provision at issue delegates this antecedent
determination to an arbitrator. If the arbitrator determines that the dispute is nonarbitrable then a "suit" to which a potentially well-founded challenge is directed-the fraud
counterclaims-arises for the first time. Ms. Konicov's fraud claims are not "suits" properly
before this Court, but are instead "disputes" properly before an arbitrator. Any impact the
The requirement that a formation challenge be well-founded, i.e., creates a genuine issue of
material fact, before being considered "in issue" for purposes of the FAA is based on the civil
summary judgment standard. Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 889 (6th Cir.
2002) )("The required showing mirrors that required to withstand summary judgment in a civil
suit."). This Court will presume Defendant's challenge does not extend to the constitutionality of
denying the right to jury trial when the summary judgment standard is satisfied.
3
24
FAA has on resolution of such disputes is outside the Seventh Amendment's scope and
within Congressional authority. Atlas Roofing Co., 430 U.S. at 461 n.16.
As applied here, the FAA does not alter the standard for a valid waiver of a
constitutional right. The FAA and the Supreme Court simply require that a challenge be
specifically directed to a delegation provision "before the court will intervene." Rent-A-Ctr.,
W., Inc. v. Jackson, 561 U.S. 63, 71 (2010). In the absence of a specific challenge to a
delegation provision, there is no court intervention, and consequently, no "suit" to which the
knowing and voluntary standard for a Seventh Amendment waiver might apply.
G.
ENJOINING PURSUIT OF PENDING STATE ACTION
Having found that Ms. Konicov must submit her claims to arbitration, this Court
must decide whether she should be enjoined from pursuing her parallel action in State
Court. This Court finds that such an injunction is necessary; accordingly Ms. Konicov will
be enjoined from proceeding with her State Court action. "Although the FAA requires
courts to stay their own proceedings where the issues to be litigated are subject to an
agreement to arbitrate, it does not specifically authorize federal courts to stay proceedings
pending in state courts." Great Earth, 288 F.3d at 893 (quoting Ultracashmere House, Ltd.
v. Meyer, 664 F.2d 1176, 1180 (11th Cir.1981)) (internal citations omitted). For this reason,
"the district court's authority to enjoin state-court proceedings is subject to the legal and
equitable standards for injunctions generally, including the Anti Injunction Act." Id.
Pursuant to the Anti Injunction Act, "[a] court of the United States may not grant an
injunction to stay proceedings in a State court except as expressly authorized by Act of
Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its
judgments." 28 U.S.C. § 2283 (emphasis added).
25
An injunction in this case "properly falls within the exception for injunctions
'necessary to protect or effectuate [this Court's] judgments.' " Great Earth, 288 F.3d at 894.
This Court has determined that the Parties entered into a binding arbitration agreement
covering Ms. Konicov's claims and, thus, that she shall be compelled to arbitrate.
Consequently, it is necessary to enjoin Ms. Konicov from pursing her claims in any
alternative forum, including State Court. Otherwise, Ms. Konicov would be permitted to
circumvent her arbitration agreement and, in so doing, circumvent this Court's judgment
that she be compelled to arbitrate her claims.
III. CONCLUSION
For all these reasons, IT IS ORDERED that:
1. Defendant's motions to dismiss (DE 23) and for summary judgment (DE 21; DE
31) are DENIED;
2. Plaintiffs' motion to compel arbitration and enjoin the State Court proceedings
(DE 8) is GRANTED;
3. Preferred Care Health Facilities, Inc., (DE 25) and Richmond Health Facilities Kenwood GP, LLC's (DE 28) motions to dismiss are GRANTED;
4. Defendant Billie Konicov is COMPELLED to submit her claims to arbitration
according to the terms of her agreement and ENJOINED from proceeding with her state
court action;
5. All other pending motions are DENIED AS MOOT;
6. The Court will stay this proceeding until the ordered arbitration concludes.
Dated May 4, 2016.
Sfgned By:
26
Karen K. Caldwell
Untted States District Judge
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