Preferred Care, Inc. et al v. Barnett
OPINION AND ORDER: 1) 6 MOTION to Dismiss is GRANTED. 2) 9 MOTION to Compel Arbitration is DENIED. 3) Action is DISMISSED and STRICKEN from the Court's active docket. Signed by Judge Karen K. Caldwell on 2/16/2017.(SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION -- LEXINGTON
PREFERRED CARE, INC., et al.
CIVIL ACTION NO. 5:16-372-KKC
OPINION AND ORDER
JUDY BARNETT, as administrator of
Donald Shelton’s estate,
This matter is before the Court on the plaintiffs’ motion to compel arbitration (DE 9) and
the defendant’s motion to dismiss (DE 6). For the following reasons, the Court will grant the
motion to dismiss and deny the motion to compel.
Donald Shelton died after residing at the Stanton Nursing and Rehabilitation Center
located in Stanton, Kentucky. The administrator of his estate, Judy Barnett (the “Estate”), filed
suit in Powell Circuit Court against the nursing center and multiple other companies that the
Estate alleged owned or operated the center. The Estate also named the center administrator
and the director of nursing at the center as defendants in the state-court action. (DE 1-2, State
The center and three of the companies named as defendants in the state-court action
(collectively, the “Center”) then filed this action, asking this Court to order the Estate to
arbitrate the claims filed in the state court action and to enjoin the Estate from pursuing the
state-court action. The Estate moves to dismiss this federal action.
A. Jurisdictional issues
The Court must, of course, first address any challenges to its jurisdiction. The Estate
concedes that this Court has diversity jurisdiction over this action but argues that the Court
should abstain from exercising it under the Colorado River doctrine. Under that doctrine, “[i]n
certain ‘exceptional’ circumstances, [ ] a federal district court may abstain from exercising its
subject matter jurisdiction due to the existence of a concurrent state court proceeding, based on
‘considerations of wise judicial administration, giving regard to conservation of judicial
resources and comprehensive disposition of litigation.’” Paine Webber, Inc. v. Cohen, 276 F.3d
197, 200 (6th Cir.2001) (quoting Colorado River Water Conservation District v. United States,
424 U.S. 800 (1976)). But “[a]bstention from the exercise of federal jurisdiction is the exception,
not the rule,” and this “extraordinary and narrow exception” is only justified when it “would
clearly serve an important countervailing interest.” Colorado River, 424 U.S. at 813.
Neither party addresses it but the first issue on the abstention analysis is whether there
is, in fact, a parallel state court proceeding. While for purposes of Colorado River abstention,
the state and federal proceedings need only be “substantially similar,” Romine v. Compuserve
Corp., 160 F.3d 337, 340 (6th Cir. 1998), the two actions cannot be said to be parallel if the
claims presented in this Court are not presented in the state court action at all. There is no
evidence in the record before this Court that either party has moved to compel arbitration in the
state-court action. Nor is there any evidence indicating that either party has actually asked the
state court to determine whether the arbitration agreement is valid and, if so, whether the
agreement requires that the Estate’s state-court claims be arbitrated. Nothing in the record
before this Court indicates that any of the parties to this action have requested the state court
to make any determinations regarding the arbitration agreement or the arbitrability of the
Estate’s state-law claims. Accordingly, the Court cannot find that this action and the state-court
action are parallel.
Furthermore, even if a party had moved the state court to compel arbitration, the Court
could not find abstention warranted. “[T]he decision to dismiss a federal action because of a
parallel state-court action rests ‘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.’” Great
Earth Cos., Inc. v. Simons, 288 F.3d 878, 886 (6th Cir.2002) (quoting Moses H. Cone Memorial
Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16 (1983)).
Courts consider roughly eight factors when determining whether abstention under
Colorado River is necessary. PaineWebber, 276 F.3d at 206 (citing Romine, 160 F.3d at 340–41).
These factors are:
(1) whether the state court has assumed jurisdiction over any res or
(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
(7) the relative progress of the state and federal proceedings; and
(8) the presence or absence of concurrent jurisdiction.
Id. (citing Romine, 160 F.3d at 340–41).
The first and second factors favor this Court exercising jurisdiction in this action. There
is no res. And, given the proximity of the two courts, this federal forum is just as convenient to
the parties as the Powell Circuit Court. The Estate makes only one argument with regard to
convenience. It argues that the arbitration agreement mandates that any action to compel
arbitration be filed in the Kentucky state court. This argument goes to whether this action
should be dismissed under the doctrine of forum non conveniens. The Court will address this
question after deciding whether to exercise jurisdiction in this action. For purposes of
determining whether to abstain from exercising its jurisdiction under Colorado River, however,
a provision requiring that motions to compel arbitration be filed in state court does not render
this forum so inconvenient that the Court should find that an exception exists to its obligation
to exercise jurisdiction.
As to the fourth and seventh factors, they again favor the exercise of federal jurisdiction.
The state court action was filed before this but there is no evidence in this record that the state
court has been asked to address the arbitration issue at all.
The “most important” factor is the third factor, which asks “whether there is a ‘clear
federal policy evinc[ing]. . . the avoidance of piecemeal adjudication’ found within the statutory
scheme at issue.” Answers in Genesis of Kentucky, Inc. v. Creation Ministries Int'l., Ltd., 556
F.3d 459, 467 (6th Cir.2009) (quoting Colorado River, 424 U.S. at 819). The Sixth Circuit has
held that “[i]n the case of the Federal Arbitration Act, there most clearly is not such a policy.”
Id. at 467. This is because the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (“FAA”) “requires
district courts to compel arbitration . . . when one of the parties files a motion to compel, even
where the result would be the possibly inefficient maintenance of separate proceedings in
different forums.” Id. at 467–68. Thus, the most important factor when determining whether to
exercise this Court’s jurisdiction weighs in favor of doing so.
The fifth and eighth factors also weigh in favor of exercising jurisdiction. This Court has
jurisdiction over the issue presented in the complaint. The Estate disputes whether the FAA or
the Kentucky Uniform
Arbitration Act governs this dispute. Regardless, this Court is capable
of applying either law. The sixth factor weighs in favor of exercising jurisdiction because the
state court has not been asked to protect the Center’s arbitration rights. Considering all of these
factors, the Court will not abstain from exercising its jurisdiction over this action.
As discussed, the Estate argues that the arbitration agreement at issue contains a
provision that requires that any motion to compel arbitration be filed in the Powell Circuit
Court. Relying solely on that provision, it argues that this action must be dismissed under the
forum non conveniens doctrine. See Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of
Texas, 134 S. Ct. 568, 580 (2013) (stating that “the appropriate way to enforce a forum-selection
clause pointing to a state or foreign forum is through the doctrine of forum non conveniens.”)
The Center argues that the agreement does not contain a forum-selection clause at all.
Whatever the clause is labeled, it states that the agreement is “governed by the terms of the
Kentucky Uniform Arbitration Act, which is set forth at KRS § 417.045, et seq.” (DE 1-1,
Agreement § 5.) The Kentucky Uniform Arbitration Act (“KUAA”), in turn, requires that, “[i]f
an issue referable to arbitration under the alleged agreement is involved in an action or
proceeding pending in a court having jurisdiction to hear applications [to compel arbitration],
the application shall be made therein.” KRS § 417.060(3) (emphasis added).
The arbitration agreement also provides, “[i]f for any reason there is a finding that
Kentucky law cannot support the enforcement of this Agreement, then the parties agree to
resolve their disputes by arbitration. . . pursuant to the Federal Arbitration Act.” (DE 1-1,
Agreement, § 5.) At this point there has been no finding that Kentucky law cannot support the
enforcement of the arbitration agreement. By its plain language then, the arbitration
agreement provides that, absent a finding that the agreement cannot be enforced under
Kentucky law, the KUAA is controlling and requires that any motion to compel be filed in the
state court action. See Jumara v. State Farm Insurance Co., 55 F.3d 873, 882 (3d Cir. 1995)
(“[B]y incorporating the [Pennsylvania Uniform Arbitration Act], the insurance contracts
between the Jumaras and State Farm dictate that actions to compel arbitration be made to ‘a
court of record’ of Luzerne County. . . .”).
The Center does not address the substance of the venue provision of the KUAA. It does
not dispute that the KUAA requires that any motion to compel arbitration be filed in the court
where the underlying tort action is proceeding. Nor does the Center argue that enforcement of
the KUAA provision in the arbitration agreement would be unreasonable or unjust or that the
provision is invalid because it was the product of “fraud or overreaching.” M/S Bremen v.
Zapata Off–Shore Co., 407 U.S. 1, 15 (1972).
Accordingly, if not for the Estate’s argument that Shelton lacked the mental capacity to
sign the arbitration agreement, the Court would dismiss this action so that any motion to
compel arbitration would be filed in the state court where the underlying tort action was filed as
required by the KUAA. This was clearly the intent of the parties. The Powell Circuit Court
would then decide whether the parties agreed to arbitrate the claims in the underlying tort
The problem for the Estate, however, is that it, while it seeks to enforce the KUAA
provision of the arbitration agreement, it also argues that Shelton lacked the mental capacity to
sign the arbitration agreement. Before enforcing the KUAA provision of the agreement, the
Court must determine whether Shelton had the mental capacity to enter into the agreement at
It is true that, where a party claims that an entire contract is not enforceable because of
fraud or misrepresentation, courts will still enforce a forum-selection clause in the agreement.
Arnold v. Arnold Corp.-Printed Commc’ns for Bus., 920 F.2d 1269, 1277-78 (6th Cir. 1990). As
with an arbitration clause, in order to defeat a forum-selection clause, the allegation of fraud
must be directed at the forum-selection clause itself, not the agreement as a whole. Id. at 1278.
See also Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1296 (11th Cir. 1998);
Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 & n.14 (1974) (stating that an arbitration clause
is, in effect, a “specialized kind of forum-selection clause” and that “an arbitration or forumselection clause in a contract is not enforceable if the inclusion of that clause in the contract was
the product of fraud or coercion.”).
The Estate does not claim, however, that the arbitration agreement is unenforceable
because of fraud. It alleges that the agreement is not enforceable because Shelton lacked the
mental capacity to sign it. Challenges based on capacity are different than challenges based on
fraud. Where a party alleges he was fraudulently induced to enter into a contract, he does not
challenge the existence of the agreement but instead challenges its validity. Where, on the other
hand, a party argues he did not have the capacity to enter into an agreement, he challenges
whether any agreement ever existed at all. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 444 n. 1 (2006) (“The issue of the contract's validity is different from the issue whether any
agreement between the alleged obligor and obligee was ever concluded.”). See also Rowan v.
Brookdale Senior Living Communities, Inc., 647 F. App’x 607 (6th Cir. 2016) (deciding that
resident had mental capacity to sign agreement before enforcing arbitration clause); Abell v.
Bardstown Medical Investors, Ltd., No. 3:11-cv-86, 2011 WL 2471210 (W.D. Ky. 2011) (same).
Accordingly, before enforcing any provision of the arbitration agreement, including the
KUAA provision, the Court must first determine whether Shelton had the capacity to enter into
it. The court, rather than a jury, decides disputed fact issues relating to venue. 14D Charles
Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. Juris. § 3826 (4th ed.) See also Atl. Marine
Const. Co., 134 S. Ct. at 580 n.4 (indicating that issues of material fact on motions under the
doctrine of forum non conveniens relating to the validity of a forum-selection clause are not
resolved by a jury). Thus, solely for the purposes of determining the threshold issue of whether
this Court is an appropriate venue for the motion to compel arbitration, the Court will make a
finding as to Shelton’s capacity to enter into the arbitration agreement.
Capacity is analyzed under state law. See Rowan, 647 F. App'x at 609. Under Kentucky
law, a signed contract “will not be lightly set aside in the absence of clear and convincing
evidence.” Lausman v. Brown, 168 S.W.2d 579, 585 (Ky. 1943). A transaction with a person not
yet adjudicated mentally unsound will not be voided “unless the condition be so obvious that
any and all ordinarily prudent minded persons would observe the defect.” Everett v. Downing,
182 S.W.2d 232, 236 (Ky. 1944). There is a presumption of contractual capacity. Rose v. Rose,
182 S.W.2d 977, 978 (1944). “There must be some direct proof sufficient to convince the minds of
the court that at the time the transactions were entered into that he did not and could not
understand his acts.” Revlett v. Revlett, 118 S.W.2d 150, 155 (Ky. 1938).
Evidence of “unsoundness of mind to avoid a contract must relate to the immediate time
when the contract was made.” Hall v. Crouch, 341 S.W.2d 591, 594 (Ky. 1960) (quoting Jefferson
Standard Life Ins. Co. v. Cheek's Adm'r, 80 S.W.2d 518, 521 (1935)). ) This is “[b]ecause the law
understands that individuals suffering from conditions such as psychosis have lucid periods in
which they can conduct themselves and their business normally.” Abell v. Bardstown Med.
Inv'rs, Ltd., No. 3:11-CV-86-H, 2011 WL 2471210, at *3–4 (W.D. Ky. June 20, 2011).
This is certainly true in Shelton’s case. At the time he signed the arbitration agreement,
the Center staff determined that he was not capable of self-administering medications because
his cognition level “fluctuate[d].” (DE 6-5, Request for Admission Form.) He came to the Center
after a state social worker visited Shelton on August 3, 2012 and reported that tall weeds
practically covered the entrance to his home. (DE 6-18, Assessment Form at 3.) She reported
that she entered the home and found Shelton “extremely weak and dirty.” The home was
“infested with roaches . . . spiders, bugs, cats, smell of urine, feces . . . .” The home had no
electricity, water, or gas. At that time, Shelton was 75 years old, “thin and smelled horrible.”
He had feces on his body and clothes. He “appeared confused at times” and “talked about going
to Florida to build churches and get $1,000,000.00 that the government owes him.” He was
unable to stand for long periods of time due to weakness
The social worker reported that Shelton had “delusional thoughts and a history of
alcohol and drug abuse.” (DE 6-18, Assessment Form at 6.) Shelton told the social worker that
he had not had a full meal in three months and was currently eating from garbage cans. He told
the social worker that he and a friend search dumpsters for aluminum cans that they sell for
food and cigarettes. (DE 6-18, Assessment Form 5.) The social worker stated that Shelton
displayed “various mental dysfunctions.” (DE 6-18, Assessment Form at 6.)
But Shelton reported his birthdate and place, social security number, and current
address to the social worker. (DE 6-18, Assessment Form at 5.) He was also able to report to
the social worker that he received monthly checks from social security of $694 and $500 but
stated he was not currently receiving any checks because he owed a total of $900 to a company
called Check in Advance. He reported that he had a checking account and was able to report his
checking account number. After Shelton received treatment at a local hospital, the social
worker recommended that his case be closed because he has “decisional capacity and is in a safe
place.” (DE 6-18, Assessment Form at 3.)
By August 17, 2012, Shelton was located at the Center. The Center’s social services
director and admissions coordinator, Brenda Kiernan, reported that Shelton had been in a
phone conversation that day with the Social Security office regarding his checks. She further
reported that, “if you just talk with him briefly he seems fairly cognitively intact . . .however he
has some delusional thinking going on.” (DE 6-18, Assessment Form at 11.) On August 19,
Shelton scored a14 out of 15 on a required screening tool utilized by nursing home personnel to
assess patient cognition. (DE 8-5, BIMS score.) On August30, a physician diagnosed Shelton
with a failure to thrive, urinary tract infection, restless leg syndrome, COPD, chronic smoker,
primary tremor, abnormality of gait, past alcoholism and bipolar disorder. The physician did
not indicate that Shelton had any condition that rendered him unable to understand his
actions. (DE 6-8, August 30, 2012, Physician’s Orders.)
Given the evidence that Shelton’s cognition fluctuated during the relevant time period,
the Court will, as the law requires, focus on the evidence of Shelton’s cognition at the time that
he signed the arbitration agreement. He signed the agreement on August 8, 2012. A nurse from
a home health agency visited Shelton at his home that day and found that Shelton’s thought
processes were “off really bad.” (DE 6-18, Notes at 11.) She stated that the agency would not
render service at Shelton’s home “due to the safety in the home for her staff and the aggressive
behavior from Mr. Shelton.” The social worker paid a follow up visit to Shelton on that date and
Shelton agreed to stay 30 days at a nursing home to give the social worker time to find him a
safe place to live.
At the time that Shelton signed the nursing home admission form, while he did not know
the date or time, he knew his name, his location, and the Center staff. He understood verbal
direction. (DE 6-5, Request for Admission form.) The Center’s social services director and
admissions coordinator, Kiernan, performed a pre-admission screening of Shelton and
concluded Shelton did not have a major mental disorder or mental retardation. (DE 8-4,
Screening.) In an affidavit submitted by the Center, Kiernan states that she believes Shelton
“was cognitively intact” on the date he signed the agreement and that he would have
understood it. (DE 9-7, Aff. at 2.)
Nothing in the screening indicates that, at the time Shelton signed the arbitration
agreement, he was unable to understand it. There is no opinion – professional or otherwise – to
that effect in the record. Accordingly, the Court cannot find that the Estate has met its burden
of establishing by clear and convincing evidence that Shelton lacked the mental capacity to
enter into the agreement at the time of execution.
Accordingly, the Court will enforce the KUAA provision in the arbitration agreement
requiring that any motion to compel arbitration be filed in the Powell Circuit Court and will
dismiss this action. See also Atl. Marine Const. Co., 134 S. Ct. at 580 (stating that the
“traditional remedy” under the doctrine of forum non conveniens is “outright dismissal”).
For all these reasons, the Court hereby ORDERS as follows:
1) the motion to dismiss (DE 6) is GRANTED;
2) the motion to compel arbitration is DENIED (DE 9); and
3) this action is DISMISSED and STRICKEN from the Court’s active docket.
Dated February 16, 2017.
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