Preferred Care, Inc. et al v. Howell
Filing
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MEMORANDUM OPINION & ORDER: Randy Howell's motion to dismiss, R. 7 , is GRANTED IN PART and DENIED IN PART. It is GRANTED as to the wrongful-death claims asserted by Howell in the underlying state-court complaint, R. 1 -2. It is DENIED as to the remaining claims in the underlying state-court complaint. Signed by Judge Amul R. Thapar on 5/13/2016. (TDA) cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
PREFERRED CARE, INC., et al.,
Plaintiffs,
v.
RANDY HOWELL, Administrator of the
Estate of George Howell,
Defendant.
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Civil No. 16-13-ART
MEMORANDUM OPINION AND
ORDER
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George Howell (“George”) was a resident of Salyersville Nursing and Rehabilitation
Center (“Salyersville”) for eight years. George was of unsound mind throughout his stay at
Salyersville. R. 1-2 ¶ 2. Because of this, defendant Randy Howell (“Randy”), George’s son,
was appointed George’s guardian. R. 1-3 (order of appointment of guardian). While acting
as George’s guardian, Randy allegedly signed an Alternative Dispute Resolution Agreement
(the “arbitration agreement”) at Salyersville’s request. R. 1-1 (arbitration agreement). This
agreement stated that any disputes arising out of George’s stay at Salyersville would be
resolved by arbitration, rather than in the court system. Id. at 1–2. Randy asserts that he
does not believe that Salyersville ever asked him to sign the arbitration agreement or ever
gave him a copy of the agreement. R. 7-5 at 1. The agreement, however, does appear to bear
Randy’s signature. R. 1-1 at 5.
Randy alleges that his father developed serious injuries while under the care of the
plaintiffs, causing him to suffer pain and mental anguish. R. 1-2 ¶ 39. After his father’s
death, Randy filed a state-court action on December 17, 2015, alleging negligence and
several other claims against the plaintiffs in this action. See id. (passim). In that action,
Randy also sued Sharon Welch, Glenn Cox, and Elaine Jones, all of whom were
administrators at Salyersville. Id. Welch and Cox are Kentucky citizens. Id. ¶¶ 21–22.
Six weeks later, the defendants in the underlying state-court action filed this action
against Randy—thus becoming the plaintiffs for the purposes of this lawsuit—asserting
breach of the arbitration agreement and seeking the enforcement of that agreement under the
Federal Arbitration Act (“FAA”). R. 1. But the three administrators that Randy sued in the
underlying state-court action did not join the plaintiffs in this action. See id. Randy now
moves to dismiss this action on three grounds: lack of subject-matter jurisdiction, Colorado
River abstention, and failure to state a claim under Rule 12(b)(6). R. 7. Because the
wrongful-death beneficiaries were not parties to the arbitration agreement, the agreement is
not enforceable against them. So Randy’s motion to dismiss will be granted with respect to
those claims. For the reasons discussed below, however, Randy’s remaining arguments fail.
So the motion to dismiss will be denied with respect to those arguments.
I.
Randy first argues that the Court lacks subject-matter jurisdiction over this case
because the plaintiffs brought it under the FAA. The FAA does not provide an independent
basis of federal jurisdiction. Vaden v. Discover Bank, 556 U.S. 49, 53 (2009) (“Section 4 of
the Federal Arbitration Act, 9 U.S.C. § 4, authorizes a United States district court to entertain
a petition to compel arbitration if the court would have jurisdiction, save for the arbitration
agreement, over a suit arising out of the controversy between the parties.” (internal quotation
marks omitted)); Sun Healthcare Grp., Inc. v. Dowdy, No. 5:13-CV-00169-TBR, 2014 WL
790916, at *5 (W.D. Ky. Feb. 26, 2014) (“The FAA bestows no federal jurisdiction but
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rather requires for access to a federal forum an independent jurisdictional basis over the
parties’ dispute.”). Thus, courts have jurisdiction over an FAA action only if there is another
basis for jurisdiction. Here, the plaintiffs argue that the Court has jurisdiction on the basis of
diversity. In their complaint, the plaintiffs assert that they are all citizens of Texas, that
Randy is a citizen of Kentucky, and that the amount in controversy is more than 75,000
dollars. See R. 1 at 3–4. Thus, it seems that the plaintiffs have sufficiently pled diversity of
citizenship. See 28 U.S.C. § 1332(a).
Randy responds that the plaintiffs failed to join two administrators1 whom Randy
named as defendants in his state-court complaint. R. 7-1 at 4. Because Randy sued these
administrators below, he argues, they are indispensable parties to the plaintiffs’ federal-court
action to compel arbitration. Thus, he asserts, the plaintiffs were required to join these
administrators when the plaintiffs filed suit in federal court. And since the two non-joined
administrators and Randy are all Kentucky citizens, Randy argues that there is not complete
diversity.
The central premise of this argument is that the administrators are in fact
indispensable parties. See Temple v. Synthes Corp., 498 U.S. 5, 7 (1990) (explaining that
diversity jurisdiction can only be defeated by a non-joined, non-diverse joint tortfeasor if that
party is indispensable under Rule 19). But here, Randy sued the administrators as joint
tortfeasors. See R. 1-2. And the Supreme Court has held that joint tortfeasors are simply
permissive parties to an action against one of them. Temple, 498 U.S. at 8; see also Fed. R.
Civ. P. 19 Advisory Comm. Notes (clarifying that “a tortfeasor with the usual ‘joint-and1
The three administrators that Randy sued in the underlying action failed to join the plaintiffs in this action. But,
because only Welch and Cox are Kentucky citizens who would destroy diversity, Randy bases his argument on these
two administrators alone.
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several’ liability is merely a permissive party to an action against another with like
liability”).
The Sixth Circuit agreed that joint tortfeasors are not indispensable parties to an
action to compel arbitration in PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir.
2001). There, the plaintiff sued a brokerage firm in state court and joined the firm’s branch
manager as a defendant. The firm then sued the plaintiff in federal court, seeking to compel
arbitration under the Federal Arbitration Act. In response, the plaintiff moved to dismiss for
lack of subject-matter jurisdiction, arguing that the branch manager was an indispensable
party to the litigation. The circuit rejected that argument, holding that, when a company sues
a plaintiff seeking to compel arbitration, it need not join any of its employees, even if the
plaintiff joined them below. Id. at 205–06. As the circuit explained, “[a]ny ruling to the
contrary would virtually eliminate the availability of federal courts to enforce arbitration
clauses in diversity cases by the simple expedient of one of the parties filing a preemptive
suit in state court with at least one non-diverse defendant.” Id. at 205 (citing Doctor’s
Assocs., Inc. v. Distajo, 66 F.3d 438, 445 (2d Cir. 1995)). Thus, the administrators here are
not an indispensable party to the plaintiffs’ federal action to compel arbitration.
Randy seems to argue that PaineWebber has been abrogated by the Supreme Court’s
decision in Vaden v. Discover Bank, 556 U.S. 49 (2009). In Vaden, the Court held that a
federal court should determine if it has jurisdiction over an FAA action by “looking through”
an FAA petition to the parties’ underlying substantive controversy. Id. at 62. The Court also
held that a district court has jurisdiction under the FAA “only if, ‘save for’ the [arbitration]
agreement, the entire, actual ‘controversy between the parties,’ as they have framed it, could
be litigated in federal court.” Id. at 66. Thus, according to Randy, Vaden requires this Court
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to ask if it can “hypothetically step into the shoes of the State’s trial court, in resolving the
underlying dispute.” R. 7-1 at 16. If the answer is no, he says, the federal court does not
have jurisdiction to enforce the agreement. Id.
But Randy ignores the fact that Vaden explicitly limited its holding to cases involving
federal-question jurisdiction. 556 U.S. at 62, 66; Rutherford, 605 F.3d at 488 (“Vaden does
not directly control [diversity] cases because the Supreme Court carefully defined the issues
and limited its holding to [FAA petitions] based upon federal question jurisdiction[.]”). As
such, PaineWebber is still good law, and the plaintiffs’ failure to join the two administrators
does not undermine this Court’s jurisdiction.
II.
Randy next argues that this Court should abstain from exercising jurisdiction in favor
of the pending state-court action. R. 7-1 at 22. Federal courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them,” so “abstention from the exercise of
federal jurisdiction is the exception, not the rule.” Colo. River Water Conservation Dist v.
United States, 424 U.S. 800, 813, 817 (1976).
In some “exceptional” circumstances,
however, a federal district court may abstain from exercising its jurisdiction due to a
concurrent state-court action. Id. at 817. The decision to abstain in such situations is based
on “considerations of wise judicial administration, giving regard to conservation of judicial
resources and comprehensive disposition of litigation.”
Id. (internal quotation marks
omitted).
A district court must consider eight factors when deciding whether to abstain from
exercising its jurisdiction in favor of the state court’s jurisdiction. Romine v. Compuserve
Corp., 160 F.3d 337, 340–41 (6th Cir. 1998). These factors are: “(1) whether the state court
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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 the state and federal proceedings; and (8) the presence or absence of
concurrent jurisdiction.”
Id. (citations omitted).
These factors are not a “mechanical
checklist;” rather, the Court must balance them under the circumstances of a given case,
“with the balance heavily weighted in favor of the exercise of jurisdiction.” Moses H. Cone
Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983).
Randy does not contest that the first three Colorado River factors support federal
jurisdiction.2 R. 7-1 at 23–26. As such, this Court will focus on the last five factors to
determine whether abstention is appropriate. With respect to the fourth factor—the “order in
which jurisdiction was obtained”— Randy filed his action in state court six weeks before the
plaintiffs filed this action in federal court. R. 7-1 at 23–24 (noting the state-court action was
filed on December 17, 2015, while this action was filed on February 2, 2016). As such, this
factor appears to cut in favor of abstention. This factor, however, “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.” Moses H. Cone, 460 U.S. at 21 (holding that a 19-day
difference between the filings of the state court and federal court actions was immaterial
In terms of the third factor, Randy admits that courts have found that “allowing a federal court and state court to
interpret arbitration clauses differently will not necessarily cause piecemeal litigation.” R. 7-1 at 23. However,
Randy still urges this Court to consider the possibility of the arbitration agreement being found valid in one forum
and invalid in the other. Id. Such disparate findings, Randy argues, do not promote judicial economy, as intended
by Colorado River. Id. But “the relevant federal law requires piecemeal resolution when necessary to give effect to
an arbitration agreement.” Moses H. Cone, 460 U.S. at 20 (emphasis in original). As such, the third factor does not
favor abstention. See PaineWebber, 276 F.3d at 207 (“[T]he desire to avoid litigating a single issue in multiple
forums is insufficient to overcome the strong federal policy supporting arbitration.” (citations omitted)).
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given the absence of progress in the state-court action and the substantial proceedings that
had occurred in the federal court action). Here, the plaintiffs have only recently filed their
answers to Randy’s complaint in the state-court action, and they have not filed a motion to
compel arbitration therein. R. 8 at 17–18. Little progress has therefore been made in either
action. Thus, this factor weighs against abstention or is neutral at best. Similarly, the
seventh factor—“the relative progress of the state and federal proceedings”—does not favor
abstention because neither case has progressed into discovery. See R. 7-1 at 24 (noting that
the state court denied the plaintiffs’ motion to dismiss, but not noting that discovery had
begun); see also R. 7-2 (state-court record).
Randy argues that the fifth factor—“whether the source of governing law is state or
federal”—supports abstention because he challenges the validity of the arbitration agreement
by raising a contractual defense. R. 7-1 at 24; see First Options of Chi., Inc. v. Kaplan, 514
U.S. 938, 944 (1995) (holding that when deciding whether parties have agreed to arbitrate
claims, “courts generally . . . should apply state-law principles that govern the formation of
contracts”). Federal law, however, provides the rule of decision where the sole issue is
“whether the case should be submitted to arbitration under . . . the FAA.” PaineWebber, 276
F.3d at 208 (quoting Snap On Tools Corp. v. Mason, 18 F.3d 1261, 1266 (5th Cir. 1994)).
Here, Randy does challenge the validity of the arbitration agreement, so it appears that both
federal law and state law govern this case. But “the presence of federal law issues must
always be a major consideration weighing against surrender of federal jurisdiction in
deference to state proceedings.” Romine, 160 F.3d at 342 (quoting Moses H. Cone, 460 U.S.
at 26). This factor is less significant where concurrent jurisdiction exists, as it does here,
since both the state court and the federal court apply the law in this case. PaineWebber, 276
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F.3d at 208 (citing Romine, 160 F.3d at 342). Regardless, however, this factor weighs
against abstention.
The plaintiffs argue that the sixth factor—“the adequacy of the state-court action to
protect the federal plaintiff’s rights”—favors federal jurisdiction because the state court will
not adequately protect their rights under the FAA. R. 8 at 19. But the plaintiffs offer no
reason why the state court cannot adequately protect their rights, see id., and the Court can
find none. The FAA “extends Congress’s legislative authority to the maximum extent
permitted under the Commerce Clause, and is therefore binding on state courts that interpret
contracts involving interstate commerce.” PaineWebber, 276 F.3d at 208 (citation omitted).
And this Court sees no reason why the state court would shirk its duty to adequately enforce
the FAA in this case.
Finally, the eighth factor—“the presence or absence of concurrent jurisdiction”—
supports abstention only marginally, if it does so at all. See PaineWebber, 276 F.3d at 208–
09. Under this factor, if concurrent jurisdiction exists, then the court is more likely to
abstain. Now, it is true that concurrent jurisdiction exists in this case. This factor, however,
“is insufficient to justify abstention despite concurrent jurisdiction in state and federal court
where a congressional act provides the governing law and expresses a preference for federal
litigation.” Id. at 208. The FAA expresses such a preference. Moses H. Cone, 460 U.S. at
25 n.32 (The FAA “represents federal policy to be vindicated by the federal courts where
otherwise appropriate.”). So this factor marginally favors abstention.
Overall, the above analysis shows that only the sixth and eighth factors support
abstention. All of the other factors either favor federal jurisdiction or are, for the most part,
neutral. And, as the Supreme Court emphasized in Moses H. Cone, “our task in cases such
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as this is not to find some substantial reason for the exercise of federal jurisdiction . . . ;
rather, the task is to ascertain whether there exist exceptional circumstances, the clearest of
justifications, that can suffice under Colorado River to justify the surrender of that
jurisdiction.” 460 U.S. at 25–26 (emphasis in original) (internal quotation marks omitted).
Here, no such exceptional circumstances exist. There is no question that the state court can
adequately protect the plaintiffs’ rights. But that does not justify a federal court abandoning
its “virtually unflagging obligation . . . to exercise the jurisdiction given [it].” PaineWebber,
276 F.3d at 209 (quoting Colorado River, 424 U.S. at 817). This Court therefore will
exercise its jurisdiction over this case.
III.
Finally, Randy argues that the plaintiffs’ complaint should be dismissed because the
underlying arbitration agreement is invalid and unenforceable. The FAA was enacted “to
ensure judicial enforcement of privately made agreements to arbitrate.”
Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). The FAA “leaves no place for the exercise
of discretion by a district court, but instead mandates that a district court shall direct the
parties to proceed to arbitration on issues as to which an arbitration agreement has been
signed.” Id. at 218 (emphasis in original). The FAA applies to written agreements to
arbitrate disputes that arise out of contracts involving transactions in interstate commerce. 9
U.S.C. § 2. Under the FAA’s terms, such agreements “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” Id. Thus, Randy’s motion to dismiss will be granted only if the Court finds that
“grounds exist at law or in equity for the revocation” of the arbitration agreement. Randy
makes six arguments for why the arbitration agreement is invalid and unenforceable.
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A.
First, Randy argues that the arbitration agreement is void because he did not have the
authority to bind the wrongful death beneficiaries to the agreement.3 R. 7-1 at 29–30. Randy
brought the underlying state-court action on behalf of George’s estate and on behalf of
George’s wrongful death beneficiaries. A representative of a decedent can bring a wrongful
death claim “[w]henever the death of a person results from an injury inflicted by the
negligence or wrongful act of another” for damages against the person or agent who caused
the death. Ky. Rev. Stat. § 411.130(1). In the underlying state-court action, Randy brought
two broad claims within the scope of the wrongful-death statute: negligence and corporate
negligence.
R. 1-2 ¶¶ 44, 46–59, 72–79 (asserting that the negligence and corporate
negligence of the defendants in the underlying state-court action caused George to suffer
injuries that resulted in his death).
Under Kentucky law, a decedent (or a representative thereof) has no authority to bind
wrongful death beneficiaries to an arbitration agreement.
Extendicare Homes, Inc. v.
Whisman, 478 S.W.3d 306, 313–14 (Ky. 2016); see also Ping v. Beverly Enters., Inc., 376
S.W.3d 581, 597–99 (Ky. 2012). This is because a wrongful death claim “is not derived
through or on behalf of the resident, but accrues separately to the wrongful death
beneficiaries and is meant to compensate them for their own pecuniary loss[.]” Ping, 376
S.W.3d at 599. So the wrongful death beneficiaries were not parties to the arbitration
agreement. Id. at 598–99. Under federal law, “arbitration is a matter of contract and a party
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It is true that Randy signed the arbitration agreement and is also a wrongful-death beneficiary, so it may appear on
the surface that he was a party to the arbitration agreement and should be bound by it. But Randy signed the
arbitration agreement on behalf of his father, not on behalf of himself. So Randy was not a party to the agreement.
See Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 596 (Ky. 2012) (holding that a person signing an arbitration
agreement using power of attorney is not a party to that agreement “merely by virtue of having signed it”).
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cannot be required to submit to arbitration any dispute which he has not agreed so to
submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotation
marks omitted).
Thus, Randy did not have the authority to bind the wrongful-death
beneficiaries to the agreement.
One might argue, although the plaintiffs here do not, that the rule laid down in Ping
and Whisman is preempted by the FAA itself, particularly given the Supreme Court’s
interpretation of the FAA in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747
(2011) (“When state law prohibits the outright arbitration of a particular type of claim, the
analysis is straightforward: The conflicting rule is displaced by the FAA.”). But the Sixth
Circuit has already considered that argument and rejected it explicitly. See Richmond Health
Facilities v. Nichols, 811 F.3d 192 (6th Cir. 2016). There, the court explained that the Ping
and Whisman do not prohibit the arbitration of wrongful-death claims. Instead, the issue at
the heart of Ping and Whisman is consent—the wrongful-death beneficiaries never agreed to
enter into the arbitration agreement, so they cannot be bound by it. Id. at 200. So the Court
held that the rule from Ping and Whisman is not preempted by the FAA. Id. at 198–200.
Like in Ping and Whisman, the wrongful-death beneficiaries here are not bound by the
arbitration agreement, so the motion to compel with respect to those claims must be
dismissed.
Randy also brought two non-wrongful-death claims, however, in his underlying
complaint: violations of the rights of long term care residents under KRS § 216.515 and
personal injury, R. 1-2 ¶¶ 60–64, 80–83. These claims are not brought on behalf of Randy or
the estate individually, but are instead brought on behalf of George. See Whisman, 478
S.W.2d at 314 (noting that personal injury claims and statutory claims arising under KRS
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§ 216.515 belong to the decedents). So Randy and the estate are bound by the arbitration
agreement for the litigation of these claims. The question remaining, then, is whether the
arbitration agreement is valid and enforceable.
B.
Randy also makes a passing argument that the arbitration agreement is unenforceable
because he did not have the authority to bind George to the agreement. See R. 7-1 at 29. But
Randy offers no argument or analysis in support of this assertion. See id. Nor does he cite to
any case law for the proposition that a guardian cannot execute an arbitration agreement on
behalf of his ward. See id. It is not the Court’s duty to make Randy’s argument for him. See
McPherson v. Kelsey, 125 F.3d 989, 995–96 (6th Cir. 1997) (“Issues adverted to in a
perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed
waived. It is not sufficient for a party to mention a possible argument in the most skeletal
way, leaving the court to . . . put flesh on its bones.” (internal quotation marks omitted)). As
such, the Court will proceed under the assumption that Randy had the authority to enter the
arbitration agreement on behalf of his father.
C.
Randy next argues that the arbitration agreement is invalid because it does not involve
a transaction in interstate commerce. R. 7-1 at 27–29. And a transaction involving interstate
commerce is one of the FAA’s requirements. See 9 U.S.C. § 2. Specifically, Randy argues
that the arbitration agreement was between two intrastate parties, a Kentucky citizen and a
Kentucky private-care facility. And the purpose of the agreement was to arbitrate disputes
arising out of services performed in Kentucky. Thus, according to Randy, the arbitration
agreement does not evidence transactions involving commerce across state lines.
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The term “involving commerce” in the FAA is “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) (quoting Allied-Bruce Terminix Cos., 513 U.S. 265, 273–74
(2003)). Here, Randy acknowledged in his state-court complaint that Salyersville received
“federal and state reimbursement.” R. 1-2 ¶ 34. And the receipt of federal funds affects
interstate commerce, as federal funding by its nature involves interstate commerce. United
States v. Davis, 707 F.2d 880, 884 (6th Cir. 1983) (“[Federal] funds plainly were in interstate
commerce.”). The arbitration agreement therefore involved interstate commerce, so Randy’s
argument fails.
D.
Randy claims that the arbitration agreement is unenforceable because it is
unconscionable.
Procedural unconscionability, or “unfair surprise” unconscionability,
“pertains to the process by which an agreement is reached and the form of the agreement,
including the use therein of fine print and convoluted or unclear language.” Conseco Fin.
Serv. Corp. v. Wilder, 47 S.W.3d 335, 342 n.22 (Ky. Ct. App. 2001) (quoting Harris v.
Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999)). “[It] involves, for example,
‘material, risk-shifting’ contractual terms which are not typically expected by the party who
is being asked to ‘assent’ to them and often appear [ ] in the boilerplate of a printed form.”
Id. (quoting Harris, 183 F.3d at 181). Randy argues that the arbitration agreement here was
“part of a mass-produced, boiler-plate, pre-printed document[.]” R. 7-1 at 30. But even if
the agreement were boilerplate, Randy points to nothing in the agreement that suggests its
terms were “material [and] risk-shifting” or unexpected. And the agreement itself refutes
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any suggestion that this was the case. The agreement was a standalone document, was
written in normal-sized font, used clear language, and was marked at the top—in large,
bolded, underlined letters—with the following words: “Alternative Dispute Resolution
Agreement - Kentucky (SIGNING THIS AGREEMENT IS NOT A CONDITION OF
ADMISSIBILITY OR CONTINUED RESIDENCE IN THE FACILITY).” R. 1-1 at 1
(emphasis in original).
Randy also states that the agreement was “likely presented to George Howell, or his
purported representative, within a lengthy stack of admissions paperwork.” R. 7-1 at 30. By
asking Randy to sign all the documents at the same time, Randy seems to argue, the plaintiffs
asked too much of him. Thus, he concludes—without citing any authority in support—the
arbitration agreement was unconscionable. This Court, however, is aware of no authority
suggesting that an agreement is unconscionable simply because it was signed along with
other agreements, no matter how numerous.
Finally, Randy argues that the arbitration agreement was unconscionable because
there was a “gross disparity of bargaining power between the parties.” R. 7-1 at 31. But the
doctrine of unconscionability is “directed against one-sided, oppressive and unfairly
surprising contracts, and not against the consequences per se of uneven bargaining power or
even a simple old-fashioned bad bargain.” Conseco, 47 S.W.3d at 341 (internal quotation
marks omitted).
It is therefore not enough for Randy to allege that the plaintiffs had
disparate bargaining power. Instead, Randy must show that the contract is “one which no
man in his senses, not under delusion, would make, on the one hand, and which no fair and
honest man would accept, on the other.” Id. (internal quotation marks omitted). Randy has
failed to meet this burden, and there is nothing in the agreement to suggest that it was “one14
sided, oppressive and unfairly surprising.” Id. In sum, the arbitration agreement was not
unconscionable.
E.
Next, Randy argues that the arbitration agreement is void as against public policy.
R. 7-1 at 32. The Supreme Court has stated that the FAA “reflects an emphatic federal
policy in favor of arbitral dispute resolution.” KPMG LLP v. Cocchi, 132 S. Ct. 23, 25
(2011) (internal quotation marks omitted). But, according to Randy, Congress and Kentucky
did not intend disputes involving long-term care facility residents and their rights to be
included in arbitration. R. 7-1 at 32. Randy argues (without support) that “[t]he public
policy favoring arbitration exists fundamentally to reduce transaction costs in the commercial
context—not to reduce vulnerable citizens’ access to a full vindication of their statutory
rights involving . . . personal physical integrity.” Id. Randy also cites to a federal regulation
and a Kentucky statute that he believes support this argument. Id. at 33 (citing 42 C.F.R.
§ 483.10 (prohibiting a nursing facility from interfering with a resident’s exercise of his
rights) and Ky. Rev. Stat. § 216.515 (stating that resident may bring an action under this
section in any court of competent jurisdiction)).
Even if Randy is correct that these statutes reflect a public policy against arbitration,
the FAA overrides such a policy. Concepcion, 131 S. Ct. at 1747–48 (explaining that “a
court may not rely on the uniqueness of an agreement to arbitrate as a basis for a state-law
holding that enforcement would be unconscionable” (internal quotation marks omitted)). In
Marmet Health Care Center, Inc. v. Brown, the Supreme Court reversed a West Virginia
Supreme Court decision that held that arbitration agreements for nursing homes were invalid
because they violated state public policy. 132 S. Ct. 1201, 1202–03 (2012). The Court flatly
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rejected this claim, holding that the FAA “requires courts to enforce the bargain of the parties
to arbitrate.” Id. at 1203; see also id. at 1204 (instructing the West Virginia court on remand
to consider whether the arbitration clauses were unenforceable “absent [the specified]
general public policy”).
Kentucky public policy therefore cannot forbid mandatory
arbitration agreements in the context of nursing-home contracts, as such a state law would be
preempted by the FAA. Brookdale Sr. Living Inc. v. Stacy, 27 F. Supp. 3d 776, 789 (E.D.
Ky. 2014). So the arbitration agreement here is not void against public policy.
F.
Finally, Randy argues that the arbitration agreement is unenforceable because he was
fraudulently induced to enter it. R. 7-1 at 34–35. Randy claims that he does not remember
being shown the agreement or signing it. R. 7-5 at 1. But Randy does remember the
plaintiffs asking him to sign blank documents for the purpose of obtaining medical treatment
for his father. Id. Beyond these statements, Randy also points to several problems with the
arbitration agreement that suggest he did not actually sign it.4 R. 7-1 at 34–35. For example,
Randy’s name was originally written on the “print name” line as “Richie Howell” and
crossed out to say “Randy Howell.” R. 1-2 at 5. Moreover, the place for initials in the
agreement is unsigned. Id. at 4. And the page with Randy’s signature is a faxed page, while
the rest of the document was not faxed. Id. at 5. These facts, Randy argues, support an
inference that the plaintiffs procured the agreement by fraud.
Even if all of Randy’s assertions are true, however, they cannot defeat the
enforcement of the arbitration agreement. “It is the settled law in Kentucky that one who
4
Randy does not contest that the signature on the agreement is his. See R. 7-1. Instead, he states only that he does
not remember signing the document.
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signs a contract is presumed to know its contents.” Clark v. Brewer, 329 S.W.2d 384, 387
(Ky. 1959). Randy presents no evidence, beyond his claim that he never saw nor signed the
agreement, that the plaintiffs attempted to conceal the agreement from him or fraudulently
induced him to enter it. And Randy’s signature on the document creates a presumption that
Randy knew its contents and freely agreed to them.
See Hathaway v. Eckerle, 336
S.W.3d 83, 89–90 (Ky. 2011). So Randy’s argument that he was fraudulently induced to
enter the agreement fails.
IV.
In conclusion, the arbitration agreement is not enforceable against the wrongful-death
beneficiaries. Thus, the complaint, R. 1, must be dismissed as far as it asks this Court to
compel arbitration of the wrongful-death claims. But the plaintiffs have stated a claim upon
which relief can be granted that the arbitration agreement is valid and enforceable as to the
remaining claims in the underlying state-court complaint.
Accordingly, it is ORDERED that Randy Howell’s motion to dismiss, R. 7, is
GRANTED IN PART and DENIED IN PART. It is GRANTED as to the wrongful-death
claims asserted by Howell in the underlying state-court complaint, R. 1-2. It is DENIED as
to the remaining claims in the underlying state-court complaint.
This the 13th day of May, 2016.
17
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