Preferred Care, Inc. et al v. Bleeker
Filing
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MEMORANDUM OPINION AND ORDER: (1) Dft's motion to dismiss, R. 8 , is GRANTED IN PART and DENIED IN PART. It is GRANTED as to wrongful-death claims, as well as to Counts II and III of plas' complaint, R. 1 . It is DENIED as to remaining claims in underlying state-court complaint, R. 1 -2. (2) Dft's motion for an extension to file a response to plas' motion to compel arbitration, R. 11 , is GRANTED. Dft SHALL RESPOND to plas' motion, R. 10 , by Monday, November 28, 2016. Plas may reply by Monday, December 5, 2016. Signed by Judge Amul R. Thapar on 11/8/2016. (RCB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
PREFERRED CARE, INC., et al.,
Plaintiffs,
v.
DAVID BLEEKER, Administrator of the
Estate of Della Bleeker,
Defendant.
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Civil No. 16-152-ART
MEMORANDUM OPINION
AND ORDER
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For two weeks, Della Bleeker was a resident of Salyersville Nursing and Rehabilitation
Center. 1 R. 1-2 ¶ 3. During her stay there, Della’s son, David Bleeker, served as her appointed
guardian. R. 1-3 (order of appointment of guardian). As guardian, David signed an arbitration
agreement on behalf of Della. R. 1-1. Under that agreement, he promised to use arbitration to
resolve “any and all disputes” about Della’s stay at Salyersville. Id. at 1−2. In other words, if
he had any claims of tort, contract, or other violations of Della’s rights, he promised to pursue
those claims through arbitration—not in a state or federal court. Id. at 1−2, 5.
When Della passed away, David believed that Salyersville was responsible. R. 1-2
(state-court complaint). So he sued Salyersville and its affiliates in state court on behalf of
Della and her beneficiaries. Id. In his complaint, David alleged, among other things, that
Salyersville negligently cared for Della, violated her rights as a long-term-care resident, and
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The four plaintiffs in this case are related entities: Preferred Care, Inc., Kentucky Partners Management, LLC,
Salyersville Health Facilities, LP, and Preferred Care Partners Management Group, LP. R. 1. For simplicity, the
Court will refer to the plaintiffs collectively as “Salyersville.” Additionally, because this case involves both Della and
David Bleeker, the Court will refer to each by first name to avoid confusion.
caused her wrongful death. Id. In response, Salyersville sued David in this Court. R. 1. In
short, Salyersville alleges that David violated the arbitration agreement when he filed suit in
state court. Id. ¶¶ 25−28. So, Salyersville wants the Court to enforce that agreement under
the Federal Arbitration Act (“FAA”). Id. ¶ 27. David, on the other hand, wants out of the
agreement. So he 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. 8.
The Court has discussed—and decided—most of the issues surrounding Salyersville’s
arbitration agreement in a case with similar facts. See Preferred Care, Inc. v. Howell, No. 16cv-13-ART, 2016 WL 2858523 (E.D. Ky. May 13, 2016). As such, the Court will touch only
on the highlights here. In brief, the wrongful-death beneficiaries were not parties to the
arbitration agreement, so the agreement is not enforceable against them. Thus, the Court will
grant David’s motion to dismiss with respect to those claims. The Court will also dismiss
Counts II and III of the plaintiffs’ complaint because they fail to state a claim upon which this
Court can grant relief. But, for the reasons below, the Court will deny David’s motion to
dismiss with respect to the remaining claims.
I.
David first argues that the Court lacks subject matter jurisdiction over this case. R. 81 at 2−22. The FAA does not provide an independent basis of federal jurisdiction. Vaden v.
Discover Bank, 556 U.S. 49, 53 (2009). Thus, a federal court has jurisdiction over an FAA
action only if there is another basis for jurisdiction. Here, Salyersville states that the other
basis is diversity of citizenship. See 28 U.S.C. § 1332(a). Indeed, in its complaint, Salyersville
asserts that it and its affiliates are citizens of Texas, that David is a citizen of Kentucky, and
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that the amount in controversy is more than 75,000 dollars. R. 1 at 2−4. Typically, that is
enough to establish diversity jurisdiction. See 28 U.S.C. § 1332(a).
David argues that this is not the typical case. In his view, Salyersville has failed to join
an indispensable party—Elaine Jones, a Salyersville employee who is a named defendant in
his state-court action. R. 8-1 at 17−22. That allegation, if true, poses a problem because Jones,
like David, is a Kentucky resident. See R. 8 at 2. So if she joined this federal suit, there would
not be complete diversity and the Court would no longer have jurisdiction to hear the case.
See Wis. Dep’t of Corrections v. Schact, 524 U.S. 381, 388 (1998).
But there is just one problem for David: He sued Jones and Salyersville in state court
as joint tortfeasors, alleging several acts of negligence against each of the parties. And, as the
Court explained in Howell, joint tortfeasors are permissive, not indispensable, parties to an
action to compel arbitration. See Howell, 2016 WL 2858523, at *2−3; see also PaineWebber,
Inc. v. Cohen, 276 F.3d 197, 206 (6th Cir. 2001) (holding that when a company sues a plaintiff
to compel arbitration, the company need not join any of its employees—regardless if the
plaintiff had joined all of the parties in state court). In other words, Salyersville properly
brought this federal action without including Jones. As such, Salyersville’s failure to join her
in this case does not undermine this Court’s jurisdiction. So David’s first argument fails.
II.
David next argues that the Court should abstain from exercising jurisdiction because
there is similar litigation pending in state court. R. 8-1 at 22−26. In support of this argument,
he relies on the Colorado River abstention doctrine. Id. That doctrine is a narrow exception
to the federal courts’ “virtually unflagging obligation . . . to exercise the jurisdiction given
them.” See Colo. River Water Conversation Dist. v. United States, 424 U.S. 800, 817 (1976).
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In some “exceptional” circumstances, a federal district court may abstain from exercising its
jurisdiction due to a concurrent state-court action. Id. at 817. In deciding whether to abstain,
the court must consider “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 light of a related state-court action: (1) “whether the state court
has assumed jurisdiction over any res or property”; (2) “whether the federal forum is less
convenient to the parties”; (3) “avoidance of piecemeal litigation”; (4) “the order in which
jurisdiction was obtained”; (5) “whether the source of governing law is state or federal”; (6)
“the adequacy of the state-court action to protect the federal plaintiff’s rights”; (7) “the relative
progress of the state and federal proceedings”; and (8) “the presence or absence of concurrent
jurisdiction.” Romine v. Compuserve Corp., 160 F.3d 337, 340−41 (6th Cir. 1998).
In Howell, the Court addressed the very same arguments that David now makes to
support his assertion that the Court should abstain from exercising its jurisdiction. See Howell,
2016 WL 2858523, at *3−4. So, the reasoning applies with full force here: Although factors
six and eight support abstention, “[a]ll of the other factors either favor federal jurisdiction or
are, for the most part, neutral.” Id. at *4. To summarize, David is correct that the state court
can adequately protect the plaintiffs’ rights (sixth factor), and there is concurrent jurisdiction
in this case (eighth factor). But those two factors do not overcome the others—especially the
fact that (1) the state-court action has not progressed significantly faster than the proceedings
in this Court (seventh factor) and (2) federal law provides the rule of decision here because the
only issue is whether David must arbitrate his claims (fifth factor). The Court’s role is not to
search for some special reason to exercise federal jurisdiction, but rather to determine whether
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there are “exceptional circumstances, the clearest of justifications,” to warrant “surrender[ing]
that jurisdiction.” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25−26
(1983). And here, no such exceptional circumstances exist. The Court will therefore exercise
jurisdiction over this case.
III.
Next, David argues that the plaintiffs’ complaint should be dismissed because the
underlying arbitration agreement is invalid and unenforceable. R. 8-1 at 26−34. In support,
he states that the arbitration agreement (1) cannot bind Della Bleeker and her beneficiaries; (2)
does not involve interstate commerce; and (3) is unconscionable. Id. at 32−34.
A.
First, David contends that the arbitration agreement is unenforceable because, when he
signed it, he did not have authority to bind Della or the wrongful-death beneficiaries. Id. at
29. David brought two categories of claims in his state-court action: (1) wrongful-death claims
on behalf of Della’s beneficiaries, id. ¶¶ 62−65, and (2) personal-injury and long-term-carerights claims on behalf of Della herself, id. ¶¶ 25−47. The Court will address each category in
turn.
1.
David first argues that he had no authority to bind the wrongful-death beneficiaries to
arbitration because they never signed the agreement. R. 8-1 at 30, 32−34. Indeed, the Court
ruled in Howell that “a decedent (or a representative thereof) has no authority to bind wrongful
death beneficiaries to an arbitration agreement.” 2016 WL 2858523, at *5. David signed the
agreement on behalf of Della. The wrongful death claim, however, is not made on her behalf;
instead, it “accrues separately to the wrongful[-]death beneficiaries” and “compensate[s] them
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for their own pecuniary loss.” Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 599 (Ky. 2012).
Stated more plainly, David agreed to arbitrate claims that Della might bring against
Salyersville. He did not (and could not) agree to arbitrate claims that Della’s surviving family
members might bring against Salyersville after she died. Holdings of the Kentucky Supreme
Court and the Sixth Circuit confirm the same. See Extendicare Homes, Inc. v. Whisman, 478
S.W.3d 306, 313−14 (Ky. 2016); Ping, 376 S.W.3d at 597−99; see also Richmond Health
Facilities v. Nichols, 811 F.3d 192, 192−97 (6th Cir. 2016). Thus, it appears that the arbitration
agreement does not cover the wrongful-death beneficiaries or their claims.
The plaintiffs acknowledge this Court’s ruling in Howell, but attempt to avoid dismissal
by distinguishing the Sixth Circuit’s decision in Nichols. R. 9 at 34. In Nichols, the court
considered the enforceability of an arbitration agreement between a decedent and a nursing
facility. 811 F.3d at 192. The facility attempted to enforce the agreement against the executor
of the decedent’s estate, who asserted wrongful-death claims. Id. at 193−94. But the court
held that the executor was “not required to arbitrate the wrongful-death claim” because only
the facility and the decedent were parties to the agreement. Id. at 197. Further, the court
explained that the decedent had no legal rights in a wrongful-death claim when he signed the
agreement. Id.
Yet, the plaintiffs argue that Nichols is “unavailing.” R. 9 at 34. In their view, Nichols
does not apply here because David signed the agreement as Della’s guardian, whereas in
Nichols, the decedent himself signed the agreement. Id. But that argument makes a technical
distinction without a functional difference. True, David signed the arbitration agreement, and
David now sues Salyersville on behalf of the wrongful-death beneficiaries. But David’s role
was different then than now. David signed the agreement as Della’s guardian. As explained
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below, guardianship took certain rights away from Della and vested them in David. See Ky.
Rev. Stat. (KRS) § 387.590(1). Essentially, he stepped into Della’s shoes for all intents and
(legal) purposes. And while in her shoes, he agreed to arbitrate any and all claims that Della
might have against Salyersville. Now that Della has passed away, David does not bring his
own wrongful-death claims in Della’s shoes. Those claims belong to David as himself and to
the other beneficiaries. See Ping, 376 S.W.3d at 599; Nichols, 811 F.3d at 197. The arbitration
agreement does not extend to the wrongful-death claims that Della does not, and cannot, bring.2
So, the plaintiffs’ argument fails. Thus, the Court must dismiss the plaintiffs’ complaint
insofar as it seeks to compel arbitration of David’s wrongful-death claims, R. 1-2 ¶¶ 62−65.
2.
David also argues that he lacked authority to bind Della to the arbitration agreement,
although he signed it as her guardian. R. 8-1 at 28−30. Kentucky law says otherwise.
Guardians have broad powers to ensure a ward’s “care, comfort, and maintenance” and to
“enable the ward to receive medical or other professional care.” KRS § 387.660(2)−(3).
Further, guardians are tasked with protecting and effecting the ward’s “personal, civil, and
human rights.” Id. § 387.640. And when a guardian is appointed, the ward is stripped of
several rights, including “the right . . . to enter into contractual relationships.”
KRS
§ 387.590(10). So it follows that these rights, once taken from the ward, are vested in the
guardian to care for him. Guardians then retain that power unless a court says otherwise. See
KRS § 387.660. Here, the court order appointing David as Della’s guardian contains no
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Another judge of this Court recently held the opposite, distinguishing Nichols on the same grounds that the
plaintiffs now raise. See Diversicare Leasing Corp. v. Hall, No. 0:15-cv-00029-HRW, D.E. 19 (E.D. Ky. Aug. 18,
2016). For the reasons stated above, the Court respectfully disagrees.
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limitations. R. 1-3. Thus, David had authority to sign the agreement and bind Della to its
terms.
David responds by comparing powers of attorney to guardianships. R. 8-1 at 29. But
as the Court has explained before, the comparison is unwarranted. See Preferred Care, Inc. v.
Howell, No. 16-cv-13-ART, 2016 WL 4470746, at *3−4 (E.D. Ky. Aug. 19, 2016). In a power
of attorney, the person giving up his own rights (the “principal”) defines exactly what his
attorney-in-fact can do. See Ping, 376 S.W.3d at 592. By contrast, a guardian receives his
power from the state: A court appoints a guardian when it determines that someone is unable
to manage his own affairs. KRS § 387.590(10). From that point on, Kentucky law defines
what the guardian can do. KRS § 387.660. As discussed above and in Howell, David—as a
guardian under Kentucky law—had the authority to bind Della to the arbitration agreement.
B.
Second, David asserts that the arbitration agreement is invalid because it is a transaction
between two Kentucky residents—David and Salyersville. Id. at 28. True, the FAA applies
only to written agreements “evidencing a transaction involving commerce.” 9 U.S.C. § 2. But
the term “involving commerce” is the “functional equivalent” of “affecting commerce”—
which is 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, Salyersville received federal and state reimbursement for its
operations, R. 1-2 ¶ 15, and the receipt of federal funds affects interstate commerce. See
United States v. Davis, 707 F.2d 880, 884 (6th Cir. 1983) (“[Federal] funds plainly were in
interstate commerce.”). The arbitration agreement therefore involves interstate commerce.
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C.
Finally, David argues that the arbitration agreement is unenforceable because it is
unconscionable. An agreement between two parties is procedurally unconscionable when it
uses “fine print and convoluted or unclear language” such that it becomes an “unfair surprise”
to the non-drafting party. 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)).
For example, an unconscionable contract might hide “material, risk-shifting” terms that the
non-drafting party does not expect in a hard-to-read boilerplate form. See Harris, 183 F.3d at
181.
As grounds for his procedural unconscionability argument, David says that the
agreement is “part of a mass-produced, boiler-plate, pre-printed document, likely presented to
[him] within a lengthy stack of admissions paperwork.” R. 8-1 at 31. Even if true, the
agreement does not rise to the level of unconscionability.
The document has several
characteristics that mitigate the risk that the terms would “unfair[ly] surprise” David. See
Conseco, 47 S.W.3d at 342 n.22. For example, the agreement begins with large, bold type that
reads “Alternative Dispute Agreement.” R.1-1 at 1. Next, the document says “SIGNING
THIS AGREEMENT IS NOT A CONDITION OF ADMISSIBILITY OR CONTINUED
RESIDENCE IN THE FACILITY.” Id. Throughout the document, the text is in normal-sized
font and clear language—the important terms bolded and underlined. Id. at 1−5. Finally, on
the final page of the agreement, a disclaimer in bold, capital letters, indicates that the signing
party waives his right to have the covered disputes decided by a court. Id. at 5. An agreement
like this one—“stated in clear and concise language” that is “not hidden or obscured” is not
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procedurally unconscionable. Energy Home, Div. of S. Energy Homes, Inc., v. Peay, 406
S.W.3d 828, 836 (Ky. 2014).
David also contends that the agreement is substantively unconscionable. R. 8-1 at 31.
Substantive unconscionability refers to contracts containing terms that are “unreasonably or
grossly favorable to one side and to which the disfavored party does not assent.” Valued Servs.
of Ky., LLC v. Watkins, 309 S.W.3d 256, 263 (Ky. Ct. App. 2009) (quoting Conseco, 47
S.W.3d at 342 n.22). David asserts that the arbitration fees are too high and that the
agreement’s use of JAMS rules (a commonly used set of arbitration rules) stifles discovery.
R. 8-1 at 31. But the agreement states that each party will be responsible for his own arbitration
and attorney’s fees. R. 1-1 at 3. And any discovery limitations in the agreement bind both
parties equally. Id. So David’s arguments miss the point: Substantive unconscionability refers
to terms that are so one-sided that “no man in his senses, not under delusion” would ever offer
them and that “no fair and honest man would accept.” Conseco, 47 S.W.3d at 341. David has
not shown any one-sidedness here; all of the limitations he contests apply to Salyersville and
him alike. If David disagreed with those terms, he had the opportunity to decline the
agreement.
IV.
David next moves to dismiss Counts II and III of the plaintiffs’ complaint because they
do not constitute causes of action. R. 8-1 at 35. David is correct. In those counts, the plaintiffs
argue that a Kentucky Supreme Court case, Extendicare Homes, Inc. v. Whisman, 478 S.W.3d
306 (Ky. 2015), “violates [p]laintiffs’ due process rights” and “abridges [p]laintiffs’
[c]onstitutional right to equal protection under the laws.” R. 1 ¶ 35, 44. But in making that
argument, the plaintiffs state no “claim upon which relief can be granted” by this Court. Fed.
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R. Civ. P. 12(b)(6). Whisman deals with the authority of an individual—acting pursuant to a
power of attorney—to sign an arbitration agreement binding the person he is representing.
Whisman, 478 S.W.3d at 306. That is not at issue here; this case is about the authority of a
guardian to bind a ward to an arbitration agreement. See Howell, 2016 WL 4470746, at *3
n.4. The Court must therefore dismiss Counts II and III of the plaintiffs’ complaint.
V.
Finally, David asks the Court to dismiss the plaintiffs’ claim for injunctive relief
because, in his view, that relief would violate the Anti-Injunction Act (“AIA”). R. 8-1 at
35−38. Under the AIA, a court can enjoin state-court proceedings only if one of the following
exceptions applies: (1) Congress has “expressly authorized” the stay, (2) the stay is “necessary
in aid of [the Court’s] jurisdiction,” or (3) the stay is necessary to “protect or effectuate its
judgments.” 28 U.S.C. § 2283. The Sixth Circuit has decided that a district court that compels
arbitration may enjoin state-court proceedings under the third exception of the AIA. Great
Earth Co. v. Simons, 288 F.3d 878, 893 (6th Cir. 2002). Thus, the plaintiffs have stated a claim
for injunctive relief “upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). That is all
that is required at the motion-to-dismiss stage.
VI.
In sum, the arbitration agreement is not enforceable against the wrongful-death
beneficiaries. Thus, the Court must dismiss the complaint, R. 1, insofar as it asks this Court
to compel arbitration of their wrongful-death claims. Furthermore, Counts II and III of the
plaintiffs’ complaint fail to state a claim upon which this Court can grant relief. The Court
must therefore dismiss those two counts, R. 1 ¶ 29−44. But the plaintiffs have sufficiently
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stated a claim that the arbitration agreement is valid and enforceable as to the remaining claims
in the underlying state-court complaint.
Accordingly, it is ORDERED as follows:
(1) The defendant’s motion to dismiss, R. 8, is GRANTED IN PART and DENIED
IN PART. It is GRANTED as to the wrongful-death claims, as well as to Counts
II and III of the plaintiffs’ complaint, R. 1. It is DENIED as to the remaining
claims in the underlying state-court complaint, R. 1-2.
(2) The defendant’s motion for an extension to file a response to the plaintiffs’ motion
to compel arbitration, R. 11, is GRANTED. The defendant SHALL RESPOND
to the plaintiffs’ motion, R. 10, by Monday, November 28, 2016. The plaintiffs
may reply by Monday, December 5, 2016.
This the 8th day of November, 2016.
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