GGNSC Louisville St. Matthews LLC et al v. Badgett

Filing 17

MEMORANDUM AND OPINION by Senior Judge Thomas B. Russell on 7/20/2017; re 4 MOTION to Expedite MOTION to Compel filed by GPH Louisville St. Matthews, LLC, Golden Gate National Senior Care, LLC, GGNSC Holdings, LLC, GGNSC Administrative Se rvices, LLC, Golden Gate Ancillary, LLC, GGNSC Clinical Services, LLC, GGNSC Equity Holdings, LLC, GGNSC Equity Holdings II, LLC, GGNSC Louisville St. Matthews LLC, 12 MOTION to Dismiss filed by Wallace Badgett ; an appropriate order shall enter.cc:counsel (KJA)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:17-CV-00188-TBR
GGNSC LOUISVILLE ST. MATTHEWS, LLC
d/b/a GOLDEN LIVINGCENTER – ST. MATTHEWS, et al.

PETITIONERS

v.
WALLACE BADGETT, ADMINISTRATOR OF THE ESTATE
OF JOSEPH BADGETT, DECEASED

RESPONDENT

Memorandum Opinion
For a time, Joseph Badgett resided in Golden LivingCenter (GLC) Mt. Holly,
a nursing home in Louisville, Kentucky owned by Golden Gate National Senior
Care, LLC (GGNSC) and its related entities.

Upon his admission, Badgett agreed

to arbitrate all his claims against GLC Mt. Holly.

During the next two years,

Badgett was admitted to several other nursing homes and hospitals.

He

eventually landed at GLC St. Matthews, another Louisville nursing home owned by
GGNSC. This time, Badgett declined to enter into an arbitration agreement
identical to the one he signed at GLC Mt. Holly.
Sadly, Badgett died while a resident at GLC St. Matthews.
brought a negligence and wrongful death action in state court.

His estate

The sole issue is

whether Petitioners can compel that action to arbitration based upon the GLC Mt.
Holly agreement.

The Court holds they cannot.
I. Facts and Procedural History

The facts of this case are straightforward and undisputed. Joseph Badgett
was admitted to GLC Mt. Holly, a GGNSC facility, in June 2013.

[DN 1 at 5.]

As

part of his admissions paperwork, he signed a document called an “Alternative
Dispute Resolution Agreement.”

[DN 1-2 at 2.]

Executing the agreement was not

a condition of Badgett’s admission to the GLC Mt. Holly facility.

[Id.]

The Mt. Holly agreement states that it “is entered into by GLC – Mt. Holly,
(‘Facility’), and Joseph Badgett.”

[Id.] It defines “facility” as, in pertinent part,

“the living center, its employees, agents, officers, directors, affiliates and any parent
or subsidiary of Facility.”

[Id.]

The agreement further states that “[i]t is the

intent of the Parties that this Agreement shall inure to the benefit of, bind, and
survive them, their successors, and assigns.”

[Id.]

Lastly, the agreement says it

“shall remain in effect for all care and services rendered to the Resident at or by the
Facility regardless of whether the Resident is subsequently discharged and
readmitted to the Facility without renewing, ratifying, or acknowledging this
Agreement.”

[Id. at 4.]

By its terms, the Mt. Holly agreement requires any “Covered Disputes”
between the parties to be resolved by mediation or arbitration.

[Id.] “Covered

Disputes” are “any and all disputes arising out of or in any way relating to this
Agreement or to the Resident’s stay at the Facility or the Admissions Agreement
between the Parties.”

[Id. at 3.]

The agreement then goes on to set out the rules

and procedures for dispute resolution. See [id. at 3-4.]
Holly representative signed on the last page.

Badgett and a GLC Mt.

[Id. at 6.]

It is unclear how long Badgett resided at GLC Mt. Holly.

However, by

January 2015, he was in Jewish Hospital. See [DN 12-6 at 1.] Over the next few

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months, Badgett cycled between his home, the hospital, and a non-GGNSC nursing
home. See [DN 12-1 at 6.] In September, he was admitted to GLC St. Matthews,
where he stayed until his death on February 16, 2016. [Id. at 1.]
Badgett executed two documents upon his admission to GLC St. Matthews.
The first was another “Alternative Dispute Resolution Agreement.”

[DN 12-5 at 1.]

The St. Matthews agreement is identical to the Mt. Holly agreement, except that
“GLC, St. Matthews” is substituted as the “Facility.”

[Id.] However, on the last

page, Badgett signed below the line stating, “The Alternative Dispute Resolution
Agreement above set forth is hereby DECLINED.”

[Id. at 4.]

The second document was Badgett’s admissions agreement to GLC St.
Matthews. See [DN 12-4.]

The majority of the admissions agreement details the

terms of Badgett’s stay, including consent to treatment, financial arrangements,
and the like.

However, the language relevant to this case appears on the

agreement’s fifth page:
XI. Entire Agreement
This Agreement and the Notices given to you upon admission
constitute the entire Agreement between you and us for the purposes
of your admission to our LivingCenter. There are no other
agreements,
understandings,
restrictions,
warranties
or
representations between you and us as a condition of your admission to
our LivingCenter. This Agreement supersedes any prior admission
contracts regarding your admission to our LivingCenter. However, if
you execute, or have executed, an Alternative Dispute Resolution
Agreement with us in connection with any admission to our
LivingCenters, then that Agreement shall be, and remain, binding
upon you, and upon us, in accordance with the terms that are set forth
in that Agreement.
[Id. at 5.]
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Following Badgett’s death, his estate brought suit in Jefferson County,
Kentucky state court against several GGNSC-related entities, two nursing home
administrators, and three John Doe defendants.1

See [DN 1-1 at 2.] The estate

alleges those defendants, through their negligence, caused Joseph to “suffer[]
accelerated deterioration of his health and physical condition beyond that caused by
the normal aging process,” ultimately resulting in his death.

[Id. at 11.]

Petitioners then filed the instant action in this Court, seeking to compel
arbitration of the state court action, to stay that action pending arbitration
proceedings, and to enjoin the estate from further pursing its claims in state court.
[DN 1 at 1-2; DN 4.] As grounds for their petition, they rely upon the GLC Mt.
Holly arbitration agreement Badgett signed upon his admission to that facility in
June 2013.

In response to Petitioners’ motion to compel arbitration, the estate

moved to dismiss this action, arguing the Mt. Holly agreement does not require the
estate to arbitrate claims arising from Badgett’s stay at GLC St. Matthews. [DN
12.]

Both motions are fully briefed and ripe for adjudication.
II. Standard of Review
This matter is before the Court upon competing motions.

Petitioners move

to compel arbitration pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et
seq., and Badgett’s estate moves to dismiss pursuant to Federal Rule of Civil

Defendants in the state court action are: GGNSC Louisville St. Matthews LLC, d/b/a Golden
LivingCenter – St. Matthews; GGNSC Administrative Services, LLC; GGNSC Holdings, LLC;
GGNSC Equity Holdings, LLC; GGNSC Equity Holdings II, LLC; GGNSC Clinical Services, LLC;
Golden Gate National Senior Care, LLC; Golden Gate Ancillary, LLC; GPH Louisville St. Matthews,
LLC; Lisa S. Davis, in her capacity as Administrator; Joshua Schindler, in his capacity as
Administrator; and John Does 1 through 3. [DN 1-1 at 3.] The corporate entities are all parties to
this suit, but the administrators and John Doe defendants are not.
1

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Procedure 12(b)(6). The Court may grant a Rule 12(b)(6) motion to dismiss “only if,
after drawing all reasonable inferences from the allegations in the complaint in
favor of the plaintiff, the complaint still fails to allege a plausible theory of relief.”
Garceau v. City of Flint, 572 F. App’x 369, 371 (6th Cir. 2014) (citing Ashcroft v.
Iqbal, 556 U.S. 662, 677-79 (2009)).

In turn, Petitioners are entitled to compel

arbitration under the FAA if “a valid agreement to arbitrate exists between the
parties” and “the specific dispute falls within the substantive scope of the
agreement.”

Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004)

(quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). The
estate does not argue that its claims fall outside the scope of the Mt. Holly
arbitration agreement.

At this stage, then, the estate will only prevail if, drawing

all reasonable inferences in Petitioners’ favor, the agreement is unenforceable.
Keeping in mind the “national policy favoring arbitration,” Preston v. Ferrer, 552
U.S. 346, 349 (2008), that puts arbitration agreements “upon the same footing as
other contracts,” EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (citation
omitted), the Court will turn to the contractual provisions at issue here.
III. Discussion
This case presents an issue of apparent first impression in this circuit.2
When a patient signs an arbitration agreement at one nursing home, but later
disclaims an identical agreement at a facility owned by the same parent company,
Badgett’s estate raises other arguments other than those addressed by the Court herein.
However, those arguments have been routinely and firmly rejected by this Court and its sister court
on a multitude of prior occasions. See GGNSC Louisville Mt. Holly, LLC v. Turner, No. 3:16-CV00149-TBR, 2017 WL 537200, at *3 (W.D. Ky. Feb. 9, 2017) (listing cases). As those issues are not
decisive in this case, the Court will not address them again today.
2

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may the first agreement be enforced?

The Court must answer this question using

Kentucky contract law. Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 972
(6th Cir. 2007) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943-44
(1995)); Fazio v. Lehman Bros., 340 F.3d 386, 392-93 (6th Cir. 2003) (citations
omitted).
Typically, the first step in cases involving contract interpretation is
determining whether the contested provisions are ambiguous, because “[i]n the
absence of ambiguity, a written instrument will be enforced strictly according to its
terms.” Ky. Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d 691, 694 (Ky. 2016)
(citations omitted).

“A contract is ambiguous if a reasonable person would find it

susceptible to different or inconsistent interpretations.” Hazard Coal Corp. v.
Knight, 325 S.W.3d 290, 298 (Ky. 2010) (citation omitted). Only when a contract is
ambiguous may courts look beyond the four corners of the document to discern the
parties’ intent. See Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 92 S.W.3d 381,
385 (Ky. Ct. App. 2002).
However, in this case there is an even more basic question: which contract
governs?

Although the estate’s claims in state court arise from Badgett’s stay at

GLC St. Matthews, Petitioners rely primarily upon the GLC Mt. Holly arbitration
agreement.

That contract defines “Facility” as, among other things, the “affiliates”

of Golden LivingCenter – Mt. Holly.

[DN 1-2 at 2.]

Further, the Mt. Holly

agreement states that it “shall remain in effect for all care and services rendered to
the Resident at or by the Facility regardless of whether the Resident is

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subsequently discharged and readmitted to the Facility.”

[Id. at 4.]

Petitioners

argue these clauses, taken together, extend the Mt. Holly agreement to encompass
the harm Badgett allegedly suffered at GLC St. Matthews.
The estate does not contest Petitioners’ assertion that GLC St. Matthews and
GLC Mt. Holly, owned by the same parent companies, are “affiliates.” Nor does it
seem to argue that the GLC Mt. Holly agreement is ambiguous on its face.

Rather,

the estate says the GLC St. Matthews admissions and arbitration agreements
govern.

And because those documents are ambiguous when read together, the

estate argues, the Court should look to the intent of the parties.
The estate makes a strong argument that the provisions included in
Badgett’s St. Matthews paperwork are ambiguous.

In pertinent part, Section XI of

Badgett’s admissions agreement states, “[I]f you execute, or have executed, an
Alternative Dispute Resolution Agreement with us in connection with any
admission to our LivingCenters, then that Agreement shall be, and remain, binding
upon you, and upon us, in accordance with the terms that are set forth in that
Agreement.”

[DN 12-4 at 5.]

Put another way, if a resident ever enters a GGNSC

facility and agrees to arbitration, that election is forever binding, even if the
resident is later admitted to a different GGNSC facility.
However, the St. Matthews arbitration agreement, also completed by Badgett
upon his admission to the facility, suggests something different.

The agreement

contains two signature lines: one for the resident to accept the agreement, and one
to decline.

[DN 12-5 at 4.]

And by its terms, the agreement is voluntary –

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Badgett did not have to agree to arbitration to be admitted to GLC St. Matthews.
[Id. at 1.]

When read together, then, Badgett’s St. Matthews papwerwork is

plainly inconsistent. The admissions agreement says, in effect, “If you have agreed
to arbitrate in the past, you must also arbitrate in the future.”

But the arbitration

agreement says, “That notwithstanding, you can choose to arbitrate or not.”
The Court need not decide whether this conflict amounts to an ambiguity,
though, because there is a simpler route. Even if the GLC Mt. Holly arbitration
agreement was effective to bind Badgett to arbitrate in perpetuity, the GLC St.
Matthews arbitration agreement constitutes a novation of the prior contract.

“A

novation is the entering into a new contract which takes the place of the original
one and in which it is merged and extinguished.” White/Reach Brannon RD., LLC
v. Rite Aid of Ky., Inc., 488 S.W.3d 631, 636 (Ky. Ct. App. 2016). There are two
types of novation, express and implied. An express novation, as the title suggests,
occurs when “the new contract in express terms rescinds the old one.” Id.

An

implied novation, on the other hand, occurs “as a necessary implication, and takes
place by operation of law, without any express agreement to that effect, whenever
the new contract is manifestly in place of or inconsistent with a former one, or
which renders a former contract impossible of performance.”

Id. at 636-37 (citing

Combs v. Morgan, 307 Ky. 711, 717, 211 S.W.2d 821, 825 (1948)). When a novation
happens, it “relieves parties of the obligations under the contract and results in a

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new agreement.” Id. at 637 (citing Wells Fargo Fin. Ky., Inc. v. Thomer, 315
S.W.3d 335, 339 (Ky. Ct. App. 2010)).3
The elements of a novation “are essentially the same as in the first contract[:]
. . . (1) parties; (2) a meeting of the minds; and (3) a consideration.” Daviess Cty.
Bank & Trust Co. v. Wright, 129 Ky. 21, 110 S.W. 361, 363 (1908). The touchstone
of a novation is “the intention of the parties.

This intent is the controlling element

in determining the question, and unless the transaction was intended to extinguish
the old obligation by substituting the new one therefor, a novation is not effected.”
Clark v. Thompson, 309 Ky. 850, 861, 219 S.W.2d 22, 28 (1948) (quoting Nw. Mut.
Life Ins. Co. v. Eddleman, 247 Ky. 116, 56 S.W.2d 561, 562 (1932)).
Here, the intent of one party could hardly be clearer.

When Joseph Badgett

entered GLC Mt. Holly in 2013, he agreed to arbitrate his claims against that
facility. And when offered that very same choice upon his admission to GLC St.
Matthews in 2015, he chose not to arbitrate. Badgett’s decision to reject an
identical agreement manifests his intent to have his claims against GLC St.
Matthews decided by a jury.
Although divining Petitioners’ intent is a slightly more difficult task, the
Court is satisfied they intended to offer Badgett the same choice he faced upon
entering GLC Mt. Holly: either arbitrate or don’t.

Aside from the name of the

Most often, novation is implicated in the context of a mortgage, when a debtor argues her
subsequent agreement with the lender “operates to extinguish an original debt.” See Forcht v.
Forcht Bank, N.A., ___ S.W.3d ___, 2017 WL 2705405, at *5 (Ky. Ct. App. Jun. 23, 2017). Still,
novation is by no means limited to the cancellation of debt, as evidenced by the variety of Kentucky
cases on the subject. See, e.g., Schulte v. Schulte, No. 2003-CA-000987-MR, at *3 (Ky. Ct. App. Jun.
11, 2004) (discussing novation of a former husband’s promise to pay maintenance by subsequent
property settlement agreement); Dempsey v. Marshall, 344 S.W.3d 606 (Ky. Ct. App. 1961) (lease
agreement); Combs v. Morgan, 307 Ky. 711, 717, 211 S.W.2d 821, 825 (1948) (land sale).
3

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facility, the Mt. Holly and St. Matthews arbitration agreements are identical.
Both agreements were presented to Badgett upon or shortly after his admission to
the nursing home, and both purported to allow Badgett a choice regarding how any
future claims against the facility would be decided.
Petitioners argue that Badgett’s St. Matthews admissions agreement
undercuts any argument that the facility intended to offer him a new choice when it
came to arbitration.

As noted above, Petitioners construe Section XI of the

admissions agreement to forever bind a person to his or her prior election regarding
arbitration at any GGNSC-owned nursing home.4

But if that were indeed the case,

then there was no reason for Petitioners to present Badgett with another
arbitration agreement.

In other words, under their construction, Petitioners

offered Badgett nothing more than the appearance of choice.

However, adopting

such a construction would cause this Court to run afoul of its mandate “to give effect
to every provision and word whenever possible.”

Invensys, Inc. v. Henry Vogt

Mach. Co., No. 2007-CA-000606-MR, 2009 WL 2696828, at *5 (Ky. Ct. App. Jul. 11,
2008); see also Talmer Bank & Trust Co. v. Minton Firm, P.C., 660 F. App’x 439,
445 (6th Cir. 2016) (citations omitted).

Petitioners offer no other reading that

would render the GLC St. Matthews arbitration agreement more than a mere
nullity, and at the same time allow them to fall back on the Mt. Holly agreement.
By affording Badgett the opportunity to accept or reject an arbitration agreement
identical to his previous one, Petitioners signaled their “inten[t] to extinguish the
Because the GLC St. Matthews arbitration agreement declined by Badgett constitutes a novation,
the Court need not decide today whether the clauses contained in the admissions agreement and the
GLC Mt. Holly agreement, purporting to bind Badgett to arbitration in perpetuity, are valid.

4

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old obligation by substituting the new one,” thereby accomplishing a novation.
Clark, 219 S.W.2d at 28.
In the end, Petitioners fail to adequately explain why two identical
documents, presented under identical circumstances and ostensibly designed to
accomplish an identical objective, should nevertheless be treated differently.

As to

the estate’s claims against Petitioners arising from Badgett’s stay at GLC St.
Matthews, the new arbitration agreement “is manifestly in place of [and]
inconsistent with [the] former one.” White/Reach Brannon RD., 488 S.W.3d at
636.

As a novation, it therefore “relieves [the] parties of the obligations under the”

GLC Mt. Holly agreement. Id. at 637 (citation omitted).

The estate has no

obligation, contractual or otherwise, to arbitrate its claims against Petitioners.
Because no “valid agreement to arbitrate exists between the parties,” Masco Corp.,
382 F.3d at 627 (citation omitted), this Court may not grant Petitioners the relief
they seek under the Federal Arbitration Act. Petitioners’ motion to compel
arbitration [DN 4] will be DENIED, and the estate’s motion to dismiss [DN 12] will
be GRANTED.
An appropriate order will follow.

July 20, 2017

CC: Counsel of Record

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