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Sun Healthcare Group, Inc. v. Dowdy

United States District Court, W.D. Kentucky, Paducah Division

February 26, 2014

PATTI JO DOWDY, Defendant.


THOMAS B. RUSSELL, Senior District Judge.

This matter is before the Court upon Defendant Patti Jo Dowdy's Motion to Dismiss. (Docket No. 6.) Plaintiffs have responded. (Docket No. 7.) This matter is now ripe for adjudication. For the following reasons and consistent with the below opinion, the Court will DENY Defendant Patti Jo Dowdy's Motion to Dismiss. (Docket No. 6.)


On or around June 1, 2012, Defendant Patti Dowdy admitted herself to Paducah Care and Rehabilitation Center, a nursing home. (Docket No. 1, ¶ 16.) As part of the admission process, Defendant signed a Long Term Care Arbitration Agreement, (Docket No. 1-2), which provides, in summary, that any claims arising out of or in any way relating to the Agreement, the Admission Agreement, or the resident's stay at the facility "shall be submitted to binding arbitration." (Docket No. 1, ¶ 17, 19.)

In a related state court action in McCracken Circuit Court filed on August 1, 2013, (Case No. 13-CI-00714), Defendant Dowdy alleges that while residing at Paducah Care and Rehabilitation Center she "suffered physical and emotional injuries due to inadequate care, and her health and physical condition deteriorated beyond that caused by the normal aging process." (Docket No. 6-1, at 1.) Specifically, in that state court action, Defendant claims negligence, medical negligence, corporate negligence, and violation of a long term care resident's rights against Plaintiffs Sun Healthcare Group[1] and two administrators-Cathy Ortega and Sonja Henderson-Maddox-of Paducah Care & Rehabilitation Center. Id. These administrators are not parties to the action before this Court and are citizens of Kentucky for purposes of diversity jurisdiction, unlike Plaintiffs Sun Healthcare Group. Plaintiffs Sun Healthcare Group are corporations with their principal place of business outside of Kentucky.

Plaintiffs Sun Healthcare Group filed the Complaint in this case on September 9, 2013. (Docket No. 1.) Plaintiffs' Complaint seeks to (i) compel arbitration of the claims asserted by Defendant in the McCracken Circuit Court, (Case No. 13-CI-00714), pursuant to 9 U.S.C. § 4; (ii) enjoin Defendant from further pursuing the state court action; and (iii) related relief.[2] Defendant moves the Court to dismiss Plaintiffs' Complaint based on several different arguments. (Docket No. 6.)


Federal Rule of Civil Procedure 12(b)(1) provides that a party may file a motion to dismiss for lack of subject-matter jurisdiction. "Subject matter jurisdiction is always a threshold determination, " Am. Telecom Co. v. Republic of Lebanon, 501 F.3d 534, 537 (6th Cir. 2007) (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101 (1998)), and "may be raised at any stage in the proceedings, " Shultz v. Gen. R.V. Ctr., 512 F.3d 754, 756 (6th Cir. 2008). Where subject matter jurisdiction is challenged pursuant to Rule 12(b)(1), the plaintiff bears the burden of proving jurisdiction in order to survive the motion. Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990) (citing Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986)); see also DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004). "If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed.R.Civ.P. 12(h)(3); see also Bauer v. RBX Indus. Inc., 368 F.3d 569 (6th Cir. 2004). A federal district court has original diversity jurisdiction over an action between citizens of different states and where the amount in controversy exceeds $75, 000, exclusive of interest and costs. 28 U.S.C. § 1332(a).

The Federal Rules of Civil Procedure require that pleadings, including complaints, contain a "short plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A defendant may move to dismiss a claim or case because the complaint fails to "state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b). When considering a Rule 12(b)(6) motion to dismiss, the court must presume all of the factual allegations in the complaint are true and draw all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). "The court need not, however, accept unwarranted factual inferences." Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).

Even though a "complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations omitted). Instead, the plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). A complaint should contain enough facts "to state a claim to relief that is plausible on its face." Id. at 570. A claim becomes plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556). If, from the well-pleaded facts, the court cannot "infer more than the mere possibility of misconduct, the complaint has alleged - but has not show[n]' - that the pleader is entitled to relief.'" Id. at 1950 (citing Fed.R.Civ.P. 8(a)(2)). "Only a complaint that states a plausible claim for relief survives a motion to dismiss." Id.


Because Defendant has claimed there are several different bases are under which the Court should dismiss Plaintiffs' Complaint, the Court will address each in turn.

I. Subject-Matter Jurisdiction - Diversity

Defendant argues that Plaintiffs' Complaint should be dismissed due to a lack of subject-matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). (Docket No. 6, at 2.) Specifically, Defendant alleges that two of the properly-named defendant parties in the McCracken Circuit Court action are citizens of Kentucky, thereby violating the complete diversity requirement-even though those parties are not actually before the Court.

Defendant argues that Vaden v. Discover Bank, 556 U.S. 49 (2009), stands for the proposition "that, in cases involving arbitration questions, it is to the underlying controversy to which this Court must look regarding questions of subject-matter jurisdiction." The Federal Arbitration Act (FAA), 9 U.S.C. § 4, states:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

9 U.S.C.A. § 4 (emphasis added). Defendant emphasizes the bolded language, arguing the FAA requires that an independent basis in the underlying controversy to be arbitrated is necessary for subject-matter jurisdiction to exist. Both parties agree that federal-question is not a basis for jurisdiction here and that the dispute centers around whether or not complete diversity exists.

Defendant argues that no diversity jurisdiction exists because the parties to the underlying controversy in the McCracken Circuit Court are not diverse, while Plaintiffs argue that because the named parties in this present action are diverse, diversity jurisdiction does exist. As for Defendant's reliance on Vaden, Plaintiffs argue its analysis applies only to federal-question jurisdiction, not diversity of citizenship jurisdiction.

In Vaden a credit card company, Discover, asserted a state law claim to recover past-due charges from one of its credit cardholders. Vaden, 556 U.S. at 53. The holder counterclaimed, alleging Discover's finance charges, interest, and late fees violated state law. Id. Invoking an arbitration clause in its cardholder agreement, Discover filed a 9 U.S.C. § 4 petition in federal district court to compel arbitration of the holder's counterclaims, arguing they were preempted by federal law. Id.

The Supreme Court framed the question presented as:

Should a district court, if asked to compel arbitration pursuant to § 4, look through' the petition and grant the requested relief if the court would have federal-question jurisdiction over the underlying controversy? And if the answer to that question is yes, may a district court exercise jurisdiction over a § 4 petition when the petitioner's complaint rests on state law but an actual or potential counterclaim rests on federal law?

Vaden, 556 U.S. at 53. The Supreme Court ultimately held that a federal court may "look through" a § 4 petition and order arbitration if the court would have jurisdiction over the underlying controversy between the parties. Id. However, the Court found that the district court incorrectly compelled arbitration because the claims in the Complaint were based on state law and federal-question jurisdiction cannot be invoked on the basis of a defense or counterclaim under the well-pleaded complaint rule. Id. at 1254.

Plaintiffs correctly point out that Vaden concerned only federal-question jurisdiction and did not involve diversity jurisdiction. Plaintiffs assert that the "look through" analysis in Vaden is not applicable when diversity jurisdiction exists as an independent jurisdictional basis because "there is no support in the text of the Vaden decision (or in any other case) for such broad reaching conclusions." (Docket No. 7, at 4.) Plaintiffs rely on an Eighth Circuit case, Northport Health Services of Arkansas v. Rutherford, 605 F.3d 483 (8th Cir. 2010), involving circumstances similar to this case where the "look through" analysis was rejected in the context of the determination of diversity jurisdiction.

In Northport, state law claims were brought by the estates of deceased nursing home patient against a number of defendants, including administrator defendants who were not diverse. Id. at 485. Prior to being admitted to the nursing homes, the administrators had signed arbitration agreements. Id. The defendants, with the exception of the non-diverse administrators, petitioned the federal court for enforcement of the arbitration agreement based on diversity jurisdiction. Id.

The representatives opposed compelling arbitration, claiming that a federal court did not have diversity jurisdiction over a § 4 petition to compel arbitration of claims that were part of a pending state court action that includes one or more non-diverse parties not named in the § 4 petition. Northport, 605 F.3d at 485. The district court compelled arbitration concluding that, while Vaden addressed only federal-question jurisdiction, its "look through" analysis implicitly overruled prior federal cases compelling arbitration based upon diversity of citizenship. Id. at 485-86. The Eighth Circuit ultimately reversed the district court, concluding that while "some of the reasoning in Vaden supports the district court's rulings, we are not persuaded that Vaden implicitly overruled the otherwise on-point decisions in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983), and Advance America Servicing of Arkansas v. McGinnis, 526 F.3d 1170 (8th Cir. 2008)." Northport, 605 F.3d at 486.

While not binding, the Court is persuaded by the well-reasoned analysis in Northpoint. As the Eighth Circuit recognized, Defendant's argument for applying the "look through" analysis in this case distorts the Supreme Court's decision in Vaden. Northport, 605 F.3d at 488-89. It ignores that Vaden involved a federal-question, explicitly stated it was only applicable to federal-question cases, and that the circuit conflict it sought to resolve involved only federal-question cases. See Northport, 605 F.3d at 488-89. Vaden did not mandate a new analysis for § 4 diversity jurisdiction disputes. Furthermore, Moses H. Cone is persuasive because the Supreme Court found the independent basis of federal jurisdiction was diversity of citizenship, but the Court-despite noting the existence of a non-diverse party in the underlying state court action-did not address a would be defect in diversity jurisdiction based on Defendant's interpretation of Vaden. See Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 4-8 (1983). Therefore, as was recognized in Northport, Defendant's contention would require this Court to assume the Supreme Court "overlooked a serious diversity jurisdiction issue in Moses H Cone and then implicitly overruled Cone's jurisdictional underpinnings in Vaden. " Northport, 605 F.3d at 490. "The Supreme Court does not normally overturn, or so dramatically limit, earlier authority sub silentio. " Northport, 605 F.3d at 490 (citations omitted). Therefore, in this case, for purposes of determining if diversity of citizenship exists, we look only to the citizenship of the parties to the federal action.

i. Conclusion - Subject-Matter Jurisdiction Exists

The FAA bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties' dispute. Here, that independent basis exists because the parties before this Court are completely diverse.[3] As discussed above, the makeup of the parties in the underlying controversy is irrelevant for the determination of whether or not diversity jurisdiction exists. The determinative inquiry is the makeup of the parties before this Court. The parties presently before the Court, which does not include the administrators, are diverse. Therefore, this Court has subject-matter jurisdiction on the basis of diversity.

II. Indispensable Party Analysis

Defendant also moves to dismiss the Complaint for failure to join an "indispensable" party, pursuant to Federal Rule of Civil Procedure 12(b)(7) and 19.[4] (See Docket No. 6-1, at 17.) Federal Rule of Civil Procedure 19(a) states:

(a) Persons Required to Be Joined if Feasible
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subjectmatter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the ...

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