United States District Court, E.D. Kentucky, Central Division
BROOKDALE SENIOR LIVING INC. et al., Plaintiffs,
TERESA STACY, Administratrix of the Estate of Anna Stacy, Defendant
[Copyrighted Material Omitted]
For Brookdale Senior Living Inc., American Retirement Corporation, ARC Richmond Place, Inc., Plaintiffs: J. Peter Cassidy, III, Matthew Coleman Cocanougher, LEAD ATTORNEYS, Quintaros, Prieto, Wood & Boyer, P.A. - Lex, Lexington, KY.
For Teresa Stacy, Administratrix of the Estate of Anna Stacy, Executor defendant: Tyler Koch Forsythe, Wilkes & McHugh PA - Lexington, Lexington, KY.
OPINION & ORDER
KAREN K. CALDWELL, CHIEF UNITED STATES DISTRICT JUDGE.
This matter is before the Court on a motion by the three plaintiff corporations to compel arbitration and enjoin the defendant from pursuing her parallel suit in state court. (DE 7). Defendant Teresa Stacy, administratrix of the Estate of Anna Stacy, objects to the motion and has filed her own motion to dismiss. (DE 5). She contends that this Court lacks subject-matter jurisdiction; that it should abstain from hearing this action in light of the pending state-court matter; that the arbitration agreement at issue is invalid and unenforceable; and that the Court should not exercise its power to enjoin her from continuing the prosecution of her state-court action. For the following reasons, the Court will deny the defendant's motion to dismiss, and grant the plaintiffs' motion to compel arbitration and enjoin the defendant.
On July 30, 2013, Defendant Teresa Stacy filed a negligence suit in Fayette Circuit Court in Fayette County, Kentucky regarding the care and treatment of Anna Stacy during her residency at Homewood Residence at Richmond Place. See Teresa Stacy, Administratrix of the Estate of Anna Stacy, deceased v. Brookdale Senior Living, Inc., et al., Civil Action File No. 13-CI-03145 (Circuit Court of Fayette County, Ky., Division 9). The plaintiffs subsequently filed the instant suit on September 4, 2013, alleging that Stacy's claims in state court are subject to a binding arbitration agreement and she should be enjoined from proceeding any further with her state-court action. The plaintiffs invoke this Court's diversity jurisdiction and seek relief under the § 4 of the Federal Arbitration Act (FAA). Stacy, on the other hand, contends that the arbitration agreement is invalid and unenforceable. But perhaps more importantly, she submits that this Court lacks subject-matter jurisdiction, or in the alternative, the Court should abstain from hearing the present action under the doctrine of Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).
The arbitration agreement in this case was a mandatory component of Stacy's Residency Agreement for her stay at Homewood Residence. Section V of the
Residency Agreement was titled " Arbitration and Limitation of Liability Provision," which contained three subsections. On its face Section V purports to make severable any provisions the Court might deem unenforceable. It states that if " any of sub-sections A, B or C provided below, or any part thereof, be deemed invalid, the validity of the remaining sub-sections, or parts thereof, will not be affected." (DE 1-1, at 7).
Subsection A outlines the provisions of the arbitration agreement. The first sentence of Subsection A states the follow:
Any and all claims or controversies arising out of, or in any way relating to, this Agreement or your stay at the Community, excluding any action for eviction, and including disputes regarding interpretation of this Agreement, whether arising out of State or Federal law, whether existing or arising in the future, whether for statutory, compensatory or punitive damages and whether sounding in breach of contract, tort or breach of statutory duties, irrespective of the basis for the duty or the legal theories upon which the claim is asserted, shall be submitted to binding arbitration, as provided below, and shall not be filed in a court of law.
(DE 1-1, at 7). The next sentence in Subsection A states in bold text that " [t]he parties to this Agreement further understand that a jury will not decide their case." (DE 1-1, at 7).
Following Subsection A was the " Limitation of Liability Provision," which purports to limit the amount of damages each party would have to pay in the event of future litigation. This provision, marked as Subsection B, is distinct from the prior provisions outlining the arbitration requirements.
Finally, Subsection C is titled, " Benefits of Arbitration and Limitation of Liability Provisions." This subsection outlines what the parties agree are the benefits of the arbitration agreement and limitation of liability. It states that " [t]he parties' decision to select arbitration is supported by the potential cost-effectiveness and time-savings offered by selecting arbitration, which may avoid the expense and delay of judicial resolution in the court system." (DE 1-1, at 10). Significantly, at the end of Subsection C, and again in bold, emphasized text, the agreement states as follows:
The undersigned acknowledges that he or she has been encouraged to discuss this Agreement with an attorney.
The parties to this Agreement further understand that a jury will not decide their case.
(DE 1-1, at 10).
Stacy begins with several arguments as to why this Court must dismiss the case for lack of subject-matter jurisdiction. Although the plaintiffs seek to compel arbitration under § 4 of the FAA, this is not sufficient to create federal question jurisdiction. " The [FAA] is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 . . . or otherwise." Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25, n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Because of this, courts must have an independent jurisdictional basis for hearing a claim brought under § 4. Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581-82, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). The plaintiffs pleaded that this Court has subject-matter jurisdiction on the basis of complete diversity, as the defendant is a
citizen of Kentucky and the three corporate plaintiffs are not.
A. Diversity Jurisdiction
Stacy challenges the plaintiffs' claim of complete diversity on the grounds that at least one of the corporate entities is a limited liability corporation with a member who is a citizen of Kentucky. But her claim lacks even a scintilla of support: the complaint indicates that two of the plaintiffs are Delaware corporations and the third is a Tennessee corporation. All three of the plaintiffs have a principal place of business in Tennessee. Stacy does not indicate which corporation has one or more members residing in Kentucky; she does not indicate who those members might be; and she offers no proof that the plaintiff corporations are LLCs and subject to the alternative test for determining citizenship. Moreover, her own state-court complaint alleges that the three plaintiffs are foreign corporations. (DE 1-2, at 2-4). Claiming otherwise in her motion to dismiss without offering any evidence as support borders on a frivolous waste of the Court's and the plaintiffs' time.
B. The Effect of Vaden v. Discover Bank
The second argument for dismissal relates to the absence of Terri Schneider, an administrator at Homewood Residence, from the instant case. Schneider has been named as a defendant in Stacy's underlying state suit, but she is not a party in the present matter. Presumably, she has been left out so that the plaintiff corporations can seek enforcement of their arbitration agreement in federal court, as Schneider's Kentucky citizenship would destroy diversity jurisdiction. Stacy contends that the Court must consider Schneider's citizenship to determine diversity, either because the Court should " look through" to the underlying controversy--of which Schneider is a party--or because she is an indispensable party under Rule 19(b).
To support her first claim that this Court should " look through" to the underlying case when determining whether diversity jurisdiction exists, Stacy cites Vaden v. Discover Bank, 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009). In Vaden, Discover Bank sued a credit card holder in state court to recover past-due charges. The credit card holder filed a counterclaim, also asserting state-law claims. But Discover Bank believed these claims were preempted by federal law, and filed an action in federal district court to compel arbitration of the counterclaims. The Supreme Court held that the district court lacked jurisdiction because the federal issue arose within the context of the state-court counterclaim, and federal courts cannot consider counterclaims when assessing federal question jurisdiction. Accordingly, the Supreme Court directed district courts to " look through" the arbitration action and determine whether federal question jurisdiction exists based on the underlying state-court suit. Id. at 62.
Stacy submits that the logic of Vaden applies with equal force in cases resting on diversity jurisdiction. She argues that the Court should look through the instant action and determine whether it would have jurisdiction over the state suit, which includes the non-diverse Terri Schneider. The argument is not without its strong points. In Vaden, the Supreme Court explained that a district court has jurisdiction in cases arising under § 4 of 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
(emphasis added). One could plausibly read this language as requiring district courts to look at the entire controversy in the state court to determine if it has diversity jurisdiction.
But the Supreme Court limited its approval of the " look through" doctrine to cases involving federal question jurisdiction. The Court stated it
approve[s] the " look through" approach to this extent: A federal court may 'look through' a § 4 petition to determine whether it is predicated on an action that 'arises under' federal law; in keeping with the well-pleaded complaint rule . . . a federal court may not entertain a § 4 petition based on the contents, actual or hypothetical, of a counterclaim.
Id. at 62 (emphasis added). The Court did not include diversity jurisdiction in its holding, despite acknowledging that diversity jurisdiction exists as a separate method for bringing a claim under the FAA. See, for example, id. at 65 (describing federal question jurisdiction, diversity jurisdiction, and maritime jurisdiction as separate bases for federal subject-matter jurisdiction). See also Northport Health Servs. of Arkansas, LLC v. Rutherford, 605 F.3d 483, 490-91 (8th Cir. 2010) (noting that the Supreme Court " carefully limited its statement of the issues and holding to federal question jurisdiction" and " cited the circuit court cases creating the federal question conflict but did not cite any of the circuit court § 4 diversity cases" ).
At least one district court within this circuit has similarly noted that Vaden is limited to cases involving federal question jurisdiction. See Credit Acceptance Corp. v. Davisson, 644 F.Supp.2d 948, 953 (N.D. Ohio 2009) (noting that " the Vaden Court explicitly limited its holding to cases where the controversy underlying the § 4 petition involves federal-question jurisdiction" ). And in an opinion this Court finds persuasive, the Eighth Circuit Court of Appeals reached the same conclusion. See Northport Health, 605 F.3d 490-91. Accordingly, the ...