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Preferred Care, Inc. v. Aaron

United States District Court, E.D. Kentucky, Southern Division, London

August 3, 2017

PREFERRED CARE, INC., et al. PLAINTIFFS
v.
EDWARD AARON, as administrator of the Estate of Janis Aaron DEFENDANT

          MEMORANDUM OPINION AND ORDER

          David L. Bunning United States District Judge.

         Defendant Edward Aaron is the son of Janis Aaron, and the administrator of her estate. On November 15, 2016, the Defendant filed suit in Pulaski County Circuit Court against Preferred Care, Inc. and others, [1] who were responsible for Janis Aaron's care while she resided at Cumberland Nursing and Rehabilitation Center in Somerset, Kentucky. (Doc. # 1-2 at ¶ 1-3). The state-court complaint alleges claims for negligence, medical negligence, corporate negligence, and wrongful death. Id. at pp. 10-23.

         On December 8, 2016, the Plaintiffs in this action-Preferred Care, Inc.; Kentucky Partners Management, LLC; Preferred Care Partners Management Group, LP; and Somerset Health Facilities, LP (collectively “Plaintiffs”)-filed suit in federal court, seeking to compel arbitration and enjoin the state-court action because the parties executed an alternative dispute resolution agreement during Janis Aaron's stay at the nursing home. (Doc. # 1). The Defendant has moved to dismiss this action. (Doc. # 7). Plaintiffs having filed their Response (Doc. # 8), and the time for a Reply having passed, the motion is fully briefed and ripe for review.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Janis Aaron was a resident of Cumberland Nursing and Rehabilitation Center from November 8, 2012 until January 26, 2016. (Doc. # 1-2 at ¶ 3). Her son alleges that during her stay, Janis suffered infections, dehydration, falls that resulted in injuries, pressure sores, skin breakdown, and death. Id. at ¶ 22. In the state-court complaint, the Defendant claims that Preferred Care, Inc., the owner and operator of Cumberland Nursing and Rehabilitation Center, and the other associated entities, breached their duty to Janis and caused her injuries by “knowingly develop[ing] and maintain[ing] staffing levels at the facility without regard to patient acuity levels or the minimal time to perform the essential functions of providing care to Janis.” Id. at ¶ 27.

         On November 19, 2012, Edward Aaron, in his capacity as attorney-in-fact for Janis, signed an alternative dispute resolution agreement (the “Arbitration Agreement” or “Agreement”). (Docs. # 1-1 and 1-3). The Arbitration Agreement states that the parties have voluntarily and mutually agreed “that any disputes covered by [the] Agreement … that may arise between the Parties shall be resolved exclusively by an [alternative dispute resolution] process that shall include mediation and, where mediation does not successfully resolve the dispute, binding arbitration.” Id. at ¶ 3. The Agreement purports to bind the parties, as well as “their heirs, successors, and assigns, ” and requires the arbitration of “any and all disputes arising out of or in any way relating to [the] Agreement or to the Resident's stay at the Center that would constitute a legally cognizable cause of action in a court of law.” Id. at ¶¶ 1, 4. The Agreement claims to encompass “all claims in law or equity arising from one Party's failure to satisfy a financial obligation to the other Party; a violation of a right claimed to exist under federal, state, or local law or contractual agreement between the Parties; tort; breach of contract; fraud; misrepresentation; negligence; gross negligence; malpractice; death or wrongful death and any alleged departure from any applicable federal, state or local medical, health care, consumer or safety standards.” Id. at ¶ 4. The Agreement also provides that acceptance of its terms is not a condition of admission to or continued residence in the facility. Id. at ¶ 14.

         Despite the existence of the Arbitration Agreement, the Defendant filed suit in Pulaski County Circuit Court. (Doc. # 1-2). In response, Plaintiffs commenced this action in federal court, seeking to compel arbitration and asking the Court to enjoin the Defendant from further pursing his claims in state court. (Doc. # 1 at pp. 7-8). Now, Defendant moves to dismiss this action on three grounds: lack of subject-matter jurisdiction, Colorado River abstention, and failure to state a claim upon which relief can be granted. (Doc. # 7). The Court will address each of these arguments in turn.

         II. ANALYSIS

         A. Jurisdiction

         As a preliminary matter, the Court must first resolve the jurisdictional issues raised in Defendant's Motion to Dismiss. See Douglas v. E.G. Baldwin & Assocs., 150 F.3d 604, 607 (6th Cir. 1998) (“The first and fundamental question presented by every case brought to the federal court is whether it has jurisdiction to hear a case.”). Federal Rule of Civil Procedure 12(b)(1) “provides for the dismissal of an action for lack of subject matter jurisdiction.” Cartwright v. Garner, 751 F.3d 752, 759 (6th Cir. 2014). “A Rule 12(b)(1) motion for lack of subject matter jurisdiction can challenge the sufficiency of the pleading itself (facial attack) or the factual existence of subject matter jurisdiction (factual attack).” Id. (citing United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994)). “A facial attack goes to the question of whether the plaintiff has alleged a basis for subject matter jurisdiction, and the court takes the allegations of the complaint as true for purposes of a Rule 12(b)(1) analysis.” Id. In the context of a factual attack, however, the Court has “broad discretion with respect to what evidence to consider in deciding whether subject matter jurisdiction exists, including evidence outside of the pleadings, and has the power to weigh the evidence and determining the effect of that evidence on the court's authority to hear the case.” Id. at 759-60 (citing DLX, Inc. v. Kentucky, 381F.3d 511, 516 (6th Cir. 2004)). It is the Plaintiffs' burden to prove “that jurisdiction does in fact exist.” RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir, 1996)).

         It is well established that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., does not provide an independent basis for federal jurisdiction. Vaden v. Discover Bank, 556 U.S. 49, 59 (2009). Therefore, plaintiffs seeking to compel arbitration under the FAA must assert an independent source of subject-matter jurisdiction. In this case, Plaintiffs have invoked the Court's diversity jurisdiction pursuant to 28 U.S.C. § 1332, claiming that all of the Plaintiffs are citizens of Texas, the Defendant is a citizen of Kentucky, and the amount-in-controversy exceeds $75, 000.00. (Doc. # 1 at ¶¶ 2-8).

         There is no dispute regarding the parties' citizenship or the amount-in-controversy. Complete diversity of citizenship exists on the face of Plaintiffs' Complaint. However, the Defendant contends that the action is actually non-diverse, because named defendants in the state-court action, who are “necessary and indispensable parties, ” are Kentucky citizens. (Doc. # 7-2 at 2-9). Specifically, the Defendant claims that Jill Spurgeon, the administrator of Cumberland Nursing and Rehabilitation Center, is a “necessary and indispensable party” under Federal Rule of Civil Procedure 19, and that failure to join her in this action requires dismissal under Rule 12(b)(7).

         Rule 19 “establishes a three-step analysis for determining whether a case should proceed in the absence of a particular party.” PaineWebber, Inc. v. Cohen, 276 F.3d 197, 200 (6th Cir. 2001) (citing Keweenaw Bay Indian Cmty. v. Michigan, 11 F.3d 1341, 1345 (6th Cir. 1993)). “A court must first determine ‘whether a person is necessary to the action and should be joined if possible.'” Id. (quoting Soberay Mach. & Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 763-64 (6th Cir. 1999)). Under Rule 19(a), a party is “necessary” if:

the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may … leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

Fed. R. Civ. P. 19(a). Defendant's claims in the state-court action are directed at the corporate entities (Plaintiffs in this action), as well as the administrator Jill Spurgeon, and those claims are based on the same occurrence-alleged negligence at Cumberland Nursing and Rehabilitation Center. Moreover, the Arbitration Agreement, by its terms, governs claims against both the corporate entities and the administrator. (Doc. # 1-1 at ¶ 2(a)) (“'Center'” as used in this Agreement shall refer to the nursing facility, its employees, agents, officers, directors.”). If this Court and the Pulaski County Circuit Court were to reach “different conclusions regarding whether” the Arbitration Agreement applies to Defendant's claims against the corporate entities and the administrator, the Defendant “would be faced with inconsistent procedural remedies against the alleged joint tortfeasors.” PaineWebber, 276 F.3d at 201. Therefore, the administrator, Jill Spurgeon, is a “necessary party” under Rule 19(a).

         “If the party is deemed necessary for the reasons enumerated in Rule 19(a), the court must next consider whether the party is subject to personal jurisdiction and can be joined without eliminating the basis for subject matter jurisdiction.” PaineWebber, 276 F.3d at 200. The sole basis for subject-matter jurisdiction in this action is diversity of citizenship. The administrator is alleged to be a citizen of Kentucky; therefore, she is subject to personal jurisdiction and her “presence in this action would … eliminate complete diversity of citizenship” and “deprive the court of subject-matter jurisdiction.” Id. at 201-02.

         Therefore, the Court must consider the third and final step in this analysis - “whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed” because the absent party is “indispensable.” PaineWebber, 276 F.3d at 200. “Rule 19(b) lists four factors that a court must consider in determining whether a necessary party is also indispensable”:

First, the court must decide the extent to which “a judgment rendered in the person's absence might be prejudicial to the person or those already parties” to the action. The second factor requires the court to determine whether and to what extent it might be able to reduce or avoid the prejudice “by protective provisions in the judgment, by the shaping of relief, or other measures.” Rule 19(b)'s third consideration is “whether a judgment rendered in the person's absence will be adequate.” Finally, the court must assess “whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.”

Id. at 202 (internal citations omitted). “If a necessary party is not deemed indispensable pursuant to Rule 19(b), the potential party need not be joined and the action can proceed with the original litigants.” PaineWebber, 276 F.3d at 200-01.

         Consideration of the four factors dispels any contention that the administrator is an indispensable party. First, the only potential prejudice to the Defendant is based on “the potentially inconsistent legal obligations that might result from conflicting interpretations of the [Arbitration Agreement] by the state and federal courts.” PaineWebber, 276 F.3d at 202. But this prejudice is “minimal” and insufficient to support a finding that the administrator is an indispensable party. Id. “As an initial matter, the possibility of having to proceed simultaneously in both state and federal court is a direct result of [the Defendant's] decision to file a suit naming [the corporate entities] and [the administrator] in state court rather than to demand arbitration under the [Arbitration Agreement].” Id.

         Additionally, there is no indication that any judgment rendered in the administrator's absence would be inadequate. The Defendant claims that in the administrator's absence, complete relief cannot be obtained. (Doc. # 7-2 at 7). However, the possibility that Defendant would have to arbitrate his claims against the corporate entities, while proceeding against the administrator in state court, does not affect the adequacy of any judgment between the Defendant and the corporate entities.

         The final factor-the ability to litigate in the Pulaski County Circuit Court-is the only factor that weighs in favor of finding the administrator is an “indispensable party.” Nevertheless, the “existence of another forum does not, in and of itself, outweigh a plaintiff's right to the forum of his or her choice.” PaineWebber, 276 F.3d at 205 (internal citations omitted). Moreover, important policy considerations underlying the FAA, which require that federal courts remain available to enforce arbitration agreements in diversity cases, “weigh against the conclusion that [the administrator] is an indispensable party.” Id. at 205. “Any 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. Accordingly, the requirements of diversity jurisdiction have been met, the administrator is not an “indispensable party” in this action, and Plaintiffs' failure to join the administrator does not undermine this Court's jurisdiction.

         B. Abstention

         Federal courts have a “virtually unflagging obligation … to exercise the jurisdiction given them.” Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). Because the Court has subject-matter jurisdiction over this matter, the “[a]bdication of the obligation to decide [this case] can be justified” only if “exceptional circumstances” exist. Id. at 813. As a general rule, the pendency of an action in state court is no bar to proceedings concerning the same matter in federal court. Id. at 817. However, in exceptional circumstances, “a federal district court may abstain from exercising its subject matter jurisdiction due to the existence of a concurrent state court proceeding, based on ‘considerations of wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'” PaineWebber, 276 F.3d at 206 (quoting Colorado River, 424 U.S. at 817.)

         “The Supreme Court has identified eight factors … that a district court must consider when deciding whether to abstain from exercising its jurisdiction due to the concurrent jurisdiction of a state court.” Id. (citing Romine v. Compuserve Corp., 160 F.3d 337, 340-41 (6th Cir. 1998)). Those factors are:

(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 ...

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