27 F. Supp. 3d 776
E.D. Ky.2014Background
- Teresa Stacy (as administratrix of Anna Stacy’s estate) sued nursing‑home defendants in Fayette Circuit Court for negligence arising from resident care at Homewood Residence. Plaintiffs (three corporate entities) then filed in federal court to compel arbitration and enjoin the state action under §4 of the Federal Arbitration Act (FAA).
- Plaintiffs invoked diversity jurisdiction; Stacy moved to dismiss asserting lack of subject‑matter jurisdiction, Colorado River abstention, and that the arbitration agreement is invalid.
- The challenged arbitration clause was a mandatory provision in the Residency Agreement (Section V), with separate subsections for arbitration (A), limitation of liability (B), and benefits/severability (C); the agreement emphasized waiver of a jury and advised consulting counsel.
- Stacy argued lack of diversity (due to alleged Kentucky citizenship of a plaintiff member), that the court must “look through” under Vaden to include non‑diverse staff member Terri Schneider, and that Schneider is a necessary/indispensable party under Rule 19.
- Stacy also argued the arbitration clause was unconscionable, against Kentucky public policy re: nursing homes, contained an invalid damages cap, was beyond the durable power of attorney signer’s authority, and that the FAA didn’t apply because the transaction was purely intrastate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject‑matter jurisdiction (diversity) | Diversity exists: defendant Kentucky citizen; plaintiffs foreign corporations with Tennessee PPB | One plaintiff allegedly has Kentucky‑citizen member; Schneider’s citizenship should be considered; Rule 19 joinder needed | Diversity adequate; defendant offered no proof plaintiff corporations were LLCs or Kentucky citizens; dismissal for lack of jurisdiction denied |
| Vaden/look‑through and Rule 19 (nonparty Schneider) | Federal action to compel arbitration may proceed without non‑diverse Schneider | Vaden requires looking through to the state case; Schneider is necessary and indispensable | Vaden’s look‑through limited to federal‑question context; Schneider is a necessary party but not indispensable under Rule 19(b); suit may proceed without her |
| Colorado River abstention (parallel state suit) | Plaintiffs: FAA favors compelling arbitration; federal forum appropriate and abstention not warranted | Stacy: federal court should abstain due to parallel state proceedings and comity | Court declines Colorado River abstention: most factors favor exercise of jurisdiction, especially FAA policy against avoiding piecemeal litigation |
| Enforceability of arbitration agreement & related defenses | Agreement is valid, severable from any invalid limitation on liability, covered by FAA, and agent had authority to sign | Agreement unconscionable, violates public policy re nursing homes, damages limitation invalid, agent exceeded POA, FAA inapplicable (no interstate commerce) | Arbitration clause enforceable under FAA and Kentucky law; limitations severable; agent had authority; FAA applies; defendant compelled to arbitrate and enjoined from prosecuting state action |
Key Cases Cited
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (FAA creates federal substantive law but does not by itself supply jurisdiction; federal courts should favor arbitration)
- Vaden v. Discover Bank, 556 U.S. 49 (U.S. 2009) (approves “look through” for §4 petitions only to determine federal‑question jurisdiction)
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (U.S. 2008) (court must have independent jurisdictional basis to hear §4 FAA petitions)
- Paine‑Webber, Inc. v. Cohen, 276 F.3d 197 (6th Cir. 2001) (Rule 19 indispensability analysis in arbitration‑compel context; favors proceeding without non‑diverse co‑defendant)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that single out arbitration agreements for disfavored treatment)
- Great Earth Cos., Inc. v. Simons, 288 F.3d 878 (6th Cir. 2002) (Anti‑Injunction Act and equitable standards govern federal injunctions to stay state‑court proceedings; principles for Colorado River abstention)