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Life Care Centers of America, Inc. v. Estate of Blair

United States District Court, D. New Mexico

August 9, 2017

ESTATE OF JEWEL BLAIR, Deceased, By and through Personal Representative DAVID RHODEN, Defendant.


         THIS MATTER is before the Court on Plaintiff's Motion and Memorandum of Law in Support of Its Motion to Compel Arbitration, filed on March 11, 2017 (Doc. 5), and Defendant's Motion to Dismiss, filed on March 24, 2017 (Doc. 13). Pursuant to 28 U.S.C. § 636(c) and Fed.R.Civ.P. 73(b), the parties have consented to me serving as the presiding judge and entering final judgment. See Docs. 7, 11. The Court has heard oral argument on this matter (see Doc. 31), and has given due consideration to the record, submissions of counsel, and relevant law. The Court finds that Plaintiff has established that diversity jurisdiction exists in this matter and that this Court should exercise its discretion and grant Plaintiff's request to compel arbitration of the underlying dispute between the parties to this action.

         I. Background

         Ms. Jewel Blair, now deceased, was admitted to Life Care Center of Farmington (the “Facility”), a 24-hour nursing facility, on October 13, 2006. Doc. 1-5 (State First Am. Compl.) ¶ 22. Ms. Blair designated her son, Mr. David Rhoden, to serve as her general power of attorney on June 19, 2006. Docs. 1 (Compl.) ¶ 6; 1-1. Mr. Rhoden signed the forms necessary to admit his mother to the Facility on October 13, 2006. See Docs. 1-2; 1-3. Relevant to this Motion, Mr. Rhoden signed the Voluntary Agreement for Arbitration (the Arbitration Agreement). Doc. 1-2.

         The Arbitration Agreement provides:

The following is an agreement (the “Arbitration Agreement”) to arbitrate any dispute that might arise between Jewel Blair (the “resident”) and LCC of Farmington (the “Facility”). (“Facility” includes the particular facility where the Resident resides and Life Care Centers of America, Inc.) . . .
The parties agree that they shall submit to binding arbitration all disputes against each other and their agents, partners, officers, directors, shareholders, owners, employees, representatives, members, fiduciaries, governing bodies, subsidiaries, parent companies, affiliates, insurers, attorneys, predecessors, successors and assigns, or any of them, and all persons, entities or corporations with whom any of the former have been, are now or may be affiliated, arising out of or in any way related or connected to the Resident's stay and care provided at the Facility, including but not limited to any disputes concerning alleged personal injury to the Resident caused by improper or inadequate care, including allegations of medical malpractice; any disputes concerning whether any statutory provisions relating to the Resident's rights under New Mexico law were violated; and any other dispute under New Mexico or federal law based on contract, tort, or statute. . . .
All claims based in whole or in part on the same incident, transaction, or related course of care or services provided by the Facility to the Resident, shall be arbitrated in one proceeding.

Doc. 1-2 at 1, 2.

         Plaintiff contends that Ms. Blair suffered injuries, pain, and suffering while in the Facility's care. State First Am. Compl. ¶¶ 27-33. Ms. Blair eventually passed away, allegedly as a result of the inadequate care and treatment she received at the Facility. Id. ¶ 33. Mr. Rhoden was appointed personal representative of Ms. Blair's estate and filed the First Amended Complaint in the Eleventh Judicial District Court, County of San Juan, State of New Mexico, on September 2, 2016, which includes a claim for wrongful death. See Id. at 1, ¶ 2.

         Mr. Rhoden named five defendants in his First Amended Complaint: Life Care Centers of America, Inc., a Tennessee Corporation (“Life Care”), the Farmington Facility, Ms. Sandra Emily Rowe, Administrator, Ms. Brenda Carley-Dostaler, Administrator, and Ms. Sandra K. Valentine, LPN (collectively, “state court defendants”). See Id. at 1. All of the named defendants in the state case are represented by the same attorneys as Plaintiff in this case. See Doc. 13 at 18-19; see also Doc. 13-B (“Defendants, Farmington Operations, LLC, d/b/a Life Care Center of Farmington, Life Care Centers of America, Inc., Sandra Emily Rowe, Brenda Carley-Dostaler, and Sandra K. Valentine (‘Defendants') by and through their attorneys of record Modrall Roehl Harris & Sisk, P.A. (Michelle A. Hernandez and Tomas J. Garcia)”).

         In their October 6, 2016 Answer to Mr. Rhoden's First Amended Complaint, the state court defendants did not specifically assert arbitration as an affirmative defense in their answer. See Doc. 13-B; see also Doc. 13 at 18. Defendants do reference here, however, the eleventh affirmative defense set forth in their Answer which states that “federal law preempts any conflicting state law and state statutory law preempts any conflicting state common law.” Doc. 13-B at 4.

         In addition to some discovery practice in the underlying dispute (detailed later in Section III.C), the parties also stipulated to a scheduling order in state court that was entered on December 16, 2016. Doc. 13-N. The state court presiding judge held a scheduling conference at which the judge set the case for trial in 2018. Doc. 13 at 19; see also Doc. 13-O.

         Only one of the five named defendants, Life Care of America, filed the instant Complaint to Compel Arbitration in this federal district court on February 21, 2017. See Compl. The Estate opposes Life Care's Motion to Enforce the Arbitration Agreement filed on March 11, 2017 (Doc. 5), and has responded by filing a Motion to Dismiss on March 24, 2017. Doc. 13.

         II. Legal Standard

         A. Motion to Compel Arbitration Standard

         In determining whether the parties agreed to arbitrate, the Court “must give ‘the opposing party the benefit of all reasonable doubts and inferences that may arise.'” Fundamental Admin. Servs., LLC v. Patton, 504 F. App'x 694, 698 (10th Cir. 2012) (quoting DeArmond v. Halliburton Energy Servs., Inc., 81 P.3d 573, 576 (N.M. Ct. App. 2003) (internal quotation omitted); citing Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 978 (10th Cir. 2014) (“finding that a court may grant a motion to compel arbitration when, ‘viewing the facts in the light most favorable to the party opposing arbitration[, ]' it is clear that the parties actually agreed to arbitrate”) (citation omitted)).

         The Federal Arbitration Act (“FAA”) “provides a procedure for parties to compel arbitration . . . .” See 9 U.S.C. § 4. However, courts must first establish whether an enforceable agreement to arbitrate exists. Howard, 748 F.3d at 978. “The party attempting to compel arbitration carries the burden of demonstrating a valid arbitration agreement.” Id. (quoting Corum v. Roswell Senior Living, LLC, 248 P.3d 329, 331 (N.M. Ct. App. 2010) (internal citations omitted)). “When parties dispute the making of an agreement to arbitrate, a jury trial on the existence of the agreement is warranted unless there are no genuine issues of material fact regarding the parties' agreement.” Avedon Eng'g, Inc. v. Seatex, 126 F.3d 1283 (10th Cir. 1997) (citation omitted).

         Because “arbitration is a matter of contract, ” courts “apply state contract formation principles [in order to] decide whether or not the parties agreed to arbitrate.” Howard, 748 F.3d at 977 (quotation and citation omitted)). The New Mexico Uniform Arbitration Act, N.M. Stat. Ann. §§ 44-7A-1 through 44-7A-32 (“NMUAA”), “provides that an agreement to submit any controversy arising between the parties to arbitration is ‘valid, enforceable and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.'” Thompson v. THI of N.M. at Casa Arena Blanca, LLC, No. CIV 05-1331 JB/LCS, 2006 WL 4061187, at *4 (D.N.M. Sept. 12, 2006) (quoting N.M. Stat. Ann. § 44-7A-7(a)). “Similar to the federal courts' interpretation of the FAA, New Mexico courts have viewed the NMUAA as an expression of a public policy favoring arbitration.” Id. (citing United Tech. & Res., Inc. v. Dar Al Islam, 846 P.2d 307, 309 (N.M. 1993)). “In New Mexico, when the court finds that an arbitration agreement exists, then, in accordance with the NMUAA, the court has a duty to enforce the provisions of the agreement and order adherence to that arbitration agreement.” Id. (citing Bernalillo Cty. Med. Ctr. Emps. Ass'n Local 2370 v. Cancelosi, 587 P.2d 960, 961 (N.M. 1978)).

         B. Standard for Motions to Dismiss Under Rule 12(b)(1)

         “Federal courts are courts of limited jurisdiction; they are empowered to hear only those cases authorized and defined in the Constitution which have been entrusted to them under a jurisdictional grant by Congress.” Fishback v. HSBC Retail Servs. Inc., No. CIV 12-0533 JB, 2013 WL 3227458, at *7 (D.N.M. June 21, 2013) (quoting Henry v. Office of Thrift Supervision, 43 F.3d 507, 511 (10th Cir. 1994) (internal citations omitted)). “A plaintiff generally bears the burden of demonstrating the court's jurisdiction to hear his or her claims.” Id. (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998) (internal citation omitted)).

         A party may dispute the court's lack of subject-matter jurisdiction by filing a motion pursuant to Rule 12(b)(1). Id. Such motions “generally take one of two forms: (1) a facial attack on the sufficiency of the complaint's allegations as to subject-matter jurisdiction; or (2) a challenge to the actual facts upon which subject-matter jurisdiction is based.” Id. (quoting Ruiz v. McDonnell, 299 F.3d 1173, 1180 (10th Cir. 2002) (alteration in original, internal citation omitted)).

On a facial attack, a plaintiff is afforded safeguards similar to those provided in opposing a rule 12(b)(6) motion: the court must consider the complaint's allegations to be true. See Ruiz v. McDonnell, 299 F.3d at 1180; Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir. 1981). But when the attack is aimed at the jurisdictional facts themselves, a district court may not presume the truthfulness of those allegations. A court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1). In such instances, a court's reference to evidence outside the pleadings does not convert the motion to a Rule 56 [summary-judgment] motion.

Id. at *7-8 (quoting Hill v. Vanderbilt Capital Advisors, LLC, No. CIV 10-0133, 2011 WL 6013025, at *8 (D.N.M. Sept. 30, 2011) (internal quotation omitted)).

         III. Analysis

         Mr. Rhoden offers several theories in support of his Motion to Dismiss and his Response to Life Care's Motion to Compel: (1) the Court lacks subject matter jurisdiction; (2) the state court defendants are indispensable parties; (3) Life Care has waived its right to arbitrate; (4) equitable estoppel applies; and (5) the rules of the American Arbitration Association (AAA) render the Arbitration Agreement unenforceable. See Docs. 13; 14. The Court will begin by examining the issues relating to this Court's subject matter jurisdiction.

         A. This Court has diversity subject matter jurisdiction.

         “[T]he FAA does not itself confer subject matter jurisdiction.” 1mage Software, Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044, 1054 (10th Cir. 2006) (citations omitted). Indeed, Section 4 of the Federal Arbitration Act provides:

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. In other words, an action to enforce an agreement to arbitrate must have an independent basis for the federal court to exercise subject matter jurisdiction:

The Arbitration Act 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. . . . [T]here must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue.

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 (1983) (citations omitted).

         Here, Life Care premises enforcement of the arbitration agreement at issue on diversity of citizenship jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). It is uncontroverted that the named parties - Plaintiff Life Care and the Defendant Estate - are citizens of different states and the amount in controversy exceeds the requisite $75, 000 minimum.

         Historically, the Courts of Appeal have been “unanimous in looking only to the citizenship of the parties to the federal action” when determining the existence of diversity as the independent basis for subject matter jurisdiction. Northport Health Servs. of Ark., LLC v. Rutherford, 605 F.3d 483, 489 (8th Cir. 2010) (“Rutherford”).

         For instance, in Moses H. Cone, the Hospital had “entered into a contract for the construction of additions to the Hospital building.” 460 U.S. at 4. The contract between the Hospital and Mercury (the construction company) included an arbitration clause. Id. After substantial construction was completed, a dispute arose regarding delay and costs. Id. at 6. The Hospital filed a declaratory judgment action in state court, naming as defendants Mercury and the independent Architect, who had been hired by the Hospital to design and oversee the project. Id. at 7. Although the construction company was a citizen of a state different from the Hospital and therefore diverse, the Architect was not. See Id. at 7 n.4. Mercury then filed a § 4 petition against the Hospital in federal court to compel arbitration with the Hospital as contemplated by its contract. Id. at 7. The federal district court stayed that lawsuit pending resolution of the concurrent state-court action.

         The Supreme Court in Moses H. Cone examined whether the district court should have stayed the “federal suit out of deference to the parallel litigation brought in state court.” Id. at 13 (citing Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976)). Applying the Colorado River factors, the Court found “no showing of the requisite exceptional circumstances to justify the District court's stay.” Id. at 19. The Moses H. Cone Court thus rejected the trial court's “abdication” of its duty to exercise jurisdiction over the diversity action. See Id. at 14. In doing so, the Supreme Court noted that the Hospital “ha[d] two substantive disputes here - one with Mercury concerning Mercury's claim for delay and impact costs, and the other with the Architect, concerning the Hospital's claim for indemnity for any liability it may have to Mercury.” Id. at 20. In determining that the trial court was obliged to exercise its diversity jurisdiction over the § 4 petition, the Supreme Court did not examine whether the non-diverse Architect was a necessary and indispensable party pursuant to Rule 19.

         Mr. Rhoden nevertheless contends that this Court lacks subject matter jurisdiction over the instant § 4 petition because Life Care's Complaint does not represent the “whole of the controversy.” Doc. 13 at 3-11. Mr. Rhoden argues that if the court looks to the entire controversy encompassed in the state court case, federal jurisdiction would fall away because the remaining named state court defendants are non-diverse New Mexico citizens. In essence, Mr. Rhoden maintains that in order to compel arbitration, the federal court must have subject matter jurisdiction over the entire controversy, and he relies on the Supreme Court's reasoning in Vaden v. Discover Bank, 556 U.S. 49, 59 (2009), to support this position.

         In Vaden, the Supreme Court examined the above-cited language in 9 U.S.C. § 4 and determined that the issue presented was two-fold: (1) “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?” Vaden, 556 U.S. at 53. If the answer is yes, (2) “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?” Id. The Vaden Court determined that it was indeed necessary to perform a “look through” to the underlying controversy to ascertain an independent basis for federal-question subject matter jurisdiction. Id. It further found that, consistent with the well-pleaded complaint rule, federal jurisdiction cannot be exercised over a § 4 petition if the underlying claims rest on state law and only the counterclaim rests on federal law. Id. at 53-54.

         Since Vaden, state court plaintiffs have attempted to extend Vaden's reasoning to diversity-based § 4 petitions in an effort to preclude a federal court from issuing an order compelling arbitration. They have argued, as does Mr. Rhoden here, that federal jurisdiction over a diversity-based § 4 petition to compel arbitration is simply unavailable when a “look through” to the underlying controversy implicates non-diverse state court defendants.

         The Eighth Circuit has explicitly rejected this proposition. In the Rutherford case cited above, it set out to examine whether Vaden implicitly overruled prior decisions such as Moses H. Cone. Rutherford, 605 F.3d at 485-86. The underlying facts in Rutherford are similar to those here: a nursing home resident signed an admission agreement that included an arbitration clause. Id. at 485.[1] After the resident's death, the representative of the resident's estate filed tort claims in state court against the nursing home and its administrator. Id. The nursing home, but not the non-diverse administrator, filed a federal action to compel arbitration pursuant to 9 U.S.C. § 4, basing jurisdiction on diversity of citizenship between the nursing home and the state court plaintiff. Id. The representative did not contest the federal court's jurisdiction, and the parties proceeded to arbitration. Id.

         In the meantime, the Supreme Court decided Vaden. The estate's representative then moved to vacate the court's arbitration order and argued that “a federal court does not have diversity jurisdiction over a ยง 4 petition to compel arbitration of claims that are part of a pending state court action that ...

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