Opinion ID: 3169946
Heading Depth: 4
Heading Rank: 1

Heading: Concepcion: the test for preemption analysis.

Text: To determine whether the FAA preempts Ping, we apply the Supreme Court’s most recent test in Concepcion. The Court described two situations in which a state rule is preempted by the FAA. Concepcion, 563 U.S. at 341. First, “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” Id. Second, when a “doctrine normally thought to be generally applicable . . . is alleged to have been applied in a fashion that disfavors arbitration,” the court must determine whether the state law rule would have a “disproportionate impact” on arbitration No. 15-5062 Richmond Health Facilities, et al. v. Nichols Page 8 agreements. Id. at 341–42. This type of disproportionate impact “stand[s] as an obstacle to the accomplishment of the FAA’s objectives.” Id. at 343. We now determine whether Ping is preempted by the FAA under Concepcion’s two-level inquiry. b. Ping does not categorically prohibit arbitration of wrongful-death claims. Ping survives the first level of the Concepcion inquiry because it does not categorically prohibit arbitration of wrongful-death claims. Indeed, it only concludes that wrongful-death beneficiaries are not bound by agreements that are executed by the decedent. Ping, 376 S.W.3d at 599. Under Ping, nothing precludes those beneficiaries from entering into arbitration agreements. As Whisman explained, “wrongful death beneficiaries are free, as they always have been, to enter into arbitration agreements regarding their wrongful death claims.” Whisman, 2015 WL 5634309, at  n.7. Plaintiffs ignore this freedom of choice that wrongful-death beneficiaries have under Ping, and argue that Ping is similar to the state rule in Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012) (per curiam). Appellant Br. 13-14. Three negligence lawsuits were at issue in that case. Marmet, 132 S. Ct at 1202. In each one, a family member signed, on behalf of the decedent, an arbitration agreement with a nursing-home facility. Id. Under state public policy, however, an “arbitration clause in a nursing home admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.” Id. at 1203. In each case, the patient died and the family member sued the nursing home in state court. Id. The state supreme court concluded that the state public policy was not preempted and that the arbitration agreements were not enforceable. Id. The Supreme Court disagreed. Id. It held that the public policy ran afoul of the FAA as it was a “categorical” prohibition of “arbitration of a particular type of claim.” 4 Id. at 1204. 4 The Supreme Court remanded the case to the state court to determine whether the arbitration clauses under some of the agreements were “unenforceable under state common law principles that are not specific to arbitration and pre-empted by the FAA.” Marmet, 132 S. Ct. at 1204. No. 15-5062 Richmond Health Facilities, et al. v. Nichols Page 9 The key distinction between this case and Marmet centers on the identity of the parties to the relevant agreements. In Marmet, each family member signed the arbitration agreement on behalf of the decedent, and was thus a party to it. Id. at 1202. As a result, the Supreme Court “enforce[d] the bargain of the parties to arbitrate.” Id. at 1203. In contrast, no wrongful-death beneficiary signed the Agreement here—it was only Mr. Nichols himself. See Agreement, ¶ 1. Thus, Mr. Nichols’ wrongful-death beneficiaries never struck the bargain that the family members in Marmet did. Marmet, then, does not compel us to conclude that Ping is preempted. Accordingly, Ping survives the first level of inquiry under Concepcion. We next ascertain whether Ping is preempted under the second and “more complex” situation identified in Concepcion. Concepcion, 563 U.S. at 341. c. Ping does not disfavor arbitration agreements. Ping does not, as Plaintiffs contend, have a “disproportionate impact” on arbitration agreements. Id. Critically, Plaintiffs have not cited any case showing a Kentucky court’s enforcement of a contract against a wrongful-death beneficiary without the beneficiary being a party to it.5 Indeed, the Kentucky Court of Appeals, in holding that Ping does not unfairly single out arbitration agreements in violation of the FAA, recently reasoned that the court could “safely assume that if any Kentucky case directly supported [defendant’s] argument that Kentucky courts have previously enforced contracts against wrongful death beneficiaries without them 5 When pressed to provide such a case at oral argument, Plaintiffs’ counsel only cited Estate of Peters v. U.S. Cycling Federation, 779 F. Supp. 853 (E.D. Ky. 1991). In Peters, a decedent participated in a cycling race. Peters, 779 F. Supp. at 854. He died after sustaining injuries during the race. Id. His family sought to bring a wrongful-death claim against the organizers of the race, but the district court ruled that a decedent’s execution of a release form prohibited his wrongful-death beneficiaries from pursuing the action. Id. at 855. So, the release was enforceable against the beneficiaries in Peters. Id. But the arbitration agreement was not enforceable against the beneficiaries in Ping. To Plaintiffs, this “typifies the type of disparate treatment of arbitration agreements forbidden by the FAA.” Appellant Br. 16. Peters is not persuasive because it never considered whether the wrongful-death claim was independent of the decedent’s claims under Kentucky law, and never explained why the release was binding on the wrongful-death beneficiaries. Equally important, appellate courts in Kentucky have expressly disavowed Peters, showing that it has by no means become a cornerstone of Kentucky jurisprudence. See, e.g., Kindred Nursing Centers Ltd. P’ship. v. Cox, No. 2014-CA-000196-MR, 2015 WL 3525113, at  (Ky. Ct. App. June 5, 2015) (explaining that Peters was decided “without the benefit” of Ping); Paducah Health Facilities LP v. Newberry, No. 2013–CA–001980–MR, 2015 WL 6780406, at  (Ky. Ct. App. Nov. 6, 2015) (“Simply put, Peters’ lone, passing reference provides little fodder to criticize Ping, let alone establish Paducah Health’s theory that Ping represented a sea change in Kentucky law borne out of hostility to arbitration.”); see also K&T Enters., Inc. v. Zurich Ins. Co., 97 F.3d 171, 177 (6th Cir. 1996) (“[W]e are compelled to consider intermediate appellate court decisions as evidence of what a state’s highest court would do when faced with particular legal questions.”). No. 15-5062 Richmond Health Facilities, et al. v. Nichols Page 10 being parties to the contract at issue, [defendant] would have cited it.” Cox, 2015 WL 3525113, at . Wrongful-death beneficiaries are thus no more or less bound by a decedent’s agreement to arbitrate than they are by a decedent’s waiver of certain claims, selection of a forum to litigate disputes, or selection of the law governing an agreement. To illustrate, suppose that a decedent and the long-term facility enter into an agreement in which the parties select a Kentucky state court as the forum to litigate the wrongful-death claim. Under Ping, the wrongful-death beneficiary is not bound by this forum-selection clause because the decedent never had an interest in the claim itself. And because the beneficiary is not bound by the clause, the beneficiary could very well elect to arbitrate the wrongful-death claim instead—so long as the long-term facility agrees. Ping is thus indifferent to arbitration. Concepcion does not compel a different conclusion. In that case, an arbitration clause required customers to arbitrate disputes in an “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” Concepcion, 563 U.S. at 3336. But under a California Supreme Court case, such “class-action waivers” in adhesion contracts were unconscionable. Id. at 338. Applying this California rule, the district court concluded that the clause was invalid. Id. The Supreme Court disagreed, holding that California’s rule was preempted. Id. at 352. It relied on three reasons to reach that conclusion—all related to how the arbitration process would be burdened as a result of the California rule’s application. Id. at 348. First, the requirement of class arbitration “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” Id. Second, class arbitration itself requires procedural formality; the American Arbitration Association provides rules governing class arbitration that “mimic” the Federal Rules of Civil Procedure for class litigation. Id. at 349. Third, class arbitration “greatly increases risks to defendants[;]” if forced to engage in class arbitration, defendants will be “faced with . . . a small chance of a devastating loss” and will be “pressured into settling questionable claims.” Id. at 350. In essence, the California rule in Concepcion was preempted because it threatened to make arbitration more cumbersome, more costly, and more procedurally complicated. Ping, by contrast, does none of that. It merely interpreted a state statute, KRS 411.130, to determine who held an interest in a claim. There is no reason to think that Ping burdens arbitration in the same way that the California rule did in Concepcion. No. 15-5062 Richmond Health Facilities, et al. v. Nichols Page 11 Plaintiffs’ arguments that a disproportionate impact exists are not compelling. First, Plaintiffs argue that Ping “effectively nullifies” arbitration in the wrongful-death context. Appellant Br. 22. In support of this argument, Plaintiffs argue that “[i]t is impossible to identify all possible wrongful-death beneficiaries at the time a pre-dispute arbitration agreement is signed and the decedent is alive” because, as explained during oral argument, the class of purported wrongful-death beneficiaries is ever-evolving until the time the decedent dies. Id.; see also Golden Gate Nat’l. Senior Care, LLC v. Addington, No. 14-CV-327-JMH, 2015 WL 1526135, at  (E.D. Ky. Apr. 3, 2015). That might be the case. But Plaintiffs have not shown how Ping disfavors arbitration because those wrongful-death beneficiaries that exist at the time of a decedent’s death are still free to arbitrate their claims—that they could not be identified at the time the decedent signs the agreement makes no difference. See Whisman, 2015 WL 5634309, at  n.7 (criticizing Golden Gate). Plaintiffs next contend that a denial of arbitration would split causes of action, which further “interferes with fundamental attributes of arbitration.”6 Appellant Br. 23-24. Here, the district court compelled arbitration of all claims except for wrongful death, and stayed the proceedings until arbitration was complete. Plaintiffs argue that a consequence of this partial enforcement of the arbitration provision would result in “res judicata complications, dual track discovery, waste and duplication.” Id. It is improper to rely on res judicata considerations as a basis to force Defendant to arbitrate the wrongful-death claim. Plaintiffs’ position would force the wrongful-death beneficiaries to arbitrate a claim when they never agreed to do so, or to surrender their claim altogether. W.J. O’Neil Co. v. Shepley, Bulfinch, Richardson & Abbott, Inc., 765 F.3d 625, 631 (6th Cir. 2014). The law does not impose this Hobson’s choice on the beneficiaries. Requiring a party to arbitrate a claim when it never agreed to do so would be “apply[ing] res judicata in a way that subverts basic contract principles.” Id.; see also EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (“It goes without saying that a[n] [arbitration] contract cannot bind a nonparty.”); Volt Info. Scis, Inc. v. Bd. of Trs. of Leland Stanford Junior 6 Plaintiffs also argue that splitting up causes of action is prohibited as a matter of Kentucky law. Appellant Br. 23-24. (citing Coles’ Adm’x v. Illinois Cent. R.R. Co., 87 S.W. 1082, 1083 (Ky. 1905); Honaker v. Cecil, 1 S.W. 392 (Ky. 1886); Louisville Gas Co. v. Kentucky Heating Co., 134 S.W. 205 (Ky. 1911); Wood v. Sharp’s Adm’r, 166 S.W. 787 (Ky. 1914)). None of these cases, however, goes as far as Plaintiffs claim, and Plaintiffs cite no other legal authority in support of the proposition. No. 15-5062 Richmond Health Facilities, et al. v. Nichols Page 12 Univ., 489 U.S. 468, 479 (1989) (“Arbitration under the [FAA] is a matter of consent, not coercion . . . .”). With respect to Plaintiffs’ concerns about “dual track discovery” and duplication, the Supreme Court has acknowledged that splitting causes of action is inevitable in certain cases. See Moses, 460 U.S. at 20 (acknowledging the possibility of the plaintiff having to resolve its disputes in two forums—one in state court and one in arbitration—where one of the parties to the underlying dispute was not a party to the arbitration agreement). Plaintiffs’ preemption arguments are thus not persuasive.