Court Opinion

ID: 4257290
Source: CourtListenerOpinion
Date Created: 2018-03-22 18:00:34.222517+00
Date Added: 2024-06-11T14:45:49.018796
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 18a0150n.06

                                       Case No. 17-5963

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                                                               FILED
                                                                          Mar 22, 2018
GGNSC LOUISVILLE ST. MATTHEWS                     )                   DEBORAH S. HUNT, Clerk
LLC, dba Golden Living Center - St.               )
Matthews; GGNSC ADMINISTRATIVE                    )
SERVICES, LLC; GGNSC HOLDINGS,                    )       ON APPEAL FROM THE UNITED
LLC; GGNSC EQUITY HOLDINGS, LLC;                  )       STATES DISTRICT COURT FOR
GGNSC EQUITY HOLDINGS II, LLC;                    )       THE WESTERN DISTRICT OF
GOLDEN GATE NATIONAL SENIOR                       )       KENTUCKY
CARE,     LLC;   GOLDEN       GATE                )
ANCILLARY, LLC; GGNSC CLINICAL                    )
SERVICES, LLC; GPH LOUISVILLE ST.                 )
MATTHEWS, LLC                                     )
                                                  )
       Petitioners-Appellants,                    )
                                                  )
v.                                                )
                                                  )
WALLACE BADGETT, as Administrator of              )
the Estate of Joseph Badgett, Deceased,           )
                                                  )
      Respondent-Appellee.                        )
____________________________________

Before: MERRITT, CLAY, and SUTTON, Circuit Judges

       MERRITT, Circuit Judge. The district court phrased this issue of first impression
exactly as we would: “When a patient signs an arbitration agreement at one nursing home, but
later disclaims an identical agreement at a facility owned by the same parent company, may the
first agreement be enforced?” GGNSC Louisville St. Matthews, LLC v. Badgett, No. 3:17-CV-
00188-TBR, 2017 WL 3097534, at *3 (W.D. Ky. July 20, 2017). Because the second arbitration
agreement here constituted a novation of the first agreement and clearly expressed the intent of
Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

the parties, we hold that no valid agreement to arbitrate exists and AFFIRM the judgment of the
district court.

                    I. FACTUAL AND PROCEDURAL BACKGROUND

        Joseph Badgett was admitted to Golden LivingCenter (“GLC”) Mt. Holly, a nursing
home in Louisville, Kentucky owned by Golden Gate National Senior Care (“GGNSC”), LLC
and its related entities, in June 2013. He signed an admissions agreement and an optional
Alternative Dispute Resolution Agreement (“Mt. Holly arbitration agreement”) as part of his
paperwork. The Mt. Holly arbitration agreement stated that it “is entered into by GLC – Mt.
Holly, (‘Facility’), and Joseph Badgett.”       “Facility” is defined as “the living center, its
employees, agents, officers, directors, affiliates and any parent or subsidiary of Facility.” It goes
on to say that “[i]t is the intent of the Parties that this Agreement shall inure to the benefit of,
bind, and survive them, their successors, and assigns.” Unless the agreement is revoked in
writing within 30 days, the agreement “shall remain in effect for all care and services rendered to
the Resident at or by the Facility regardless of whether the Resident is subsequently discharged
and readmitted to the Facility without renewing, ratifying, or acknowledging this Agreement.”

        The Mt. Holly arbitration agreement required any “Covered Disputes” between the
parties to be resolved by mediation or arbitration. “Covered Disputes” include “any and all
disputes arising out of or in any way relating to this Agreement or to the Resident’s stay at the
Facility or the Admissions Agreement between the Parties.” Upon execution, the agreement
“becomes part of the Admission Agreement” and is “governed by the Federal Arbitration Act.”
Badgett and a GLC Mt. Holly representative both agreed to arbitration and signed on the last
page. Badgett did not revoke the agreement.

        It is unclear how long Badgett resided at GLC Mt. Holly; however, he was admitted to
the hospital by January 2015. He also lived at his home and a non-GGNSC nursing home at
times. In September 2015, he was admitted to GLC St. Matthews, another GGNSC facility,
where he remained until he died on February 16, 2016.

        Upon admission to GLC St. Matthews, Badgett executed two documents, an admissions
agreement and another Alternative Dispute Resolution Agreement (“St. Matthews arbitration
agreement”). The first document, an admissions agreement, contained the following provision:

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

       XI. Entire Agreement
       This Agreement and the Notices given to you upon admission constitute the entire
       Agreement between you and us for the purposes of your admission to our
       LivingCenter. There are no other agreements, understandings, restrictions,
       warranties or representations between you and us as a condition of your admission
       to our LivingCenter. This Agreement supersedes any prior admission contracts
       regarding your admission to our LivingCenter. However, if you execute, or have
       executed, an Alternative Dispute Resolution Agreement with us in connection
       with any admission to our LivingCenters, then that Agreement shall be, and
       remain, binding upon you, and upon us, in accordance with the terms that are set
       forth in that Agreement.

       The second document, the St. Matthews arbitration agreement, was identical to the Mt.
Holly agreement, except that “GLC, St. Matthews” is substituted as the “Facility” and on the last
page it offered the resident a choice of whether to accept or decline arbitration. Badgett signed
below the line stating, “The Alternative Dispute Resolution Agreement above set forth is hereby
DECLINED.”

       After Badgett’s death, Wallace Badgett, as administrator of Badgett’s estate, brought a
negligence and wrongful death action in Kentucky state court against several GGNSC-related
entities, nursing home administrators, and John Doe defendants. GGNSC then filed an action in
federal district court seeking to compel arbitration of the state court action, to stay the state court
action pending arbitration proceedings, and to enjoin the estate from further pursuing its claims
in state court. In support, GGNSC relied upon the Mt. Holly arbitration agreement that Badgett
signed in June 2013 and contended that it remained binding. In response, the estate moved to
dismiss the action, arguing that the Mt. Holly agreement did not require the estate to arbitrate
claims arising from Badgett’s stay at St. Matthews and that the St. Matthews admissions
documents applied.

       The district court held that the St. Matthews arbitration agreement constituted a novation
of the prior contract and found that no valid arbitration agreement existed between the parties.
Accordingly, it denied GGNSC’s motion to compel arbitration and granted the estate’s motion to
dismiss. GGNSC appeals.

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

                                         II. ANALYSIS

       We review de novo a district court’s decision on whether to compel arbitration pursuant
to the Federal Arbitration Act. Burden v. Check Into Cash of Ky., LLC, 267 F.3d 483, 487 (6th
Cir. 2001). GGNSC argues on appeal that the district court erred when it failed to (1) apply the
liberal federal policy favoring arbitration, (2) hold the estate to its heavy burden in establishing
that the first arbitration agreement was revoked, (3) enforce the unambiguous agreement
according to its terms, (4) resolve any doubts in favor of arbitration even if the agreement was
ambiguous, and (5) recognize that the elements of a novation were not met.

A. The Federal Arbitration Act

       The Federal Arbitration Act (“the Act”) makes arbitration agreements “valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. There is a “liberal federal policy favoring arbitration” and “any doubts
concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). “[C]ourts must place
arbitration agreements on an equal footing with other contracts, and enforce them according to
their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citations omitted).
Because arbitration agreements are fundamentally contracts, we review the enforceability of an
arbitration agreement according to the applicable state law of contract formation. First Options
of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

       GGNSC correctly argues that the law favors arbitration agreements. Notwithstanding
this, “arbitration is a matter of contract and a party cannot be required to submit to arbitration
any dispute which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior &
Gulf Nav. Co., 363 U.S. 574, 582 (1960). Therefore, we must apply Kentucky law to determine
whether the Mt. Holly arbitration agreement is enforceable.

B. Kentucky Contract Law Determines Which Contract Governs

       “The court must determine whether the dispute is arbitrable, meaning that a valid
agreement to arbitrate exists between the parties and that the specific dispute falls within the
substantive scope of the agreement.” Mazera v. Varsity Ford Mgmt. Servs., LLC, 565 F.3d 997,
1001 (6th Cir. 2009) (internal quotation marks omitted). “Moreover, ‘[i]n the absence of any
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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

express provision excluding a particular grievance from arbitration . . . only the most forceful
evidence of a purpose to exclude the claim from arbitration can prevail.’” Nestle Waters N. Am.,
Inc. v. Bollman, 505 F.3d 498, 503 (6th Cir. 2007) (emphasis added) (quoting AT & T Techs.,
Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986)).

       It is undisputed that the Mt. Holly arbitration agreement was entered into by the parties
and broadly covers any disputes that arise. Therefore, GGNSC is correct that because a valid
agreement exists, Badgett has a heavy burden of rebutting this agreement. GGNSC argues that
because the Mt. Holly arbitration agreement is unambiguous, it should be enforced according to
its terms. While it is a fundamental principle of Kentucky contract law that unambiguous
agreements should be strictly enforced, Ky. Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d
691, 694 (Ky. 2016), this argument fails to consider the existence of the St. Matthews arbitration
agreement. The question we must first answer is which arbitration agreement applies.

       In Veech v. Deposit Bank of Shelbyville, the Court of Appeals of Kentucky, then the
state’s highest court, stated that, “[d]ifferent instruments relating to and constituting a part of the
same transaction may be interpreted together in determining the intention of the parties.” 128
S.W.2d 907, 913 (1939). The Restatement agrees that “[a] writing is interpreted as a whole, and
all writings that are part of the same transaction are interpreted together.” Restatement (Second)
of Contracts § 202(2) (1981) (emphasis added).

       The St. Matthews admissions agreement “supersedes any prior admissions contracts
regarding your admission to our LivingCenter.” Therefore, the Mt. Holly admissions agreement
is not at issue. The St. Matthews admissions agreement goes on to state that, “if you execute, or
have executed, an Alternative Dispute Resolution Agreement with us in connection with any
admission to our LivingCenters, then that Agreement shall be, and remain, binding upon you,
and upon us, in accordance with the terms that are set forth in that Agreement.” Thus, because
Badgett previously agreed to arbitration at Mt. Holly, another GGNSC facility, that election
would seemingly remain binding in perpetuity, even though he was later admitted to a different
GGNSC facility. Our analysis would end here if not for the existence of the St. Matthews
arbitration agreement.

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

       GGNSC presented Badgett with an arbitration agreement that was identical to the Mt.
Holly arbitration agreement upon his admissions to St. Matthews. However, the St. Matthews
arbitration agreement contains two signature lines—one for the resident to accept arbitration, and
one to decline it. Therefore, it offers the resident a choice of whether to submit to arbitration or
not, and Badgett signed below the signature line declining arbitration. A representative from
GGNSC also signed. The St. Matthews arbitration agreement became part of the admissions
agreement upon execution.

       The St. Matthews admissions agreement supersedes the Mt. Holly admissions agreement,
but incorporates both arbitration agreements and allows them both to remain binding. The
arbitration agreements are thus a part of the same transaction, and we find that the parties
intended to incorporate both arbitration agreements into the contract as a whole. We consider
both along with the St. Matthews admissions agreement.             The St. Matthews admissions
agreement effectively says that if a resident agreed to arbitrate in the past, he must also arbitrate
in the future. Contrary to this, the St. Matthews arbitration agreement offers the resident a
choice of whether to arbitrate or not. We agree with the district court that these readings are
inconsistent when read together. The district court did not decide whether this conflict amounted
to an ambiguity because it found a “simpler route.” It concluded that “[e]ven if the GLC Mt.
Holly arbitration agreement was effective to bind Badgett to arbitrate in perpetuity, the GLC St.
Matthews arbitration agreement constitutes a novation of the prior contract.” GGNSC Louisville
St. Matthews, LLC, 2017 WL 3097534, at *4.

C. Whether a Novation Is Effectuated

       We now consider whether a novation occurred. “[A] novation is the entering into a new
contract which takes the place of the original one and in which it is merged and extinguished.”
White/Reach Brannon RD., LLC v. Rite Aid of Ky., Inc., 488 S.W.3d 631, 636 (Ky. Ct. App.
2016). If the new contract’s terms expressly rescind the old one, it is an express novation.
Combs v. Morgan, 211 S.W.2d 821, 825 (Ky. 1948).                An implied novation takes place
“whenever the new contract is manifestly in place of or inconsistent with a former one, or which
renders a former contract impossible of performance.” Id. (internal quotations and citation

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

omitted).    A “novation relieves parties of the obligations thereunder and results in a new
agreement.” Wells Fargo Fin. Ky., Inc. v. Thomer, 315 S.W.3d 335, 339 (Ky. Ct. App. 2010).1

        The elements of a novation are “(1) parties; (2) a meeting of the minds; and (3) a
consideration.” Daviess Cty. Bank & Tr. Co. v. Wright, 110 S.W. 361, 363 (Ky. 1908). “[I]ntent
is the controlling element . . . and unless the transaction was intended to extinguish the old
obligation by substituting the new one therefor, a novation is not effected.” Clark v. Thompson,
219 S.W.2d 22, 28 (Ky. 1948) (quoting N. W. Mut. Life Ins. Co. v. Eddleman, 56 S.W.2d 561,
562 (Ky. 1932)). “[T]he intent of the parties to enter into a novation may be inferred when the
new contract renders the former contract impossible to perform.” White/Reach Brannon RD.,
LLC, 488 S.W.3d at 638. The burden of proving novation is on the party asserting it. Kirby v.
Scroggins, 246 S.W.2d 453, 455 (Ky. 1952).

        The issue before us is whether the St. Matthews arbitration agreement constitutes a
novation of the Mt. Holly arbitration agreement. As the district court recognized, novation
typically occurs in the context of a mortgage and is used to alter the parties to the contract or to
effect a material change in the parties’ bargain. Despite this, there is no rule that novation cannot
apply in these circumstances if the elements are satisfied.

        Both parties signed the agreements. Badgett’s intent is evident. He agreed to arbitrate
when GGNSC presented him with an optional arbitration agreement at Mt. Holly. However,
when presented with an identical arbitration agreement at St. Matthews two years later, he signed
below the line stating, “The Alternative Dispute Resolution Agreement above set forth is hereby
DECLINED.” Thus, when presented with the same choice upon his admission to another
GGNSC facility, he rejected arbitration and wished to have access to the courts should any
dispute arise.

        Turning to GGNSC’s intent, it too agreed to arbitrate in the Mt. Holly arbitration
agreement. That election remained binding on both parties up until GGNSC presented Badgett
with the St. Matthews arbitration agreement. However, by presenting Badgett with the second
arbitration agreement upon his admission to St. Matthews, GGNSC offered Badgett the same
choice it offered him at Mt. Holly of whether to arbitrate or not. The agreement contained two
1
 Cf. Restatement (Second) of Contracts §§ 279, 280 (1981) (addressing discharge by means of substituted contracts
and substituted parties).

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

signature lines, one where the resident could accept arbitration and one where he could decline it.
GGNSC could have easily refrained from presenting Badgett with a second arbitration agreement
if it intended the first agreement to remain binding. By offering Badgett a choice, GGNSC
indicated its intent to extinguish the first agreement by substituting it with a new agreement.

       We are unpersuaded by GGNSC’s assertion that the offering of the second arbitration
agreement meant nothing because the first agreement remained binding forever.                     This
construction would be contrary to the fundamental rule that a written agreement should “be
construed as a whole, giving effect to all parts and every word in it if possible.” City of Louisa v.
Newland, 705 S.W.2d 916, 919 (Ky. 1986). The proper interpretation of GGNSC’s objective
intent is that it again offered Badgett the choice of whether to submit to arbitration. Badgett
elected to litigate any disputes by signing below the line declining arbitration. See Messick v.
Powell, 236 S.W.2d 897, 899–900 (Ky. 1951) (“[W]here a party makes an offer and another acts
upon it, the party making the offer is bound to perform his promise.”); Gen. Steel Corp. v.
Collins, 196 S.W.3d 18, 21 (Ky. Ct. App. 2006) (holding that buyer’s obliteration of arbitration
provision in contract offer eliminated the provision from the agreement).

       GGNSC also argues that no new arbitration agreement was formed because no new
obligation replaced any existing obligation and there was no consideration exchanged. In the
second arbitration agreement, both parties substituted their prior obligation to arbitrate disputes
with a new agreement that allowed them to litigate disputes. Each party relinquished their right
to arbitrate by entering into a new agreement wholly inconsistent with the original agreement.
Also, it is well-established that valuable consideration does not need to be money or things of
pecuniary value, but “may [be] the doing of something without legal obligation so to do, or
refraining from doing something that might be legally done; or anything of benefit to one or of
detriment, loss, or inconvenience to the other.” Dorman v. Carnes, 96 S.W.2d 869, 875 (Ky.
1936). Here, the parties entered into the Mt. Holly arbitration agreement that required them to
refrain from doing something that might be legally done, which was litigating any disputes that
arose. When they subsequently entered into the St. Matthews arbitration agreement, each gave
up their contractual obligation to arbitrate. They could not litigate disputes up until that point.

       Similarly, we are not moved by GGNSC’s argument that any ambiguity should be
resolved in favor of arbitration because that argument does not take into account the first step of

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Case No. 17-5963, GGNSC Louisville St. Matthews LLC v. Badgett

determining whether the parties agreed to arbitrate a dispute and the scope of the agreement. Of
course, “[w]hile ambiguities in the language of the agreement should be resolved in favor of
arbitration, we do not override the clear intent of the parties, or reach a result inconsistent with
the plain text of the contract, simply because the policy favoring arbitration is implicated.”
EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (internal citations omitted). The intent of
the parties is apparent here, and disregarding that intent would be improper as a matter of
contractual interpretation even in light of the policy favoring arbitration. “Arbitration under the
Act is a matter of consent, not coercion.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489. U.S. 468, 479 (1989); cf. Glazer v. Lehman Bros., 394 F.3d 444, 460 (6th Cir.
2005) (“[A] fundamental concept of contract law [states] that parties may agree to discharge or
terminate a contract in favor of creating a second agreement to replace the former, and, when that
occurs, the initial agreement is superseded and is no longer enforceable as to any party thereto.”).

        In sum, the second agreement constitutes an implied novation because it is manifestly
inconsistent with the first agreement and rendered it impossible of performance. The estate has
no obligation to arbitrate.

        Alternatively, we could affirm the district court without touching the question of
novation. As counsel reminded us at oral argument, Badgett could unilaterally revoke the
arbitration agreement in writing within 30 days of signing. Another way of thinking about
Badgett’s signature on the St. Matthews arbitration agreement is that he exercised that right:
Within 30 days—indeed, within minutes—of signing the St. Matthews admissions agreement
(which renewed the Mt. Holly arbitration agreement), Badgett unilaterally withdrew any consent
to arbitrate.

                                      III. CONCLUSION

        No valid agreement to arbitrate exists between the parties. We AFFIRM the denial of
the motion to compel arbitration and the granting of the motion to dismiss.

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