RENDERED: JUNE 17, 2022; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2020-CA-1362-MR
LANDMARK OF IROQUOIS PARK REHABILITATION AND NURSING CENTER, LLC; A&M HEALTHCARE INVESTMENTS LLC; 900 GAGEL AVENUE LLC (SUBSTITUTED DEFENDANT FOR 945 WEST RUSSELL STREET LLC); STRAWBERRY FIELDS REIT LLC; STRAWBERRY FIELDS MANAGEMENT SERVICE LLC; BENCHMARK HEALTHCARE CONSULTANTS LLC; INFINITY HEALTHCARE MANAGEMENT CONSULTING OF KENTUCKY LLC; JOSEPH MEISELS; RAYMOND BELL, IN HIS CAPACITY AS ADMINISTRATOR OF LANDMARK OF IROQUOIS PARK REHABILITATION AND NURSING CENTER; AND CATHY ALLEN, IN HER CAPACITY AS ADMINISTRATOR OF LANDMARK OF IROQUOIS PARK REHABILITATION AND NURSING CENTER APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE MITCH PERRY, JUDGE ACTION NO. 20-CI-000237
JOSEPH P. GILL JR., AS ADMINISTRATOR OF THE ESTATE OF BARBARA S. GILL, DECEASED; AND 945 WEST RUSSELL STREET LLC APPELLEES OPINION AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE: ACREE, CETRULO, AND TAYLOR, JUDGES.
ACREE, JUDGE: Appellant, Landmark of Iroquois Park Rehabilitation and
Nursing Center, LLC (“Landmark”), and others1 appeal from the Jefferson Circuit
Court’s October 1, 2020, Order denying their motion to compel arbitration.
Following a careful review of the record and the law, we affirm in part, reverse in
part, and remand with instructions as set forth more fully herein.
I. FACTUAL AND PROCEDURAL BACKGROUND
Barbara S. Gill’s adult son, Joseph P. Gill, as her attorney-in-fact,
executed a Voluntary Arbitration and Limitation of Liability Agreement
(“Agreement” or “Arbitration Agreement”) attendant with Ms. Gill’s admittance to
Georgetown Manor, a skilled nursing facility. 2, 3 When Ms. Gill was admitted on
1 Unless otherwise noted, “Appellants” as used in this Opinion refers collectively to all appellants herein. “Appellee” or “Mr. Gill” refers to Joseph P. Gill, as Administrator of the estate of Barbara S. Gill, deceased. 2 Mr. Gill’s authority to execute the Agreement on behalf of Ms. Gill is not at issue. The Amended Complaint alleges Ms. Gill was of unsound mind at all relevant times. (Amended Complaint, para. 4, Record (“R.”) 381.) 3 The Agreement provides:
Signing this Agreement is not mandatory. The Resident will receive the same quality care and treatment at the Facility whether he or she signs this Agreement or not.
-2- January 19, 2016, Georgetown Manor was operated by AHF Kentucky-Iowa, Inc.
(“AHF”), which is not a party to this action. Ms. Gill remained a resident until
March 18, 2019, three days before her death. (R. 381, 404.)
On July 16, 2018, AHF entered into an Operations Transfer
Agreement (“OTA”) with Landmark. (R. at 798.)4 After Ms. Gill passed away on
March 21, 2019, Mr. Gill, in his capacity as Administrator of Ms. Gill’s estate,
brought in the Jefferson Circuit Court a complaint against Appellants alleging their
negligence caused Ms. Gill personal injury.5 Appellants filed a joint motion to
compel arbitration, which was denied by order entered October 1, 2020. Therein,
the circuit court determined the Agreement was unenforceable on several grounds:
first, the Appellants did not sign the agreement, were not parties to it, and therefore
could not enforce it; second, Appellants could not enforce the Agreement as
purported third-party beneficiaries thereof; third, enforcement of the Agreement
would be tantamount to an impermissible contract in perpetuity; and fourth, the
(R. 774.) 4 The OTA was filed under seal below and was certified and transmitted to this Court in a sealed manila envelope. However, Appellants then appended the OTA as Appendix 4 to their Appellants’ Brief.
5 The Amended Complaint further asserts a cause of action for wrongful death. (R. 404.) The parties debate whether Mr. Gill may be compelled to arbitrate the wrongful death claim; however, the circuit court did not rule on this issue. We do not pass upon specific issues not reached by a trial court because “[t]he proper role for an appellate court is to review [the trial court’s decisions] for error[.]” Norton Healthcare, Inc. v. Deng, 487 S.W.3d 846, 852 (Ky. 2016).
-3- contractual provision at Section 3 was unenforceable as it purported to limit Ms.
Gill’s ability to claim damages, and such provision could not be severed from the
remainder of the Agreement. (R. 794-96.)
II. STANDARD OF REVIEW
This interlocutory appeal from an order denying a motion to compel
arbitration is authorized under Kentucky Revised Statute (“KRS”) 417.220(1)(a).
In such a matter, “we defer to the trial court’s factual findings, upsetting them only
if clearly erroneous or if unsupported by substantial evidence, but we review
without deference [i.e., de novo] the trial court’s identification and application of
legal principles[.]” Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335,
340 (Ky. App. 2001).
III. ANALYSIS
It is well established that the party seeking to compel arbitration bears
the burden of proving, in the first instance, the existence of an agreement to
arbitrate. Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581, 590 (Ky. 2012).
Although Appellants devote a significant portion of their brief to parsing whether
the Federal Arbitration Act, 9 United States Code (“U.S.C.”) § 2 (“FAA”), applies
to the parties’ dispute, “[q]uestions concerning the formation of an arbitration
agreement are resolved in accordance with the applicable state law governing
contract formation.” Kentucky Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d
-4- 691, 694 (Ky. 2016) (citation omitted). See also Genesis Healthcare, LLC v.
Stevens, 544 S.W.3d 645, 649 (Ky. App. 2017) (citations omitted) (emphasis
added) (“But under both [the FAA and the Kentucky Uniform Arbitration Act
(“KUAA”)], a party seeking to compel arbitration has the initial burden of
establishing the existence of a valid agreement to arbitrate. That question is
controlled by state law rules of contract formation. The FAA does not preempt
state law contract principles, including . . . which parties may be bound by that
contract.”). Thus, this Court will “apply here the same fundamental principles of
contract interpretation that would apply for interpreting any other type of contract.”
Dunaway, 490 S.W.3d at 694. See also Conseco, 47 S.W.3d at 340 (internal
quotation marks and footnote omitted) (emphasis in original) (“Under either
act . . . the clause is to be enforced and arbitration compelled unless the agreement
to arbitrate did not encompass [the claims at issue] or unless it may be avoided
upon such grounds as exist at law or in equity for the revocation of any contract.”).
With these principles in mind, we address first whether Landmark is
entitled to enforce the Agreement as an assignee of AHF Kentucky-Iowa, Inc.,
d/b/a Georgetown Manor. We conclude that it is unless it waived any such right.
In Conseco, 47 S.W.3d 335, the Wilders purchased a mobile home
from Southern Living Housing, Inc., financing a portion of the purchase price. “As
part of the financing arrangement, Southern Living assigned the contract to Green
-5- Tree Financial Servicing Corporation[.]” Id. at 337. Green Tree was the
predecessor of Conseco, which brought suit against the Wilders under the contract
and “soon thereafter repossessed the mobile home.” Id. at 338. In the Wilders’
subsequent civil action seeking rescission of the contract and other relief, Conseco
“responded in relevant part by moving to compel arbitration pursuant to an
arbitration clause in the contract.” Id. The trial court denied the motion, and this
Court reversed, id. at 344, specifically describing the arbitration agreement as
follows:
The contract at issue is on a three-page, preprinted, fill-in- the blank form. In addition to a list of the parties (buyer: the Wilders, seller: Southern Living Housing, Inc., and assignee: Green Tree Financial Servicing Corporation) and an indication that the Wilders are giving a security interest in the mobile home, the first page includes details of the financing arrangements. . . .
Id. at 337. Notably, the Conseco Court did not indicate that Conseco was
identified by name as a successor in the contract, nor did the Court comment on its
absence as a signatory in ruling the agreement to arbitrate enforceable by Conseco.
We therefore find unpersuasive Appellee’s insistence that in Conseco, “the
purchase agreement specifically listed the defendant’s predecessor as the
assignee[.]” (Appellee’s Brief, at p. 13.) To the contrary, Conseco’s predecessor-
in-interest was named, while the agreement was held enforceable by and as to
Conseco, an unnamed successor to Green Tree.
-6- In the instant case, although Section 1 of the Agreement defines the
“facility” as “Georgetown Manor [handwritten] including its officers, employees
[sic] agents, administrators, and directors” (Agreement, para. 1.2., R. 774), Section
6 additionally provides:
6. SUCCESSORS AND ASSIGNS
This Agreement binds and benefits the Parties, their respective heirs, administrators, executors, representatives, attorneys, trustees, employees, agents, subsidiaries, successors and assigns.
(R. 778) (emphasis added). Arbitration agreements are placed on equal footing
with other contracts under the law. See Ping, 376 S.W.3d at 589 (“The thrust of
both [the FAA and the KUAA] is to ensure that arbitration agreements are
enforced no less rigorously than are other contracts and according to the same
standards and principles.”). “In the absence of ambiguity, a written instrument will
be enforced strictly according to its terms, and a court will interpret the contract’s
terms by assigning language its ordinary meaning and without resort to extrinsic
evidence.” Dunaway, 490 S.W.3d at 694 (internal quotation marks and citations
omitted). See also North Fork Collieries, LLC v. Hall, 322 S.W.3d 98, 105 (Ky.
2010) (“Generally, of course, in construing contracts courts endeavor to give effect
to the parties’ intent as expressed by the ordinary meaning of the language they
employed.”).
-7- Here, the Operating Transfer Agreement between AHF and Landmark
provides:
To the extent assignable, AHF shall transfer, convey and assign to [Landmark], at Closing, . . . any existing agreements with residents and guarantors thereof (the “Resident Agreements”). AHF and [Landmark] shall cooperate with each other and take such steps as may be necessary in order for [Landmark] to receive the benefits under such . . . Resident Agreements.
(OTA, para. 4, Appendix 4 to Appellants’ Brief, R. 798.) We are not convinced by
Appellee’s argument that when ownership of the facility changed hands, the
Arbitration Agreement was rendered unenforceable because the “facility” as
defined in the Agreement ceased to exist. An assignment of a right “is a
manifestation of the assignor’s intention to transfer it by virtue of which the
assignor’s right to performance by the obligor is extinguished in whole or in part
and the assignee acquires a right to such performance.” RESTATEMENT (SECOND)
OF CONTRACTS § 317(1) (1981). It is “well settled that a contract is generally
assignable, unless forbidden by public policy or the contract itself, or its provisions
are such as to show that one of the parties reposes a personal confidence in the
other, which he would have been unwilling to repose in any other person.” Pulaski
Stave Co. v. Miller’s Creek Lumber Co., 138 Ky. 372, 385-86, 128 S.W. 96, 101
(1910). The Arbitration Agreement, far from precluding assignment of the rights
between Ms. Gill and Georgetown Manor, specifies that the parties agree that their
-8- assigns are bound thereto. (Agreement, sec. 6, R. 778.) Appellee points to no
authority stating that such an assignment of the rights and duties between AHF and
Ms. Gill is invalid per se.
Focusing on the language of the OTA stating, “[t]o the extent
assignable[,]” Appellee asserts that the Arbitration Agreement was unassignable as
a contract for personal services. (OTA, para. 4, Appendix 4 to Appellants’ Brief,
R. 798; Appellee’s Brief, at p. 11.) Paragraph 7 of the Operating Transfer
Agreement provides that AHF would terminate the employment “of all employees
providing services at the Facility effective as of the Closing,” and that Landmark
“shall determine, in its sole discretion, which of the Current Employees shall be
offered employment with [Landmark].” (OTA, para. 7(a)-(b), Appendix 4 to
Appellants’ Brief, R. 798.) Appellee does not assert that Ms. Gill’s admission to
Georgetown Manor, and Mr. Gill’s assent on her behalf to the Arbitration
Agreement, were premised upon the facility’s employment of any specific
individual from whom it was anticipated that Ms. Gill would receive personal
services. Nor does Mr. Gill assert that any such integral employee, in whom Mr.
Gill as agent for his mother reposed personal trust, was not rehired by Landmark
following the closing between AHF and Landmark under the OTA. Therefore, we
do not view the Arbitration Agreement attendant with Ms. Gill’s admission to the
nursing facility as an unassignable contract for personal services. See, e.g., Bd. of
-9- Trustees of Michigan State Univ. v. Rsch. Corp., 898 F. Supp. 519, 522 (W.D.
Mich. 1995)6 (holding that contract which did “not specify any particular
individuals, and . . . reflect[ed] that no particular persons were specified as
essential to the Contract” was not a personal service contract).
Appellee additionally asserts that Section 6 of the Arbitration
Agreement, providing the parties’ assigns are bound thereto, is unenforceable
because Section 7 of the Agreement required Landmark to obtain an additional
signed writing from Mr. Gill upon its purchase of the business. We disagree.
Section 7 of the Arbitration Agreement provides, in relevant part:
7. FULL AGREEMENT
This Agreement supersedes all prior agreements understandings and representations, whether written or oral to or between the parties with respect to its subject matter (including any representations made at the time of admission) and constitutes a complete and exclusive statement of the terms of the Agreement between the Parties with respect to its subject matter.
This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement signed by both Parties. . . .
The foregoing language constitutes a contractual merger or integration clause.
Such a clause is intended to bar the admission of parol evidence “to vary the terms
of [the] writing.” Radioshack Corp. v. ComSmart, Inc., 222 S.W.3d 256, 260 (Ky.
6 The foregoing is cited as persuasive or illustrative case law only, not as mandatory authority.
-10- App. 2007). Instead, “[w]hen the negotiations are completed by the execution of
the contract, the transaction, so far as it rests on the contract, is merged in the
writing.” Id. “The parol evidence rule is not a procedural device but, rather, a
substantive rule of law that prevents the introduction of oral statements into
evidence to alter a written agreement, per force lending integrity to writings.” Id.
at 261.
Section 7 lends no support to Appellee’s assertion that a subsequent
written modification was a predicate to assignability of the contract because the
Agreement already contained a provision under which the parties explicitly agreed
that their assigns were bound. Enforcement of the assignment clause is consistent
with, not in derogation of, the plain language of Section 7. As noted previously,
the Conseco Court upheld enforcement of the arbitration agreement by a successor
to the financing company without reference to any requirement that the Wilders
have signed a new agreement specifically naming the successor, Conseco. (See
supra at p. 6-7; Agreement, sec. 6, R. 778.) See also Managed Health Care
Assocs., Inc. v. Kethan, 209 F.3d 923, 927-28 (6th Cir. 2000) (internal quotation
marks omitted) (emphasis added) (in applying Kentucky law and determining that
noncompetition agreement executed by employee of group purchasing
organization for hospitals was enforceable following assignment, holding that
“assignments and modifications are completely different concepts, and . . .
-11- assignability is not impacted by boilerplate modification provisions”; “the terms of
Kethan’s employment were not modified by the assignment of his contract and the
substitution of [the assignee]. Following the assignment, Kethan’s contractual
rights and duties as an employee did not change. The only thing that changed was
the entity now entitled to enforce the terms and conditions that Kethan had
previously agreed to when he entered into his employment agreement.”); see
generally RESTATEMENT (SECOND) OF CONTRACTS § 317(2)(a) (1981) (“A
contractual right can be assigned unless . . . the substitution of a right of the
assignee for the right of the assignor would materially change the duty of the
obligor, or materially increase the burden or risk imposed on him by his contract,
or materially impair his chance of obtaining return performance, or materially
reduce its value to him.”).
We next turn to the circuit court’s ruling that the Agreement is
unenforceable because it contains a provision “purport[ing] to limit Ms. Gill’s full
access to damages[,]” particularly punitive damages. (See Agreement, sec. 3, R.
777-78.) Under Kentucky law, a contract is not necessarily unconscionable or
unenforceable simply because it contains an unenforceable provision.7 See
generally Edleson v. Edleson, 179 Ky. 300, 200 S.W. 625, 629 (1918) (“Where a
7 To be clear, we do not reach and do not determine today the enforceability of Section 3 of the Agreement.
-12- contract . . . consists of several covenants and agreements with regard to different
subjects, and one of the covenants is illegal and vicious, the general rule which
prevails is that, if the illegal covenant of the contract can be eliminated from it
without impairing its symmetry as a whole, the courts will . . . eliminate the
obnoxious feature and enforce the remainder of the contract . . . .); Schnuerle v.
Insight Commc’ns Co., L.P., 376 S.W.3d 561, 565 (Ky. 2012) (holding that a
contractual “provision imposing a confidentiality requirement upon the litigants to
arbitration proceedings is void and is severable from the remaining portions of the
agreement”).
Applying Mortgage Electronic Registration Systems, Inc. v. Abner,
260 S.W.3d 351 (Ky. App. 2008), as the Appellee desires does not result in an
unconscionable contract because the clause limiting damages located at Section 3
of the Agreement neither causes it to be so, nor is it unseverable under Section 5.
(Agreement, sec., 3, R. 777-78; Appellee’s Brief, at p. 18; infra at p. 16-19.)
In Abner, this Court affirmed the circuit court’s denial of a motion to
compel arbitration of a foreclosure matter. The arbitration clause at issue in Abner
was located within the mortgage contract, providing that the arbitrator could award
damages limited to “actual and direct damages,” and that in no event could the
awarded damages “include consequential, punitive, exemplary or treble damages.”
260 S.W.3d at 352. Our Court held that “an arbitration clause that contains a
-13- substantial waiver of a parties’ [sic] rights is unenforceable[,]” id. at 354,
emphasizing the arbitration agreement itself unconscionably limited the plaintiffs’
rights to statutory and punitive damages. However, subsequent to Abner, the
United States Supreme Court made clear that the FAA requires arbitration
agreements be “put . . . on an equal plane with other contracts.” Kindred Nursing
Centers Ltd. Partnership v. Clark, ___ U.S. ___, 137 S. Ct. 1421, 1425, 197 L. Ed.
2d 806 (2017).8 The inquiry therefore is whether ordinary contract principles
support enforcement of a contract containing a (purportedly) invalid limitation of
damages provision. But at this juncture, “the Court need not consider whether the
limitation . . . is itself enforceable if . . . the clause is severable from the agreement
to arbitrate.” Brookdale Senior Living Inc. v. Stacy, 27 F. Supp. 3d 776, 789 (E.D.
Ky. 2014).9
An arbitration agreement containing a severable clause limiting the
defendants’ liability for damages was determined enforceable in Brookdale, supra.
There, the United States District Court explained that the limitation of damages
provision held unconscionable in Abner was inextricably “intertwined” with the
arbitration clause itself; it opined that “Abner does not stand for the proposition
8 See also N. Kentucky Area Dev. Dist. v. Snyder, 570 S.W.3d 531, 535 (Ky. 2018) (quoting Kindred Nursing, 137 S. Ct. at 1426) (the FAA “displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”). 9 Brookdale is cited herein as persuasive, not mandatory, authority.
-14- that all arbitration agreements are unenforceable simply because the contract
contains a separate and unconscionable provision.” 27 F. Supp. 3d at 789-90. The
Court distinguished Abner on its facts because in that case, “the arbitration clause
itself directly limited the arbitrator’s ability to award damages and expressly
prohibited it from modifying the terms of the contract.” Id. at 790. Thus, in
Abner, “[t]here was no way for an arbitrator to sever the unconscionable clause
from the rest of the agreement.” Id. See also Francis v. Cute Suzie, LLC, No.
3:10-CV-00704, 2011 WL 2174348, at *4 (W.D. Ky. Jun. 2, 2011) (granting
motion to compel arbitration and distinguishing Abner because “[i]f, upon
submission of this matter to arbitration, the arbitrator determines that the limitation
of damages provision . . . is unconscionable or otherwise unenforceable, he would
have the power to disregard it pursuant to the [contract’s] severability clause.”).
At issue here is Section 5 of the Agreement, which provides, in
pertinent part:
5. NONSEVERABILITY
5.1 If the [arbitration] Panel or a proper court determines that any of the Terms and conditions of this Agreement are unenforceable for any reason, and an award is made inconsistent with it or in violation of it, the Party adversely affected has the right to terminate this Agreement by serving upon the Arbitrators and opposing Party or that Party’s attorney, a Notice of Termination within 10 business days of the date of the Arbitration decision or court decision. If a Party fails to timely serve the Notice
-15- of Termination, the Arbitration decision and award will become final, binding, and enforceable. . . .
(R. 778) (emphasis added). The circuit court determined that the “[A]greement
contained only one exception to the nonseverability provision which pertained to
the Patient Bill of Rights10 and does not apply here” (R. 796), a reference to the
third paragraph of Section 7 of the Agreement, which provides:
If any Term or Condition is determined to violate the Patient Bill of Rights, that Term or Condition, including any Dispute or Claim, will be excluded so as not to violate the Patient Bill of Rights, and any remaining Terms and Conditions, including any surviving Disputes or claims, will remain in force and subject to private, binding Arbitration, as this Agreement provides.
(R. 779.)
We conclude the circuit court erred by failing to consider all
provisions of the Agreement as a whole in ruling on the severability issue. It is
true that Section 7 contains the foregoing provision addressing severability of any
term or condition found violative of KRS 216.515, the nursing home “Patient Bill
of Rights.” But Section 5 permits any unenforceable term or condition to be
severed from the remainder of the Agreement.11
10 See KRS 216.515. 11 We further note that Section 2.1.3 of the Agreement grants the arbitration panel authority to address disputes “about enforceability, severability, [and] unconscionability” of the Agreement. (R. 775.)
-16- We find persuasive the decision in ManorCare Health Services, Inc.
v. Stiehl, 22 So.3d 96 (Fla. Dist. Ct. App. 2009). There, the Court construed an
arbitration agreement similar to the Agreement at issue here. In ManorCare, the
agreement contained remedial limitations capping the plaintiff’s “non-economic
damages at $250,000 and eliminat[ing] punitive damages.” Id. at 98. The
ManorCare agreement was a voluntary, stand-alone agreement, as in our case. Id.
at 97-98. It contained a section entitled “Nonseverability,” which again, similar to
the instant case, provided that “[i]n the event any provision of this agreement is
determined by a court of competent jurisdiction, an arbitrator or arbitrator panel to
be unenforceable for any reason, either party may thereafter cancel this agreement
by giving written notice to such effect within 10 days after such
determination. . . .” Id. at 98. The Court reversed the trial court’s determination
that the agreement was unenforceable because of the remedial limitation provision,
explaining:
[L]anguage contained within the nonseverability clause anticipates that certain provisions of the Agreement may be deemed invalid and severed, in which case the parties would have the option of either proceeding with arbitration or withdrawing from the [a]greement. Additionally, we do not find that the remedial limitation is so interrelated and interdependent that it cannot be severed by the arbitrator if necessary: the essence of the contract is an agreement to submit disputes to binding arbitration. We therefore conclude that the validity of the remedial limitations may be considered by the arbitrator and, if the limitations are found invalid, severed from the Agreement.
-17- We have decided the single gateway issue presented on appeal: whether a valid agreement to arbitrate exists between [the plaintiff] and [the facility]. Because the validity of the remedial limitations may be determined by the arbitrator, we do not proceed any further.
Id. at 100-01. See also Francis, 2011 WL 2174348, at *4 (in applying Kentucky
law, holding that an arbitration agreement was not substantively unconscionable
under Abner, notwithstanding a limitation of liability clause, because under the
terms of the contract, “[i]f upon submission of this matter to arbitration, the
arbitrator determines that the limitation of damages provision . . . is
unconscionable or otherwise unenforceable, he would have the power to disregard
it pursuant to the . . . severability clause.”).
This Court will not “construe a contract at variance with its plain and
unambiguous terms.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d
381, 385 (Ky. App. 2002). Moreover, we cannot disregard portions of the
Arbitration Agreement as written, but instead must read the contract as a whole,
attempting to harmonize its provisions and “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); see also Cantrell, 94 S.W.3d at 384-85. Thus, reading the Agreement as a
whole and harmonizing all provisions therein, we do not find that it fails for
unconscionability because if the limitation on liability provision is unconscionable,
-18- an issue we do not reach today, the arbitration panel may sever that unconscionable
provision from the enforceable terms of the Agreement.
Appellee additionally claims the Agreement is unconscionable
because Section 2.1.2 provides:
By submitting all Disputes to binding Arbitration, each Party has its right to file a lawsuit and to have a trial by jury for an action seeking monetary damages arises out of a Dispute, claim or other matter covered by this Agreement, except as this Agreement provides.
(R. 775) (emphasis original). Appellee asserts the foregoing provision is
misleading because it “disingenuously and inaccurately informs Ms. Gill in bold
print that she maintains her right to file a lawsuit and to have a trial by jury[.]”
(Appellee’s Brief, at p. 18.) But the inclusion of the clause “except as this
Agreement provides” fairly places the reader on notice that the right to a jury trial
is waived for the claims set forth in the Agreement to arbitrate. (See Agreement,
Section 2.1.2, R. 775.)
In Francis, the plaintiff argued the arbitration provision was
procedurally unconscionable, in part, “because it was ‘buried’ within a
paragraph[.]” 2011 WL 2174348, at *3. Noting that “the presentation of the
clause is not a model of clarity,” the Court nonetheless rejected the plaintiff’s
position because the clause “was written in clear, legible type[,]” and the Court
-19- did “not agree that requiring a party to a contract to read four sentences into a
paragraph is so onerous or deceptive as to be procedurally unconscionable.” Id.
Having concluded that Landmark is entitled to enforce the Arbitration
Agreement as an assignee thereof unless it waived that right, and that the
arbitration panel may sever any provisions of the Agreement which are
unenforceable, we turn to the enforceability of the Agreement by the remaining
Appellants. Appellants do not acknowledge that they are disparately situated with
respect to their attempts to enforce the Arbitration Agreement. In other words,
only Landmark constitutes an “assign” under the Agreement owing to the OTA
under which it assumed the operation of the nursing home, including the
performance of contracts with its residents.
The circuit court ruled that the “defendants cannot enforce the
[A]greement as alleged third-party beneficiaries” because they have not “proven
that the agreement was made for [their] actual and direct benefit[.]” (R. 795-96.)
“Five theories for binding non-signatories to arbitration agreements have been
recognized: (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-
piercing/alter ego, and (5) estoppel.” Olshan Foundation Repair and
Waterproofing v. Otto, 276 S.W.3d 827, 831 (Ky. App. 2009) (citation omitted).
As the parties seeking to compel arbitration, Appellants bore the burden of
showing they constitute non-signatories who may enforce the Agreement. Ping,
-20- 376 S.W.3d at 590. Although we have determined that Landmark, absent waiver,
is a non-signatory entitled to enforce the Agreement under the contractual
assignment clause, the circuit court correctly noted the dearth of evidence that Mr.
Gill, in the process of admitting his mother to the facility and in acting as her
agent, intended to benefit any or all of the non-signatory Appellants such that an
equitable theory of enforcement applies. See Sexton v. Taylor Cty., 692 S.W.2d
808, 810 (Ky. App. 1985) (rejecting third party beneficiary argument where
“[t]here [was] simply no evidence appearing in the record tending to show that the
parties made the contract for the benefit of appellant. Nor does it appear from the
record that there was ever any intent, expressed or otherwise, on their part to do
so.”).
Appellants rely heavily on the theory of equitable estoppel in asserting
that each of them may enforce the Agreement. In North Fork Collieries, LLC v.
Hall, 322 S.W.3d 98 (Ky. 2010), Hall and his company, Traveler Coal, LLC,
obtained a business loan from Community Trust Bank secured by “various
mortgages and other liens as well as by the personal guarantees of Hall and his
wife[.]” Id. at 100. North Fork subsequently purchased Traveler, and the parties
executed an Asset Purchase Agreement contemporaneous with an Assumption
Agreement under which North Fork and Traveler “both promised the Bank . . . to
jointly and severally assume [or remain] and be bound as . . . joint and several
-21- primary obligor along with [the other].” Id. at 101 (internal quotation marks
omitted). The former contract contained an arbitration clause, while the latter
agreement did not. Id. North Fork defaulted on the loan, and Hall, his wife, and
Traveler brought suit against North Fork and the Bank. North Fork moved for
dismissal of the complaint or to compel arbitration. Id. Noting that the Asset
Purchase Agreement, and not the Assumption Agreement, would determine the
rights between North Fork and Hall,12 the Court held that because “Hall and his
wife are claiming the direct benefit of the Asset Purchase Agreement’s loan
assumption and indemnity provisions[,]” they were “estopped from disavowing the
Agreement’s arbitration provision.” Id. at 106.
In Olshan, the Ottos purchased a home from Jansen, who had
contracted with Olshan Foundation Repair and Waterproofing to “to undertake . . .
work on the foundation . . . .” 276 S.W.3d at 828. Prior to Jansen’s contracting
with Olshan, the previous owner of the home, Schnelle, also contracted with
Olshan for repairs on the home’s foundation. Id. Following flooding of the
basement, “the Ottos contacted Olshan,” claiming a right to performance under the
“fully-transferrable lifetime warranty” provided by Olshan to both Schnelle and
12 The Court held that the Assumption Agreement, “in short, concerns North Fork’s and Hall’s relationship with the . . . Bank, not with each other. It has nothing to say about which of them, if either, is responsible to the other for the Bank debt and thus it cannot resolve the issue Hall seeks to litigate.” Id. at 103.
-22- Jansen. Id. The Court noted the “fundamental tenet of contract law” that “the
parties must enter into a meeting of the minds in order to form an enforceable
contract.” Id. at 831. Although the Ottos, as non-signatories to the contract, did
not have a meeting of the minds with Olshan, the Court concluded that “[t]hird
parties such as the Ottos . . . may seek to enforce the terms of the contract by
showing that the parties to the contract intended by their agreement to benefit third
parties directly. Such intent need not be expressed in the agreement itself; it may
be evidenced by the terms of the agreement, the surrounding circumstances, or
both.” Id. (citation omitted). The Court determined that “uncontroverted
documentary evidence in the form of warranty certificates” supported the Ottos’
claim that they were third party direct beneficiaries, particularly because the
warranties expressly provided coverage “to all future owners of this home[.]” Id.
Thus, the Ottos, who were attempting to enforce the contracts and obtain
performance thereunder as third-party beneficiaries, were estopped from denying
the validity of the provisions requiring arbitration of their claims. Id. at 832
(“[W]hile the Ottos may not be bound to the agreements under contract law
principles, their decision to seek warranty repairs as third party direct beneficiaries
under the contracts brings with it the obligation to resolve disputes in accordance
with the contracts’ terms”).
-23- Both North Fork and Olshan are readily distinguishable from the
instant case.13 Here, Appellee, the party against whom enforcement is sought, is
not “claiming the direct benefit” of the Arbitration Agreement, unlike Hall and his
wife in North Fork, and unlike the Ottos in Olshan. Appellee is not attempting to
enforce the Arbitration Agreement, nor any contract, against the non-signatory
defendants; each of his claims sounds in tort, not in contract. (See Amended
Complaint, R. 397-406.) We cannot say, therefore, that he is estopped from
denying that Ms. Gill’s claims against all Appellants should be arbitrated based on
equitable principles.
However, as an assignee, Landmark stands in the shoes of its assignor,
AHF. See generally Hill v. Turner, 56 S.W. 642, 644 (Ky. 1900) (holding the
appellants, as assignees, “stand in the shoes of their assignor . . . and have the
same rights that he had, and no more”). Returning to Section 1.2 of the
Agreement, the “facility” is defined as including “Georgetown Manor’s” “officers,
employees [sic] agents, administrators, and directors.” The circuit court did not
reach the issue of whether any Appellant is entitled to enforce the Agreement, as a
13 The unpublished case of Palazzo v. Fifth Third Bank, No. 2011-CA-000034-MR, 2012 WL 3552633 (Ky. App. Aug. 17, 2012) (unpublished), also cited by Appellants, is likewise unavailing because there, the plaintiff “treat[ed] Fifth Third Securities and [Fifth Third] Bank as one entity[,]” alleging “that Fifth Third ‘breached its contracts with’ her[.]” Id. at *2. Citing North Fork, 322 S.W.3d 98, the Court specifically held that “Palazzo cannot, on the one hand, seek the benefit of those alleged contracts between her and Fifth Third Securities and the Bank, and, on the other hand, disavow the arbitration provision that is part of those alleged contracts.” Id.
-24- matter of contract, based upon the above language. Likewise, the circuit court
stated that “[b]ecause [it] finds that there is not an enforceable agreement, [it] does
not find it necessary to reach the issue of waiver.”14 (R. 796.) On remand, the
circuit court shall make additional findings as to which of the Appellants other than
Landmark, if any, are entitled to enforce the Arbitration Agreement under the
contractual provisions therein and whether Landmark and/or any Appellant waived
their rights to enforce the Agreement.15
Finally, we disagree with the circuit court’s assessment that
enforcement of the Agreement as to any Appellant “would mean that the contract
could continue into perpetuity” impermissibly. (R. 796.) As aptly noted by
Appellants, Ms. Gill’s residency at the nursing home could in no way continue into
perpetuity – it would necessarily continue only through her death or through her
discharge from the facility, and “[u]pon her discharge, no matter the [facility]
operator, the Agreement would have become irrelevant, other than for suits
brought on the basis of her residency.” (Appellants’ Brief, at p. 19.)
14 Appellee argued below that Appellants, including Landmark, waived their right to insist upon arbitration by participating in the underlying civil action for a period of approximately eight months, including propounding discovery and filing (and subsequently voluntarily remanding) a motion to dismiss certain named defendants. See 9/16/20 Video Record, at 11:07:35 ff. 15 The circuit court may stay litigation while the arbitrable claims against the parties entitled to enforce the Agreement are submitted to arbitration. See North Fork, 322 S.W.3d at 106.
-25- IV. CONCLUSION
For the foregoing reasons, we affirm in part, reverse in part, and
remand for further proceedings consistent with this Opinion. We view any
remaining issues raised in the parties’ briefs as irrelevant or unnecessary to this
Opinion.
CETRULO, JUDGE, CONCURS.
TAYLOR, JUDGE, CONCURS IN RESULT ONLY.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE JOSEPH P. GILL, JR.: Donald L. Miller, II Brandon C. R. Sword Lisa E. Circeo Louisville, Kentucky Megan L. Adkins Ashley L. Daily Lexington, Kentucky
-26-