Discretionary Review Granted in New Lexington Clinic v. Cooper

Kentucky Supreme Court Grants Discretionary Review

of New Lexington Clinic v. Cooper

       Previously I have reviewed the decision of the Court of Appeals in New Lexington Clinic v. Cooper.  The New Lexington Clinic, P.S.C. v. Cooper, ___ S.W.3d ___, 2011 WL 6260442 (Ky. App. Dec. 16, 2011), reviewed on December 22, 2011. 

 

On October 17, 2012, the Kentucky Supreme Court granted discretionary of this decision.

Diversity Jurisdiction – The Amount in Controversy and Complete Diversity

Diversity Jurisdiction – The Amount in Controversy and Complete Diversity

            A recent decision of the Western District of Kentucky has addressed in detail the issue of showing that the amount in controversy exceeds the jurisdictional threshold of $75,000, but the decision is perhaps misleading as to the requirement of diversity.  Warren v. Mac’s Convenience Stores, LLC, 2012 WL 5077669 (W.D. Ky Oct. 18, 2012).

            Warren sued Mac’s in a slip and fall case.  Based upon Warren’s refusal to stipulate that here damages were less than $75,000, Mac’s removed the case to federal court, alleging that the amount is controversy requirement was satisfied.  The case was remanded on the basis that a refusal to stipulate was of itself insufficient to satisfy Mac’s obligation to demonstrate that the requirements of 28 USC 1332 were satisfied.

            What I found curious is a pair of statements in the decision.  First, the court observed that “Mac’s in a Delaware limited liability company with its principal place of business in Columbus, Indiana.”  Second, it observed that “All agree that the parties are diverse.”  What is curious is that neither the jurisdiction of organization nor the location of the principal place of business have any bearing upon the citizenship, for purposes of diversity, of an LLC. See, e.g., Citizens Bank v. Plasticware, LLC, 2011 WL 5598883 (E.D. Ky. 2001) (principal place of business not relevant to LLC’s citizenship); Master v. Quiznos Franchise Co., 2007 WL 419287 (D. N.J. 2007) (neither jurisdiction of organization nor location of principal place of business determine LLC’s citizenship).

 

            Now perhaps the two statements are unrelated. The court in the former could have been simply describing Mac’s while in the second indicating that the necessary diversity had been determined on facts not relevant to this opinion.  On the other hand, if diversity was determined based upon Mac’s being a Delaware LLC with its principal place of business in Indiana and Warren being a citizen of Kentucky, then something may well be off.

Killain v. Tunacakes Ordered Not to be Published

Killain v. Tunacakes Ordered Not to be Published

      On January 25 of this year I reviewed the decision of the Kentucky Court of Appeals in Killian v. Tunacakes Properties, Inc., ___ S.W.3d ___, 2012 WL 162717 (Ky. App. Jan. 20, 2012), a decision addressing the availability of recovery under the theory of unjust enrichment in the context of a written agreement and piercing the veil.  Discretionary review of this decision by the Kentucky Supreme Court was sought.

      On October 17 discretionary review was denied, and the Kentucky Supreme Court ordered that the Court of Appeal’s decision not be published.

Agincourt

Agincourt

 

      Today is the anniversary of the 1415 Battle of Agincourt, immortalized in Shakespeare’s Henry V.  Last year I posted a piece on the battle, and will not repeat it here.  For more on this epic battle, one which substantially formed the English conscience, check out Juliet Barker’s Agincourt.

Delaware Chancery Court Sanctions Waiver of Fiduciary Obligations

Delaware Chancery Court Sanctions Waiver of Fiduciary Obligations

      In what may be ultimately a quite important decision, the Delaware Court of Chancery has sanctioned a particular formulation as having clearly and therefore effectively waived fiduciary duties.  Hite Hedge LP v. El Paso Corp., Civ. Act. No. 7117- VCG (Oct. 9, 2012).

      This case involved a master limited partnership and allegations by certain of the limited partners that the general partner breached its fiduciary obligations in connection with its own acquisition.  When El Paso was acquired, the likelihood of continued “drop down” transactions from the limited partnership’s general partner was effectively eliminated.  As such, the limited partnership would not enjoy future opportunities for growth and appreciation.  The limited partners asserted, inter alia, that the general partner’s agreement to be acquired without, at minimum, an agreement that the acquirer would continue to do drop downs to the limited partnership, was a breach of fiduciary duty.

      In an amazingly short (the slip opinion runs to only 12 pages) decision, the Court of Chancery was able to dismiss that claim by reference to the language of the limited partners:

First, the Partnership Agreement, in plain and unambiguous terms, expressly eliminates any fiduciary duties owed by El Paso to EPB’s minority unitholders.  The Delaware Revised Uniform Limited Partnership Act, DRULPA, permits the elimination of fiduciary duties by contract where the intent to do so is explicit.  Section 7.9(e) of the Partnership Agreement does so, and the language is explicit:

Except as expressly set forth in this Agreement, neither the General Partner nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Partnership or any Limited Partner or Assignee and the provisions of this Agreement, to the extent that they restrict, eliminate or otherwise modify the duties and liabilities, including fiduciary duties, of the General Partner or any other Indemnitee otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of the General Partner or such other Indemnitee.  Slip op. at 9, citations omitted, emphasis in original.

       We should expect that this language, having now been sanctioned by the Delaware Court, to be the touchstone upon which future agreements hoping to waive fiduciary duties are based.

Hilary Mantel Awarded the Man Booker Prize (Again)

Hilary Mantel Awarded the Man Booker Prize (Again)

      Hilary Mantel has been awarded the Man Booker Prize for Bring Up the Bodies, her second book in a planned trilogy on the life of Thomas Cromwell.  While unquestionably well-deserved, the most striking aspect of this award is that it is Mantel’s second Man Booker Prize.  She won her first for Wolf Hall, the first book in the trilogy.  This is the only time that the Man Booker Prize has been awarded for a sequel.

       As a general rule, I dislike most purportedly historic fiction, especially when reduced to movies.  Thanks to, collectively, Gladiator, Kingdom of Heaven and The Other Boleyn Girl, there is an entire generation that now entirely misunderstands Marcus Aurelius/Commodus, Balian of Ibelin and Anne Boleyn.  Mantel’s books of this series are the exception to that reservation; while literary license is certainly taken with respect to her description of Cromwell’s inner thoughts and impressions, her exposition carefully tracks the historic record.

A Fractured Court of Appeals Affirms the “All or Nothing” Rule for Letters of Intent

A Fractured Court of Appeals Affirms the “All or Nothing” Rule for Letters of Intent

      A recent decision of the Court of Appeals, by a panel as fractured as is possible, has affirmed the existing “all or nothing” rule applicable to letters of intent.  Spears v. Kentucky Insurance Agency, Inc., __ S.W.3d __, 2012 WL 4839015 (Ky. App. Oct. 12, 2012).  In so doing, the court applied Cinelli v. Ward, 997 S.W.2d 474 (Ky. App. 1998).  That application was, however, rather contentious.  This ruling led to an opinion by Judge Vanmeter for which there was a concurrence from Chief Judge Acree given through clenched teeth and a dissent by Judge Moore.

      This case arose against the background of Cinelli v. Ward, wherein there was adopted the “all or nothing” rule with respect to letters of intent and similar contracts.  Under that rule, “either the agreement is enforceable as a binding contract to consummate the transaction or it is unenforceable as something less.”  As such, a letter of intent that does not recite all of the material terms of the transaction will not give rise to an enforceable agreement.

      Spears, who operated an insurance agency, was seeking a new insurance company with which to affiliate.  In November 1998, he began discussions with Kentucky Insurance regarding such a new affiliation.  Following initial discussions, Kentucky Insurance presented to Spears a letter regarding the formation of that new organization.  The letter, signed by the president of Kentucky Insurance Agency, was counter-signed by Spears.  The parties then began fairly intensive activities to bring about the new organization in accordance with the terms of the letter of intent, including by Spears procuring clients’ signatures authorizing the transfer of their business to the new agency.

      Just more than a month after the letter of intent’s effective date of November 15, on December 18, Spears was informed that the other parties did not intend to proceed with the transaction.   Spears then sued, seeking to enforce the letter of intent.  In response, Kentucky Insurance filed for summary judgment, arguing that the letter of intent was unenforceable under the rule of Cinelli v. Ward, which motion was granted:

The trial court further noted that because the language of the letter indicated that the parties would enter into a non-compete clause, an exit agreement, and a standard arbitration agreement at a later date, the letter was not an enforceable agreement because it left terms open for negotiation.  Slip op. at 6, 2012 WL 4839015, *2.

      Ultimately affirming the trial court’s grant of summary judgment, in laying out the applicable law, the Court of Appeals wrote:

In Cinelli v. Ward, this court stated that if “an agreement leaves the resolution of material terms to future negotiations, the agreement is generally unenforceable for indefiniteness unless a standard is supplied from which the court can supplant the open terms should negotiations fail.” Cinelli, 997 S.W.2d at 477. “`To be enforceable and valid, a contract to enter into a future covenant must specify all material and essential terms and leave nothing to be agreed upon as a result of future negotiations.’“ Id. at 477 (emphasis added) (quoting Walker v. Keith, 382 S.W.2d 198 (Ky. 1964)). Stated simply, “[t]he terms of a contract must be complete and sufficiently definite to enable the court to determine the measure of damages in the event of a breach.” Mitts & Pettit, Inc. v. Burger Brewing Co., 317 S.W.2d 865, 866 (Ky. 1958). However, “[i]f all the material terms which are to be incorporated into the contemplated future instrument have been agreed upon, it may be inferred that the instrument is to be a mere memorial of the contract already final by the earlier mutual assent of the parties to those terms.” Dohrman v. Sullivan, 310 Ky. 463, 468, 220 S.W.2d 973, 976 (1949) (citation omitted).  Slip op. at 8, 2012 WL 4839015, *3.

      Providing but one example to the open terms, the court noted that the parties anticipated negotiating the terms of a non-competition agreement.  As to the absence of agreement as to material terms, it wrote “What would be the duration and/or geographic scope of any non-competition clause?  One year?  Two years?  Madison County?  Madison and contiguous counties?”  Slip op. at 8-9, 2012 WL 4839015, *4.

      On that basis, Judge Vanmeter was able to dispose of the case.

      As noted above, Chief Judge Acree concurred with Judge Vanmeter’s opinion, but he did so through clearly clenched teeth:

I concur with the majority because I must; Cinelli v. Ward, 997 S.W.2d 474 (Ky. App. 1998) is precedent. I write separately, however, because the time has come to revisit the rule established by Cinelli.  Slip op. at 9, 2012 4839015, *4.

      Chief Judge Acree went on to review the modern trend of cases as espoused in TIAA v. Tribune Co., 670 F. Supp. 491 (S.D. N.Y. 1987), but he does not in detail recite his interpretation of the TIAA rule beyond suggesting that it would allow the enforcement of incomplete agreements by, presumably, inserting reasonably ascertainable provisions.  Speaking to the Kentucky Supreme Court, Chief Judge Acree wrote, referencing the Cinelli decision:

In 1998, this intermediate appellate court consciously rejected the modern trend articulated in TIAA. It is now time for our Supreme Court either to consciously embrace it, or to justify clinging to the minority Kentucky rule.  Slip op. at 11, 2012 WL 4839015, *5.

      Dissenting from the ruling, Judge Moore argued that “all of the material terms necessary for the formation of a final and enforceable agreement were contained in the letter of intent,” characterizing the “non-compete clause, exit agreement, [and] standard arbitration agreement” as “minor” issues.  Rather, he posited that there were not “actually contemplated additional negotiations regarding those terms, as opposed to the addition of ‘standard’ boilerplate terms.”  He wrote as well:

Furthermore, the agreement between the parties contemplated the formation of a business, the finalization of which would have involved the formality of filing corporate documents.  The terms contained in the agreement were sufficient to outline the day-to-day operations of the company and responsibilities of each of the parties and would have been sufficient to allow the parties to complete the corporate paperwork.  Slip op. at 11-12, 2012 WL 4839015, *5.

On that basis, he would have held a binding complete agreement to have been entered into from which Spears’ damages could be ascertained.  Ergo, where Chief Judge Acree would question the continued viability of Cinelli, Judge Moore would have found its requirements to have been satisfied.

      In my opinion, the decision reached by the Court of Appeals was correct within the confines of the existing rule of Cinelli v. Ward; frankly, I have not studied TIAA and similar opinions enough to have an informed view as to whether or not Cinelli v. Ward should be set aside.  I do, however, have an opinion with respect to Judge Moore’s dissent and its suggestion that the various agreements such as non-competition are either immaterial or can be objectively ascertained.  With respect to that one example, having been through I have no idea how many negotiations as to the terms of a non-competition agreement, they simply are not standard or mechanical.  Issues of duration, geographic scope, the tolling the duration during any period of breach and the nature of the limitations (e.g., non-competition v. non-solicitation) are typically highly negotiated and particularized for the transaction at hand.  Often they are further complicated when one of the parties to the transaction brings a book of business.  On that basis, I cannot agree with Judge Moore’s assessment.

      In the same vein, I cannot agree with his suggestion that the formation of the intended corporation involved the “formality of filing corporate documents.”  While the appendix to the letter of intent did recite the anticipated share allocation, and there was agreement that it would make an S-corp election, none of the other terms were addressed.  For example, there existed no agreement as to who would be the initial directors and initial officers of the organization.  There was no agreement as to the per-share purchase price!!!  There was not even agreement that the corporation would be organized in Kentucky, even though the jurisdiction of formation could have a material impact upon the rights and responsibilities of the shareholders; a Delaware and a Kentucky corporation embody very different rules and responsibilities.  The structuring of a corporation is not a “formality” but rather an involved negotiation of numerous zero-sum issues.

      This case should be watched to see whether it is accepted by the Kentucky Supreme Court, as essentially requested by Chief Judge Acree, for further consideration.  Alternatively, a motion for en banc reconsideration could be a possibility.

Battle of Philippi

Battle of Philippi

      Today is the anniversary of the Battle of Philippi, the final conflict between forces loyal to Brutus and Cassius, leaders of the assassins of Julius Caesar, and those of Marc Antony and Octavian. 

      There were actually two battles of Philippi some three weeks apart.  In the first battle, the forces under the command of Cassius faltered, and Cassius in turn committed suicide (actually he had one of his servants kill him).  At that same battle, however, forces of the command of Brutus were able to push back those of Octavian, actually capturing his camp.  At the second battle, fought on October 23, 42 B.C., Brutus’ forces were routed and his camp was captured by forces under Octavian.  Brutus, with remnants of his forces, retreated, but he ultimately commit suicide.

      For those familiar with the HBO series Rome, in that presentation the two Battles of Philippi were condensed into a single engagement.  In addition, it portrayed Cassius as having fallen in battle and Brutus having committed suicide by wading into the battle after stripping off his armor.  While certainly a heroic suggestion, that is not what happened.

Bankruptcy Court Refuses to Pierce the Veil of Tennessee LLC

Bankruptcy Court Refuses to Pierce the Veil of Tennessee LLC

Please see Doug Batey's (as always) excellent review of this decision

Limitations on Arbitrator’s Ability to Modify Judgment

Court of Appeals Addresses Limitations on

Arbitrator’s Ability to Modify Judgment

      In a recent decision of the Kentucky Court of Appeals, it considered the ability of the arbitrator, after the issuance of judgment, to make a modification in that judgment.  In this instance, the Court determined that the arbitrator did not have the authority to make the modification, and on that basis reversed the Circuit Court’s confirmation of the amended award.  Swetnam Design Construction, Inc. v. Saurer, __ S.W.3d __, 2012 WL 4838991 (Ky. App. Oct. 12, 2012).

      Swetnam Design Construction had been hired by Saurer to renovate some residential rental properties in Louisville.  Ultimately they came into dispute regarding change orders, additional costs and delays in completion.  The parties agreed to arbitrate the dispute.  The arbitration hearing was held on July 2, 2010, whereat documentary and testimony evidence was presented.  On July 16, the arbitrator issued an award to Swetnam in the amount of $27,078.40.  However, on August 6, the arbitrator modified the award, reducing Swetnam’s recovery to $18,448.59.  That award was ultimately confirmed by the Circuit Court, and it is from that award that Swetnam appealed. 

      Initially, the Court of Appeals reviewed the rules to the effect that the decision of the arbitrator is not, absent narrow statutory circumstances, subject to review by the Court.  In the course thereof, it identified KRS § 417.160(1)(c), which provides that an arbitration award may be vacated on the ground that “the arbitrators exceeded their powers.”  It then turned its attention to KRS § 417.130, setting forth the limitations upon an arbitrator’s ability to modify or correct an award made, noting that:

Thus, if an award is to be changed, both the arbitrator and court are restricted to doing so only in situations where there has been an evident miscalculation of figures, an evident mistake in the description of a person, thing or property, or if the arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted.  2012 WL 4838991, *3.

      In this instance, the Court of Appeals determined that the arbitrator acted outside the grounds in which an award may be modified, and on that basis reversed the trial court’s order confirming the modified award, directing that the original award of July 16, 2012 be reinstated.

Creation

Creation 

        According to calculations made by James Ussher, Archbishop of Armagh, the first moment of creation took place at the onset of evening  (6 p.m.) proceeding 0ctober 23, 4004 bc.  These calculations were made by working backwards from the birth of Jesus in 4 b.c. (Ussher accounted for Dionysius' error in calculating the year of Jesus' birth) based upon the ages of the Patriarchs and the Kings of Israel as set forth in the Old Testament.

By Ussher's calculations, October 23 would have been a Sunday, the first day of the seven day week described in Genesis that would conclude on Saturday, the sabbath day of rest. 

Ussher's dating of the Exodus from Egypt to 1491 bc comports with the modern scholarship of its dating (to the extent it took place as a historic event) to a so called "early Exodus."

Ussher's chronology achieved its fame by being incorporated into numerous Bibles, they sometimes listing is dates in marginal notes.  Numerous similar chronologies, including one by Isaac Newton, failed to be so referenced and in so doing faded into obscurity.

Of course it is all malarkey; the age of the Earth is measured in billions, not thousands, of years.  In addition, if Creation took place at 6 pm, was that Eastern Standard Time?

            October 22 is also the anniversary of the “Great Disappointment,” the failure of the Second Coming predicted by William Miller and certain of his disciples based upon their interpretation of Biblical texts.  When October 23, 1844 dawned the fallacy of their prediction was laid bare.

The Destruction of the Holy Sepulchre

The Destruction of the Holy Sepulchre

       Today marks the anniversary of the destruction, in 1009, of the Holy Sepelchre in Jerusalem, done under the orders of the the Fatimid Caliph Al- Hakim bi-Amr Allah.  The site of the  Sepulchre had been venerated since the early Fourth Century, its location having been determined by St. Helen, mother of Roman emperor Constantine I.  A church had been constructed upon the site that became a popular pilgrimage destination.  Al-Hakim's order of destruction was carried out to the point that the church was eliminated down to and including its foundations.

       The destruction of the Holy Sepulchre, along with later attacks upon pilgrims, was at the end of the 11th Century cited as the basis for the Crusades.  After the capture of Jerusalem the current Church of the Holy Sepulchre (the so called "Crusader Church") was constructed; it remains in place today although it has been rebuilt in various parts in response to collapses occassioned by fires or  earthquakes.    

The Betrayal of the Knights Templar

      Today marks the anniversary of the initial widespread arrest of the Knights Templar in France, an event that took place on October 13, 1307.  On trumped up charges including heresy, the knights were arrested and tortured into confessing a long litany of crimes.  The attack upon the Templars was an attempt by the French king, Philip IV, to avoid his huge debts to the order.

       Although the Templars would be be found innocent of heresy, as a political concession the Order was dissolved in 1312, its properties turned over to the Knights Hospitaller.

       Philip's moniker is "the Fair"; who says history does not have a sense of irony.

Wine in the News

Wine in the News

        The October 5 New York Times contained an interesting story with respect to a lawsuit brought over a very expensive bottle of wine.  ‘Rare’ Wine May Have Been Too Young, but Lawsuit’s Charges Were Too Old, Court Says, by James Barron.

       William T. Koch, in 1988, bought one of the now infamous Thomas Jefferson bottles purportedly discovered by Hardy Rodenstock.  These bottles, since determined to be fakes, are the subject of the book The Billionaire’s Vinegar by Benjamin Wallace (2008).  As reported in the article, in 2000 Koch had the wine tested for its age, and it was reported back that it was most unlikely that the wine was from the purported period.  However, it was until 2005 that Koch brought suit against the Christie’s auction house, alleging that he had been defrauded.  Curiously, Koch had not bought the wine thru Christie's, although it had auctioned other alleged Thomas Jefferson bottles.  Rather he bought it from Rodenstock through another wine house.  His claim against Christie's was based on RICO and the assertion that it had through promoting the Thomas Jefferson bottles in the face of questions as to their authenticity engaged in fraudulent conduct.

       Applying four-year statute of limitations for cases of alleged RICO fraud, Koch’s suit was dismissed, the court indicating that his knowledge of the possible fraud should be dated to his receipt of the test results in 2000.

       The decision is Koch v. Christie's Internatinal PLC, Docket No. 11-1522-cv (2nd Cir. Oct. 4, 2012), affirming Koch v. Christie's International PLC, 785 F. Supp.2d 105 (S.D.N.Y. 2011).


 

Statutory Construction – Statutes in Derogation of the Common Law?

Statutory Construction – Statutes in Derogation of the Common Law?

I have to admit to confusion as to a point (well actually many points, but this is the one of the moment) of statutory construction.

             There exists a string of cases that stand for the proposition that a statute should not be interpreted to supersede the common law unless the legislative intent to do so is specific and explicit.  See, e.g., Brown Sprinkler Corp. v. Somerset-Pulaski County Dev. Found., Inc., 335 S.W.3d 455 (Ky. App. 2010); Miller v. Cundiff, 245 S.W.3d 786 (Ky. App. 2007).  Another string of cases stands for the proposition that the common law should in the face of a statute be deemed modified only to the degree necessary to prevent conflict between the two.  I interpret the latter rule as being a component of the former.

            At the same time we have a general statutory rule to the effect that these rules of construction do not apply.  KRS § 446.080(1) provides:

All statutes of this state shall be liberally construed with a view to promote their objects and carry out the intent of the legislature, and the rule that statutes in derogation of the common law are to be strictly construed shall not apply to the statutes of this state.

Some day I hope to either determine that these positions can be reconciled or, in the alternative, that the courts are simply ignoring KRS § 446.080(1).

Valid Power-of-Attorney Must Be Given by the Principal

Valid Power-of-Attorney Must Be Given by the Principal

      A recent decision of the Kentucky Court of Appeals ultimately addresses the simple fact that in order for a power-of-attorney to be valid, it must be given by the principal.  GGNSC Stanford LLC, v. Rowe, No. 2012-CA-002330-MR, ___ S.W.3d __, 2012 WL 4208924 (Ky. App. Sept. 21, 2012).

      Deborah Rowe, the child of Clara LaVon Rowe and William Henry Rowe, was mentally incompetent from birth.  Her parents cared and provided for her into her adulthood.  Likely crucial for this decision, however, Clara and William never obtained an order of guardianship with respect to Deborah.  In October, 2001, Clara and William executed a “power of attorney” naming Nancy Meadows as Deborah’s attorney in fact.  In that power of attorney, Clara and William identify themselves as Deborah’s “parents and guardians.”

      In 2007, Deborah was placed in a nursing home; Nancy signed Deborah’s admission papers as “PoA” and presented a copy of her power-of-attorney to the home.  Those admission papers included an arbitration agreement.  Two years later, Deborah passed away at that same home.  Thereafter, Deborah’s brothers, as co-administrators of her estate, brought a wrongful death action against that nursing home and certain of its affiliates.  The defendants sought to refer the dispute to arbitration.  In turn, the co-administrators asserted that there existed no binding agreement to arbitrate.  The trial court agreed with that ruling, which determination was appealed to the Court of Appeals. 

      With respect to assertions that Nancy had, on Deborah’s behalf, both actual and apparent authority to enter into the arbitration agreement, the court engaged in a discussion of both bodies of law.  Ultimately, the court found these arguments to fail on the simple basis that Nancy’s purported authority, whether actually granted by Clara and William or otherwise, must fail because it was Deborah, not Clara and William, who was sought to be bound:

The principal problem with the nursing home’s argument, however, that it is based upon a faulty premise:  Deborah’s parents were not and could not be the principals in this set of facts.  Nancy was purporting to act on Deborah’s behalf, not on behalf of Clara and William.  Attempts to trace Nancy’s so-called apparent authority to Deborah’s parents then, must be unsuccessful because their actions could not create a reasonable belief in [the nursing home] that Nancy had authority to act on Deborah’s behalf.

      Although not addressed by the court, it can be inferred that the opposite holding would have been rendered had Clara and William taken the step of being legally appointed as Deborah’s guardian.  Needless to say, for those adult parents and other relatives who are caring for disabled children, siblings and other relatives who have reached the age of majority, formal guardianship procedures need to be followed.

Treatment of Physicians as Hospital's Independent Contractors Upheld

Treatment of Physicians as Hospital's Independent Contractors Upheld

      In a recent decision, Kentucky Court of Appeals has given extensive consideration to the question of whether physicians rendering services at a hospital would be treated as employees (and therefore agents) or independent contractors.  In this instance, the patient in question had on repeated occasions signed a document acknowledging that the physicians are independent contractors and not employees.  An effort to challenge that characterization subsequent to his death was rejected.  Rains v. St. Joseph Healthcare, Inc., 2012 WL 4208772 (Ky. App. Sept. 21, 2012) (Not To Be Published).

      Bobby Rains was admitted to St. Joseph’s hospital in January, 2007 whereat he underwent several paracentesis procedures by Drs. Dunkle-Blatter and Estridge, which procedures (it was later alleged) were performed improperly.  Ultimately, Bobby Rains was transferred to University of Kentucky Medical Center, where he died.  Lisa Rains, as the surviving spouse and heir and as well the administratrix of Bobby’s estate, filed suit against various parties including St. Joseph Healthcare, alleging that “SJH was vicariously liable for the aforementioned doctors’ alleged negligence under a theory of ostensible agency.”  The trial court granted St. Joseph Healthcare summary judgment and this appeal followed.

      At the time of his admission and several times subsequent thereto, Bobby signed an authorization providing in part:

 I understand that physicians, surgeons, radiologists, pathologists, anestheosiologists, other doctors and physicians assistants who may render care or services in my case are not employees or agents of St. Joseph’s Healthcare, Inc. 

It was on the basis of this release that the trial court granted summary judgment.

On appeal, Lisa asserts the trial court erred by granting summary judgment in favor of SJH because a genuine issue of fact exists as to SJH’s liability under an ostensible agency theory, based upon the inadequate and improper consent form presented for Bobby’s signature.  We disagree.

      Ultimately, the Court of Appeals forged no new Kentucky law on this point, but was rather able to dispose of the argument through citation to prior authority, namely:

An apparent or ostensible agent is not an actual agent, but is “‘one whom the principal, either intentionally or by want of ordinary care, induces third persons to believe to be his agent, although he has not, either expressly or by implication, conferred authority upon him.’” Middleton v. Frances, 257 Ky. 42, 44, 77 S.W.2d 425, 426 (1934) (citation omitted). The general premise in Kentucky is that hospitals are not vicariously liable for doctors who are not its employees under an ostensible agency theory so long as the hospital makes the patient aware that the treating physician is not a hospital employee when the treatment was performed. See Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255, 256 (Ky. 1985). See also Floyd v. Humana of Virginia, Inc., 787 S.W.2d 267, 270 (Ky. App. 1989) (medical malpractice plaintiff could not hold hospital liable for alleged negligence of physician on ostensible agency theory where admission forms read and signed by plaintiff indicated her knowledge that doctors were independent contractors and not agents of hospital, and no representation or action was made so as to induce plaintiff to believe that doctors were employees or agents of hospital); Roberts v. Galen of Virginia, Inc., 111 F.3d 405, 412-13 (6th Cir. 1997) (under Kentucky law, hospital is not liable under ostensible agency doctrine for alleged negligence of independent contractor physicians where hospital's patient registration and authorization form alerted the public that its physicians are not its employees or agents), rev’d on other grounds, 525 U.S. 249, 119 S. Ct. 685, 142 L.Ed.2d 648 (1999); Vandevelde v. Poppens, 552 F.Supp.2d 662, 667 (W.D. Ky. 2008) (hospital not vicariously liable under Kentucky law for alleged negligence of physicians based on an ostensible agency theory where hospital’s consent upon admission forms alerted the public that its physicians were not its employees or agents); Johnston v. Sisters of Charity of Nazareth Health Sys., Inc., 2003 WL 22681562 at *3 (Ky. App. Nov. 14, 2003) (hospital not liable under ostensible agency theory where patient signed admission forms on six different occasions which explicitly stated that pathologists and physicians at hospital were independent contractors and not employees or agents of hospital).

In this case, the record reflects that on seven separate occasions, beginning in March 2005 and ending with a final admission in January 2007, Bobby signed an SJH form entitled “Authorizations and Consents.” This one-page form, which was identical in all material respects at each admission, is not complex and is not drafted in legalistic language. Paragraph eight of the form, immediately preceding his signature, informed him that “physicians, surgeons, radiologists, pathologists, anesthesiologists, other doctors, and physicians assistants who may render care or services in [his] case are not employees or agents of Saint Joseph HealthCare, Inc.” No evidence was presented to show that SJH represented to the public that the doctors working within the confines of the hospital were its employees or agents. Thus, as a matter of law, SJH cannot be held vicariously liable for the alleged negligence of the doctors under an ostensible agency theory.

       There was a dissenting opinion by Judge Caperton wherein he reviewed cases addressing apparent agency and as well the Restatement (Third) of Agency.  In effect, he  argues that there remains a question of fact as to whether Bobby Rains, notwithstanding the signed agreement stating that all physicians are independent contractors, actually appreciated that the doctors were not employees and agents of the hospital.  Ergo, the signed consent would become only part of the evidence as to whether or not the physicians were agents of the hospital.

Nevada Considers Personal Jurisdiction Over Corporate Officers and Directors

Nevada Considers Personal Jurisdiction Over Corporate Officers and Directors

      In a recent decision, the Nevada Supreme Court considered whether the courts of that state would have jurisdiction over individuals consequent to their serving as an officer or director of a Nevada corporation, at least with respect to claims that their conduct in said positions has injured the corporation.  The court determined that, notwithstanding the absence of a specific statute to that effect, the courts would have jurisdiction.  Consipio Holding, B.V. v. Carlberg, 128 Nev. Adv. Op. 3 (Nev. Aug. 9, 2012).

      Consipio and others were the shareholders in Private Media Group, Inc. (PMG), a Nevada corporation on whose behalf they asserted a derivative claim against Berth Milton, its president, and certain directors.  It was asserted that the directors assisted Milton in causing financial harm to PMG.

      While PMG is incorporated in Nevada, its principal place of business is in Spain, and all the respondent directors and officers were citizens and residents of various European countries; none had visited in Nevada in connection with their service as an officer or director of PMG.  In the face of the derivative action, citing their respective lack of contacts with Nevada, the various defendants moved to dismiss for lack of personal jurisdiction.  Those motions were ultimately granted by the trial court, which dismissal was appealed to the Supreme Court.  In turn, the Supreme Court reversed the determination of the trial court. 

      The Supreme Court’s opinion was premised upon the fact that a Nevada corporation is a citizen of Nevada.  Under Nevada’s long-arm statute, which is deemed to be coextensive with the federal Due Process Clause, specific personal jurisdiction may be exercised over a non-resident where that non-resident defendant has purposely availed himself of “acting in the forum state or of causing important consequences in that state,” citing Jarstad v. National Farmers Union, 552 P.2d 49, 53 (Nev. 1976).  Where, as here, the consequence of the directors’/officers’ actions directly impacted a Nevada citizen, it was found that there was sufficient contacts to exercise jurisdiction.  Further, the court cited the Nevada corporate derivative action statute as not only authorizing suits of that nature, but also provides “notice to officers and directors that they are subject to derivative suits for violation of their authority.”

      The court, it would seem, invited the Nevada legislature to expand the derivative action statute to give it the same effect as the Delaware consent to jurisdiction statute, Del. Code Ann. tit. 10, § 3114. 

      Issues of this nature should not arise in Kentucky.  Amendments adopted in 2012 to the Kentucky corporate acts make clear that service as a director or officer of a corporation constitutes a consent to jurisdiction in Kentucky for actions in connection therewith.  See KRS § 271B.8-030(5); id. § 271B.8-400(5); id. § 272.171(8); id. § 272.181; id. § 273.211(5); and id. § 273.227(7).  A similar rule was adopted applicable to each member and manager of a Kentucky LLC.  KRS § 275.335(2).

Kentucky Sure Has Some Strange Laws – “Place of Entertainment”

Kentucky Sure Has Some Strange Laws – “Place of Entertainment”

      Kentucky has a statute requiring the licensing of a “place of entertainment,” a term that includes, inter alia, hotels and motels.  KRS § 231.010; OAG 39-383.  In connection with activities taking place at a “place of entertainment,” it is provided that the licensee shall not allow:

People to congregate there for immoral or unlawful purposes or to permit any man or woman who are not married to each other to occupy any cabin, cottage or secreted room or place from which the view of the public is excluded.  KRS § 231.110(2).

      Are they really expecting the clerk at the local Motel 6 to be requesting driver’s licenses and a copy of a marriage certificate?

Kentucky Has Some Strange Laws – Colored Fowl & Rabbits

Kentucky Has Some Strange Laws – Colored Fowl & Rabbits

      Kentucky has a statute limiting the dyeing or coloring of baby chicks, ducklings, other fowl and rabbits, providing that they may not either be dyed or colored or thereafter sold.  In addition, baby chicks, ducklings and other fowl and rabbits may not be sold if they are less than two months of age unless at least six of them are sold; there is an exception allowing rabbits weighing at least three pounds to be sold at the age of six weeks.  Violation of this statute can result in a fine of not less than $100 and not more than $500.  KRS § 436.600.

      I am entirely at a loss as to what perceived evil is being addressed by this statute.

Writ of Execution in Support of Charging Order?

Writ of Execution in Support of Charging Order?

      In a recent decision of the Superior Court of New Jersey that has been approved for publication, a “writ of execution” was issued in support a charging order granted to secure the judgment-creditor’s right to receive significant arrearage on alimony and child support obligations.  Leonard v. Leonard, __ A.3d __, 212 WL 4458390 (N.J. Super. A.D. June 13, 2012, approved for publication Sept. 20, 2012).  What remains unclear is exactly what is gained by adding the writ of execution on top of the charging order lien.

      The facts appear to be relatively straight forward, was as of sometime in 2012 in arrearage in excess of $110,000 for alimony and child support accrued since his 2004 from Cynthia Leonard.  Keith was a 10% owner in Blydan Oak Group, LLC, the owner of commercial real property generating annual rents of $240,000.  Keith represented that the LLC may be planning to sell this real property, resulting in a significant distribution.

      The court, reciting the charging order language of the New Jersey LLC Act, found that it could issue a charging order against Keith’s interest in the LLC, that charging order in favor of Cynthia.  In connection with the issuance of that charging order, the court noted that:

However, Defendant [Cynthia] as the judgment-creditor, only has the rights of an assignee of the limited liability company interest.  The entry of judgment in this matter does not deprive any other member of the LLC be benefit of any exemption laws applicable to his or her limited liability company interest.  Further, the entry of judgment does not provide defendant with the right to interfere with the management of the LLC or for its dissolution of the company or foreclosure upon company interests.

      In addition, Cynthia requested the entry of a “writ of execution” against Leonard’s interest in the LLC arguing that the writ:

… will help guarantee that any LLC distributions due to plaintiff in the normal course of business operations or upon sale of the commercial real estate will go directly toward payment of plaintiff’s support arrears, as the writ will place a priority on payment of this debt ahead of other potential creditors of plaintiff.

      In determining to award the writ of execution, the court wrote:

In this case, the court finds the issuance of a writ of execution upon plaintiff’s minority interest in the LLC to be an appropriate equitable remedy.  The writ is not against the LLC as a whole, but only against plaintiff’s minority interest.

The writ will help assure that plaintiff’s support obligation is not subsequently subordinated to a claim of a subsequent creditor.  Further, the writ will help assure that if the LLC issues financial distributions to plaintiff or sells its major real estate asset, the funds which would otherwise go to plaintiff instead go first towards pay down towards and liquidation of the support arrearages.

      What is confusing about this holding is the absence of a description of either:

·                     How a subsequent creditor of the judgment-debtor could come into rights vis-à-vis the judgment-debtor’s interest in the LLC and the proceeds thereof that would be superior to the rights held by a judgment-creditor pursuant to a charging order; and

·                     In what manner are the rights available under a writ of execution more effective against the LLC than are the rights that exist under a charging order?

Agreement to Arbitrate Enforced in the Face of Substantive and Procedural Unconscionability Challenges

Agreement to Arbitrate Enforced in the Face of Substantive

and Procedural Unconscionability Challenges

 

      The Kentucky Court of Appeals has determined that an agreement to arbitrate set forth in a two-page (front and page) college admission form would be enforced, rejecting challenges that the agreement is substantially and procedurally unconscionable.  Daymar Colleges Group, LLC v. Dixon, 2012 WL 4335393 (Ky. App. Sept. 21, 2012) (Not To Be Published).

      A number of students of Daymar Colleges sued, asserting that false and misleading statements had been made regarding the transferability of credits earned at Daymar institutions and the availability of jobs in the various fields of study subsequent to graduation.  In response, Daymar sought to refer the matters to arbitration pursuant the arbitration clause set forth on the backside of the admissions application document, it providing:

Any dispute … arising out of or related to my enrollment at the College, this Agreement, or the breach therefore, shall be resolved by arbitration in the city in which the campus I attend is located in accordance with the commercial rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction.

The same paragraph of the agreement provided:

All determinations as to the scope or enforceability of this arbitration provision shall be determined by the arbitrator and not by a court.

      This agreement to arbitrate was set forth on the reverse side of a one-page document; each student signed the front of the document under a provision providing:

This Agreement and any applicable amendments which are incorporated herein by reference are the full and complete agreement between me and the College.  By signing this Agreement, I confirm that no oral representations or guarantees about enrollment, academics, financial aid or career employment prospects have been made to me, and that I will not rely on any oral statements in deciding to sign this Agreement.

The agreement went on to provide that:

I have read both pages of this Student Enrollment Agreement before I signed it, and I received a copy of it after I signed it.

      Each student affixed their initials next to this particular sentence of the enrollment agreement. 

      Substantively, the document went on to provide that the students would be responsible for one-half of the cost of the arbitration, including the fees of the individual arbitrators, and that any student bringing an action against Daymar must pay their own attorney fees.

      The trial court refused to give effect to the provision that the arbitrator, not the court, would determine the scope and enforceability of the agreement to arbitrate, finding it unconscionable “to require the Students to pay an arbitrator’s fees to determine the enforceability of the arbitration provision.”  2012 WL 4335393, *3.  In addition, the trial court found that the arbitration agreement “was unconscionable [as it required] the students to pay part of the cost of arbitration when many had an income at or below the national poverty threshold.”  Id.  In furtherance of a determination of unconscionability, it was noted that “the signed arbitration agreements were imposed as a condition of enrollment and were non-negotiable.”  Id.

      Daymar appealed this determination to the Court of Appeals.

Delegation to the Arbitrator to Determine the Scope/Enforceability of the Arbitration Agreement

      The question as to whether the delegation to the arbiter the question of the scope of the arbitration agreement as well as its ultimate enforcement would be played out against the directions of the United States Supreme Court in AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986), wherein it stated that “Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agree to arbitrate is to be decided by the court, not the arbitrator,” which language had been referenced Rent-A-Center v. Jackson, 130 S.Ct. 2772, 2778 (2010).  Ultimately distinguishing the facts from the Rent-A-Center decision, the Court of Appeals determined that the delegation to the arbitrator was ineffective.  The opinion, however, is ambiguous as to the basis for holding the delegation clause invalid, especially as it noted in footnote 16 of the opinion that the language of the delegation provision in the Rent-A-Center decision and that at issue in this case were without “significant” difference.

Procedural Unconscionability

      As to the general topic of unconscionability, and largely dictating the ultimate outcome of the case, the court wrote:

The law is clear that a written agreement, duly executed by the party to be held, who had opportunity to read it, will be enforced according to its terms.  Conseco Finance Servicing Co. v. Wilder, 47 S.W.3d 335, 334 (Ky. App. 2001).  While the doctrine of unconscionability does provide a narrow exception to that rule, we find nothing unconscionability about the form of the agreement in this instance.  2012 WL 4335393, *9.

       Focusing on the question of procedural unconscionability, the court noted that relevant factors include whether the contract’s terms are conspicuous and comprehensible, whether those terms are of themselves oppressive, and whether the parties seeking to avoid the contract had a meaningful choice about whether to sign it.  Curiously, the court found “we do not find that these circumstances were present in this instance,” notwithstanding that the factors identified above included the affirmative “whether the contract’s terms are conspicuous and comprehensible.”  Further, the court noted the prior law that, even where the contract is one of adhesion, the arbitration provision therein is not per se unconscionability.  Rather, “‘The fact that the clause appeared on the back of a preprinted form did not render it procedurally unconscionability’,” citing Conseco, 47 S.W.3d at 342-43.

Substantive Unconscionability

      The trial court, in determining that the arbitration agreement was procedurally unconscionability, employed a cost prohibitive analysis, finding that the imposition of the cost of arbitration upon the students was unfairly burdensome.  The Court of Appeals rejected that path of analysis, holding:

[W]e must disagree with the conclusion of the court below that it would be unconscionable for Students to be required to pay fees which they could incur in arbitration including discovery and expert fees.  In review of the law of this Commonwealth reveals that no Kentucky court has held that expert [and] discovery costs incurred during the course of arbitration can render an arbitration provision unenforceable.  Regardless, these are expenses that would be incurred by the Students regardless of whether they proceeded against Daymar through arbitration or in court. 

Ultimately, were we to uphold the cost prohibitiveness analysis of the court below, a very large portion of the citizenry of this Commonwealth would be able to avoid a contractual commitment to arbitrate merely by showing the court that they made less than a certain salary.  Quite simply, the law of this Commonwealth does not support the conclusion that the costs of arbitration can render an arbitration provision unenforceable.  Having so found, we are compelled to reverse.  2012 WL 4335393, *10.

Vis-à-Vis Schnurle

      It bears noting (and it is curious) that this court’s assessment of the issues of procedural and substantive unconscionability did not cite the analysis employed in Schnurle v. Insight Communications Co., L.P., __ S.W.3d __, 2012 WL 39631378 (Ky. Aug. 23, 2012). 

No Binding Agreement to Arbitrate Where One Party Could Unilaterally Amend the Agreement Otherwise

No Binding Agreement to Arbitrate Where One Party

Could Unilaterally Amend the Agreement Otherwise

      In a recent decision by Judge Coffman of the Federal District Court, it was held that there existed no agreement to arbitrate where one of the parties held the unilateral right to strip from the agreement the arbitration provision.  Wallace v. Fortune Hi-Tech Marketing, Inc., 2012 WL 4364086 (Ed. Ky. Sept. 24, 2012).

      The contract at question contained an agreement to arbitrate.  The Court, however, found that the agreement failed for lack of consideration.  “The parties did not agree to arbitrate because there was no exchange of consideration,” citing Cuppy v. General Accident Fire & Life Assurance Corp., 378 S.W.2d 629, 632 (Ky. 1964).  While a promise may serve as consideration for an agreement, in this instance the promise made by Fortune Hi-Tech Marketing was illusory because it retained the right to unilaterally amend all of its obligations under the subject agreement.  As such, FHTM had undertaken no actual obligation to arbitrate.  Further, it could effect such an amendment without the requirement of any notice.  As such:

There is no promise “to maintain the arbitration agreement” for a specified period of time, and, therefore, not enough of  a limitation on FHTM’s ability to terminate or amend the arbitration agreement to constitute consideration.  2012 WL 4364086, *2.

On that basis, the FHTM’s motion to compel arbitration and to either dismiss or stay the court proceedings in light thereof was denied.

      The question that would seem to be outstanding was whether, applying this analytic paradigm, there ever existed a valid agreement between Fortune Hi-Tech Marketing and the counterparties to its various agreements.

Kentucky Has Some Strange Laws – Places of Entertainment

Kentucky Has Some Strange Laws – Places of Entertainment

      Kentucky has a chapter of KRS addressing the licensing of a “place of entertainment.”  A place of entertainment includes any in which there is a person “engaging in the practice of being a medium, clairvoyant, soothsayer, palmist, phrenologist, spiritualist or like activity, or one who, with or without the use of cards, crystal ball, tea leaves, or any other object or device, engages in the practice of telling the fortune of another.”  KRS § 231.010. 

      There is an exception from this rule for those who are merely pretending to tell fortunes as part of an exhibition presented by a religious, charitable, or benevolent institution; circuses, carnivals, and county fairs are likewise exempted.  Where, after appropriate application and as necessary a hearing has taken place, a permit is issued for the operation for a place of entertainment, it is required that there be posted a schedule showing the fees charged for readings, predictions and similar services.  KRS § 231.110(5).