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Pharmerica Corp. v. Advanced HCS LLC

United States District Court, W.D. Kentucky, Louisville Division

March 6, 2017

ADVANCED HCS LLC, et al., Defendants.


          David J. Hale, Judge.

         Plaintiffs PharMerica Corporation and PharMerica East had a contract to provide prescription medications and pharmaceutical services to skilled nursing home facilities (SNFs) in Texas. (Docket No. 1-2, PagelD # 587) Defendants Advanced HCS and Texas Operations Management managed the SNFs. (Id.) In 2010, the SNFs filed suit against PharMerica in the U.S. District Court for the Eastern District of Texas, alleging that their contract with PharMerica was unenforceable. (D.N. 54-3, PagelD # 1218-19) Two years later, the parties settled and executed a Memorandum of Understanding. (Id.) In 2015, PharMerica filed the instant action claiming that the SNFs had fallen behind on their payments to PharMerica and that Advanced HCS and Texas Operations attempted to sell a number of the SNFs to avoid payment. (D.N. 1-2, PagelD # 587-89) The defendants have moved to dismiss for lack of personal jurisdiction and improper venue, or alternatively, to transfer the case to the Eastern District of Texas. (D.N. 53; D.N. 54) The plaintiffs filed a motion to deem matters relating to the control and capitalization of the defendant entities admitted. (D.N. 62) Because the Court finds that personal jurisdiction is lacking and that transfer is in the interest of justice, the Court will deny the motion to dismiss but grant the defendants' motion to transfer the case to the Eastern District of Texas. The Court will deny as moot the plaintiffs' motion to deem matters admitted.

         I. BACKGROUND

         Plaintiffs PharMerica Corporation and PharMerica East, Inc. are related pharmaceutical supply companies headquartered in Louisville, Kentucky, that "provid[e] prescription medications to nursing home patients and provid[e] pharmacy consulting and other urgent care pharmaceutical services to operators of nursing homes." (D.N. 1-2, PagelD # 587; D.N. 12, PagelD # 223) PharMerica provided medications and pharmacy services to twenty-nine SNFs in Texas pursuant to Pharmacy Service Agreements (PSAs). (D.N. 1-2, PagelD # 587) Notably, in the event of a dispute, the PSAs provided for "mandatory arbitration to occur in Louisville, Kentucky." (Id.) All of the SNFs at issue are owned either by Defendants Eliezer Scheiner and Teddy Lichtschein jointly or by Scheiner alone. (Id., PagelD # 1216)

         According to the defendants, Peter Licari and Michael D'Arcangelo owned and operated PharMaster, L.P., an institutional pharmacy that operated SNFs in Texas. (D.N. 54-3, PagelD # 1214) Licari and D'Arcangelo owned and operated SNFs as well. (Id., PagelD # 1215) The defendants allege that in 2008, Licari and D'Arcangelo wanted to sell PharMaster but were having difficulty finding a buyer; therefore, they directed their SNFs to enter into new PSAs with terms that were "much more favorable to PharMaster." (Id., PagelD # 1214) The defendants claim that the new PSAs added the arbitration provision that required arbitration in Louisville, Kentucky, to appeal to PharMerica, which is headquartered in Louisville, Kentucky. (Id., PagelD # 1214-15) The defendants state that ten days "after the new PSAs were executed, PharMaster was acquired by PharMerica." (Id., PagelD # 1215)

         The next year, Licari and D'Arcangelo wanted to sell the SNFs they owned and discussed a possible acquisition with Defendant Eliezer Scheiner. (Id.) "During these discussions, Mr. Scheiner was informed of the requirement to assume the PSAs as part of the acquisition." (Id.) Eventually, Defendants Scheiner and Teddy Lichtschein acquired the SNFs.

         "[N]ew Texas limited liability companies were formed to serve as the legal operating entities for each of the twenty-nine (29) SNFs in Texas." (Id.) The defendants assert that "[t]hese entities would operate the SNFs but rent (through formal agreements) the hard assets from separate 'Landlord' entities created to own those assets." (Id., PagelD # 1215-16) The SNFs were managed by Defendant Advanced HCS. (Id.) Advanced HCS states that it provides limited administrative services to SNFs and rehabilitation facilities in Texas. (D.N. 53-1, PagelD # 1050) "The sole members of Advanced HCS are Eliezer Scheiner and Teddy Lichtschein . . ., both of whom are residents of New York." (Id.) Meanwhile, Defendant Texas Operations Management was formed as a Texas limited liability company to "serve as the corporate manager for each of the SNF Defendants" and Advanced HCS. (D.N. 54-3, PagelD # 1215-16; D.N. 61, PagelD # 1533) According to the defendants, "Texas Operations' role was to sign corporate documents and, in some cases, negotiate and execute certain contracts on behalf of the SNF Defendants." (D.N. 54-3, PagelD # 1215-16)

         In 2010, several months after Advanced HCS took over management of the facilities, the SNFs filed suit against PharMerica in the U.S. District Court for the Eastern District of Texas seeking to terminate the PSAs. (D.N. 54-3, PagelD # 1218) The parties reached a settlement in 2012, resulting in a Memorandum of Understanding (MOU). (Id., PagelD # 1218-19) The MOU provides that the SNFs were to enter into new PSAs within three months. (D.N. 1-2, PagelD # 598-99) The plaintiffs allege that the defendants failed to execute new PSAs and thus the original PSAs remained in place. (Id., PagelD # 599) The defendants, on the other hand, claim that the settlement terminated the PSAs. (D.N. 14-1, PagelD # 291)

         According to the plaintiffs, in mid-2014, the SNF defendants began falling behind on their payments to PharMerica. (D.N. 54-3, PagelD # 588, 599) The plaintiffs allege that Advanced HCS "and its affiliate, [D]efendant Texas Operations Management LLC" attempted to avoid payment and terminate the PSAs by selling thirteen of the facilities. (Id., PagelD # 588) The plaintiffs contend that the sales occurred without proper notice to PharMerica and in violation of the PSAs. (Id., PagelD # 599)

         PharMerica filed the instant action in Jefferson County, Kentucky Circuit Court against thirty-eight defendants, requesting, among other things, a declaratory judgment that the PSAs were not terminated and are binding on all defendants and their successors and an order compelling arbitration in accordance with the PSAs. (Id., PagelD # 607) The defendants removed the case to this Court and then filed motions to dismiss for lack of personal jurisdiction and improper venue, or alternatively, to transfer the case to the Eastern District of Texas. (D.N. 1; D.N. 12; D.N. 13; D.N. 14; D.N. 15)

         The defendants argue that they lack sufficient contacts with Kentucky to establish personal jurisdiction. (D.N. 14, PagelD # 288) The defendants state that they "all reside in Texas, operate exclusively in Texas and/or conduct substantial business operations in Texas." (Id., PagelD # 291) The defendants maintain that they "have not purposefully availed themselves of the privilege of acting in Kentucky at all" because they do not "transact business in Kentucky, perform services in Kentucky, sell products in Kentucky, own property in Kentucky, maintain offices in Kentucky, maintain bank accounts in Kentucky, and/or have ever generated any revenues from Kentucky or generated revenues based on activities in Kentucky." (Id.)

         Additionally, the defendants argue that "many of the same issues" were previously litigated in the Eastern District of Texas, which was held to be an appropriate venue for the dispute. Furthermore, the defendants assert that because the settlement from that previous litigation terminated the PSAs, the forum selection clause contained in the PSA is no longer enforceable.

         The plaintiffs moved for leave to take jurisdictional discovery. (D.N. 21) On March 8, 2016, the Court granted the plaintiffs' motion and allowed ninety days for limited jurisdictional discovery. (D.N. 45) Several disputes arose during the discovery period. (D.N. 47; D.N. 51; D.N. 52) However, on July 29, 2016, the plaintiffs stated that they would not "seek further intervention from the Court" and "submit[ted] that the appropriate next step is to begin the clock on Defendants' responsive pleading per the Court's order of June 23, and proceed to merits adjudication." (D.N. 52, PagelD # 1029)

         Following the conclusion of jurisdictional discovery, the defendants renewed their motions to dismiss for lack of personal jurisdiction and improper venue, or alternatively, to transfer the case to the Eastern District of Texas. (D.N. 53; D.N. 54)

         In response to these motions, the plaintiffs maintain that the Court has personal jurisdiction over the SNF defendants and that the arbitration provision's forum selection clause in the PSAs requires the parties to litigate in Louisville, Kentucky. (D.N. 25, PagelD # 703) Additionally, while Advanced HCS and Texas Operations Management were not signatories to the PSAs, the plaintiffs argue that the Court has personal jurisdiction over the remaining defendants under an alter-ego theory of personal jurisdiction. (D.N. 61, PagelD # 1529-30) The plaintiffs maintain that Texas Operations Management is a "non-functioning shell entity" and that Advanced HCS "wholly controls the operation of the [SNFs]." (D.N. 61, PagelD # 1533-34)

         The plaintiffs also responded by filing a motion to deem matters admitted. (D.N. 62) The plaintiffs argue that because the defendants violated their discovery obligations under Rule 30 and Rule 34, the Court should deem the following matters admitted "for purposes of personal jurisdiction":

(i) The SNF Defendants and [Advanced HCS] were not capitalized on formation and are not currently capitalized;
(ii) Defendants do not maintain proper corporate books and records;
(iii) Lichtschein and Scheiner treat the entity Defendants' assets and bank accounts interchangeably and as their own; and
(iv) All of the Defendant entities are managed and controlled by Lichtschein and Scheiner, through their "representatives" Ostroff, Lichtman, and Apex.

(D.N. 62-1, PagelD # 1960) Additionally, the plaintiffs request that if the Court holds an evidentiary hearing on personal jurisdiction, the defendants "be prohibited from placing evidence before the Court that contradicts any of those points." (Id.)


         a. Personal Jurisdiction

         The burden is on the plaintiffs to demonstrate that personal jurisdiction exists as to the defendants. See Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). To make this showing, a plaintiff "may not stand on [its] pleadings but must, by affidavit or otherwise, set forth specific facts" demonstrating the Court's jurisdiction. Id. When presented with a motion to dismiss for lack of personal jurisdiction, the Court has three options: (1) "decide the motion upon the affidavits alone, " (2) "permit discovery in aid of deciding the motion, " or (3) "conduct an evidentiary hearing to resolve any apparent factual questions." Id. (citing Serras v. First Term. Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir. 1989)). "The weight of the plaintiffs burden, however, depends on whether the trial court chooses to rule on written submissions or to hear evidence on the personal-jurisdiction issue." Serras, 875 F.2d at 1214. Where, as here, there has been limited jurisdictional discovery but an evidentiary hearing has not been held, the plaintiffs must make a prima facie showing of personal jurisdiction. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir. 1998). The Court will view the evidence in the light most favorable to the plaintiff without "weigh[ing] the controverting assertions" of the defendants. Theunissen, 935 F.2d at 1459. Dismissal is proper only "if all of the specific facts . . . alleged" by the plaintiffs "collectively fail[ ] to state a prima facie case for jurisdiction." Id.

         i. Whether the PSAs Establish Personal Jurisdiction

         The plaintiffs first argue that the PSAs establish personal jurisdiction. (D.N. 61, PagelD # 1522-27) According to the plaintiffs, because the dispute-resolution clause in the PSAs requires arbitration in Louisville, Kentucky, the clause moots the defendants' personal-jurisdiction objections. (Id., PagelD # 15222-23) The plaintiffs argue that the SNFs are bound to this forum selection as signatories to the PSAs. (Id., PagelD # 1524-26)

         The defendants respond that the Court lacks personal jurisdiction over them. (D.N. 53-1, PagelD # 1055; D.N. 54-3, PagelD # 1221) First, the defendants contend that the PSAs cannot establish personal jurisdiction because the SNF defendants Dated:ly the Assignment and Assumption Agreements and none of the defendants signed the PSAs. (D.N. 54-3, PagelD # 1223) Second, in the alternative, the defendants argue that the PSAs were terminated by the settlement agreement from the Texas litigation. (Id., PagelD # 1223) The defendants state that the Memorandum of Understanding (MOU) and corresponding Rider superseded the PSAs and contain no forum-selection clause. (Id.) Third, the SNF defendants assert that even if the PSAs were not terminated, the plaintiffs waived their ability to enforce the forum-selection provision when they previously litigated these issues in Texas. (Id., PagelD # 1224)

         While the SNF defendants argue that they did not sign the PSAs, they acknowledge that "they assumed rights under [the PSAs] which included a provision setting forth Louisville as the location of any arbitration between the parties under the agreements." (D.N. 54-3, PagelD # 1212) Regardless of whether the defendants signed the PSAs themselves or the assignment and assumption agreements, the forum-selection clause at issue is the same. Because "[a] forum selection clause confers personal jurisdiction on a court over only those disputes that the parties agreed to litigate in that forum, " if the PSAs are valid and enforceable, then the Court has personal jurisdiction over the SNF defendants. Traton News, LLC v. Traton Corp., 528 F.App'x 525, 528 (6th Cir. 2013).

         The Court must therefore determine whether the MOU and Rider terminated the PSAs. Because this is a question of contract interpretation, the Court will "look to the language of the agreement to determine the parties' intent." VIBO Corp., 669 F.3d at 688-89; Caudill Seed & Warehouse Co. v. Houston Cas. Co., 835 F.Supp.2d 329, 332-33 (W.D. Ky. 2011) (quoting Logan Fabricom, Inc. v. AOP P'ship LLP, 2006 WL 3759412, *2 (Ky. Ct. App. December 22, 2006)). If the Court finds the contract to be clear and unambiguous, the contract '"will be enforced strictly according to its terms, and a court will interpret a contract's terms by assigning language its ordinary meaning and without resort to extrinsic evidence.'" Caudill Seed & Warehouse Co., 835 F.Supp.2d at 332-33 (quotingFrear v. P.T.A. Indus., Inc.,103 S.W.3d 99, 106 (Ky. 2003)). '"A contract is ambiguous if a ...

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