Centerville Alf, Inc. v. Balanced Care Corp., Case No. C-3-01-233.

• Decision Date: 18 March 2002
• Docket Number: Case No. C-3-01-233.
• Citation: 197 F.Supp.2d 1039
• Parties: CENTERVILLE ALF, INC., et al., Plaintiffs, v. BALANCED CARE CORP., Defendant.
• Court: U.S. District Court — Southern District of Ohio

Page 1039

197 F.Supp.2d 1039

CENTERVILLE ALF, INC., et al., Plaintiffs, v. BALANCED CARE CORP., Defendant.

Case No. C-3-01-233.

United States District Court, S.D. Ohio, Western Division.

March 18, 2002.

P. Brian See, Keith Shumate, Columbus, OH, for Plaintiffs.

Marc Blubaugh, Columbus, OH, for Defendant.

DECISION AND ENTRY OVERRULING DEFENDANT'S MOTION TO DISMISS, PURSUANT TO FED. R. CIV. P. 12(B)(3) AND (7) (DOC. # 5-1), ITS MOTION TO SEVER (DOC. # 5-2), AND ITS MOTION TO TRANSFER (DOC. # 5-3)

RICE, Chief Judge.

The instant litigation arises out three alleged breaches of contract by Defendant Balanced Care Corporation ("BCC"), in which BCC failed to fund the outstanding lease obligations of three tenants to their respective landlords. Plaintiffs Centerville ALF, Inc., Medina ALF, Inc., and Shippensburg ALF, Inc., are three landlords, who own three assisted living facilities, two in Ohio (the Centerville and Medina facilities) and one in Pennsylvania (the Shippensburg facility). All Plaintiffs are affiliated with Ocwen Financial Corporation ("Ocwen"). According to their Complaint (Doc. # 1), Plaintiffs entered into leases with tenants, who agreed to operate the facilities as long-term residential care centers. Specifically, on December 31, 1997, Medina ALF entered into a lease agreement with Senior Care Operators of Ohio, LLC. On March 31, 1998, Centerville ALF entered into an identical lease with Senior Care Operators of Centerville, LLC, and Shippensburg ALF entered into an identical lease with Senior Care Operators of Shippensburg, LLC.¹ Each of the leases provided that the lessee would pay "base rent" and "additional rent," as set forth in the lease. The base rent was due on the first day of each month during the term of the lease, and the term was to last for 60 months following the "commencement date."

Each of the Lessees entered into a "Shortfall Agreement" with Defendant whereby BCC agreed to advance money to the Lessees for any operating deficits. None of the Plaintiffs was a party to the Shortfall Agreements. However, as an inducement for the Plaintiffs to enter into leases with their respective Lessees, BCC entered into a "Working Capital Assurance Agreement" (collectively, "Assurance Agreements") with each Plaintiff, in which BCC agreed to ensure the timely payment of all lease obligations. In particular, Defendant agreed that it would advance enough money to the tenants/Lessees to cover any outstanding obligations, upon receiving a written request for payment from the tenant or the landlord.

In December of 2000 and January of 2001, the Lessees each failed to pay any rent to Plaintiffs. Plaintiffs satisfied a portion of the rental obligations for December, January, and February by using available funds from letters of credit and other escrow amounts, as set forth in the leases. However, these amounts were insufficient to satisfy completely the amount of rent due and owing. The Lessees have continued to fail to pay rent. On April 9, 2001, Ocwen, on behalf of Plaintiffs, demanded that BCC advance sufficient money for the payment of all outstanding rent, pursuant to the Assurance Agreements. BCC has refused to advance any monies.

Consequently, on May 31, 2001, Plaintiffs filed the instant lawsuit against BCC, seeking to enforce their Assurance Agreements. The Complaint set forth four claims for relief, to wit: (1) a request for declaratory judgment that BCC must unconditionally fund the outstanding lease obligations, including the requirement to pay rent, and that its failure to do so constitutes a material breach of the Assurance Agreements; (2) a state law claim by the Medina Plaintiff for breach of contract; (3) a state law claim by the Centerville Plaintiff for breach of contract; and (4) a state law claim by the Shippensburg Plaintiff for breach of contract.

Pending before the Court are Defendant's Motion to Dismiss, pursuant to Fed. R.Civ.P. 12(b)(3) and (7) (Doc. # 5-1), its Motion to Sever (Doc. # 5-2), and its Motion to Transfer (Doc. # 5-3). As a means of analysis, the Court will first evaluate whether the Lessees are indispensable parties which cannot be joined, thus requiring dismissal, pursuant to Fed.R.Civ.P. 12(b)(7). If the Court concludes dismissal is not appropriate under Rule 12(b)(7), it will then turn to whether venue is proper in this district. If necessary, the Court will subsequently address together Defendant's Motions to Sever and to Transfer. For the reasons assigned, each of Defendant's Motions is OVERRULED.

I. Rule 12(b)(7): Necessary Parties

In its Motion to Dismiss, BCC argues that this litigation cannot proceed in this Court, because the Lessees are necessary and indispensable parties to the action. In determining whether an action should be dismissed for failure to join an indispensable party, pursuant to Fed.R.Civ.P. 12(b)(7), the Court employs a three-step process. Fed.R.Civ.P. 19; Local 670 v. International Union, United Rubber, Cork, Linoleum and Plastic Workers of America, 822 F.2d 613, 618 (6th Cir.1987), cert. denied, 484 U.S. 1019, 108 S.Ct. 731, 98 L.Ed.2d 679 (1988). First, the court must determine whether an absent party is necessary to the resolution of the litigation and should be joined if possible. Fed. R.Civ.P. 19(a). If the absent party is not "necessary," no further inquiry is required. Second, if the court concludes that the absent party is "necessary," the court must then determine whether the party is subject to the court's jurisdiction and, thus, can be joined. If personal jurisdiction exists and venue is proper, the absent party must be joined. Id.; Keweenaw Bay Indian Community v. State of Mich., 11 F.3d 1341, 1345-46 (6th Cir.1993). If the court lacks jurisdiction over the absent party, the court proceeds to the third step, i.e., it must determine whether it may proceed without that party or, conversely, must dismiss the case due to the party's indispensability. Fed.R.Civ.P. 19(b).

A. Are the Lessees Necessary Parties?

Rule 19(a) sets forth the criteria for determining whether a party is necessary to the litigation. It states, in pertinent part:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

Fed.R.Civ.P. 19(a). Defendant asserts that the Lessees are necessary to this action, because complete relief cannot be accorded in their absence. Specifically, BCC asserts that it has a contractual obligation under the Assurance Agreements to loan funds to the Lessees, not to make direct payment to Plaintiffs. Thus, it argues, the Court can only require BBC to pay funds to the Lessees, not directly to Plaintiffs. In addition, Defendant argues that the Lessees have an interest in the litigation, because a judgment in Plaintiffs' favor would require a finding that the Lessees have breached their respective contractual obligations.

1. Complete Relief Cannot be Accorded

In support of its argument that complete relief cannot be accorded without the Lessees, Defendant principally relies upon Video Towne, Inc. v. RB-3 Associates, 125 F.R.D. 457 (S.D.Ohio 1988) (Rice, J.), and Shoop v. Paramount Productions, Inc., 84 F.R.D. 90 (M.D.Pa.1979). In Video Towne, the plaintiff, a lessee, alleged that its landlord had breached its lease agreement, and that said breach was induced by the plaintiff's chief competitor, in whose favor the lease was terminated. The plaintiff sought to amend its Complaint, adding its competitor as a party-defendant. The plaintiff argued that the action would settle the rights to the property and, thus, its competitor, as the holder of the subsequent, competing lease, was an indispensable party. The Court began by noting that Plaintiff's allegations were in the nature of a claim for tortious interference with contractual relations. It further noted that if the plaintiff's action for breach of contract were to proceed in the Court, it could separately maintain an action for tortious interference with contractual relations against its competitor, the proposed additional defendant. However, the Court reasoned that the competitor was indispensable, because the plaintiff had not sought damages but, rather, specific performance of the lease. It stated that specific performance on a lease will not be awarded when the property owner has entered into a subsequent lease with a third party who had no notice of the prior lease agreement. Thus, the competitor's knowledge of the prior lease would be a critical issue before the Court, and a determination thereon would act as collateral estoppel in a subsequent action for tortious interference with contractual relations, which could potentially prejudice the absent proposed defendant. Thus, the Court concluded that the competitor was a necessary and indispensable party.

Unlike the plaintiff in Video Towne, Plaintiffs herein have not sought specific performance from either BCC or the Lessees. In other words, Plaintiffs have not requested that the Court order BCC to advance money to the Lessees, so that such funds can be paid by the Lessees to them. Rather, they have sought only a declaratory judgment that BCC has breached its agreement and damages. Although Defendant was required only to loan money to the Lessees, not to pay the Landlords directly, Plaintiffs can obtain a declaratory judgment that Defendant was required to issue funds...