GPH Louisville Hillcreek, LLC v. Redwood Holdings, LLC

• Decision Date: 21 March 2022
• Docket Number: Civil Action 3:21-CV-63-RGJ
• Parties: GPH LOUISVILLE HILL CREEK LLC, ET AL., Plaintiffs v. REDWOOD HOLDINGS, LLC, ET AL., Defendants
• Court: U.S. District Court — Western District of Kentucky

GPH LOUISVILLE HILL CREEK LLC, ET AL., Plaintiffs
v.
REDWOOD HOLDINGS, LLC, ET AL., Defendants

Civil Action No. 3:21-CV-63-RGJ

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

March 21, 2022

MEMORANDUM OPINION AND ORDER

Rebecca Grady Jennings, District Judge.

Plaintiffs/Counterclaim Defendants GPH Louisville Hillcreek LLC, GPH Louisville Camelot LLC, GPH Louisville Mt. Holly LLC, GPH Louisville St. Matthews LLC, GPH Frankfort LLC, GPH Kirtland LLC, GPH Vanceburg LLC, GPH Stanford LLC, and GPH Greensburg LLC (“Plaintiffs”) move to dismiss [DE 41]^[1] the First Amended Counterclaim filed by Defendants/Counterclaim Plaintiffs Redwood Holdings, LLC (“Redwood”), Hillcreek Leasing, LLC, Camelot Leasing, LLC, Mt. Holly Leasing, LLC, St. Matthews Leasing, LLC, Frankfort Leasing, LLC, Kirtland Leasing, LLC, Vanceburg Leasing, LLC, Stanford Leasing, LLC, and Green Hill Leasing, LLC (all entities other than Redwood are “Facility Operators”); and Eli M. Gunzburg (“Gunzburg”) (collectively “Defendants” or “Counterclaim Plaintiffs”). The matter is ripe. [DE 16; DE 20; DE 22; DE 23]. For the reasons below, Plaintiffs' Motion to Dismiss [DE 41] is GRANTED in part and DENIED in part.

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I. BACKGROUND

The well-pleaded factual allegations in the First Amended Counterclaim are accepted as true for purposes of Plaintiffs' motion to dismiss. See Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citing Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009) (citations omitted)).

This case involves a dispute between Plaintiffs, as landlords, and Defendants, as tenant, sub-tenants, and guarantor. Plaintiffs are the owners of eight skilled nursing facilities in Kentucky and Ohio. [DE 1 at 6, ¶ 25]. Plaintiffs and Redwood entered into a Master Lease, Amended and Restated Master Lease, and First Amendment to Amended and Restated Master Lease which collectively include the eight of the skilled nursing facilities at issue in this lawsuit. [DE 40 at 417-18, ¶¶ 25-31]. Copies of these documents are attached to the First Amended Counterclaim. [DE 40-1, 40-2, 40-3]. Gunzburg guaranteed these leases. [DE 1 at 6-7, ¶¶ 25, 27, 28]. Redwood sublet or assigned these agreements to its wholly owned subsidiaries, the Facility Operators. [Id. at 418-19, ¶ 34]. The lease terms were collectively November 1, 2016 through October 31, 2019. [DE 40 at 418, ¶ 30].

Defendants allegations surround the due diligence process. Defendants allege that Plaintiffs produced documents during the due diligence process and made false representations and promises intending to induce Defendants to enter into the leases. [DE 40 at 414, ¶ 2]. Defendants allege that Nicholas Finn (“Finn”) “represented that the accounting methodology used [in the financial statements produced by Plaintiffs] accurately reflected the financial status of the entities, especially in light of certain professional and general liability issues.” [Id. at 418, ¶ 33]. Defendants allege this was “a knowing and intentional misrepresentation” by Finn and that “wrongful death actions against [Plaintiffs] were far more robust and costly than represented.” Id.

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Defendants allege facts surrounding the parties' agreement. Defendants allege that Plaintiffs made verbal promises “with respect to certain aspects” of the leases that Plaintiffs renounced. [Id., ¶ 3]. Redwood paid a security deposit as required by Section 3.01 of the Master Lease. [DE 40 at 419, ¶¶ 35-36]. Defendants allege that upon an event of default, the Plaintiffs were supposed to apply the security deposit to any obligation of the tenant under the lease or return the security deposit within sixty days of the lease term expiring. [DE 40 at 419, ¶ 37]. Defendants failed to pay rent during the months of August, September, and October 2019. [DE 40 at 419, ¶ 38]. But Defendants allege that Finn waived all late fees associated with past due rent on August 15, 2019, and later agreed on September 10, 2019 to allow the security deposit to be applied to the August, September, and October 2019 rent and reaffirmed waiver of fees. [Id. at 419, ¶¶ 39-41]. Defendants allege that they informed Finn that their cash flow was impaired after their lender reduced their borrowing base. [Id. at 410, ¶ 42]. But Plaintiff ultimately did not waive the late fees for the past due rent and did not apply the security deposit to the past due rent. [Id. at 420, ¶ 42]. Defendants allege this was in retaliatory because Defendants counterclaimed in a civil action pending in Jefferson Circuit Court.^[2]

Defendants also allege facts surrounding the issue of certifying nursing home beds. Defendants allege that during negotiations they expressed “concern over the No. of licensed nursing home beds associate with the Kirtland facility . . . that [it] had more licenses nursing home beds than the market could possibly bear.” [Id. at 420, ¶ 47]. Defendants allege Finn was aware of this and agreed in October and November 2016 to decertify excess licensed beds. [Id. at 420, ¶ 48]. Defendants also allege “Section 18.4 was amended and revised in the Amended and Restate Master Lease” providing that Plaintiffs “approval for the decertification of licensed nursing home

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beds at the Kirtland facility would not be ‘unreasonably withheld, conditioned or delayed.'” [Id. at 420, ¶¶ 49-52]. Plaintiffs requested authorization to decertify 60 licensed beds at the Kirtland facility, but “Defendants refused to allow” Plaintiffs to decertify the beds. [Id. at 420, ¶¶ 53-55]. Plaintiffs later requested to decertify 81 beds at the Kirtland facility because excess beds were impairing reimbursement rates from the State of Ohio. [Id. at 421, ¶¶ 58-61]. Defendants assessed capital improvement amounts to Plaintiffs against the licensed beds that Plaintiffs wanted decertified. [Id., ¶ 62]. Plaintiffs allege that because of Defendants' refusal to decertify beds they “incurred expenses, including, but not limited to, bed taxes, a reduction in the Medicaid rate, and capital expenses.” [Id., ¶ 63].

Defendants allege that Plaintiffs retained property that belongs to Defendants. Defendants also allege facts surrounding required capital improvements to the facilities. Defendant had to expend a certain amount per year for capital improvements and if the amount expended was less than required, they were to deposit the deficiency with the Defendants, but if it was more than required the Defendants had to return the excess amount to the Plaintiffs. [Id. at 423, ¶ 64]. Defendants admitted that they owed Plaintiffs $354, 654.43 in excess capital expenditures at the end of the lease but refuse to pay it. [Id., ¶ 65]. Plaintiffs also acknowledge they owe Defendants money for the purchase of beds but refuse to pay it. [Id., ¶ 67].

Plaintiffs sued the tenant Defendants as a result of the unpaid rent for breach of the Master Lease and Gunzburg for breach of guaranty. [DE 1]. Defendants counterclaimed against Plaintiffs for breach of contract, unjust enrichment, promissory estoppel, conversion, fraud in the inducement, and negligent misrepresentation based on the allegations summarized above. [DE 40]. Plaintiffs now move to dismiss Defendants' counterclaims.

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II. STANDARD

Federal Rule of Civil Procedure 12(b)(6) instructs that a court must dismiss a complaint if the complaint “fail[s] to state a claim upon which relief can be granted[.]” Fed.R.Civ.P. 12(b)(6). To properly state a claim, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief[.]” Fed.R.Civ.P. 8(a)(2). A pleading must contain “a demand for the relief sough, which may include relief in the alternative or different types of relief.” Fed.R.Civ.P. 8(a)(3). When considering a motion to dismiss, courts must presume all factual allegations in the complaint to be true and make all reasonable inferences in favor of the non-moving party. Total Benefits Plan. Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citation omitted). “But the district court need not accept a bare assertion of legal conclusions.” Tackett, 561 F.3d at 488 (citation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted).

To survive a motion to dismiss, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “A complaint will be dismissed . . . if no law supports the claims made, if the facts alleged are insufficient to state a claim, or if the face of the complaint presents an insurmountable bar to relief.” Southfield Educ. Ass'n v. Southfield Bd. of Educ., 570 Fed.Appx. 485, 487 (6th Cir. 2014) (citing Twombly, 550 U.S. at 561-64).

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In ruling on a motion to dismiss, the Court “may consider the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein” without converting to a summary judgment. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008).

III. DISCUSSION

Plaintiffs move to dismiss all of Defendants counterclaims. Each counterclaim will be addressed below. The Plaintiffs' arguments center on the parties' written agreements, which were attached to the Defendants' Amended Counterclaim. Because...