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Kindred Nursing Centers East, LLC v. Estate of Nyce

United States District Court, D. Vermont

May 31, 2017

KINDRED NURSING CENTERS EAST, LLC d/b/a KINDRED TRANSITIONAL CARE AND REHABILITATION -BIRCHWOOD TERRACE, Plaintiff,
v.
ESTATE OF BARBARA L. NYCE, KINSLEY F. NYCE, and ROGER G. NYCE, Defendants.

          DECISION ON MOTION TO DISMISS OR STRIKE, CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT, AND MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT (Docs. 74, 78, 83)

          Geoffrey W. Crawford, Judge United States District Court

         This case is a dispute between a nursing home (Plaintiff Kindred Nursing Centers East, LLC ("Kindred")); the Estate of Barbara Nyce; and Roger and Kinsley Nyce, sons of Barbara Nyce, who received care from Kindred before her death on May 25, 2015. Alleging fraudulent conveyance and breach of contract, Kindred originally sought to recover a substantial balance owed for nursing home care provided to Barbara Nyce. Kindred alleges that the sons made use of a power of attorney during the last years of their mother's life to enrich themselves at her expense.

         Three motions are currently pending. First, Kindred seeks to strike or dismiss the counterclaims against it. (Doc. 74.) Second, the Estate[1] seeks partial summary judgment as to paragraphs 42 and 43 in Kindred's Amended Complaint. (Docs. 77, 78.) Third, Kindred seeks to file a Second Amended Complaint which sets forth a single cause of action under the Vermont Fraudulent Transfer Act, 9 V.S.A. §§ 2285-2295. (See Doc. 83-4.) Before addressing those pending motions, the court pauses briefly to address jurisdictional and real-party-in-interest questions that it asked the parties to brief.

         I. Jurisdiction and Real Party in Interest

         In an Entry Order filed on March 28, 2017, the court expressed concern regarding subject matter jurisdiction in this case, as well as whether Kindred is the real party in interest. (Doc. 88.) The parties have filed memoranda at the court's request. (Docs. 90, 91, 92, 93.) The court appreciates the parties' attention to these concerns, and sets forth its conclusions below.

         A. Diversity Jurisdiction

         All parties agree that there is complete diversity in this case. (Doc. 90 at 1; Doc. 91 at 1; Doc. 92 at 1.) The court sees no basis for concluding otherwise.

         Regarding the amount in controversy, the proposed Second Amended Complaint (Doc. 83-4) seeks less than the $75, 000 sum that is necessary for diversity jurisdiction under 28 U.S.C. § 1332. Notwithstanding that development, it appears that the court's jurisdiction is not jeopardized. "[0]nce a case that was initiated in state court has been removed properly, subsequent events that reduce the amount recoverable-such as the plaintiffs amendment of the complaint-will not defeat the federal court's subject-matter jurisdiction." Charles Alan Wright, et al., Federal Practice & Procedure: Jurisdiction and Related Matters § 3725.2 (4th ed.) (WL updated Apr. 2017) (citing cases, including St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283 (1938)). In 1988, after St. Paul Mercury was decided, 28 U.S.C. § 1447 was amended to include the following: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). Kindred suggests that the change to § 1447 overturned the holding in St. Paul Mercury. (Doc. 91 at 4.)

         The court rejects that argument for the reasons articulated in Flynn v. Schwan 's Consumer Brands Inc., No. 15 Civ. 4509(CM), 2015 WL 4560870, at *2 (S.D.N.Y. July 27, 2015), and Purple Passion, Inc. v. RCN Telecom Services, Inc., 406 F.Supp.2d 245, 245 (S.D.N.Y. 2005). The 1988 amendment to § 1447 was stylistic; cases since 1988 affirm that jurisdiction is not divested by subsequent events; and a conclusion to the contrary would facilitate gamesmanship and forum-shopping. Flynn, 2015 WL 4560870, at *2. The Supreme Court's decision in Powerex Corp. v. Reliant Energy Services, Inc., 551 U.S. 224 (2007), is not to the contrary. See Beck Chevrolet Co. v. Gen. Motors LLC, No. 11 Civ. 2856 (AKH), 2012 WL 12925023, at *1 (S.D.N.Y. Aug. 23, 2012).

         B. Real Party in Interest

         The court previously expressed its concern that Kindred might lack authority to pursue claims on behalf of the Estate against the Nyce sons. (Doc. 88 at 2.) Kinsley Nyce and the Estate assert that Kindred is not the real party in interest to pursue claims for disgorgement and other equitable remedies intended to recover amounts allegedly taken improperly from Barbara Nyce by her sons. (Doc. 90 at 3.) They argue that, under the proposed Second Amended Complaint (Doc. 83-4), "there is no valid claim for attorney's fees, and there can be no valid fraudulent transfer claim." (Doc. 90 at 3.) They further argue that, if there were a valid fraudulent-transfer claim, the resulting money judgment would become a perfected claim against the Estate in the probate proceedings, thereby running afoul of the "probate exception" to federal jurisdiction. (Id.)

         "The real party in interest principle . . . ensures that only a person who possesses the right to enforce [a] claim and who has a significant interest in the litigation can bring the claim." Cortlandt St. Recovery Corp. v. Hellas Telecomms. S.A.R.L., 790 F.3d 411, 420 (2d Cir. 2015) (alteration in original) (internal quotation marks omitted). Kindred is the proper party to pursue a claim for the attorneys' fees it incurred in obtaining relief from Medicaid's suspension of Barbara Nyce's coverage. It alleges that it paid the fees and that the suspension occurred due to misconduct by Kinsley and Roger Nyce. Whatever the merits of the claim may be-and these are discussed below-Kindred is the correct party to seek recovery of the legal expenses it paid out to address the suspension of benefits.

         Kindred does not appear to have any interest (obviously) in the alleged conversion of Barbara Nyce's assets, both cash and real property, by her sons before her death. But unless the court is mistaken, it was Kindred which opened the estate and it is Kindred's chosen attorney Ms. Mobbs who is pursuing a claim for disgorgement against the heirs Kinsley and Roger Nyce for the ultimate benefit of the heirs Kinsley and Roger Nyce. (See Doc. 35-1 at 1 (June 21, 2016 probate court Order noting that Kindred opened the estate on Ms. Nyce's behalf as a principal creditor).)

         The court intends no criticism of Ms. Mobbs for opening the estate. No one else had done so, and at the time the estate appears to have owed a substantial amount of money to Kindred for care provided to Barbara Nyce. Section 903(2) of Title 14 authorizes a creditor of the decedent to serve as administrator under certain conditions. The appointment of the administrator lies outside the authority of this court and is exclusively reserved to the probate court.

         It now appears that Kindred is no longer a creditor. One point on which both sides agree is that the acceptance by Kindred of the Medicaid payment relieved the estate of any further obligation to pay for Barbara Nyce's care. For what purpose then does an attorney retained by Kindred remain active in this court seeking an accounting, disgorgement, and other remedies against the Nyce brothers? Before this case proceeds further, this court seeks clarification of the following question: does Attorney Mobbs have authority from the probate court to sue in this court to recover the money and property which she alleges the Nyce brothers took improperly from their mother during her last year of life? This claim for disgorgement is entirely distinct from Kindred's own claim against the Nyce brothers for legal fees.

         Clarification may take the form of an order from the probate court. The parties may stipulate to it (unlikely) or there may be some resolution which the court does not foresee. But the pursuit of the Nyce brothers by counsel chosen by Kindred on behalf of the Nyce brothers (and other heirs if there are any) is an issue which must be resolved before the court and the parties can plan for a trial. The court requires a filing by Attorney Mobbs on this issue within 30 days. Kinsley Nyce may respond within 15 days.

         II. Kindred's Motion to Amend

         Kindred's proposed Second Amended Complaint would eliminate the breach-of-contract claim, and allege only a single cause of action under the Vermont Fraudulent Transfer Act (VFTA), 9 V.S.A. §§ 2285-2295. (See Doc. 83-4.) Kindred alleges that, when Barbara Nyce was admitted to its nursing home in March 2014, Defendants agreed to inform Kindred of any changes in her assets and to pursue obtaining Medicaid coverage on her behalf. (Id. ¶ 13.) Kindred alleges that Defendants did neither of those things. Kindred asserts that Barbara Nyce's sons fraudulently transferred her assets to enrich themselves. (See Id. ¶¶ 17-19, 29.) According to Kindred, Defendants failed to secure Medicaid benefits on behalf of Barbara Nyce, and Kindred itself incurred expenses in obtaining those benefits. (Id. ¶¶31, 39.)

         Regarding relief requested, Kindred notes that Barbara Nyce's monthly "patient share" was allowed a deviation for payment of non-covered medical expenses owed to Burlington Health & Rehab, and that Defendants do not owe any payment for the "patient share." (Id. ¶ 43.) With the balance of the nursing home bill eliminated, Kindred seeks only payment of attorney fees and costs it incurred in obtaining Medicaid coverage for Barbara Nyce. The amount of this claim is $68, 007.74. (Id. ¶¶ 44, 61.) Kindred also seeks punitive damages and a broad order against the two Nyce sons enjoining them from dissipating Barbara Nyce's funds, selling her home, spending fire insurance proceeds, and recovering funds taken by the Nyce sons from their mother's bank accounts. (Id. at 15-16.)

         Under Federal Rules of Civil Procedure Rule 15(a)(2), a party may amend its pleading with the court's leave, which "should freely give leave when justice so requires." Leave to amend "should generally be denied in instances of futility, undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, or undue prejudice to the non-moving party." United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 28 (2d Cir. 2016) (quoting Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008)).

         Kinsley Nyce and the Estate oppose the proposed amendment, arguing that it would be futile for four reasons. First, they argue that there is no basis for recovery of fees and costs under the American Rule. Second, they argue that there is no basis for recovery of fees and costs under the third-party litigation exception. Third, Kinsley Nyce asserts that he cannot be personally liable for fees and costs because there is nothing in the Durable Power of Attorney that creates ...


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