RehabCare Group East, Inc. et al v. Stratford Health Care Properties, LLC
Filing
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ORDER granting 42 and 46 defendants' Motions to Dismiss. Counts IX and X of the Amended Complaint are DISMISSED. Signed on 8/31/15 by District Judge Fernando J. Gaitan, Jr. (Enss, Rhonda)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
REHABCARE GROUP EAST, INC. d/b/a
REHABCARE GROUP THERAPY
SERVICES, INC., and PHARMACY
CORPORATION OF AMERICA, AS
ASSIGNEE OF PHARMERICA
CORPORATION,
Plaintiffs,
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v.
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STRATFORD HEALTH CARE PROPERTIES, )
LLC, et al.,
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Defendants.
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Case No. 14-0886-CV-W-FJG
ORDER
Pending before the Court are (1) Defendants Blom and Willbanks’ Motion to
Dismiss Count IX for Breach of Fiduciary Duty for Failure to State a Claim (Doc. No.
42); and (2) Defendant Thad Batson’s Motion to Dismiss Count X of Plaintiffs’ Amended
Complaint (Doc. No. 46). Both will be considered, below.
I.
Background
Plaintiffs filed their Complaint on October 8, 2014 (Doc. No. 1). On April 29,
2015, the Court Granted plaintiffs’ motion for leave to file an amended complaint, and
plaintiffs filed their amended complaint (Doc. No. 24) on that same date.
Plaintiffs
previously obtained default judgments against Stratford Health Care Group, Inc., and in
this lawsuit plaintiffs allege they have suffered damages due to defendants’ scheme to
defraud Stratford Health Care Group, Inc.’s creditors. See Doc. No. 24, ¶¶ 64 and 67.
Defendants in this matter are (1) Stratford Mo/Kan Development Corporation (“Stratford
Management”); (2) Stratford Health Care Properties, LLC (“Stratford Properties”); (3)
Stratford Health Care Group, Inc. (“Stratford Operator”); (4) Fit for Life, Inc. (“Fit for
Life”); (5) Fitness for Life, L.C. (“Fitness for Life”); (6) Stratford Specialty Care, Inc.
(“Seasons Care”); (7) Kenneth Blom (“Blom”); (8) Randall Willbanks (“Willbanks”); (9)
Thad Batson (“Batson”); and (10) John Does 1-10. Plaintiff’s causes of action against
Defendants are as follows:
Count I—Fraudulent Conveyance against Stratford
Properties; Count II—Conspiracy to Engage in Fraudulent Conveyance against Blom,
Willbanks, John Does 1-10, and Stratford Properties; Count III—Unjust Enrichment
against Stratford Properties; Count IV—Fraudulent Conveyance against Stratford
Properties; Count V – Conspiracy to Engage in Fraudulent Conveyance against
Stratford Properties, Batson, Blom, Willbanks and John Does 1-10; Count VI—Unjust
Enrichment against Stratford Properties; Count VII—Fraudulent Conveyance against
Stratford Management; Count VIII—Fraudulent Conveyance against Seasons Care;
Count IX—Breach of Fiduciary Duty against Blom and Willbanks; Count X—Aiding and
Abetting Breach of Fiduciary Duty against Batson; Count XI—Piercing the Corporate
Veil against Blom, Willbanks, Stratford Management, Stratford Properties, Fit for Life,
Fitness for Life, and Seasons Care; and Count XII—Claim for Accounting against
Stratford Operator.
As relevant to the pending motions, plaintiff RehabCare Group East, Inc. d/b/a
RehabCare Group Therapy Services, Inc. (“RehabCare”) is a Delaware corporation with
its principal place of business in Louisville, Kentucky, and provides therapy services to
residents of long term care and skilled nursing facilities. Plaintiff Pharmacy Corporation
of America, as Assignee of Pharmerica Corporation (“PharMerica”) is a California
corporation with its principal place of business in Louisville, Kentucky, and provides
pharmacy-related goods and services to residents of long term care and skilled nursing
home facilities. Defendant Kenneth Blom is a citizen of Independence, Missouri, was a
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shareholder of Stratford Management until December 31, 2011, and presently serves as
president of each of the Stratford Entities as well as a board member of each
corporation within the Stratford Entities. Randall Willbanks is a citizen of Leawood,
Kansas, and is presently the sole shareholder of Stratford Management, serves as the
secretary and treasurer of each of the entities within the Stratford Entities, and serves
as a board member of each corporation within the Stratford Entities. Thad Batson is a
resident of Bucyrus, Kansas, and at all times relevant to this complaint was licensed to
practice law in the State of Missouri.
Batson represented Stratford Operator and
Stratford Properties in their sale and transfer of their operations.
As alleged in plaintiffs’ Amended Complaint (Doc. No. 24), Stratford Operator,
Stratford Properties, Fit for Life, Fitness for Life and Seasons Care (the “Stratford
Subsidiaries”), are alter egos of Stratford Management and the ultimate owners, Blom
and Willbanks.1 Plaintiffs allege that the Stratford Entities are controlled by the same
people, consisting of similar boards of directors and executive officers, including Blom
and Willbanks. Plaintiffs allege that in order to protect their financial interests, Blom and
Willbanks structured the Stratford Entities so that the Stratford Subsidiaries incurred the
liabilities of the operation whereas the profits were passed to Stratford Management so
as to keep assets away from the Stratford Subsidiaries’ creditors. Doc. No. 24, ¶ 26.
Plaintiffs allege that they entered into contracts with Stratford Operator to provide
therapy services (RehabCare) and pharmacy-related goods and services (PharMerica).
Doc. No. 24, ¶¶ 29-30. Plaintiffs assert that Stratford Operator stopped paying monthly
bills beginning in 2010. Doc. No. 24, ¶ 31. Plaintiffs then assert that Blom and Willbanks
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Plaintiffs collectively refer to the Stratford Subsidiaries and Stratford Management as
the “Stratford Entities.”
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developed a scheme to keep Stratford Operator’s assets outside the reach of creditors
by conveying Stratford Operator’s real property to a real estate holding company. Doc.
No. 24, ¶¶ 32-38. Plaintiffs assert that in 2012, Blom and Willbanks developed an
additional fraudulent scheme in which they sold Stratford Operator’s operations of the
facility to a third party for no consideration, leaving Stratford Operator without assets
and judgment-proof. Doc. No. 24, ¶¶ 43-58. Plaintiffs further assert that from January
2012 to June 2013, Stratford Operator made transfers of large amounts of cash
(approximately $4 million) from its bank accounts to those of Stratford Management,
allegedly without any business purpose and instead as a plan to siphon off Stratford
Operator’s assets. Doc. No. 24, ¶¶ 59-63.
In 2013, RehabCare filed a collections action in the Western District of Missouri
(RehabCare Group East, Inc. v. Stratford Health Care Group, Inc., 4:13-cv-373-DW),
and PharMerica filed a collections action against Stratford Operator in the Western
District of Kentucky (Pharmacy Corporation of America, as assignee of PharMerica
Corporation v. Stratford Healthcare Group, Inc. d/b/a Hidden Lake Care Center, 3:13cv-704-JGH). Doc. No. 24, ¶ 64. Stratford Operator failed to answer or otherwise
respond to these complaints, and both RehabCare and PharMerica have been awarded
substantial default judgments. Doc. No. 24, ¶ 67. Plaintiffs allege that Stratford Operator
is insolvent and unable to pay either judgment. Doc. No. 24, ¶ 69. Plaintiffs now seek
to hold the Stratford Entities and various individuals (such as Blom, Willbanks, and
Batson) liable for the judgments entered against Stratford Operator.
On May 27, 2015, defendants Blom and Willbanks filed a motion to dismiss
Count IX of plaintiffs’ amended complaint for breach of fiduciary duty, arguing that
plaintiffs have failed to state a claim upon which relief may be granted. Doc. No. 42.
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Similarly, on June 10, 2015, defendant Batson filed a motion to dismiss Count X of
plaintiffs’ amended complaint, for aiding and abetting a breach of fiduciary duty, arguing
that if Count IX is dismissed Count X must be dismissed as well.
II.
Standard
When ruling on a defendant’s motion to dismiss, a judge must accept as true all
of the factual allegations in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555-56 (2007). A plaintiff need not provide specific facts in support of his allegations.
Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). But the plaintiff must include sufficient
factual information to provide grounds on which the claim rests, and to raise a right to
relief above a speculative level. Schaaf v. Residential Funding Corp., 517 F.3d 544, 549
(8th Cir. 2008). A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This requires a plaintiff
to plead more than labels and conclusions, and a formulaic recitation of the elements of
the cause of action will not do. Twombly, 550 U.S. at 555. A complaint must contain
either direct or inferential allegations respecting all the material elements necessary to
sustain recovery under some viable legal theory. Id. at 562 (quoted case omitted). The
standard simply calls for enough fact to raise a reasonable expectation that discovery
will reveal evidence of the claim. Id. at 556.
III.
Defendants’ Motions to Dismiss (Doc. Nos. 42 and 46)
A. Blom and Willbanks (Doc. No. 42)
Defendants Blom and Willbanks move to dismiss plaintiffs’ claims for breach of
fiduciary duty, as under Missouri law, officers and directors of a corporation typically do
not owe a fiduciary duty to corporate creditors, such as plaintiffs.
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Additionally,
defendants Blom and Willbanks argue that plaintiffs do not have standing to pursue a
claim against Blom and Willbanks without the presence of all creditors of Stratford
Operator. As noted by defendants Blom and Willbanks, plaintiffs have pled that Blom
and Willbanks owed a fiduciary duty to Stratford Operator’s creditors, and breached that
duty by causing Stratford Operator to make preferential transfers to only certain
creditors, leaving no assets to pay others such as plaintiffs. Doc. No. 24, ¶¶ 156-164.
Under Missouri law, to state a claim for breach of fiduciary duty, a plaintiff must
plead: (1) the existence of a fiduciary duty; (2) breach of that duty; (3) causation; and (4)
damages. Hibbs v. Berger, 430 S.W.3d 296, 312-13 (Mo. App. 2014). Defendants
indicate that in this instance, there is no fiduciary duty present. Generally, the mere
existence of a contractual or business relationship between entities does not create a
fiduciary duty. Icard Stored Value Solutions, L.L.C. v. West Suburban Bank, No. 4:07CV-1539-CAS, 2008 WL 619236, at *3 (E.D. Mo. Mar. 3, 2008). However, a limited
exception applies when it is established that a corporation is insolvent. Drummond Co.
v. St. Louis Coke & Foundry Supply Co., 181 S.W.3d 99, 103 (Mo. App. 2006). Further,
even in the event of insolvency, “Missouri has rejected the concept that corporate
directors are fiduciaries for creditors . . . and has held that directors are not individually
liable to creditors, absent statutory authority or an intentional or fraudulent act.” Id.
When a transfer has been made to defraud creditors, such transfer is governed by the
“Uniform Fraudulent Transfer Act,” Chapter 428 RSMo, and the remedy is to avoid the
transfer. Id. Moreover, individual creditors of the corporation lack standing to sue for
recovery based on the corporate director’s trustee-like duty to all creditors; an individual
creditor does “not have standing to sue for a full individual recovery of the outstanding
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balance” owed. Stricker v. Union Planters Bank, N.A., 436 F.3d 875, 878 (8th Cir.
2006).
Defendants argue that they owed no direct fiduciary duty to corporate creditors
such as plaintiffs. See Drummond Co., 181 S.W.3d at 103. Furthermore, plaintiffs have
pled that Blom and Willbanks acted “intentionally or negligently,” which defendants
believe is insufficient without further facts suggesting an intent to defraud.
See
Amended Complaint, Doc. No. 24, at ¶ 162. Finally, defendants argue that even if
plaintiffs could demonstrate fraudulent intent and that Stratford Operator was insolvent
or approaching insolvency at the time it stopped paying plaintiffs’ monthly invoices,
under Missouri case law and Eighth Circuit law interpreting that case law, there is no
cognizable claim by an individual creditor for a breach of a duty owed to all the
creditors. Drummond Co., 181 S.W.3d at 103, Stricker, 436 F.3d at 878.
In response, plaintiffs detail the ways in which they believe they adequately pled
Blom and Willbanks’ intent to defraud and how Stratford Operator was insolvent or
approaching insolvency at the time it was transferring assets for the alleged benefit of
Blom and Willbanks. The Court finds, however, that even if it found that plaintiffs had
adequately pled an intent to defraud and that Stratford Operator was insolvent at the
time it was transferring assets, it remains bound by the Eighth Circuit’s holding in
Stricker, 436 F.3d at 878. In Stricker, the Eighth Circuit held that, under Missouri law, a
creditor does not have individual standing to sue a corporate officer or director for
breach of fiduciary duty. Id.
Plaintiffs argue that this Court should not follow the logic in Stricker because it
was wrongly decided and in conflict with controlling Missouri law. Peterson v. U-Haul
Co., 409 F.2d 1174, 1177 (8th Cir. 1969) (holding that “[i]n a diversity case neither this
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Court nor the District Court makes any declarations of law” and “[f]ederal court
decisions in diversity cases have no precedential value as state law”).
The Court,
however, notes that a panel decision by the Eighth Circuit on an issue of state law has a
binding effect on subsequent panels and on the District Court, absent a subsequent
state court decision or statutory amendment making the prior panel opinion incorrect.
See AIG Centennial Ins. Co. v. Fraley-Landers, 450 F.3d 761, 767-68 (8th Cir. 2006);
see also Washington v. Countrywide Home Loans, Inc., 747 F.3d 955, 958 (8th Cir.
2014). In this instance, the Court finds that it is bound by the Eighth Circuit’s prior
decision in Stricker, and no intervening state court decisions or statutory amendments
have affected the precedential value of Stricker.
Plaintiffs indicate that Stricker is
contrary to prior Missouri law, Williams v. Jones, 23 Mo. App. 132, 147 (Mo. App. 1886),
in which the court could “see no reason why a single judgment creditor should not be
permitted to file a creditor’s bill without having to ascertain who all the other creditors
are, and secure their co-operation, or make them parties . . . .” Id. However, as noted
by defendants, the above statement in Jones is dicta, and there is no indication that the
Jones plaintiffs had sued on a breach of fiduciary duty theory. Therefore, the Court
finds that plaintiffs do not have standing under Stricker to proceed on their individual
claims for breach of fiduciary duty against defendants Blom and Willbanks, as pled in
Count IX of the Amended Complaint.2 Therefore, defendants’ motion to dismiss (Doc.
No. 42) will be GRANTED.
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Plaintiffs also argue that even if this Court follows the holding in Stricker, plaintiffs
should be afforded the ability to proceed with their breach of fiduciary duty on a pro rata
share of Stratford Operator’s full assets, and should be allowed to take discovery to
determine whether there are other creditors. See Doc. No. 48, p. 14. Plaintiffs have not
filed a motion for leave to file an amended complaint, so the Court is unable to
determine the merits of such a claim. If plaintiffs file a motion for leave to file an
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B. Batson (Doc. No. 46)
Defendant Thad Batson moves to dismiss the claims against him for aiding and
abetting a breach of fiduciary duty. Defendant Batson argues that, because plaintiffs
cannot state a claim against Blom and Willbanks for breach of fiduciary duty, plaintiffs’
claim against Batson for aiding and abetting a breach of fiduciary duty likewise fails.
See Nickell v. Shanahan, 439 S.W.3d 223, 226 (Mo. 2014); Although plaintiffs argue
that the claims against Batson for aiding and abetting Blom and Willbanks in their
breach of fiduciary duties somehow could proceed even if the claims against Blom and
Willbanks were dismissed, the Court finds that allowing claims to proceed against
Batson and not Blom and Willbanks would be an anomaly. As referenced in Nickell in
an analogous situation, an aiding and abetting a breach of fiduciary duty claim should
not proceed where the original claim for breach of fiduciary duty has already been
dismissed. Nickell, 349 S.W.3d at 226.
Accordingly, defendant Batson’s motion to dismiss (Doc. No. 46) is GRANTED,
and Count X of the Amended Complaint is DISMISSED.
IV.
Conclusion
Accordingly, for the foregoing reasons, Defendants’ Motions to Dismiss (Doc.
Nos. 42 and 46) are GRANTED. Counts IX and X of the Amended Complaint are
DISMISSED.
IT IS SO ORDERED.
Date: August 31, 2015
Kansas City, Missouri
S/ FERNANDO J. GAITAN, JR.
Fernando J. Gaitan, Jr.
United States District Judge
amended complaint stating such a claim, the Court will consider those arguments at that
time.
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