Pharmerica Corporation et al v. Advanced HCS LLC et al
MEMORANDUM OPINION AND ORDER by Judge David J. Hale on 3/6/2017 - Defendants' motions to dismiss, or alternatively, transfer 53 54 are GRANTED in part and DENIED in part. This case is TRANSFERRED to the United States District Court for the Eastern District of Texas. The plaintiffs' motion to deem matters admitted 62 is DENIED as moot. cc: Counsel, USDC Eastern District of Texas(DAK) [Transferred from Kentucky Western on 3/7/2017.]
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PHARMERICA CORPORATION, et al.,
Civil Action No. 3:15-cv-213-DJH
ADVANCED HCS LLC, et al.,
* * * * *
MEMORANDUM OPINION AND ORDER
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, PageID # 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, PageID # 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,
PageID # 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.
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, PageID # 587; D.N. 12,
PageID # 223) PharMerica provided medications and pharmacy services to twenty-nine SNFs in
Texas pursuant to Pharmacy Service Agreements (PSAs). (D.N. 1-2, PageID # 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., PageID # 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, PageID #
1214) Licari and D’Arcangelo owned and operated SNFs as well. (Id., PageID # 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., PageID # 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.
PageID # 1214–15) The defendants state that ten days “after the new PSAs were executed,
PharMaster was acquired by PharMerica.” (Id., PageID # 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., PageID # 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.
PageID # 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, PageID #
1215–16; D.N. 61, PageID # 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, PageID # 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, PageID # 1218) The parties reached a settlement in
2012, resulting in a Memorandum of Understanding (MOU). (Id., PageID # 1218–19) The
MOU provides that the SNFs were to enter into new PSAs within three months. (D.N. 1-2,
PageID # 598–99) The plaintiffs allege that the defendants failed to execute new PSAs and thus
the original PSAs remained in place. (Id., PageID # 599) The defendants, on the other hand,
claim that the settlement terminated the PSAs. (D.N. 14-1, PageID # 291)
According to the plaintiffs, in mid-2014, the SNF defendants began falling behind on
their payments to PharMerica. (D.N. 54-3, PageID # 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., PageID # 588)
The plaintiffs contend that the sales occurred without proper notice to PharMerica and in
violation of the PSAs. (Id, PageID # 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., PageID # 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, PageID # 288) The defendants state that they “all reside in
Texas, operate exclusively in Texas and/or conduct substantial business operations in Texas.”
(Id., PageID # 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.”
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
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, PageID # 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, PageID # 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, PageID # 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, PageID # 1533–
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
(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, PageID # 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
Tenn. Bank Nat’l Ass’n, 875 F.2d 1212, 1214 (6th Cir. 1989)). “The weight of the plaintiff’s
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, PageID
# 1522–27) According to the plaintiffs, because the dispute-resolution clause in the PSAs
requires arbitration in Louisville, Kentucky, the clause moots the defendants’ personaljurisdiction objections. (Id., PageID # 15222–23) The plaintiffs argue that the SNFs are bound
to this forum selection as signatories to the PSAs. (Id., PageID # 1524–26)
The defendants respond that the Court lacks personal jurisdiction over them. (D.N. 53-1,
PageID # 1055; D.N. 54-3, PageID # 1221) First, the defendants contend that the PSAs cannot
establish personal jurisdiction because the SNF defendants signed only the Assignment and
Assumption Agreements and none of the defendants signed the PSAs. (D.N. 54-3, PageID #
1223) Second, in the alternative, the defendants argue that the PSAs were terminated by the
settlement agreement from the Texas litigation. (Id., PageID # 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., PageID # 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, PageID #
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 (quoting Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99,
106 (Ky. 2003)). “‘A contract is ambiguous if a reasonable person would find it susceptible to
different or inconsistent interpretations.’” Id. (quoting Cantrell Supply, Inc. v. Liberty Mut. Ins.
Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002)).
The MOU from the Texas litigation states, in relevant part:
1. The parties will negotiate in good faith and execute a final settlement
agreement (the “Final Settlement Agreement”) which is consistent with the terms
and conditions set forth herein.
2. The existing Pharmacy Services Agreements (“Existing PSAs”) shall be
terminated effective no later than December 31, 2012 and 34 of the Plaintiffs
(which represents all of the Plaintiffs nursing homes or facilities currently
receiving goods and service from PharMerica plus Mesquite NH SNF LLC) shall
enter into new Pharmacy Services Agreements (“PSAs”) with PharMerica which
PSAs shall expire no later than the date that the Existing PSAs were to expire.
The form of the Existing PSAs shall be utilized in connection with creating the
PSAs and the existing pricing schedules shall be used except to the extent that
modification of either the forms or pricing has been agreed to herein or in the
Final Settlement Agreement. In no event shall any term or pricing schedule of the
PSAs be less favorable than the corresponding term or pricing schedule of the
(D.N. 54-15, PageID # 1415)
The Rider to the MOU provides:
1. Each Party represents and warrants that the terms of the MOU are binding and
enforceable against all Parties thereto with or without the execution of a “Final
2. Each party waives any defense to the enforceability of the MOU.
(D.N. 54-16, PageID # 1424)
The Court finds that two interpretations of the MOU and Rider are plausible. The MOU states
that the existing PSAs were terminated as of December 31, 2012. (D.N. 54-15, PageID # 1415)
Conversely, the MOU also intended that the parties would “enter into new” PSAs, and the form
of the new PSAs was to be based on the existing PSAs. (Id.) Because the MOU states that the
PSAs “shall be terminated . . . and [the parties] shall enter into new [PSAs],” it is not clear what
PSA was to govern if the parties did not agree to new PSAs. (D.N. 54-15, PageID # 1415
(emphasis added)) The plaintiffs argue that the Rider addresses this issue in paragraph one when
it states that “the terms of the MOU are binding and enforceable against all Parties thereto with
or without the execution of a ‘Final Settlement Agreement.’” (D.N. 54-3, PageID # 1223)
However, this interpretation would assume that “Final Settlement Agreement” and new PSAs are
the same, and the Court finds nothing in the record to affirmatively support this assumption.
(Id.) Therefore, viewing the evidence in the light most favorable to the plaintiffs, the Court will
assume that the PSAs were not terminated by the MOU. See Theunissen, 935 F.2d at 1459.
Assuming the forum-selection clause applies, the next question is whether the plaintiffs
waived this provision when they previously litigated claims in Texas. (D.N. 54-3, PageID #
1224) “The Supreme Court has stated that, in light of present-day commercial realities, a forum
selection clause in a commercial contract should control absent a strong showing that it should
be set aside.” KFC Corp. v. Wagstaff, 502 B.R. 484, 489 (W.D. Ky. 2013) (citing M/S Bremen v.
Zapata Off-Shore Co., 407 U.S. 1, 15 (1972)). “Waiver, however, is held correctly to be a
voluntary and intentional surrender or relinquishment of a known right.” Overlook Terraces,
Ltd. v. Tamko Bldg. Prod., Inc., No. 3:14-CV-00241-CRS, 2015 WL 9906298, at *5 (W.D. Ky.
May 21, 2015) (citing Conseco Fin. Servicing Grp. v. Wilder, 47 S.W.3d 335, 344 (Ky. Ct. App.
2001)). “[A] party may waive an agreement to arbitrate by engaging in two courses of conduct:
(1) taking actions that are completely inconsistent with any reliance on an arbitration agreement;
and (2) ‘delaying its assertion to such an extent that the opposing party incurs actual prejudice.’”
Hurley v. Deutsche Bank Tr. Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010).
With respect to the first factor, the Second Circuit has held and “[o]ther circuits seem to
agree that waiver can only occur when a party has previously litigated the same claims it now
seeks to arbitrate.” Doctor’s Assocs., Inc. v. Distajo, 107 F.3d 126, 133 (2d Cir. 1997). “Finding
waiver where a party has previously litigated an unrelated yet arbitrable dispute would
effectively abrogate an arbitration clause once a party had litigated any issue relating to the
underlying contract containing the arbitration clause.” Id. In other words, for PharMerica to
have waived the forum-selection clause in this case, the claims must be the same as those
litigated previously in Texas. See id.
The Eastern District of Texas summarized the claims in that litigation as follows:
In 2010, Plaintiffs filed suit against PharMerica as the successor in interest of
PharMaster. Plaintiffs seek a declaratory judgment that the pharmacy services
agreements are void on the grounds of illegality. The agreements allegedly violate
the Anti–Kickback Statute, the False Claims Act, Texas Penal Code § 32.43, and
public policy. Second, Plaintiffs seek to recover for PharMerica’s breach of
warranties and representations in the pharmacy services agreements. Finally,
Plaintiffs allege breach of the pharmacy service agreements on the grounds that
PharMerica has failed to fully perform.
On October 24, 2011, PharMerica filed an answer to Plaintiffs’ Second Amended
Complaint and asserted counterclaims. PharMerica seeks declaratory judgment
that the pharmacy services agreements and the assignment and assumption
agreements are valid, legal, and enforceable. PharMerica also brings a claim for
“abuse of process” on the grounds that “Plaintiffs filed the Lawsuit for the
improper purpose of obtaining leverage in an effort to renegotiate the Pharmacy
Services Agreements . . . .” Finally, PharMerica counterclaims for attorneys’ fees.
Pittsburg SNF LLC v. PharMerica E., Inc., No. 2:10-CV-363-JRG-RSP, 2012 WL 4509753, at
*1 (E.D. Tex. July 19, 2012), report and recommendation adopted, No. 2:10-CV-363-JRG-RSP,
2012 WL 4508127 (E.D. Tex. Sept. 28, 2012) (internal citations omitted).
In the instant action, PharMerica seeks a declaratory judgment that the PSAs are valid
and binding and an order compelling arbitration in accordance with the PSAs. (D.N. 1-2,
PageID # 601) The plaintiffs also seek an order requiring the SNF LLCs and Texas Operations
to execute new PSAs. (Id., PageID # 602) Additionally, PharMerica claims that the SNF LLCs
and Texas Operations breached the PSAs and MOU by failing to make payments, attempting to
wrongfully terminate the PSAs, failing to execute new PSAs, and “failing to cause the Transferee
Defendants to execute assignment and assumption agreements as a condition of transfer.” (Id.,
PageID # 603) Relatedly, PharMerica alleges that the defendants were unjustly enriched because
PharMerica was not compensated for the goods and services it provided. (Id.) Next, the
plaintiffs assert that “Defendants Lichtschein, Scheiner, [Advanced HCS, and] Texas Operations
Managements LLC” tortiously interfered with the business relations between PharMerica and the
SNFs. (Id., PageID # 604) The plaintiffs claim that Lichtschein and Scheiner also committed
civil conspiracy by acting in concert to “accomplish a common unlawful purpose as set forth in
the Counts above.” (Id.) Finally, the plaintiffs allege that the defendants attempted to evade
liability by structuring the companies and transactions to “mask actual assets and thwart recovery
of funds and assets.” (Id., PageID # 605)
In response, the defendants argue that the PSAs are unenforceable, unlawful, and against
public policy. (D.N. 54-3, PageID # 1219) The defendants state that they will likely assert the
following counterclaims against PharMerica: breach of the PSAs, breach of warranty, and
fraudulent inducement. (D.N. 54-3, PageID # 1219) According to the defendants, the claims
raised by each side in this case are “the exact same claims” that were litigated in the Texas
litigation. (Id.; D.N. 69, PageID # 2646–67)
In reviewing both cases, the Court finds that the claims raised in the instant action were
previously raised in the Texas litigation. At its core, as in the Texas litigation, PharMerica’s
instant complaint argues that the PSAs are valid and that the defendants have not performed
under the PSAs. (D.N. 1-2, PageID # 601–05; D.N. 69, PageID # 2646–67) Additionally,
PharMerica alleges that the defendants have violated the settlement agreement, which “is nothing
more than a state law breach of contract claim.” (D.N. 1-2, PageID # 601–05) Judge Andrew S.
Hanen & Jeffrey M. Benton, The Enforceability of Settlement Agreements, 40 The Advoc.
(Texas) 69, 70 (2007); see also GATX Corp. v. Appalachian Fuels, LLC, No. 09-41-DLB, 2011
WL 4015573, at*1–2 (E.D. Ky. Sept. 9, 2011) (citing Kokkonen v. Guardian Life Ins. Co., 511
U.S. 375, 377–81 (1994)). While the defendants have not answered the plaintiffs’ complaint,
their motions to dismiss indicate that they will raise essentially the same claims they asserted in
the Texas litigation as counterclaims in this case, including breach of contract, breach of
warranty and unenforceability. (D.N. 69, PageID # 2646–47) Therefore, the Court concludes
that the plaintiffs waived the forum-selection clause by previously litigating these claims in
Texas and thus cannot establish personal jurisdiction over the defendants under this clause.
ii. Kentucky’s Long-Arm Statute
Alternatively, the plaintiffs argue that the SNF defendants are subject to personal
jurisdiction under Kentucky’s long-arm statute. The plaintiffs contend that by contracting with
PharMerica, a Louisville-based company, the SNF defendants “benefited from doing millions of
dollars of business with a Kentucky-based corporation.”
(D.N. 61, PageID # 1528)
Furthermore, the plaintiffs state that the SNF defendants have
(i) visited PharMerica executives in Kentucky to discuss the PSAs and potential
litigation; (ii) met with PharMerica executives about matters pertaining to the
PSAs; (iii) interacted with PharMerica employees located in Kentucky about the
PSAs via email; and (iv) corresponded with PharMerica in Kentucky, including
improperly sending letters terminating the relationship.
(Id. (internal citations omitted))
The SNFs argue that they have not transacted business in Kentucky and contend that their
only connection to Kentucky is a single agreement that they entered into with “Delaware
companies headquartered in Kentucky and directed payments which may have ultimately ended
up in PharMerica’s hands in Kentucky.” (D.N. 54-3, PageID # 1226) The SNF defendants argue
that executing a contract is not sufficient to establish personal jurisdiction. (Id., PageID # 1227
(citing KFC Corp., 502 B.R. at 487)) Additionally, the SNF defendants state that PharMerica
provided its goods and services to the defendants in Texas and the defendants have not
“regularly done or solicited” any other business in Kentucky. (Id., PageID # 1230)
Advanced HCS similarly argues that it lacks “jurisdictional contacts with Kentucky.”
(D.N. 53-1, PageID # 1050) Advanced HCS states that its “conducts its business operations . . .
exclusively in Texas” and “does not conduct business of any kind in Kentucky.” (Id.) For
support, Advanced HCS states that it is not registered to do business in Kentucky, does not own
or operate any facilities in Kentucky, does not advertise or market in Kentucky, “has never been
a party to contracts with entities or individuals located in Kentucky, and has never generated any
revenue originating from Kentucky.” (Id., PageID # 1050–51) Finally, Advanced HCS argues
that personal jurisdiction over it in Kentucky cannot arise from
the unsystematic circumstances that: (1) on two occasions, the Chief Operating
Officer of Advanced HCS, Mary Pfeifer, signed letters on behalf of certain of the
SNF Defendants that were addressed to PharMerica in Louisville, . . . and (2) on
isolated occasions, representatives of Advanced HCS responded to emails from
PharMerica employees who were located in Louisville.
(Id., PageID # 1051)
“Federal Rule of Civil Procedure 4(k)(1)(A) states that personal jurisdiction exists over
any properly-served defendant ‘who could be subjected to the jurisdiction of a court of general
jurisdiction in the state in which the district court is located.’” Flynn v. Greg Anthony Constr.
Co., 95 F. App’x 726, 739 (6th Cir. 2003) (quoting Fed. R. Civ. P. 4(k)(1)(A)). In Kentucky, the
Court must first look to the Commonwealth’s long-arm statute to determine whether “the cause
of action arises from conduct or activity of the defendant that fits into one of the statute’s
enumerated categories.” Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky.
2011). If the statute is applicable, the Court must then apply the traditional test “to determine if
exercising personal jurisdiction over the non-resident defendant offends his federal due process
Kentucky’s long-arm statute provides, in relevant part, that “[a] court may exercise
personal jurisdiction over a person who acts directly or by an agent, as to a claim arising from
the person’s . . . [t]ransacting any business in this Commonwealth.”
Ky. Rev. Stat. §
454.210(2)(a). Caesars clarified that “Kentucky’s long-arm statute is narrower in scope than the
federal due process clause.” Cox v. Koninklijke Philips, N.V., 647 F. App’x 625, 628 (6th Cir.
2016) (citing Caesars, 336 S.W.3d at 55–57). “There is little case law interpreting the meaning
of ‘transacting business’ . . . following Caesars, but, ‘even before Caesar[s] narrowed the scope
of Kentucky’s long arm statute, Kentucky courts have required a course of direct, affirmative
actions within a forum that result in or solicit a business transaction.’” Gentry v. Mead, No. CV
16-100-DLB-CJS, 2016 WL 6871252, at *3 (E.D. Ky. Nov. 21, 2016) (quoting Modern
Holdings, LLC v. Corning, Inc., No. 13-CV-405, 2015 WL 1481443, at *6 (E.D. Ky. Mar. 31,
2015)). “[E]ven under the outer bounds of due process, ‘the mere existence of a contract . . . is
insufficient to confer personal jurisdiction.’”
Cox, 647 F. App’x at 628 (citation omitted)
(quoting Calphalon Corp. v. Rowlette, 228 F.3d 718, 722 (6th Cir. 2000)).
For example, in Gentry, the court held that “[e]ntering into a Note, by itself, does not
establish the minimum contacts needed for jurisdiction.” 2016 WL 6871252 at *3. The court
explained that the defendant “never traveled to Kentucky,” the note was not executed in
Kentucky, and the defendant’s “only contact with Kentucky was in entering into the Note with
Gentry, who resided there.”
Therefore, the Court found that the defendant had not
“transacted business” in Kentucky and his contacts were insufficient to establish personal
Similarly, in Envirometric Process Controls, Inc. v. Adman Electric, Inc., the plaintiff, a
Kentucky corporation, subcontracted with the defendant, a Tennessee corporation, to provide
materials and services in Tennessee. No. 3:12CV-62-S, 2012 WL 4023789, at *2 (W.D. Ky.
Sept. 12, 2012). The Court held that the defendant had not “transact[ed] business” in Kentucky
because he was not licensed to do business in Kentucky; he had no physical presence in the
Commonwealth; the contract was performed outside Kentucky; and the contract was negotiated
over phone and email. Id. at * 2–3.
In Modern Holdings, the court held that a defendant corporation had not “transacted
business” in Kentucky because it had no offices, employees, manufacturing facilities, or agent
for service of process in the Commonwealth. 2015 WL 1481443 at *7. Additionally, the
corporation was never licensed to do business in Kentucky. Id.
In contrast, the court in Caesars found that the defendant “transacted business” in
Kentucky. 336 S.W.3d at 53. In that case, the plaintiff was injured on a casino boat owned by
an Indiana corporation and docked in Indiana. Id. at 52–53. However, because the defendant
advertised heavily in Kentucky, including “mass media and billboard advertising in Kentucky,
direct mail advertising to Kentucky residents, preferred customer incentives directed to Kentucky
residents, and substantial civic and charitable activities in the Commonwealth,” the court found
that there was personal jurisdiction over the defendant in Kentucky. Id. at 58.
In this case, the Court finds that the defendants have not “transact[ed] business” in
See Ky. Rev. Stat. § 454.210(2)(a).
Similar to the defendants in Gentry,
Envirometric, and Modern Holdings, the only contact the defendants have with Kentucky is
entering into a contract with a party located in Kentucky. See Gentry, 2016 WL 6871252, at *3;
Envirometric, 2012 WL 4023789, at *2; Modern Holdings, 2015 WL 1481443, at *7. As in
Envirometric and Modern Holdings, the defendants were not licensed to do business in
Kentucky, had no physical presence in Kentucky, and performed the contracts at issue in Texas.
See Envirometric, 2012 WL 4023789, at *2–3; Modern Holdings, 2015 WL 1481443, at *7.
Also, unlike the defendants in Caesars, the defendants have not sought business in Kentucky.
See 336 S.W.3d at 52–53.
Even viewing the plaintiffs’ argument in the most favorable light, they have not
established a prima facie case of personal jurisdiction. First, while the plaintiffs assert that the
defendants traveled to Kentucky to discuss the PSAs, in his deposition, Lichtman stated that the
only time he visited Kentucky was to discuss potential litigation in Texas, which is not sufficient
to establish personal jurisdiction. (D.N. 61-3, PageID # 1589) See Gentry, 2016 WL 6871252,
at *3. Second, the plaintiffs state that the defendants “met with PharMerica executives about
matters pertaining to the PSAs”; however, that meeting took place in New York. (D.N. 61-4,
PageID # 1618) Additionally, the plaintiffs contend that the defendants corresponded with
PharMerica employees in Kentucky via email and letters. (D.N. 61, PageID # 1528) However,
as in Envirometric, these communications are not sufficient to establish that the defendants
“transacted business” in Kentucky. See 2012 WL 4023789, at *2. In sum, the Court concludes
that the defendants have not “transacted business” in Kentucky.
Because Kentucky’s long-arm statute is not satisfied, the Court need not consider the
defendant’s due process rights.
See Caesars, 336 S.W.3d at 57.
The plaintiffs have not
established personal jurisdiction over the defendants in Kentucky.
iii. Alter-Ego Theory
The plaintiffs argue that personal jurisdiction over the SNF defendants “yields
jurisdiction over the remaining defendants under established alter ego law.” (D.N. 61, PageID #
1529–30) However, this theory requires that the plaintiffs first establish personal jurisdiction
over the SNFs. Because this prerequisite is not met, the Court will not address the plaintiffs’
alter-ego theory of personal jurisdiction.
The defendants argue that the case should be dismissed, or alternatively, transferred for
lack of personal jurisdiction and improper venue. (D.N. 53; D.N. 54) The plaintiffs respond that
because “[v]enue in removed cases is governed solely by § 1441(a)” and because this case was
filed in state court in Louisville, Kentucky, the U.S. District Court for the Western District of
Kentucky is the only proper venue under § 1441(a). (D.N. 61, PageID # 1548–49 (citing Kerobo
v. Sw. Clean Fuels, Corp., 285 F.3d 531, 534 (6th Cir. 2002)).
However, in Kerobo, as in the instant action, “[t]he defendants properly removed this
case to federal court; they then moved to dismiss for improper venue or, alternatively, to transfer
. . . .” 285 F.3d at 538–39. The Sixth Circuit explained:
It is true that here, the motion to dismiss was made pursuant to Rule 12(b)(3),
without specific reference to 28 U.S.C. § 1406(a). However, a Rule 12(b)(3)
motion to dismiss for improper venue is simply the procedural vehicle by which
to challenge improper venue; the Rules of Civil Procedure do not contain any
venue provisions or requirements. The requirements for venue are set by statute,
as are the remedies available for improper and inconvenient venue. Section
1406(a) applies only where venue is improper. Van Dusen, 376 U.S. at 634, 84
S.Ct. 805 (“[Section] 1406(a) provides for transfer from forums in which venue is
wrongly or improperly laid, whereas, in contrast, [section] 1404(a) operates on the
premises that the plaintiff has properly exercised his venue privilege.”). As we
previously concluded, venue in Michigan is not improper in this case, and the
dismissal under Rule 12(b)(3) must be reversed. As was the case in Ricoh, we are
left with the § 1404(a) motion.
Id. In other words, once it is established that a case was properly removed under § 1441, a court
may further consider whether venue is proper under either § 1404 or § 1406. Id. Given that this
case has the same procedural posture, the Court will similarly proceed to analyze venue under §
1404 or § 1406. See id.
A district court has authority to transfer a case under either 28 U.S.C. § 1404 or 28
U.S.C. § 1406. Pittock v. Otis Elevator Co., 8 F.3d 325, 329 (6th Cir. 1993). “A transfer under
section 1404(a) may not be granted when the district court does not have personal jurisdiction
over the defendants.” Id. (citing Martin v. Stokes, 623 F.2d 469, 474 (6th Cir. 1980)). “Unlike
section 1404(a), however, section 1406(a) does not require that the district court have personal
jurisdiction over the defendants before transferring the case.” Id. (citing Goldlawr, Inc. v.
Heiman, 369 U.S. 463 (1962)).
In this case, for the reasons explained above, the Court lacks personal jurisdiction;
therefore, the Court finds that section 1406(a) applies to the question of transfer. See id. That
section provides that a Court may dismiss the case, “or if it be in the interest of justice, transfer
such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406.
“Section 1631 also applies to such actions.” Jackson v. L & F Martin Landscape, 421 F. App’x
482, 483 (6th Cir. 2009). Section 1631 provides that if a “court finds that there is a want of
jurisdiction, the court shall, if it is in the interest of justice, transfer such action . . . to any other
such court in which the action . . . could have been brought. . . . .” 28 U.S.C. § 1631. “A court
may decide to dismiss an action rather than transferring it under § 1631 either because (1) no
permissible federal court would have jurisdiction over the action, or because (2) transfer would
not be in the interest of justice.” Jackson, 421 F. App’x at 483 (quoting Roman v. Ashcroft, 340
F.3d 314, 328 (6th Cir. 2003)) (internal quotation marks omitted).
i. Where Case Could Have Been Brought
The Court must first determine whether the case could have been brought in the Eastern
District of Texas, as the defendants contend. “The general venue statute, 28 U.S.C. § 1391, sets
forth the requirements for proper venue.” Sechel Holdings, Inc. v. Clapp, No. 3:12-CV-00108H, 2012 WL 3150087, at *2 (W.D. Ky. Aug. 2, 2012). Section 1391(b) provides:
A civil action may be brought in—
(1) a judicial district in which any defendant resides, if all defendants are residents
of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving
rise to the claim occurred, or a substantial part of property that is the subject of
the action is situated; or
(3) if there is no district in which an action may otherwise be brought as provided
in this section, any judicial district in which any defendant is subject to the court’s
personal jurisdiction with respect to such action.
28 U.S.C. § 1391(b).
The defendants argue that the venue is proper in the Eastern District of Texas because the
parties have previously litigated many of these same claims in that district. (D.N. 54-3, PageID #
Additionally, the defendants are all Texas organizations located in Texas, and the
contracts at issue were performed in Texas. (D.N. 14, PageID # 291) The plaintiffs do not
dispute that the case could have been brought in the Eastern District of Texas. (Id.) Instead,
they maintain that the Western District of Kentucky is also a proper venue because of the forumselection clause in the PSAs and pursuant to 28 U.S.C. § 1441. Because the Court has already
addressed these arguments, it need not visit them here. The Court finds that the action could
have been brought in the Eastern District of Texas.
ii. Interests of Justice
Next, the Court considers whether transferring the case to the Eastern District of Texas
serves the “interests of justice.” See 28 U.S.C. §§ 1406, 1631. “The long-standing authority on
the transfer of misfiled complaints is the Supreme Court’s opinion in Goldlawr v. Heiman.”
Stanifer v. Brannan, 564 F.3d 455, 458 (6th Cir. 2009) (citing Goldlawr, 369 U.S. 463).
interpreting Goldlawr, the Sixth Circuit explained “that transfer was appropriate when plaintiffs
‘had made an erroneous guess with regard to the existence of some elusive fact of the kind upon
which venue provisions often turn.’” Id. (quoting Goldlawr, 369 U.S. at 466). In other words,
“[i]f Plaintiff’s mistake were one easy to commit, the penalty of dismissal might be so
disproportionate to the wrong that it would have to be reversed, as a clear abuse of discretion.”
Id. (alterations omitted) (quoting Cote v. Wadel, 796 F.2d 981, 985 (7th Cir.1986)).
The defendants argue that “a substantial part of the events giving rise to this dispute
occurred in Texas.” (D.N. 53-1, PageID # 1068) The defendants state that all of the SNFs are
located in Texas, the previous litigation proceeded in Texas, and all the defendants “appear to be
subject to personal jurisdiction in Texas.” (Id.) Alternatively, the defendants argue that Texas is
the more convenient forum under 28 U.S.C. § 1404. (Id.) The plaintiffs maintain that the forumselection clause should control pursuant to § 1404; they do not address 28 U.S.C. § 1406. (D.N.
61, PageID # 1548–50)
In this case, the plaintiffs had a colorable argument for personal jurisdiction in the
Western District of Kentucky. See Stanifer, 564 F.3d 460. As explained above, the PSAs
contained a forum-selection clause that could have established personal jurisdiction. Traton
News, 528 F. App’x at 528).
Additionally, as evidenced by the Court’s lengthy analysis, the
plaintiffs made a reasonable argument that the defendants “transacted business” in Kentucky and
thus satisfied Kentucky’s long-arm statute.
The Court further finds that “a transfer would also be in the ‘interest of justice’ because a
transfer would save the parties the time and expense associated with refiling.” Freedman v.
Suntrust Banks, Inc., 139 F. Supp. 3d 271, 285 (D.D.C. 2015) (citing Capital Bank Int’l Ltd. v.
Citigroup, Inc., 276 F. Supp. 2d 72, 78 (2003)). In addition, the parties have previously litigated
similar claims in the Eastern District of Texas. Therefore, the Court concludes that it is in the
interest of justice to transfer the case to the Eastern District of Texas pursuant to 28 U.S.C. §
c. Motion to Deem Matters Admitted
Because the Court lacks personal jurisdiction and will transfer the case to the Eastern
District of Texas, the Court will not consider the plaintiffs’ motion to deem matters admitted.
The motion will be denied as moot. (D.N. 62) See Rice v. Karsch, 154 F. App’x 454, 464 (6th
Cir. 2005); PharMerica Corp. v. Advanced Healthcare Sols., LLC, No. CIV.A.309CV397H,
2009 WL 3248014, at *1 (W.D. Ky. Oct. 6, 2009).
For the reasons explained above, and the Court being otherwise sufficiently advised, it is
ORDERED as follows:
Had the Court concluded that personal jurisdiction existed and thus 28 U.S.C. § 1404 was
applicable, it would still reach the same conclusion regarding transfer because, as discussed
earlier, the defendants are based in Texas (D.N. 14, PageID # 291); the parties previously
litigated in Texas (D.N. 54-3, PageID # 1224); the contracts at issue were performed in Texas
(D.N. 14, PageID # 291); and the defendants are subject to personal jurisdiction in Texas (D.N.
53-1, PageID # 1068).
The defendants’ motions to dismiss, or alternatively, transfer (D.N. 53; D.N. 54)
are GRANTED in part and DENIED in part.
This case is TRANSFERRED to the United States District Court for the Eastern
District of Texas.
The plaintiffs’ motion to deem matters admitted (D.N. 62) is DENIED as moot.
March 6, 2017
David J. Hale, Judge
United States District Court
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