Kindred Nursing Centers East, LLC v. Estate of Barbara L. Nyce et al
Filing
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OPINION AND ORDER denying 17 Motion to Dismiss for Failure to State a Claim re: Birchwood's fraudulent transfer claim and denying as moot Birchwood's breach of contract claim; denying 24 Motion to Dismiss 20 Crossclaim for Lack of Jurisdiction. Signed by Judge Geoffrey W. Crawford on 6/20/2016. (esb)
U.S. DISTRICTCOURT
DISTRICI,O,F_VERMONT
r
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
KINDRED NURSING CENTERS EAST,
LLC d/b/a KINDRED TRANSITIONAL
CARE AND REHABILITATIONBIRCHWOOD TERRACE,
Plaintiffs,
v.
ESTATE OF BARBARA L. NYCE,
KINSLEY F. NYCE, and ROGER G.
NYCE,
Defendants.
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2016 JUU 2 I PH t2: 42
Case No. 5:16-cv-73
OPINION AND ORDER
(Docs. 17, 24)
In this diversity-jurisdiction case-removed from Vermont Superior Court-Plaintiff
Kindred Nursing Centers East, LLC d/b/a Kindred Transitional Care and RehabilitationBirchwood Terrace ("Birchwood") sues the Estate of Barbara L. Nyce (the "Estate"), as well as
Barbara Nyce's sons Kinsley F. Nyce, and Roger G. Nyce, claiming that Birchwood provided
Barbara with skilled nursing care until her death on May 25, 2015, but that Defendants failed to
make payment in full or secure Medicaid benefits as required by Barbara's Admission
Agreement. (Doc. 5.) 1 Birchwood asserts two causes of action. First, Birchwood claims that
Defendants breached the Admission Agreement by failing to provide information to the Vermont
Department of Children and Families (DCF), required for the assignment of Medicaid benefits to
Birchwood. Second, Birchwood claims that Defendants violated the Vermont Uniform
Fraudulent Transfer Act, 9 V.S.A. § 2285, et seq., by transferring Barbara's funds and real
1
For simplicity, the court refers to Barbara Nyce and to her sons by their first names.
property to Kinsley and Roger. The Estate-represented by its counsel Renee L. Mobbs, Esq.has filed cross-claims against Kinsley and Roger, alleging breach of fiduciary duty, conversion,
and embezzlement, and seeking an accounting, a declaratory judgment voiding the transfer of
property, and a constructive trust. (Doc. 20.)
Currently pending are two motions filed by Kinsley. First is Kinsley's Rule 12(b)(6)
motion, in which he argues that Birchwood has no direct action against him or Roger for failure
to secure Medicaid payment, and that Birchwood's fraudulent-transfer claim fails because all of
Birchwood's claims against Barbara abated at her death. (Doc. 17.) Kinsley has also filed a
Rule 12(b)(l) motion, arguing that, under the "probate exception," the court lacks subject-matter
jurisdiction over the Estate's cross-claims against him. (Doc. 24.) The court heard argument on
the motions on June 6, 2016, at which time the motions were taken under advisement.
Background
The allegations in Birchwood's Complaint include the following. At all times relevant,
Roger and Kinsley acted as attorneys-in-fact for their mother, Barbara, under a general durable
power of attorney executed on September 5, 2006 (the POA). Barbara was admitted to
Birchwood's skilled-nursing facility on or about March 18, 2014, and was a resident there until
her death on May 25, 2015.
On or about March 18, 2014, in connection with her admission to Birchwood, Barbara
entered into a written Admission Agreement with Birchwood. Under the terms of the Admission
Agreement, Birchwood agreed to provide Barbara with skilled nursing services and other items
in exchange for, among other things, the promise to pay Birchwood for services and care
rendered, to secure third party payor sources such as Medicaid to pay for the cost of her care, and
to assign all Medicaid benefits to Birchwood. Also under the Admission Agreement, any and all
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rights to receive third-party payments, including Medicaid, were assigned to Birchwood.
Barbara also agreed to inform Birchwood of any changes in her assets and also to pursue
obtaining Medicaid coverage on her behalf.
After her admission, an application for Medicaid long-term care benefits was filed on her
behalf with DCF. According to DCF, in the 60 months prior to her admission, Barbara owned:
(a) certificates of deposit (CDs) with Citizen's Bank (Citizen's) jointly with Roger and Kinsley;
(b) a retirement account with Citizen's; (c) CDs with People's United Bank (People's) jointly
owned with Roger or Kinsley; (d) a checking account with People's owned jointly with Roger
and Kinsley; and (e) a money market account with People's. In response to a verification request
by DCF, Birchwood requested all statements for those accounts.
On or about May 8, 2015, Birchwood discovered that at least $176,506.35 ofBarbara's
funds, held individually at People's, were withdrawn by and paid to Kinsley and Roger on
June 19,2014. Birchwood also learned that at least $440,089.22 of funds held jointly with
Barbara were withdrawn by and paid to Kinsley and Roger. In addition, Birchwood discovered
that approximately $119,484.50 held by Citizen's were withdrawn by and paid to Kinsley or
Roger.
According to a Jointly Held Liquid Resource Statement prepared by Defendants on
January 18, 2015 and submitted to DCF, the funds from the Citizen's Bank CDs were "no longer
available" because "the funds have so far as is known been utilized for the life needs of Barbara
L. Nyce." (Doc. 5-16 at 34.) The statement further indicated that Barbara also maintained a
house and "was most demanding that the house, taxes, services, third party maintenance and
work and all similar elements be maintained for her return to the residence. All of these costs as
well as the predatory practices of several persons in the greater Burlington area substantially
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depleted Barbara's funds." (Id.) On or about March 3, 2015, DCF sent a verification request
seeking proof to substantiate the claims in the Jointly Held Liquid Resource Statement. DCF
further requested proof of the disposition of the People's accounts. After extensions of time, the
deadline for providing verifications was October 7, 2015. As of the date the Complaint's
verification was signed, September 25, 2015, no additional information had been provided to
DCF.
Birchwood provided Barbara with skilled nursing care and other services and items from
the date ofher admission through the date ofher death on May 25, 2015. Defendants failed to
make payment in full to Birchwood on Barbara's behalf, and failed to secure Medicaid benefits.
On or about August 20, 2014, five months after Barbara's admission to Birchwood, she
transferred her interest in her Shelburne, Vermont property to Kinsley and Roger for
consideration of$10. At the time of that transfer, Barbara owed Birchwood over $31,440.03.
As a result of Defendants' failure to make payment in full or to secure Medicaid benefits, an
outstanding balance of $13 7,586.92 is owed to Birchwood.
Analysis
I.
Kinsley's Rule 12(b)(6) Motion
A.
Rule 12(b)(6) Standard
To survive a Rule 12(b)(6) motion, a complaint "must contain sufficient factual matter,
accepted as true, to 'state a claim to reliefthat is plausible on its face."' Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see
also Fed. R. Civ. P. 8(a)(2). Dismissal is appropriate when "it is clear from the face of the
complaint, and matters of which the court may take judicial notice, that the plaintiffs claims are
barred as a matter oflaw." Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 86 (2d Cir. 2000).
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B.
Breach-of-Contract Claim
In its breach-of-contract claim, Birchwood asserts that Kinsley had an obligation to
timely qualify Barbara for Medicaid benefits in accordance with the terms of the Admission
Agreement, as well as an obligation to provide the requested verification information necessary
to pursue Barbara's Medicaid eligibility. (Doc. 5 ,-r 37.) Birchwood asserts that Kinsley
breached that agreement by failing to provide the requested information to DCF. (!d. ,-r 38.)
Birchwood seeks a decree of specific performance requiring Defendants to produce the necessary
information to DCF by the October 7, 2015 deadline. (/d. ,-r 41.)
In his Motion to Dismiss, Kinsley asserts that the requested injunctive relief is "long
moot." (Doc. 17 at 1.) At the June 6, 2016 hearing, Birchwood conceded that Barbara was
ineligible for Medicaid during her stay at Birchwood because her substantial assets were
concealed from DCF. Birchwood's breach-of-contract claim is therefore dismissed as moot, and
Kinsley's motion to dismiss that claim is also moot.
C.
Fraudulent-Transfer Claim
Kinsley asserts that Birchwood has failed to state a fraudulent-transfer claim against him
because Birchwood's claims against Barbara abated at her death, and because, as a result, there is
no predicate injury for any fraudulent-transfer claim. (Doc. 17 at 2.) Birchwood argues that,
since Kinsley is not the executor or administrator of Barbara's estate, he lacks standing to argue
that Birchwood's claims abated upon her death. (Doc. 22 at 1-2.) Birchwood further contends
that, in any case, its claims did not abate upon Barbara's death. (/d.)
The court agrees with Birchwood's latter argument. 2 It is true that Birchwood did not file
this action until after Barbara's death. That might have been an impediment under the "harsh
2
It is therefore unnecessary to reach Birchwood's lack-of-standing argument.
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common law rule that personal tort actions die with the person of the plaintiff or the defendant."
Whitchurch v. Perry, 137 Vt. 464, 468, 408 A.2d 627, 630 (1979). But Vermont has enacted
survival statutes that abrogate that harsh rule. Id.
Under 14 V.S.A. § 1453, "[t]he causes of action mentioned in sections 1451 and 1452 of
this title shall survive" and "[a]ctions based thereon may be commenced and prosecuted by or
against the executor or administrator." Birchwood's fraudulent-transfer claim survives because
it is an "action[] of tort on account of the wrongful conversion of personal estate" or for
"damages done to real or personal estate" as contemplated by§ 1451. Cf Thrasher v. Melvin,
No. 2:07-cv-53, 2008 WL 2434224, at *3 (D. Vt. June 12, 2008) (claims ofbreach of fiduciary
duty and fraud by trustee survived trustee's death under§ 1451); Estate ofNancy B. Alden v.
Dee, No. 427-12-06 Bncv, 2009 WL 6356587 (Vt. Super. Ct. Nov. 3, 2009) (claims of
misappropriation of trust funds by trustee survived the trustee's death under§ 1451). Since the
fraudulent-transfer claim survives, Birchwood is entitled to commence and prosecute it against
the Estate's executor or administrator.
Although several sections ofVermont's survival statutes mention actions commenced in
the lifetime of the deceased or before death, none of those provisions alter the rule in§ 1453.
Section 1401 provides:
An executor or administrator may commence, prosecute or defend, in the right of
the deceased, actions which survive to such executor or administrator and are
necessary for the recovery and protection of the property or rights of the deceased
and may prosecute or defend such actions commenced in the lifetime of the
deceased.
14 V.S.A. § 1401 (emphasis added). That language makes it clear that an executor or
administrator may defend actions which survive, whether or not the actions were commenced in
the lifetime of the deceased.
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Section 1417 provides:
A person having a contingent or other claim against a deceased person may
prosecute the same against the executor, administrator, heirs, devisees or legatees.
In such case, an action commenced against the deceased before death may be
prosecuted to final judgment. A claimant having a lien on the real or personal
estate of the deceased, by attachment previous to death, on obtaining judgment,
may have execution against such real or personal estate.
14 V.S.A. § 1417 (emphasis added). The emphasized language does not require that a claim be
filed before death in order for that claim to survive. As interpreted by the Vermont Supreme
Court, § 1417 is "procedural, not substantive"; it merely "specifies the proper procedure if a
claim against a decedent otherwise survives." State v. Therrien, 161 Vt. 26, 30, 633 A.2d 272,
274 (1993). Section 1417 says nothing about what actions actually survive; rather,§§ 1451 and
1452 provide the substantive law on that issue. As noted above, Birchwood's action survives
under§ 1451.
The final sentence of§ 1453 provides that when actions based on§§ 1451 and 1452 "are
commenced in the lifetime of the deceased, after death the same may be prosecuted by or against
the executor or administrator where by law that mode of prosecution is authorized." 14 V.S.A.
§ 1453. That language also does not require that there be a pending claim in order for an action
to survive. It merely authorizes the executor or administrator to prosecute or defend claims that
were pending during the decedent's lifetime. The court therefore rejects Kinsley's claim that
Birchwood's fraudulent-transfer claim did not survive.
The court also rejects Kinsley's alternative argument that Birchwood cannot establish a
fraudulent-transfer claim against him because he was not a debtor of Birchwood's. (Doc. 17
at 4; Doc. 23 at 3.) Kinsley relies upon Becker v. Becker, 138 Vt. 372, 416 A.2d 156 (1980), for
the proposition that the first essential element of fraudulent transfer is that the defendant be the
"debtor." (Doc. 23 at 3.) The Vermont Supreme Court in that case stated that a plaintiff
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asserting a fraudulent-conveyance claim needed to establish, among other things, "that there
existed a right, debt or duty owed to her by the defendant." Id. at 375, 416 A.2d at 159.
Becker was decided before Vermont adopted the Uniform Fraudulent Transfer Act
(UFTA) in 1996, now codified at 9 V.S.A. § 2285, et seq. Thus, as the court observed in In re
Montagne, the four Becker factors are "not germane" to a fraudulent-transfer claim under the
current fraudulent-transfer statute, and the current statute "sets forth a new fraudulent transfer
standard." In re Montagne, 417 B.R. 232,241 (Bankr. D. Vt. 2009). Whatever force Kinsley's
argument might have had prior to the adoption of the UFT A, the current statute explicitly
contemplates that a transferee may be a defendant: the transferee may raise defenses (which
would be unnecessary if the transferee could not be a defendant), and may have a judgment
entered against him. See 9 V.S.A. §§ 2291 (discussing creditors' remedies, including attachment
of transferee's property or injunction against transferee); 2292 (discussing defenses, liability, and
protection oftransferee). 3 Here, even if Kinsley is not a debtor, he is allegedly a transferee and
may be a defendant for the purposes of the fraudulent-transfer claim.
3
Courts applying the UFTA have reached the same conclusion. See Montagne, 417 B.R.
at 242 (where complaint properly identified a "debtor" and a "transfer," there was a basis for
granting relief against the transferee); The 1973 William C. Alden Trust v. Dee, No. 427-12-06
Bncv, 2009 WL 6356589 (Vt. Super. Ct. Feb. 19, 2009) (granting motion to amend counterclaim
to include alleged transferees of fraudulent conveyances as defendants); accord Tanaka v.
Nagata, 868 P.2d 450, 454 (Haw. 1994) (per curiam) (noting, in case involving UFTA as
adopted in Hawaii, that "it is clearly necessary to have the alleged fraudulent transferee before
the court in order to bind him").
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II.
Kinsley's Rule 12(b)(l) Motion
A.
The Estate's Cross-Claims
The Estate alleges that the September 5, 2006 POA was "springing," in that it would only
become effective upon Barbara's "disability." (Doc. 20 at 6, ,-r 2.) According to the Estate, no
circumstances ever triggered the POA to spring into effect. The Estate further alleges that the
actions of Roger and Kinsley as described in Birchwood's Complaint exceeded the scope of
authority granted in the POA. As noted above, the Estate asserts cross-claims against Kinsley
and Roger, alleging breach of fiduciary duty, conversion, and embezzlement, and seeking an
accounting, a declaratory judgment voiding the transfer of property, and a constructive trust.
B.
Action in Probate Court
The Estate was opened in July 2015 as a small estate in the Vermont Superior Court,
Chittenden Probate Division; the case is docketed In re: Estate ofBarbara A. Nyce, No. 936-715 Cnpr. According to Kinsley, the current executor, Attorney Robert Brazil, is "completely
unknown" to the Nyce family, and it was Birchwood that submitted his name to serve as
executor. (Doc. 24 at 4.) The action in probate court is ongoing with motions pending,
including Kinsley's motion to remove Attorney Brazil as executor and Attorney Mobbs as estate
counsel. (See id.)
C.
Rule 12(b)(1) Standard
"A district court properly dismisses an action under Fed. R. Civ. P. 12(b)(1) for lack of
subject matter jurisdiction if the court 'lacks the statutory or constitutional power to adjudicate
it .... "' Cortlandt St. Recovery Corp. v. He !las Telecomms., S.A.R.L., 790 F .3d 411, 417
(2d Cir. 2015) (quoting Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)). On a
Rule 12(b)(1) motion, the court accepts as true "'all material allegations ofthe complaint[]
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and ... construe[ s] the complaint in favor the complaining party."' I d. (first brackets in original)
(quoting WR. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP, 549 F.3d 100, 106 (2d Cir.
2008)). "In deciding a Rule 12(b)(1) motion, the court may also rely on evidence outside the
complaint." Id.
D.
"Probate Exception" to Federal Jurisdiction
"The 'probate exception' is an historical aspect of federal jurisdiction that holds 'probate
matters' are excepted from the scope of federal diversity jurisdiction." Lefkowitz v. Bank ofNew
York, 528 F.3d 102, 105 (2d Cir. 2007) (citing Marshall v. Marshall, 547 U.S. 293, 308 (2006)).
"[T]he probate exception 'reserves to state probate courts the probate or annulment of a will and
the administration of a decedent's estate; it also precludes federal courts from endeavoring to
dispose of property that is in the custody of a state probate court."' I d. (quoting Marshall,
547 U.S. at 311-12). "The probate exception does not, however, 'bar federal courts from
adjudicating matters outside those confines and otherwise within federal jurisdiction."' I d.
(quoting Marshall, 547 U.S. at 312). Although the Second Circuit previously interpreted the
probate exception broadly, Marshall narrowed the exception: now, "so long as a plaintiff is not
seeking to have the federal court administer a probate matter or exercise control over a res in the
custody of a state court, if jurisdiction otherwise lies, then the federal court may, indeed must,
exercise it." Id. at 106.
Kinsley asserts that this court lacks jurisdiction under the "probate exception." He says
that each of the six counts brought by the Estate against him seek to recover property that the
Estate contends was wrongly transferred, and that all ofthose issues "are traditionally subject to
resolution under the plenary jurisdiction ofthe Probate Division under Vermont law." (Doc. 24
at 2.) According to Kinsley, the probate exception prevents federal courts from ruling on issues
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related to the administration of a decedent's estate, and the relief sought in the cross-claims
would "inject" this court into that administration. (Doc. 29 at 2.) The Estate maintains that the
cross-claims do not involve the administration of the Estate. (Doc. 28 at 2.)
The court concludes that the probate exception does not apply in this case. The exception
requires more than a claim that the Estate's cross-claims might "intertwine" with the litigation
proceeding in the Chittenden Probate Division; it cannot be used to dismiss "'widely recognized
tort[s]' such as breach of :fiduciary duty or fraudulent misrepresentation." Lefkowitz, 528 F.3d
at 108 (quoting Marshall, 547 U.S. at 296). The cross-claims are precisely those sorts of"widely
recognized torts." Adjudicating those claims will not involve administering any probate matter
or exercising control over a res in the custody of the Chittenden Probate Division.
Conclusion
Kinsley Nyce's Rule 12(b)(6) Motion to Dismiss Birchwood's claims against him (Doc.
17) is DENIED with respect to Birchwood's fraudulent-transfer claim, and DENIED as moot
with respect to Birchwood's breach-of-contract claim.
Kinsley Nyce's Rule 12(b)(1) Motion to Dismiss the Estate's cross-claims against him
(Doc. 24) is DENIED.
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Dated at Rutland, in the District ofVermont, this J.aay of June, 2016.
£-~...,_____
Geoffrey W. Crawford, Judge
United States District Court
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