Elderberry of Weber City, LLC v. Living Centers - Southeast, Inc. et al

Filing 50

MEMORANDUM OPINION. Signed by Judge Norman K. Moon on March 20, 2013. (sfc)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
LYNCHBURG DIVISION

CASE NO. 6:12-cv-00052

ELDERBERRY OF WEBER CITY, LLC,
Plaintiff,

MEMORANDUM OPINION
v.
LIVING CENTERS – SOUTHEAST, INC., ET AL.,

JUDGE NORMAN K. MOON

Defendants.

Plaintiff Elderberry of Weber City, LLC (“Elderberry”) filed this action alleging one
count of breach of a lease agreement against Living Centers – Southeast, Inc. (“Living Centers);
FMSC Weber City Operating Company, LLC (“FMSC”); and ContiniumCare of Weber City,
LLC (“Continium”) (collectively, the “Continium Defendants”). Elderberry alleges a separate
count for breach of contract against Mariner Health Care, Inc. (“Mariner”). Mariner has filed a
Motion to Dismiss, Stay, or Transfer this action, and the Continium Defendants separately filed a
Motion to Stay or Transfer. After briefing on those motions ended but before oral argument on
the motions took place, Mariner filed a separate motion to dismiss for lack of personal
jurisdiction. For the following reasons, I will deny all of Defendants’ motions.
I. BACKGROUND
On November 8, 2000, Elderberry Nursing Home, Inc. entered into a Lease Agreement
(the “Lease”) with Living Centers. Elderberry acquired the property that was the subject of the
Lease from Elderberry Nursing Home, Inc. on December 20, 2004. Living Centers operated a

nursing home on the property subject to the terms of the Lease. During the leasehold, Elderberry
and Living Centers negotiated for the expansion of the nursing home to a 90-bed facility. In
2006, Elderberry and Living Centers agreed that the expansion would be funded by Elderberry,
and they signed an amendment to the Lease (the “Lease Amendment”), which extended the lease
term for ten years and provided for two five-year extension options. The Lease Amendment
specifically stated that Elderberry acquired Elderberry Nursing Home, Inc.’s rights under the
original Lease. As part of the negotiations of the Lease Amendment, Living Centers requested
the ability to assign the Lease and Lease Amendment to Family Senior Care Holdings, LLC, or
to other assignees. In exchange, Elderberry requested that Mariner, the parent company of
Living Centers, execute a Lease Guaranty Agreement upon assignment of the Lease. When the
parties signed the Lease Amendment, Boyd Gentry, Executive Vice President and Chief
Financial Officer of Mariner, also signed a document entitled “Lease Guaranty” (the
“Guaranty”).
Living Centers assigned the Lease and the Lease Amendment to FMSC, an affiliate of
Family Senior Care Holdings, LLC, sometime between July 2006 and April 2007.
Improvements to the property funded by Elderberry were completed in April 2007, and
Elderberry and FMSC agreed to begin the 10-year lease term on May 1, 2007. On September 9,
2011, counsel for FMSC sent a letter to Elderberry indicating that FMSC intended to assign the
Lease to Continium. The letter also stated that “[n]otwithstanding this proposed assignment, it is
intended that the Mariner Health Care, Inc. Lease Guaranty executed in conjunction with the
First Amendment to Lease Agreement dated June 19, 2006, shall remain in full force and effect
to guaranty the obligations of assignee ContiniumCare of Weber City, LLC.” Continium began
paying rent to Elderberry in November 2011 and continued to pay rent monthly as due under the

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terms of the Lease and the Lease Amendment until March 2012. Continium has not paid rent
since March 2012. On April 16, 2012, Elderberry sent written notice that the April 1, 2012, rent
payment was past due.
On July 19, 2012, Elderberry received notification that the Virginia Department of Health
& Human Services, Centers for Medicare & Medicaid Services (“VDHHS”) was terminating
Continium’s Medicare Provider Agreement as a result of certain failures of Continium to operate
the facility in conformance with VDHHS regulations, and on account of other deficiencies.
Continium ceased all operations in the facility in August 2012. Elderberry sent a letter to Living
Centers, Continium, Mariner, and The Bernstein Law Firm on August 15, 2012, demanding
payment of past-due rent and notifying all parties that if Elderberry did not receive payment
within seven days of the notice, Elderberry would terminate the lease and pursue remedies in
court if necessary. On August 24, 2012, Elderberry sent another letter to the same four recipients
terminating the lease.
One week later, on August 31, 2012, Mariner filed a declaratory judgment action against
Elderberry in the U.S. District Court for the Northern District of Georgia, seeking a declaration
that the Guaranty is void under Georgia law. On September 27, 2012, Elderberry filed a motion
to dismiss the Georgia action, asserting that the Northern District of Georgia lacked personal
jurisdiction over Elderberry, that venue was improper, and that necessary parties were not joined.
Elderberry requested in the alternative that the Georgia action be stayed pending this action in
Virginia, which Elderberry filed in this court the same day.1 In Count One of the Complaint,
Elderberry alleges that the Continium Defendants breached the Lease by their failure to pay rent
and operate a nursing home in accordance with VDHHS regulations. In Count Two, Elderberry

1

As of March 20, 2013, the Northern District of Georgia had not issued any decision in the Georgia action.

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alleges breach of contract against Mariner for failure to fulfill its alleged obligations under the
Guaranty.
II. DISCUSSION
A. Mariner’s Motion to Dismiss for Lack of Personal Jurisdiction
Nearly a month after the completion of briefing on Mariner’s motion to dismiss, stay, or
transfer, Mariner filed a motion to dismiss for lack of personal jurisdiction pursuant to Federal
Rule of Civil Procedure 12(b)(2). Under Rule 12(b), a defendant may assert certain specified
defenses—including a lack of personal jurisdiction—by motion. Fed. R. Civ. P. 12(b)(2). Rule
12(g)(1) provides that a Rule 12 motion may be joined to any other motion under the rule, and
Rule 12(g)(2) imposes a limitation on filing successive motions, requiring that “a party that
makes a motion under this rule must not make another motion under this rule raising a defense or
objection that was available to the party but omitted from its earlier motion.” In other words,
“Rule 12(g) requires the defendant to consolidate any Rule 12(b) defenses he may have in a
single pre-answer motion.” 5B Charles Alan Wright & Arthur R. Miller, Federal Practice &
Procedure § 1351 (3d ed. 2004). For certain defenses, including lack of personal jurisdiction, a
failure to raise the defense in the first pre-answer motion results in waiver of that defense. Fed.
R. Civ. P. 12(h)(1)(A). The purpose of these rules is to eliminate unnecessary delay and prevent
the piecemeal litigation of various defenses. See 5C Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure § 1384 (3d ed. 2004).
In this case, Mariner has filed two motions to dismiss. First, Mariner filed a motion to
dismiss, stay, or transfer this action pursuant to 28 U.S.C. § 1404. After completion of briefing
on that motion, Mariner filed a motion to dismiss for lack of personal jurisdiction pursuant to
Rule 12(b)(2). Rule 12(h)(1) specifically states that a party waives a 12(b)(2) defense by

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omitting to raise it in an earlier motion under Rule 12. But case law is divided as to whether a
§ 1404 motion is subject to the consolidation requirements of Rule 12(h). In Sanghdal v. Litton,
69 F.R.D. 641, 642 (S.D.N.Y. 1976), the court faced the same situation presented in this case: a
defendant moved to dismiss for lack of personal jurisdiction after having previously moved for a
change of venue pursuant to 28 U.S.C. § 1404(a). In Sanghdal, although the defendant’s motion
was made under § 1404(a) rather than Rule 12(b)(3), the court found that “the underlying facts to
support a motion to change venue were essentially the same as the facts upon which he grounds
his motion for lack of jurisdiction over the person, and were apparent to defendant upon the very
commencement of suit.” 69 F.R.D. at 642. As a result, the court held that the defendant had
waived his personal jurisdiction defense by failing to raise it in his first motion. Id. at 642–43;
see also Silver v. Countrywide Realty, Inc., 39 F.R.D. 596, 598–99 (S.D.N.Y. 1966) (finding that
defendants who raised an objection to personal jurisdiction for the first time in their reply brief
on a motion to dismiss on the ground of forum non conveniens had waived the objection). By
contrast, in Dwyer v. Bicoy, No. 08-cv-01195, 2008 WL 5381485, at *3–4 (D. Colo. Dec. 22,
2008), the court, addressing a similar set of facts, held that a defendant’s motion to transfer
venue pursuant to § 1404(a) was distinguishable from a motion to dismiss for improper venue
pursuant to Rule 12(b)(3) and therefore was not subject to Rule 12(g)’s consolidation
requirements. See also Red Wing Shoe Company, Inc. v. B-JAYS USA, Inc., No. 2002 WL
1398538, at *2 (D. Minn. June 26, 2002) (stating that a “motion to transfer venue for the
convenience of parties or witnesses or in the interests of justice, brought pursuant to 28 U.S.C. §
1404(a), is not a motion under Rule 12(b)(3) of the Federal Rules of Civil Procedure, so the
waiver provision of Rule 12(h) is inapplicable.”); James v. Norfolk & W. Ry. Co., 430 F. Supp.
1317, 1319 n.1 (S.D. Ohio 1976).

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I find that a motion to transfer venue is so similar to a motion to dismiss for improper
venue that Rule 12(g)’s consolidation requirement applies, and I therefore agree with the courts
in Sanghdal and Silver that a defendant who fails to raise an objection to personal jurisdiction in
a motion to transfer venue has waived the objection. To hold otherwise would subvert the
purpose of the consolidation rule. In this case, as in Sanghdal, the underlying facts Mariner cites
to support its motion to dismiss for lack of personal jurisdiction are the same as the facts upon
which he grounded his motion to dismiss, stay, or transfer venue, and were apparent to Mariner
at the very commencement of suit. The significance of personal jurisdiction issues in this case
were readily apparent to Mariner at the time it filed its motion to transfer venue since Elderberry
had already contested personal jurisdiction in Georgia in the declaratory judgment action filed by
Mariner. Moreover, Mariner’s failure to object to personal jurisdiction in its first motion to
dismiss resulted in precisely the type of delay the Rule 12(g) consolidation rule is intended to
prevent, prolonging the briefing process and delaying the adjudication of the earlier motion.
Because I find that Mariner waived any objection to personal jurisdiction by failing to raise the
issue in its first motion to dismiss, I will deny Mariner’s second motion to dismiss.
B. Mariner’s Motion to Dismiss Pursuant to the First-to-File Rule
In its first motion to dismiss, Mariner asked that this Court dismiss this action pursuant to
the “first-to-file rule” because before Elderberry filed this suit, Mariner had filed a declaratory
judgment action in Georgia addressing the same issues raised in Count Two of Elderberry’s
Complaint. The first-to-file rule provides that “when multiple suits are filed in different federal
courts upon the same factual issues, the first or prior action is permitted to proceed to the
exclusion of another subsequently filed.” Quesenberry v. Volvo Group North America, Inc., No.
109cv00022, 2009 WL 648659, at *3 (W.D. Va. Mar. 10, 2009) (citing Allied–General Nuclear

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Servs. v. Commonwealth Edison Co., 675 F.2d 610, 611 n.1 (4th Cir. 1982)). In general, “the
first suit should have priority, absent the showing of balance of convenience in favor of the
second action.” Volvo Const. Equip. North America, Inc. v. CLM Equip. Co., Inc., 386 F.3d 581,
594–95 (4th Cir. 2004) (quoting Ellicott Mach. Corp. v. Modern Welding Co., Inc., 502 F.2d
178, 180 n.2 (4th Cir. 1974)). In addition, “[a]lthough the Fourth Circuit has not stated explicitly
that special circumstances may warrant an exception to the first-to-file rule, it has implicitly
recognized a special circumstances exception in cases involving procedural fencing or forum
shopping.” Federated Mut. Ins. Co. v. Pactiv Corp., No. 5:09cv00073, 2010 WL 503090, at *3
(W.D. Va. Feb. 9, 2010) (internal citations and quotation marks omitted).
As these exceptions show, the first-filed rule is not absolute and “is not to be
mechanically applied.” Quesenberry, 2009 WL 648659, at *3. Because the “policy underlying
the first-to-file rule is the avoidance of duplicative litigation and the conservation of judicial
resources . . . exceptions to the rule are common ‘when justice or expediency requires.’”
Samsung Electronics Co., Ltd. v. Rambus, Inc., 386 F. Supp. 2d 708, 724 (E.D. Va. 2005)
(quoting Genentech, Inc. v. Eli Lilly and Co., 998 F.2d 931, 937 (Fed. Cir. 1993)). “The decision
to invoke the first-filed rule is an equitable determination that is made on a case-by-case,
discretionary basis.” Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F. Supp. 2d 357, 360
(W.D.N.C. 2003).
In deciding whether “special circumstances” counsel against following the first-filed rule,
district courts in the Fourth Circuit have often looked to whether circumstances suggest a race to
the courthouse. See, e.g., Quesenberry, 2009 WL 648659, at *3; Samsung, 386 F. Supp. 2d at
724; Nutrition & Fitness, 264 F. Supp. 2d at 360; PBM Products, Inc. v. Mead Johnson & Co.,
No. 3:01CV199, 2001 WL 841047, at *2 (E.D. Va. Apr. 4, 2001). Courts also consider how far

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each case has progressed. See Quesenberry, 2009 WL 648659, at *4 (“[T]he plaintiffs’
argument that the first-to-file rule need not be applied when the first-filed case is no further
developed than one subsequently filed is well-taken.”); Affinity Memory & Micro, Inc. v. K & Q
Enterprises, Inc., 20 F. Supp. 2d 948, 954 (E.D. Va. 1998) (“[C]ourts have declined to defer to
the first-filed action when little if anything has been done to advance that action for trial.”)
(citing Brierwood Shoe Corp. v. Sears, Roebuck and Co., 479 F. Supp. 563, 567 (S.D.N.Y.
1979)). And in considering whether the balance of convenience weighs in favor of allowing the
second-filed action to proceed, courts consider the same factors relevant to transfer of venue or
forum non conveniens. See Pactiv, 2010 WL 503090, at *2 (“[T]he factors pertinent to the
balance of convenience analysis are ‘essentially the same as those considered in connection with
motions to transfer venue pursuant to 28 U.S.C. § 1404(a).’”) (quoting Employers Ins. of Wausau
v. Fox Entm’t Group, Inc., 522 F.3d 271, 275 (2d Cir. 2008)). These factors include:
(1) the plaintiff's choice of forum; (2) the relative ease of access to sources of
proof; (3) the availability of compulsory process for attendance of unwilling
witnesses; (4) the cost of obtaining attendance of willing witnesses; (5) the
possibility of viewing premises, if applicable; (6) all other practical problems that
make trial of a case easy, expeditious, and inexpensive; and (7) factors of public
interest, including the relative congestion of court dockets and a preference for
holding a trial in the community most affected.
Id. at *3.
I conclude that the first-to-file rule should not be applied in this case. The overarching
policy of the rule is to avoid duplicative or piecemeal litigation and conserve judicial resources.
Given the relatively complicated relationships among the various parties and the long course of
dealings related to the property, it makes more sense to consolidate all of the issues into a single
suit to allow for a clearer understanding of who did what and when. Unlike the Georgia action,
this case brings together all of the parties and all of the claims into a single suit, allowing for a

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more efficient adjudication of the parties’ rights.2 Consideration of the balance of convenience
supports this conclusion. While selecting one forum will obviously inconvenience one side at
the expense of the other, this case centers on a lease of real property located in Virginia, owned
by a Virginia resident, and governed by Virginia law. Moreover, the vast majority of the
conduct and transactions that gave rise to the dispute appear to have taken place in Virginia.
These geographical ties, considered along with concerns for judicial economy, demonstrate that
the balance of convenience weighs in favor of permitting this Virginia action to move forward.
Other special circumstances also counsel against applying the first-to-file rule in this
case. The Georgia action has not advanced any further than this action. And while Defendants
accuse Elderberry of “classic forum shopping,” Mariner’s conduct also raises the specter of the
type of anticipatory litigation that has led courts to decline to apply the first-filed rule. Mariner
filed a declaratory judgment action in Georgia only days after receiving notice of termination of
the Lease, despite Elderberry’s rather tenuous connection to that jurisdiction and the fact that the
property, Lease, Lease Amendment, and most of the relevant conduct took place in Virginia. In
sum, permitting the Virginia action to go forward will enable the resolution of all of the issues as
they relate to all of the parties in the forum where the bulk of activity leading to this suit took
place. I will therefore deny Mariner’s motion to dismiss based on the first-filed rule.
C. Defendants’ Motions to Transfer Venue
Mariner and the Continium Defendants have separately moved to transfer venue to the
Northern District of Georgia pursuant to 28 U.S.C. § 1404(a) or to stay this action pending the
outcome of the Georgia action. Section 1404(a) provides that “[f]or the convenience of parties
and witnesses, in the interest of justice, a district court may transfer any civil action to any other

2

Transfer of this case to Georgia could theoretically accomplish the same result. However, as discussed in the next
section, I find that this case cannot be transferred to Georgia under 28 U.S.C. § 1404(a).

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district or division where it might have been brought.” Thus, in considering a § 1404(a) motion,
“a district court must make two inquiries: (1) whether the claims might have been brought in the
transferee forum, and (2) whether the interest of justice and convenience of the parties and
witnesses justify transfer to that forum.” Koh v. Microtek Intern., Inc., 250 F. Supp. 2d 627, 630
(E.D. Va. 2003). The burden is on the moving party to show that transfer to another forum is
proper. See General Creation LLC v. Leapfrog Enterprises, Inc., 192 F. Supp. 2d 503, 505
(W.D. Va. 2002).
Defendants have not met their burden of showing that Elderberry could have brought this
action in the proposed transferee district, the Northern District of Georgia. “In order to
demonstrate that an action might have been brought in a proposed transferee district, a movant
must establish that both venue and jurisdiction with respect to each defendant is proper in the
transferee district.” Koh, 250 F. Supp. 2d at 630. As Elderberry points out, Defendants have not
shown that the Northern District of Georgia can exercise personal jurisdiction over either FMSC
or Continium, both of which are Delaware LLCs whose sole members are individuals resident in
Florida. Defendants state that they expressly consent to jurisdiction in Georgia, but the Supreme
Court has held that after-the-fact consent cannot satisfy § 1404(a)’s requirement that a suit
“might have been brought” in the proposed transferee forum:
If when a suit is commenced, plaintiff has a right to sue in that district,
independently of the wishes of defendant, it is a district ‘where (the action) might
have been brought.’ If he does not have that right, independently of the wishes of
defendant, it is not a district ‘where it might have been brought,’ and it is
immaterial that the defendant subsequently makes himself subject, by consent,
waiver of venue and personal jurisdiction defenses or otherwise, to the
jurisdiction of some other forum.
Hoffman v. Blaski, 363 U.S. 335, 344 (1960) (citation omitted); see also Kontoulas v. A.H.
Robins Co., Inc., 745 F.3d 312, 315 (4th Cir. 1984) (“[E]ven consent to jurisdiction by a party

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cannot convert a federal district into one in which a suit ‘might have been brought’ under §
1404(a), if venue and jurisdiction requirements were not met at the time the suit was first filed.”);
Guzzetti v. Citrix Online Holdings GmbH, No. 12-01152, 2013 WL 124127, at *3 n.2 (D. Del.
Jan 3, 2013). Since Defendants have offered no evidence that FMSC or Continium would have
been subject to personal jurisdiction in Georgia at the time Elderberry brought this suit, transfer
of venue under § 1404(a) is impermissible.3 Finally, because I find that it is more efficient to
adjudicate all of the claims surrounding the Lease and the Guaranty together, I will deny
Defendants’ motions to stay this action pending resolution of the Georgia action.
IV. CONCLUSION
For the foregoing reasons, I will deny Defendants’ motions. An appropriate order
accompanies this memorandum opinion.
The Clerk of the Court is hereby directed to send a certified copy of this memorandum
opinion and the accompanying order to all counsel of record.

20th
Entered this ________ day of March, 2013.

3

Even if Elderberry could have brought this suit in Georgia originally, as I discussed in regard to Mariner’s motion
to dismiss pursuant to the first-filed rule, I find that the balance of convenience weighs in favor of allowing this
action to proceed in Virginia, not Georgia.

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