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Colonial Oaks Assisted Living Lafayette v. Hannie Development Inc.

United States District Court, W.D. Louisiana, Lafayette Division

June 14, 2019





         Before the Court is the Rule 12(b)(6) Motion to Dismiss filed on behalf of Defendants, Hannie Development, Inc. (“HDI”) and Cedar Crest, LLC (“CC”) (collectively at times “the Sellers”). (Rec. Doc. 12). Plaintiffs, Colonial Oaks Assisted Living Lafayette, LLC (“COALL”) and Colonial Oaks Memory Care Lafayette, LLC (“COMCL”) (collectively, “the Plaintiff Buyers”), oppose the Motion (Rec. Doc. 18), and HDI and CC have replied (Rec. Doc. 22). The Motion was referred to the undersigned magistrate judge for review, report, and recommendation in accordance with the provisions of 28 U.S.C. §636 and the standing orders of this Court. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained below, it is recommended that HDI and CC's Motion be DENIED.

         Factual Background

         This suit arises out of the sale of Rosewood Retirement and Assisted Living Center (“Rosewood”) from HDI to Seniors Investments II, LLC (“Seniors”), and the sale of the Cedar Crest Personal Memory Center (“Cedar Crest”) from CC to Seniors, both of which occurred on March 31, 2016. Seniors is apparently affiliated with the Colonial Oaks Plaintiff entities, as Plaintiffs allege that Colonial Oaks Assisted Living Lafayette, LLC (“COALL”) purchased Rosewood and that Colonial Oaks Memory Care Lafayette, LLC (“COMCL”) purchased Cedar Crest. (Rec. Doc. 1, ¶10). The Sellers and Buyers entered into Asset Purchase Agreements (“APA”) for each facility (HDI and COALL for Rosewood; CC and COMCL for Cedar Crest). (Rosewood APA at Rec. Doc. 1-2; Cedar Crest APA at Rec. Doc. 1-3). The Sellers and Buyers also executed Holdback Escrow Agreements (“HEA”) for each facility. (Rosewood HEA at Rec. Doc. 1-4; Cedar Crest HEA at Rec. Doc. 1-5). The pertinent provisions of the APAs and HEAs are practically identical for each facility.

         According to the Complaint, the Buyers closed on both APA's (dated March 31, 2016) and began operating both facilities on December 1, 2016. (Rec. Doc. 1, ¶17). Shortly after closing, the Buyers alleged they discovered that a substantial proportion of the residents at Rosewood were incapable of understanding what their medications were, what they were for, and/or the need for the medication, such that, under applicable state regulations, they were not considered appropriate for self- administration of medications, and licensed nursing staff was required to assist those residents with medication administration. (Rec. Doc. 1, ¶18). Thus, the Plaintiff Buyers alleged they were required to increase their nursing staff. They further alleged that Nicol Hannie, director of Rosewood, was aware prior to the sale that HDI needed to hire licensed nursing staff in order to come into compliance with the self-administration regulation. (Rec. Doc. 1, ¶20). The Plaintiff Buyers further alleged that Joyce Hannie had, in 2016, hired a nurse to provide medication administration services, but the nurse was only employed for a short period of time, and that Joyce Hannie and Nicol Hannie made a conscious decision not to replace her. According to the Complaint, facility personnel raised the need to hire a new nursing staff with Nicol Hannie, and that he acknowledged same, but commented that HDI would be selling the facility soon anyway. (Rec. Doc. 1, ¶22). In addition, the Plaintiff Buyers alleged that they learned post-sale that the Buyers did not employ the activities personnel or have activities equipment required by applicable Licensing Standards. (Rec. Doc. 1, ¶23)

         Pursuant to an arbitration clause in the agreements, the parties proceeded to arbitration. The Plaintiff Buyers alleged that the arbitrator dismissed the Buyers' claims for breach of the representations and warranties in the APA's, finding that these constituted fraud claims falling outside the scope of arbitration. (Rec. Doc. 1, ¶26; Rec. Doc. 12-1, at 3). Thus, the Plaintiff Buyers filed this lawsuit on December 12, 2018 asserting the following claims: Count I - Contractual Warranty; and Count II - Fraud by Maurice, Joyce and Nicol Hannie. (Rec. Doc. 1).

         HDI and CC filed the instant Motion to Dismiss pursuant to F.R.C.P. Rule 12(b)(6), seeking to Dismiss the Plaintiff Buyers' claims, which they contend is for fraudulent and negligent misrepresentations, on the grounds that the Plaintiff Buyers had over eight months of due diligence to investigate each facility and discover the alleged staffing and compliance issues. As such, HDI and CC argue the Plaintiff Buyers had ample opportunity to discover the grounds for the alleged misrepresentations. (Rec. Doc. 12-1, at 3).

         Applicable Law

         I. Law applicable to Rule 12(b)(6)

         When considering a motion to dismiss for failure to state a claim under F.R.C.P. Rule 12(b)(6), the district court must limit itself to the contents of the pleadings, including any attachments and exhibits thereto. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000); U.S. ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 375 (5th Cir.2004). The court must accept all well-pleaded facts as true and view them in the light most favorable to the plaintiff. In re Katrina Canal Breaches Litigation, 495 F.3d 191, 205 (5th Cir.2007) (internal quotations omitted) (quoting Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir.2004)); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir.1996). However, conclusory allegations and unwarranted deductions of fact are not accepted as true, Kaiser Aluminum & Chemical Sales v. Avondale Shipyards, 677 F.2d 1045, 1050 (5th Cir. 1982) (citing Associated Builders, Inc. v. Alabama Power Company, 505 F.2d 97, 100 (5th Cir. 1974)); Collins v. Morgan Stanley, 224 F.3d at 498. Courts “are not bound to accept as true a legal conclusion couched as a factual allegation.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

         To survive a Rule 12(b)(6) motion, the plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic, 127 U.S. at 570. The allegations must be sufficient “to raise a right to relief above the speculative level, ” and “the pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action.” Id. at 555 (quoting 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004)). “While a complaint . . . does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. (citations, quotation marks, and brackets omitted; emphasis added). See also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). If the plaintiff fails to allege facts sufficient to “nudge[ ][his] claims across the line from conceivable to plausible, [his] complaint must be dismissed.” Bell Atlantic v. Twombly, 127 U.S. at 570.

         A claim meets the test for facial plausibility “when the plaintiff pleads the 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. at 678. “[D]etermining whether a complaint states a plausible claim for relief . . . [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. Therefore, “[t]he complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim.” Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir.2009) (quoting Bell Atlantic v. Twombly, 127 U.S. at 556). See also In Re Southern Scrap, 541 F.3d 584, 587 (5th Cir.2008). With these precepts in mind, the Court considers the Plaintiff Buyers' Complaint, including the exhibits attached thereto.

         II. Whether the Plaintiff Buyers have stated a claim for fraudulent ornegl ...

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