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Lovelady v. Five Star Quality Care-VA, LLC

United States District Court, E.D. Virginia, Newport News Division

July 25, 2018

JOHN M. LOVELADY, AND BEVERLY C. LOVELADY, Plaintiffs,
v.
FIVE STAR QUALITY CARE-VA, LLC, d/b/a DOMINION VILLAGE OF WILLIAMSBURG, Defendant.

          OPINION AND ORDER

          MARK S. DAVIS, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on a Motion to Remand filed by Plaintiffs John M. Lovelady ("Mr. Lovelady") and Beverly C. Lovelady ("Mrs. Lovelady") (collectively "Plaintiffs"), ECF No. 10, and Five Star Quality Care-VA, LLC, d/b/a Dominion Village of Williamsburg's ("Dominion Village" or "Defendant") Motion to Dismiss Punitive Damages Claim, ECF No. 8, Motion to Compel Arbitration, ECF No. 7, and a Motion for Protective Order, ECF No. 21. For the reasons noted below, the Court DENIES Plaintiffs' Motion to Remand, GRANTS Defendant's Motion to Compel Arbitration and STAYS these proceedings pending completion of arbitration, DENIES AS MOOT Defendant's Motion to Dismiss Punitive Damages Claim, and DENIES AS MOOT Defendant's Motion for Protective Order.

         I. FACTUAL AND PROCEDURAL BACKGROUND[1]

         In January 2018, Plaintiffs filed suit against Defendant, a licensed assisted living facility, in the Circuit Court for the City of Williamsburg and County of James City ("Circuit Court"). See Compl., ECF No. 1-1. Mr. Lovelady is a resident of Virginia who is seventy-nine years old and suffers from Alzheimer's Disease. Id. ¶ 1. Mrs. Lovelady is Mr. Lovelady" s spouse and his attorney-in-fact. Id. ¶ 2. She is also a resident of Virginia. Id. Defendant is a limited liability company (WLLC") organized under the laws of Delaware whose sole member has a principal place of business in Massachusetts. Id. ¶ 3; Notice of Removal ¶ 8, ECF No. 1-2. This suit concerns Plaintiffs' effort to recover damages arising from breach of contract and the allegedly unlawful termination of Mr. Lovelady's Residency Agreement. Compl. at 2.

         In December 2016, Plaintiffs executed a Residency Agreement with Defendant to allow Mr. Lovelady to live at Dominion Village. Id. ¶ 5-6. Under the Residency Agreement, Mr. Lovelady is the "Resident," and Mrs. Lovelady is the "Responsible Person," meaning that she is the person who has agreed to pay Defendant all amounts due on behalf of Mr. Lovelady. Id. at 9. Plaintiffs have attached a copy of the Residency Agreement that shows that Mrs. Lovelady signed the Agreement on behalf of her husband using her name and the letters "POA" on the line for "Signature of John Lovelady." Res. Agr. at 9. She also signed the Agreement in her capacity as the "Responsible Person" on the line provided for her. Id. On the same page, she initialed in a box next to the statement "You acknowledge that you have signed a separate Arbitration Agreement." Id.

         Defendant has also submitted the Arbitration Agreement specifically referenced in the Residency Agreement. See Arb. Agr., ECF No. 1-3. This document has spaces for four signatures: "Resident One," "Resident Two," "Resident's Authorized Representative," and "Five Star Quality Care, Inc." Id. at 13. The only signatures that appear in this document are Mrs. Lovelady's on the "Resident's Authorized Representative" line and Executive Director Deirdre Lund's on the "Five Star Quality Care, Inc." line. Id.

         From December 2016 until August 2017, Mr. Lovelady lived at Dominion Village. Compl. 2-3. In August 2017, Defendant unilaterally terminated and discharged Mr. Lovelady from Dominion Village, allegedly without a legal basis for doing so. Id. at 2-3. Plaintiffs assert that Mr. Lovelady at all times abided by the Residency Agreement and the rules and policies of the Resident Handbook; he promptly paid all required fees; his care needs never exceeded the services that Defendant was required to provide under the Residency Agreement; and his residency never endangered the health, safety, or welfare of anyone. Id. at 3. According to Plaintiffs, the real reason Defendant discharged Mr. Lovelady was that Executive Director Deirdre Lund disliked Mrs. Lovelady's advocacy for Mr. Lovelady and other residents regarding the standards of cleanliness, hygiene, and care at Dominion Village. Id. They claim that this alleged retaliatory action violates the Standards for Licensed Assisted Living Facilities, which provides:

The resident has the right to voice or file grievances, or both, with the facility and to make recommendations for changes in the policies and services of the facility. The residents shall be protected by the licensee or administrator, or both, from any form of coercion, discrimination, threats, or reprisal for having voiced or filed such grievances.

22 Va. Admin. Code 40-73-550(B).[2]

         As a result of the alleged breach of contract and unlawful termination, Plaintiffs seek compensatory damages of $344, 194.00. Compl. 4. They also request punitive damages of $350, 000.00 for the "malicious, oppressive and unlawful" retaliatory action of discharging Mr. Lovelady after Plaintiffs exercised rights guaranteed to them by 22 Va. Admin. Code § 40-73-550(B). Id.

         On February 13, 2018, Defendant filed a brief in the Circuit Court containing three pleadings: (1) Plea in Bar to Stay or Dismiss the Proceeding and Motion to Compel Arbitration ("Plea in Bar/Motion to Compel"), [3] (2) Demurrer of Plaintiffs' Punitive Damages Claim ("the Demurrer"), and (3) Answer and Affirmative Defenses. ECF No. 1-3. In the Plea in Bar/Motion to Compel, Defendant notes that the Residency Agreement provides for arbitration of disputes arising under the agreement that potentially involve more than $25, 000.[4] Id. at 1-4. Defendant requested that the Circuit Court compel Plaintiffs to submit to arbitration and that the Court stay or dismiss the proceedings pending the completion of arbitration. Id. at 4. In the Demurrer, Defendant asserts that, as a claim for punitive damages cannot stand without a compensatory damages award for a common law tort claim, Plaintiffs7 punitive damages claim related to a breach of contract fails. Id. at 5-6. In Defendant's answer, Dominion Village argues that Plaintiffs' complaint is barred by the Arbitration Agreement, that Plaintiffs committed the first material breach of the Residency Agreement, that Plaintiffs have failed to exhaust administrative remedies, that Plaintiffs have failed to mitigate their damages, and that Plaintiffs are not entitled to recover punitive or exemplary damages. Id. at 8-9.

         On February 21, 2018, Dominion Village removed the instant action to federal court based on diversity jurisdiction. See Notice of Removal, ECF No. 1. On March 8, 2018, Defendant filed the instant Motion to Compel Arbitration. ECF No. 6. Two weeks later, Plaintiffs responded in opposition, arguing that the arbitration agreement cannot be enforced because (1) the agreement was not fully executed because Mrs. Lovelady did not sign the agreement on behalf of Mr. Lovelady as his attorney-in-fact; (2) the arbitration agreement cannot provide relief for Plaintiffs' punitive damages claim; (3) the arbitration agreement is unconscionable; and (4) Defendant waived the right to arbitrate by pursuing a course of litigation in state and federal court. See Pis.7 Opp'n Mot. Compel Arb. 1, ECF No. 13. In late March, Defendant filed its reply brief. ECF No. 15.

         Defendant also filed its Motion to Dismiss Plaintiffs' Punitive Damages Claim in March 2018. ECF No. 9. Later that month, Plaintiffs filed their opposition. ECF No. 12. Therein, Plaintiffs argue that, under certain exceptional circumstances, a breach of contract may amount to an independent, willful tort for which punitive damages may be awarded. Id. at 1. Plaintiffs claim that Defendant's breach of contract, when combined with its alleged violation of its statutory duty to protect Mr. Lovelady from reprisal, amount to an independent tort. Id. at 2-3. On March 28, 2018, Defendant filed its reply brief. ECF No. 16. Defendant argues that this is a garden-variety breach of contract dispute for which punitive damages may not be imposed, and also notes that, even if Defendant has violated 22 Va. Admin. Code 40-73-550(B), neither a private right of action nor punitive damages are authorized to redress a violation of that provision. Id. at 2-3.

         On March 9, 2018, Plaintiffs filed their Motion to Remand. ECF No. 11. Plaintiffs claim that this suit must be remanded because Defendant waived its right to remove by taking "substantial defensive action" in state court before petitioning for removal. Id. at 1. On March 23, 2018, Defendant responded in opposition. ECF No. 14. On March 29, 2018, the deadline for Plaintiffs' response passed without Plaintiffs filing a reply-brief regarding the Motion for Remand.

         Having been fully briefed, the instant motions are ripe for disposition.

         II. MOTION TO REMAND

         As noted above, Defendant has removed this action to federal court based on diversity jurisdiction. The parties appear to agree that they are completely diverse and that the amount in controversy exceeds $75, 000. Plaintiffs, however, argue that Defendant's filing of its Plea in Bar/Motion to Compel and Demurrer in state court before filing its notice of removal constitute "substantial defensive action" that waives its right to removal. See Pis.' Remand Br., ECF No. 11. Defendant responds by denying that its actions in state court constitute voluntary availment of the state court's jurisdiction. See Def.'s Remand Br., ECF No. 14.

         A. LEGAL STANDARD

         1. Diversity Jurisdiction and Removal

         Federal district courts are courts of limited subject matter jurisdiction. United States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009) (citing Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005)). They may exercise "only the jurisdiction authorized them by the United States Constitution and by federal statute.'7 Id. (citing Bowles v. Russell, 551 U.S. 205 (2007)). District courts may exercise diversity jurisdiction in civil actions between "citizens of different states . . . where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs." 28 U.S.C. § 1332(a). If complete diversity and the appropriate amount in controversy requirements are met for a case that was initially filed in state court, a federal court may exercise jurisdiction over the case upon proper removal to federal court. 28 U.S.C. §§ 1441, 1446.[5] The federal removal statute provides as follows:" [A] ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a).

         2. Waiver of a Party's Right to Removal

         By statute, a defendant sued in state court has thirty days from the date it is served to file a notice of removal in the federal district court "for the district and division within which such action is pending." 28 U.S.C. § 1446(a), (b) . "Although there is no statutory basis for remand due to a party's waiver of its right of removal, the Fourth Circuit Court of Appeals [has] recognized that a district court could find a waiver under common law, but only in very limited circumstances." Virginia Beach Resort & Conference Ctr. Hotel Ass'n Condo. v. Certain Interested Underwriters at Lloyd's, 812 F.Supp.2d 762, 764 (E.D. Va. 2011) (internal quotation marks and citation omitted). To evaluate whether a defendant has waived its right to removal, the court must make "a factual and objective inquiry as to the defendant's intent to waive." Grubb v. Donegal Mut. Ins. Co., 935 F.2d 57, 59 (4th Cir. 1991) (citation omitted). A defendant "may [] waive its 3 0-day right to removal by demonstrating a 'clear and unequivocal' intent to remain in state court." Id. (citation omitted). A clear intent to remain in state court is shown when a defendant takes "substantial defensive action" before removal. Aqualon Co. v. Mac Equip., 149 F.3d 262, 264 (4th Cir. 1998). For example, a defendant seeking a final determination on the merits of the case in state court would waive the right to remove. Wolfe v. Wal-Mart Corp., 133 F.Supp.2d 889, 893 (N.D. W.Va. 2001) (holding that the defendant's filing of a motion for summary judgment in state court constituted waiver).

         A waiver of the right to removal "should only be found in extreme situations." Id. (internal quotation marks and citation omitted) (emphasis added). Remand based on waiver should occur when justified by "the values of judicial economy, fairness, convenience and comity." Id. A court analyzing whether to remand based on a waiver must be mindful that "the guiding rationale behind the doctrine of waiver is concern for preventing a removing defendant from 'test[ing] the waters in state court and, finding the temperature not to its liking, beat[ing] a swift retreat to federal court."7 Small v. Ramsey, No. 1:10CV121, 2010 U.S. Dist. LEXIS 116179, at *14, 2010 WL 4394084 (N.D. W.Va. Nov. 1, 2010) (quoting Estate of Krasnow v. Texaco, Inc., 773 F.Supp. 806, 809 (E.D. Va. 1991)).

         B. ANALYSIS

         As noted above, the parties do not dispute that there is complete diversity or that the amount in controversy exceeds $75, 000. See Compl. ¶¶ 1-3 (noting that Plaintiffs are citizens of Virginia and that Defendant is a limited liability company organized under the laws of Delaware); id. at 4 (demanding $344, 194 in compensatory damages and $350, 000 in punitive damages); Notice of Removal ¶ 8 (noting that Defendant is an LLC whose sole member, FSQ, Inc., is a Delaware corporation with its principal office in Newton, Massachusetts). Because the Court is satisfied that diversity jurisdiction is proper if Defendant has not otherwise waived its right to removal, the Court turns to the waiver issue.

         Plaintiffs chiefly rely on two cases in support of their position that Dominion Village waived its right to removal. The first case, Sood v. Advanced Computer Techniques, Corp., 308 F.Supp. 239, 240 (E.D. Va. 1969), involved a defendant who filed a notice of removal three days after filing an answer and three voluntary counterclaims. The plaintiff moved for remand on the ground that the filing of the counterclaims before the filing of the notice of removal constituted a waiver of the right to removal. Id. The court began its analysis by noting the principle established in Merchants' Heat & Light Co. v. James B. Clow & Sons, 204 U.S. 286, 289 (1907) that a defendant does not waive its right to removal where it merely files "pleadings to the merits, as required, after saving its rights." The Merchants7 Heat court contrasted this with the filing of a counterclaim, as "by setting up its counterclaim the defendant became a plaintiff in its turn, invoked the jurisdiction of the court in the same action, and, by invoking, submitted to it." Id., 204 U.S. at 289. Applying this principle to the facts in Sood, the court noted that under Virginia law the defendant was not required to bring the counterclaims in the same action as the plaintiff's claims or face their loss. 308 F.Supp. at 24 0. However, because the filing ...


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