Opinion
Cause No. IP99-1122-C-T/G
July 1, 2001
ENTRY DENYING PLAINTIFFS' MOTION FOR SUBSTITUTION OF CORPORATE DEFENDANT
Though this Entry is a matter of public record and is being made available to the public on the court's web site, it is not intended for commercial publication either electronically or in paper form. The reason for this caveat is to avoid adding to the research burden faced by litigants and courts. Under the law of the case doctrine, the ruling or rulings in this Entry will govern the case presently before this court. See, e.g., Tr. of Pension, Welfare, Vacation Fringe Benefit Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 468 n. 4 (7th Cir. 2000); Avitia v. Metro. Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). However, a district judge's decision has no precedential authority and, therefore, is not binding on other courts, on other judges in this district, or even on other cases before the same judge. See, e.g., Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998) ("a district court's decision does not have precedential authority"); Malabarba v. Chicago Tribune Co., 149 F.3d 690, 697 (7th Cir. 1998) ("district court opinions are of little or no authoritative value"); United States v. Articles of Drug Consisting of 203 Paper Bags, 818 F.2d 569, 571 (7th Cir. 1987) ("A single district court decision . . . has little precedential effect. It is not binding on the circuit, or even on other district judges in the same district."). Consequently, though this Entry correctly disposes of the legal issues addressed, this court does not consider the discussion to be sufficiently novel or instructive to justify commercial publication of the Entry or the subsequent citation of it in other proceedings.
On May 16, 2001, Plaintiffs filed a "motion and memorandum requesting emergency hearing, immediate corporate disclosures, expedited discovery, and clarification of party defendant." An emergency hearing was held on May 29, 2001, and Plaintiffs' motion is currently before the court for consideration. For the following reasons, the court DENIES all relief Plaintiffs seek in their motion.
The immediacy of such hearing was due to the fact that a jury trial in this case, which was filed in 1999, is set on the court's calendar to commence on June 11, 2001.
PROCEDURAL BACKGROUND
On July 21, 1999, Plaintiffs, Donna M. Gaskins and Elizabeth A. Corey, sued Defendants, John C. Olmstead and Vencor, Inc., alleging sex discrimination and retaliation under Title VII of the Civil Rights Act of 1964 and a number of state law claims arising out of their employment at a subsidiary hospital of Vencor. On September 13, 1999, Vencor filed a petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware. Thereafter, the proceedings in this court were automatically stayed in accordance with Section 362(a) of the Bankruptcy Code. Commencing on April 30, 2000, the bankruptcy court modified the automatic stay to permit the action in this court to proceed to trial. On September 1, 2000, Defendants moved for summary judgment against both Plaintiffs on all counts of the Complaint. On February 26, 2001, this court entered summary judgment on certain counts of Plaintiffs' Complaint and denied summary judgment as to the other counts. The remaining counts of Plaintiffs' Complaint are now ready for trial. Finally, on May 16, 2001, Plaintiffs filed their current motion, bringing to the court's attention for the first time the possibility that, allegedly through no fault of their own, Plaintiffs may have named the wrong corporate Defendant.
Familiarity with the facts of this case, as set forth in the court's February 26, 2001, summary judgment Entry, is assumed.
DISCUSSION
Plaintiffs, at this late date, request of this court quite drastic action. Plaintiffs request that this court remove the corporate Defendant, Vencor, and replace it with a different corporate entity, Ventas, Inc. Plaintiffs allege that such action is warranted because they were never employed by Defendant Vencor. Rather, they maintain that they were actually employed by a corporation now known as Ventas, Inc. Plaintiffs maintain that this confusion stems from a May 1998 corporate reorganization of Vencor, Inc. (the "Reorganization").
As a result of Vencor's chapter 11 bankruptcy, it appears that punitive damages will be unrecoverable against it.
Plaintiffs also seek rather extensive emergency discovery from a variety of corporations, most of whom are non-parties to this litigation. Even if expedited, such discovery would invariably lead to a delay of the scheduled trial. This is especially true if additional exhibits and witnesses were identified.
In a "Verified Motion for an Order Authorizing the Employment and Compensation of Law Firms and Attorneys Utilized in the Ordinary Course of Business" filed on September 13, 1999, in the bankruptcy court as part of Vencor's bankruptcy proceedings, Vencor explained this corporate reorganization as follows:
THE REORGANIZATION
12. On or about May 1, 1998, a reorganization of Vencor, Inc., occurred (the pre-May 1, 1998 entity will be referred to herein as "Old Vencor" a/k/a Ventas, Inc. after May 1, 1998 ("Ventas")), which involved, among other things, the creation of Vencor, Inc., various internal mergers and stock and asset transfers, the execution of leasing agreements and the refinancing of Old Vencor's existing indebtedness (the "Reorganization"). In the Reorganization, two entities emerged. Vencor, Inc. was created which operates the hospitals, nursing centers and contract services businesses. On that same date, Old Vencor became a real estate holding company with no health care operations and only a few employees. Old Vencor changed its name to Ventas, and is to be operated as a real estate investment trust. Ventas's sole asset consists of its ownership rights of certain real estate properties, in the vast majority of which Vencor operates certain of its long-term acute-care hospitals and skilled nursing centers. Vencor has been unable through its operations to generate sufficient funds to meet the obligations imposed on Vencor pursuant to the Reorganization. Those obligations, along with recent and unfavorable changes in the calculation of government reimbursements to healthcare providers, have necessitated these chapter 11 proceedings. . . .
The facts stated in this motion were verified as true and correct by what the court will refer to as "new" Vencor's (the defendant in this action) Senior Vice President and General Counsel. Thus, there can be no dispute that the corporation now referred to as "old" Vencor, the corporation which employed Plaintiffs, changed its name to Ventas.
In an affidavit filed with this court, Joseph Landenwich, Vice President of Corporate Legal Affairs and Corporate Secretary of Kindred Healthcare, Inc. (f/k/a Vencor, Inc.), testified:
In the restructuring transactions that occurred on or about April 30 and May 1, 1998, Old Vencor became two separate entities: a real estate investment trust ("REIT"), and a healthcare operations company. Old Vencor changed its name to Ventas. Vencor Healthcare, Inc., which was a wholly-owned subsidiary of Old Vencor, simultaneously changed its name to Vencor, Inc. ("New Vencor"). Ownership of Old Vencor's real estate assets only, including the bricks, mortar, and dirt at VHIS [Vencor Hospital-Indianapolis South], was assumed by Ventas, which emerged as an independent, publicly traded company. Substantially non-real estate operating assets, including the ownership of THC of Indiana, the employees and the non-real estate operating liabilities were transferred to Vencor Operating, Inc., a subsidiary of New Vencor. New Vencor emerged as an independent, publicly traded, healthcare operations company.
(Landenwich Aff. ¶ 4.)
Because "old" Vencor is now Ventas, and because Plaintiffs were employed by "old" Vencor, Plaintiffs maintain that their claims are actually asserted against Ventas, not "new" Vencor, the party that has been defending against this lawsuit since its conception. Plaintiffs accuse "new" Vencor of using deception to hide this reality from them. Thus, Plaintiffs ask this court to remove "new" Vencor as corporate Defendant and in its place name Ventas, Inc.
Vencor responds to Plaintiffs' allegations by opposing Plaintiffs' assertion that Ventas is the real party in interest. Vencor argues that as the result of the Reorganization, a new corporation was created, "new" Vencor, to which all of "old" Vencor's operating assets and liabilities were transferred. Vencor does not dispute that "old" Vencor was renamed Ventas, but argues that Ventas does not consist of all that was "old" Vencor. Rather, Ventas is a real estate investment trust which has nothing to do with the operations of any of the hospital facilities owned by "new" Vencor. Ventas owns only "old" Vencor's real estate assets and liabilities.
Plaintiffs have come forward with no viable theory of law which enables the court to do what they request. It appears to the court that Plaintiffs are requesting that a corporate defendant be replaced with an affiliated corporation which, as a result of the Reorganization, has absolutely nothing to do with this litigation. Plaintiffs were employed by "old" Vencor and intended to sue "old" Vencor. "Old" Vencor, however, no longer exists. Rather, "new" Vencor has assumed all of "old" Vencor's operating assets and liabilities. There can be no dispute that this lawsuit is an operating liability. Accordingly, it follows that "new" Vencor assumed this liability when it acquired "old" Vencor's operating liabilities.
Plaintiffs have presented no valid reason that one corporation should be swapped for another as a defendant in this litigation. The court recognizes that there may be situations in which it would be appropriate to pierce the corporate veil and impose liability on a corporation for the acts of an affiliated corporation, under such theories as "alter ego" or "instrumentality." See Phillip I. Blumberg, The Law of Corporate Groups: Substantive Law, § 8.03, at 161 (1987) ("[C]ourts have frequently imposed liability on one subsidiary for the torts of a sister subsidiary.") (citing cases); see also Papa v. Katy Indus., Inc., 166 F.3d 937, 940 (7th Cir. 1999) (recognizing that under certain circumstances a creditor may pierce the veil of one corporation "to sue a parent or other affiliate") (citations omitted). But, to establish that such a remedy would be appropriate, Plaintiffs would have to show that one of the corporations was a sham and that both corporations were under common control. See, e.g., Wallace v. Wood, 752 A.2d 1175, 1184 (Del.Ch. 1999) ("Piercing the corporate veil under the alter ego theory requires that the corporate structure cause fraud or similar injustice. Effectively, the corporation must be a sham and exist for no other purpose than as a vehicle for fraud.") (internal quotation omitted); Blumberg, § 8.03, at 160 ("The crucial factor in the imposition of intragroup liability is the intimate interrelationship of the component companies, reflecting their common equity ownership and common managerial direction arising from the exercise of control."); see also Pearson v. Component Tech. Corp., 247 F.3d 471, 484 n. 2 (3d Cir. 2001) ("Although the tests employed to determine when circumstances justifying `veil-piercing' exist are variously referred to as the `alter ego,' `instrumentality,' or `identity' doctrines, the formulations are generally similar, and courts rarely distinguish them. The most important differences across jurisdictions seem to reside largely in two aspects of these different formulations: first, whether an element of `fraudulent intent' . . . is explicitly required. . . .") (citations omitted). Plaintiffs, however, have entirely failed to demonstrate that this is such a case. In fact, Plaintiffs have not even attempted to make such a showing. Rather, Plaintiffs only argue that "old" Vencor is now Ventas, and therefore the real party in interest is Ventas. Period. Plaintiffs mention two cases, Lindenborg v. M L Builders and Brokers, Inc., 302 N.E.2d 816 (Ind.Ct.App. 1973), and Wilhite v. Convent of Good Shepherd, 78 S.W. 138 (Ky. 1904), for the proposition that a corporation cannot escape liability by merely changing its name. However, "old" Vencor did not merely change its name to Ventas. It appears that Plaintiffs refuse to recognize that "old" Vencor does not exist as its former self. At some point, "old" Vencor (or Ventas) transferred its operating liabilities, of which this lawsuit is one, to "new" Vencor. Thus, "new" Vencor would ordinarily be the party in interest. Plaintiffs have come forward with no evidence to convince this court that it should pierce "new" Vencor's corporate veil and find that Ventas is the real party in interest here.
In Katy, the Seventh Circuit recognized, "If because of neglect of corporate formalities, or a holding out of the parent as the real party with whom a creditor nominally of a subsidiary is dealing, a parent (or other affiliate) would be liable for the torts or breaches of contract of its subsidiary, it ought equally to be liable for the statutory torts created by federal antidiscrimination law." 166 F.3d at 941.
Moreover, Plaintiffs have entirely failed to attack, either in this court or in the bankruptcy court, the legality of the Reorganization, and the transfers of assets and liabilities that occurred incident thereto. Plaintiffs, as far as this court can deduce from the information that it has been provided by the parties, have never suggested that anything about the Reorganization was improper. Plaintiffs have never alleged that "new" Vencor was incorporated as a shell corporation or that it was insufficiently funded. Nor have they attacked the legality of the Reorganization in any other manner.
Furthermore, Plaintiffs have not convinced the court that Vencor was at all deceptive in hiding the Reorganization from Plaintiffs in this litigation. As an initial matter, the court notes that it is a plaintiff's duty to sue the correct party. Here, the fact that Vencor filed Chapter 11 bankruptcy was certainly no secret. In fact, this proceeding was brought to a grinding halt because of that very action! Nor is it alleged that any of Vencor's filings with the Secretaries of State in Delaware or Kentucky or with the U.S. Securities and Exchange Commission were inaccurate, allusive or amiss, or deceptive in any other way. Moreover, all of the documents provided to the court were matters of public record, available to anyone interested in the corporate reorganization and the bankruptcy. Plaintiffs appear to take the position that they were entitled to hide their heads in the sand and ignore the reorganization and bankruptcy events, only to emerge ostrich-like shortly prior to trial to use their confusion about the effect of the corporate reorganization to up the damage ante in this case. Of course, Vencor did not come forward and explicitly notify Plaintiffs of the 1998 Reorganization, but there is no evidence that Vencor attempted in anyway to hide its existence. Along those same lines, Plaintiffs have made no allegation that Vencor skirted or was in non-compliance with any rules of discovery, which, by the way, has been closed for quite some time.
CONCLUSION
Plaintiffs have come forward with no legal reason that this court should find Ventas, Inc., as opposed to Vencor, Inc., to be the real party in interest. Accordingly, Plaintiffs' motion to substitute Ventas for Vencor as corporate defendant is DENIED. Plaintiffs' requests for corporate disclosures and expedited discovery are also DENIED as they are unnecessary. Of course, the court would have no objection to Plaintiffs' dismissing their claims against Vencor and attempting to assert those claims in another action against Ventas. Similarly, the court would consider a request by Plaintiffs for a continuance of trial to conduct discovery directed at piercing the corporate veil of Vencor, if such a request is made by noon on June 4, 2001. The court is not interested in rushing Plaintiffs to trial if they believe that more time is necessary to make a viable argument for piercing Vencor's corporate veil.
Finally, to the extent that Vencor did not withdraw its motion to substitute Transitional Hospitals Corporation of Indiana, Inc., for Vencor, Inc. as the corporate defendant in this action during the May 29th hearing, that motion is DENIED. Likewise, Vencor's motion, pursuant to Federal Rule of Civil Procedure 12(f), to strike Plaintiffs' motion in its entirety as scandalous and impertinent is DENIED. Plaintiffs' allegations are neither scandalous nor impertinent, although they are unprevailing.
During the hearing, Vencor's counsel represented, "I'm advised by Mr. Carr that the discovery has been taken in the name of Vencor, that the party's been referred as Vencor. We have no objection to it remaining Vencor. As I said, Vencor stands behind the defendants in this case." ( See May 29 Hr'g Tr. at 62.) Counsel continued, "We see no barrier to this case proceeding to trial on June the 10th [sic] with Vencor as the named party who accepts responsibility for the defendants in this case, and it accepts responsibility to the plaintiffs in this case except to the extent that the bankruptcy order rejected claims for punitive damages." ( Id. at 63.)