Opinion
1:20-CV-2357
11-09-2021
Timothy Lautermilch, Plaintiff, v. RHBA Acquisitions, LLC d/b/a Red Head Brass LLC, et al., Defendants.
MEMORANDUM OF OPINION AND ORDER
PAMELA A. BARKER, U.S. DISTRICT JUDGE.
Currently pending is Defendant RHB Acquisition, LLC's Motion to Dismiss for Lack of Jurisdiction. (Doc. No. 21.) Plaintiff Timothy Lautermilch filed a Brief in Opposition on June 9, 2021, to which Defendant replied on June 23, 2021. (Doc. Nos. 23, 24.) For the following reasons, Defendant RHB Acquisition, LLC's Motion to Dismiss (Doc. No. 21) is GRANTED. In addition, the Court sua sponte remands Plaintiff's state law claims against Defendant RHBA Acquisitions, LLC to the Cuyahoga County Court of Common Pleas for further proceedings.
I. Background
a. Factual Allegations
Defendant RHB Acquisition, LLC (hereinafter “RHB”) was formed on October 23, 2015. (Doc. No. 16-4 at PageID# 339.) It is an Ohio limited liability company with its principal place of business in Shreve, Ohio. (Doc. No. 16 at ¶ 3.) Plaintiff Timothy Lautermilch has extensive knowledge and experience in business management. (Id. at ¶ 11.) He is an Ohio resident. (Id. at ¶ 1.)
On November 20, 2015, Plaintiff and RHB entered into the following agreements: (1) a “Limited Liability Company Operating Agreement” (hereinafter “Operating Agreement”); and (2) “Incentive Unit Award Agreement” (hereinafter “Incentive Agreement”). (Doc. Nos. 16-3, 16-4.) Pursuant to these Agreements, RHB issued 125 Common Units and 59.5238 Incentive Units to Lautermilch. (Doc. No. 16-3 at Section 1; Doc. No. 16 at ¶ 92.) As discussed in more detail infra, these Agreements contain certain provisions relating to RHB's “call rights” with respect to these Units in the event of Plaintiff's termination. See, e.g., Doc. No. 16-3 at Section 5; Doc. No. 16-4 at Sections 10.05 and 10.07.
On the same date that he entered into the Operating and Incentive Agreements, Plaintiff entered into an Employment Agreement with Defendant RHBA Acquisitions, LLC (hereinafter “RHBA”). (Doc. No. 16 at ¶ 12; Doc. No. 16-1.) RHBA is a Delaware limited liability company that manufactures high quality fittings and other firefighting equipment from its business location in Shreve, Ohio. (Doc. No. 16 at ¶ 2.) According to Plaintiff, RHBA is a wholly owned subsidiary of RHB. (Id. at ¶ 3.) Plaintiff further alleges that RHB and RHBA share the same address as well as the “same executive employments and same board of directors, who hold one single meeting for both companies at the exact same time.” (Id. at ¶ 4.)
In addition, RHB agreed to “join” the Employment Agreement “in its individual capacity for the sole purpose of binding itself to the provisions of Section 3.3 hereof.” (Doc. No. 16-1 at PageID# 312.) Section 3.3 of the Employment Agreement is entitled “Equity Incentive Plan” and provides that RHB “shall provide to the Executive [i.e., Plaintiff] profits interests in [RHB] equal to three percent (3%) aggregate amount of the authorized common units and profits interests of [RHB] on the date hereof (collectively, the ‘Initial Common Equity').” (Id. at PageID# 298.) This Section also set forth conditions for the provision of additional profits interests in RHB equal to one percent of the Initial Common Equity upon the realization of certain targets defined therein. (Id.)
Pursuant to the Employment Agreement, Plaintiff served as President of both RHBA and RHB, but was an employee of only RHBA. (Doc. No. 16-1 at Section 2.1.) Among other things, the Employment Agreement contained provisions relating to both termination for cause (Section 4.1) and termination without cause (Section 4.2). (Doc. No. 16-1.) The “termination for cause” provision provides, in relevant part, as follows:
4.1 Termination for Cause or by the Executive without Good Reason
(a) The Executive's employment hereunder may be terminated by the Company for Cause or by the Executive without Good Reason. If the Executive's employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive shall be entitled to receive:
(i) any accrued but unpaid Base Salary which shall be paid on the pay date immediately following the Termination Date (as defined below) in accordance with the Company's customary payroll procedures;
(ii) reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company's expense reimbursement policy; and
(iii) such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company's employee benefit plans as of the Termination Date; provided that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.(Doc. No. 16-1 at Section 4.1(a)). The term “cause” is defined, among other things, as: (i) “the Executive's failure to perform his duties;” (ii) “the Executive's engagement in dishonesty, illegal conduct or gross misconduct, which is, in each case, injurious to the Company Group;” or (iii) the Executive's material breach of any obligation under this Agreement or any other written agreement between the Executive and the Company, or any material failure by the Executive to comply with the Company's written policies or rules, provided that, if the breach or failure is curable, the Executive shall be entitled to written notice and a period of thirty (30) days to cure the alleged breach or failure. (Id. at Section 4.1(b)).
The Employment Agreement's termination without cause provision, by contrast, provides as follows:
4.2 Termination without Cause or with Good Reason. The Employment Term and the Executive's employment hereunder may be terminated by the Company without Cause or by the Employee for Good Reason, with not less than thirty (30) days written notice to the other party. In the event of such termination, the Executive shall be entitled to receive the Accrued Amounts, the Annual Bonus determined in accordance with the Equity Incentive Plan to the extent earned, and subject to the Executive's compliance with Section 5, Section 6 and Section 7 of this Agreement [regarding Confidential Information, Restrictive Covenants, and NonDisparagement] and his execution of a release of claims in favor of the members of the Company Group and their respective members, managers, officers and other representatives in a form provided by the Company (the "Release") and such Release becoming effective within twenty-one (21) days following the Termination Date, the Executive shall be entitled to receive continued Base Salary and health insurance benefits for eight (8) months following the Termination Date payable in equal installments in accordance with the Company's normal payroll practices, but no less frequently than monthly.(Id. at Section 4.2) (emphasis added).
In addition to the thirty-day written notice provision relating to termination without cause, the Employment Agreement contains a general “Notice of Termination” provision that states as follows: “Any termination of the Executive's employment hereunder by the Company or by the Executive during the Employment Term (other than termination on account of the Executive's death) shall be communicated by written notice of termination (‘Notice of Termination') to the other party hereto in accordance with Section 20.” (Id. at Section 4.4).
From November 20, 2015 through June 29, 2020, Plaintiff served as President and CEO of RHB and RHBA. (Doc. No. 16 at ¶ 15.) Plaintiff alleges that, during his employment, he “fully and faithfully performed his duties and responsibilities . . ., as set forth in the Employment Agreement.” (Id. at ¶ 16.) On June 29, 2020, however, RHBA (through John Broucek IV of D'Orazio Capital Partners, LLC) sent Plaintiff a “Notice of Termination for Cause” pursuant to Section 4.1 of the Employment Agreement. (Doc. No. 16-2.) This Notice provided the following reasons for Plaintiff's termination:
Performance and Gross Misconduct. You failed to perform your duties as President of the Company and exhibited gross misconduct. You failed to meet annual operating goals year over year, including without limitation, a failure to execute satisfactorily on the annual operating budget, annual business plan and sales performance plan. As a result, the Company has underperformed and has suffered decreasing EBITDA for the past several years. You failed to execute on the 2018/2019 inventory pre-purchase plan in coordination with the bank covenant amendments resulting in adverse consequences to the Company. You failed to provide sufficient oversight in the accounting department and to institute adequate accounting controls over accounting functions necessary to identify accounting irregularities and financial misrepresentations to the Company's lender for over a year to the detriment of the Company. You failed to adequately create a safe working environment at the Company as evidenced by the issuance of several OSHA violations resulting in over $37,000 in fines incurred by the Company and, moreover, failed to make all the required fine payments. You exhibited gross misconduct when you allowed a new employee to start work and continue working after you had knowledge of such employee's failure to pass a pre-employment drug screen. Failing to abide by the Company's policies is a risk to the Company and to the other employees.(Id. at p. 1.) The Notice indicated that Plaintiff's termination was effective on that date (i.e., June 29, 2020) and explained that (1) Plaintiff was entitled to his salary up until the termination date; (2) payment for Plaintiff's accrued and unused paid time off would be paid “in accordance with the Company's policy;” and (3) Plaintiff would receive a letter outlining the status of his benefits upon dismissal, including information about eligibility for COBRA benefits. (Id.)
Plaintiff claims that “RHBA purposefully manufactured certain false claims and accusations against [him], with actual malice and in an effort to improperly manufacture grounds [for] a termination ‘with cause,' while having actual knowledge that there was no possible legal or factual basis for such a termination.” (Doc. No. 16 at ¶ 22.) He further asserts that RHBA should have, but failed to, provide thirty day written notice of termination without cause, as required by Section 4.2 of the Employment Agreement. (Id. at ¶¶ 24-27.)
By the time of his termination, Plaintiff alleges that he had earned and received a total of 94.246075 Unrestricted Incentive Units that had fully vested, and an additional 4.960325 Restrictive Incentive Units. (Id. at ¶ 79.) Plaintiff claims that, by virtue of his receipt and ownership of the Restricted Units, he “became an owner and member of RHB and entitled to the rights set forth in the Operating Agreement.” (Id. at ¶ 80.)
Plaintiff also claims that, at some during his employment at RHBA, he was “induced” into investing $125,000 in RHB. (Id. at ¶¶ 54-56.)
On October 28, 2020, RHBA sent a written demand to Plaintiff to repurchase his Common and Incentive Units for zero dollars, as follows:
Pursuant to Section 10.07(b) of the Limited Liability Company Operating Agreement of RHB Acquisition, LLC dated November 20, 2015 (the “Operating Agreement”), RHB Acquisition, LLC (the “Company”) hereby exercise its repurchase rights for your one hundred twenty five (125) common units of the Company (the “Common Units”). Section 10.07(b) of the Operating Agreement provides that the Company shall pay you the Capitalized Earnings Determined Value Amount of the Common Units, and, as set forth on Exhibit A, the Capitalized Earnings Determined Value of the Common Units is $0.
Pursuant to Section 10.05(a)(ii) of the Operating Agreement, the Company hereby exercises its right to repurchase your 94.246075 Unrestricted Incentive Units (as defined in the Operating Agreement) for their fair market value of $0.00 per Unit. Pursuant to Section 10.05(a)(i) of the Operating Company, the Company hereby exercises its right to repurchase your 4.960325 Restricted Incentive Units (as defined in the Operating Agreement) for their fair market value of $0.00 per Unit. The Company has determined that the fair market value of the Unrestricted Incentive Units and the Restricted Incentive Units is zero because the aggregate indebtedness of the Company is substantially in excess of its present enterprise value.
Although the aggregate amount of consideration owed by the Company to you for the Common Units, the Unrestricted Incentive Units and the Restricted Incentive Units is $0.00, the Company will pay to you $125.00 at closing by check or other means determined by the Company.(Doc. No. 16-5.) Since receiving this demand, Plaintiff has “made repeated demands that RHB cease and desist from attempting the unlawful, untimely, and improper ‘repurchase' of his ownership interest, but RHB has failed and refused such demands.” (Doc. No. 16 at ¶ 86.)
b. Procedural History
Meanwhile, on September 11, 2020, Plaintiff filed a Complaint in the Cuyahoga County Court of Common Pleas against RHBA only. (Doc. No. 1-1.) In the Complaint, Plaintiff alleged seven claims arising out of RHBA's alleged breach of the Employment Agreement, including claims for declaratory judgment, breach of contract, “malicious breach of contract/punitives, ” fraud/misrepresentation, breach of fiduciary duty, and violations of “COBRA/ERISA.” (Id.) RHBA removed the action to this Court on October 15, 2020 on the basis of federal question jurisdiction over the “COBRA/ERISA” claim and supplemental jurisdiction over Plaintiff's state law claims. (Doc. No. 1 at ¶¶ 12-15.) RHBA thereafter filed its Answer on November 23, 2020. (Doc. No. 7.)
On December 14, 2020, Plaintiff filed a First Amended Complaint, again naming only RHBA as a Defendant. (Doc. No. 10.) Therein, Plaintiff added two new breach of contract claims based on the alleged breach of the Incentive and Operating Agreements. (Id.) RHBA timely filed an Answer. (Doc. No. 15.)
On December 23, 2020, RHB (who was not then named as a party in the instant action) filed a Complaint in the Cuyahoga County Court of Common Pleas against Lautermilch. (Doc. No. 21-1.) Therein, RHB alleged that Lautermilch had breached both the Operating and Incentive Agreements by failing and refusing to return his Common Units and Incentive Units in response to RHB's written demand. (Id.)
Plaintiff responded with filings in both state and federal court. Specifically, on January 29, 2021, Plaintiff filed a Second Amended Complaint in this Court, in which it named both RHBA and RHB as Defendants. (Doc. No. 16.) Therein, Plaintiff asserts the following ten counts:
Prior to the filing of the Second Amended Complaint, on December 29, 2020, the Court conducted a Case Management Conference (“CMC”), during which various case management deadlines were set. (Doc. No. 14.)
(1) declaratory judgment against RHBA (Count 1),
(2) breach of contract against RHBA, arising out of the alleged breach of the Employment Agreement (Counts 2 and 3),
(3) “malicious breach of contract/punitives” against RHBA, arising out of the alleged breach of the Employment Agreement (Count 4),
(4) fraud/misrepresentation against RHBA (Count 5),
(5) breach of contract against RHB and RHBA, arising out of the alleged breach of the Operating Agreement (Count 6),
(6) violations of COBRA and ERISA against RHBA (Count 7),
(7) breach of contract against RHB and RHBA for breach of the Incentive and Operating Agreements (Count 8),
(8) declaratory judgment/breach of contract against RHB and RHBA arising out of the alleged breach of the Employment and Operating Agreements (Count 9), and
(9) abuse of process against RHB and RHBA (Count 10).(Id.) On that same date, Plaintiff filed an Answer, Counterclaim, and Third-Party Complaint in RHB's state court action. (Doc. No. 21-2.) Therein, Plaintiff raises twenty-one (21) affirmative defenses to RHB's complaint, adds RHBA as a third-party defendant, and asserts the same ten claims against RHB and RHBA as are set forth in Plaintiff's Second Amended Complaint herein. (Id.)
It is not entirely clear whether this Count is against both RHB and RHBA, or just RHB. Paragraphs 87 and 88 of this Count allege that RHB breached the Incentive and Operating Agreements, but the next paragraph alleges that Plaintiff has sustained damages as a result of “RHBA's breach of contract.” For purposes of this Motion only, the Court will assume that Count 8 is aimed at both RHB and RHBA.
In the instant federal action, RHBA filed an Answer to Plaintiff's Second Amended Complaint on February 12, 2021. (Doc. No. 17.) Several months later, on May 10, 2021, RHB filed a Motion to Dismiss for Lack of Jurisdiction, in which it argues that Plaintiff's claims against it should be dismissed because this Court lacks either original, diversity, or supplemental jurisdiction over those claims. (Doc. No. 21.) Plaintiff filed a Brief in Opposition on June 9, 2021, to which RHB replied on June 23, 2021. (Doc. Nos. 23, 24.)
After conducting a status conference with counsel, the Court ordered that discovery would be stayed until it had decided RHB's Motion to Dismiss.
Meanwhile, in the state court action, RHBA filed a Motion to Dismiss Lautermilch's Third-Party Complaint on April 5, 2021. See RHB Acquisition LLC v. Lautermilch, Cuyahoga County Court of Common Pleas Case No. CV-20-941960. Lautermilch filed a brief in opposition and his own Motion to Dismiss on April 12, 2021. Id. The following month, Lautermilch filed a Motion to Stay the state court proceedings pending the outcome of the instant, federal action. Id. The docket reflects that the state trial court granted Lautermilch's motion to stay on June 24, 2021 and ordered that both pending motions to dismiss be held in abeyance. Id.
II. Standard of Review
When subject matter jurisdiction is challenged in a motion to dismiss pursuant to Rule 12(b)(1), “the plaintiff has the burden of proving jurisdiction in order to survive the motion.” Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990). Motions under Rule 12(b)(1) “fall into two general categories: facial attacks and factual attacks.” United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). “A facial attack is a challenge to the sufficiency of the pleading itself.” Id. Thus, the complaint's material allegations must be taken as true and construed in the light most favorable to the nonmoving party. Id. On the other hand, factual attacks challenge “the factual existence of subject matter jurisdiction.” Id. In that case, the court is free to weigh the evidence before it without a presumption of truthfulness. Id. Although RHB does not specify whether it sets forth a facial or factual attack on jurisdiction, RHB has not submitted any evidence outside of the pleadings and appears to attack the sufficiency of the Complaint itself to establish jurisdiction. As a result, the Court will presume RHB's Motion to Dismiss is a facial attack and accept the material allegations in Plaintiff's Complaint as true.
The Court notes that, in its Motion to Dismiss, RHB asks the Court to take judicial notice of certain state court filings, including RHB's state court complaint and Lautermilch's Answer, Counterclaim and Third-party Complaint. (Doc. Nos. 21-1, 21-2.) RHB does not, however, rely on any of these filings for the truth of any of the matters asserted therein. Rather, RHB attaches these documents to its Motion solely for the purpose of demonstrating that they were filed in state court.
III. Analysis
In its Motion, RHB argues that dismissal of Plaintiff's state law claims against it is warranted because this Court does not have diversity, federal question, or supplemental jurisdiction over those claims. (Doc. No. 21 at p. 4.) RHB argues diversity jurisdiction is not present because “RHB is an Ohio limited liability company with its principal place of business in Ohio, and Lautermilch resides in Ohio.” (Id. at p. 10.) RHB maintains there is no federal question jurisdiction because all of Plaintiff's claims against RHB are state law claims. (Id. at p. 11.)
With regard to the issue of supplemental jurisdiction, RHB asserts that Plaintiff's claims “against RHBA do not arise from the same common nucleus of operative facts as [his] claims against RHB.” (Id. at p. 11.) RHB argues that “the claims between Lautermilch and RHB involve separate parties, separate transactions and contracts, separate rights, separate substantive areas of the law, separate issues to address in discovery, separate counsel for defendants, and no overlap of legal analysis for the Court to consider.” (Id.) RHB further claims that, even if the Court did have supplemental jurisdiction over Plaintiff's claims, it should decline to exercise it based on principles of judicial economy. (Id. at p. 12.)
In response, Plaintiff begins by asserting that this Court has “already asserted supplemental jurisdiction” over his claims against RHBA arising out the alleged breach of the Employment Agreement. (Doc. No. 23 at p. 5.) Plaintiff argues that this Court should likewise exercise supplemental jurisdiction over his claims against RHB because such claims “are directly and explicitly dependent upon whether RHBA properly terminated the Employment Agreement for Cause.” (Id.) In support of this argument, Plaintiff maintains that RHB is a party to the Employment Agreement and, further, that the Operating Agreement incorporates by reference the definition of “Cause” from the Employment Agreement. (Id.) Thus, Plaintiff argues that “all of the relevant factors and concerns - including judicial economy, fairness to the litigants, convenience, costs, comity and the avoidance of inconsistent judgments-weigh strongly in favor of having this Court decide all claims arising from the attempted and/or wrongful termination of the Employment Agreement.” (Id.) Finally, Plaintiff maintains that RHB's Motion should be denied because RHB is a necessary and indispensable party to this case pursuant to Fed.R.Civ.P. 19. (Id.)
For the following reasons, the Court finds that Plaintiff has not established that supplemental jurisdiction exists over his claims against RHB and that, even ifjurisdiction did exist, the Court would decline to exercise it because such claims substantially predominate over “the claim or claims over which the district court has original jurisdiction, ” i.e., Plaintiff's “COBRA/ERISA” claim.
In general, federal courts have original jurisdiction over a case if it arises under federal law or if the parties are diverse and the amount in controversy exceeds $75,000. See 28 U.S.C. §§ 133132. Here, the parties do not dispute that this Court lacks original jurisdiction over Plaintiff's claims against RHB. Specifically, RHB argues (and Plaintiff does not contest) that this Court lacks diversity jurisdiction over Plaintiff's claims against it. Further, RHB notes, correctly, that each of Plaintiff's claims against RHB arise solely under state law. Thus, the Court agrees that it does not have original jurisdiction over Plaintiff's state law claims against RHB.
As noted supra, RHB asserts that the Court lacks diversity jurisdiction because “RHB is an Ohio limited liability company and Plaintiff is an Ohio resident.” (Doc. No. 21 at p. 10.) For purposes of determining diversity jurisdiction, however, a limited liability company has the citizenship of each of its members. See Delay v. Rosenthal Collins Group, LLC, 585 F.3d 1003, 1005 (6th Cir. 2009); V&M Star, LP v. Centimark Corp., 596 F.3d 354, 355-356 (6th Cir. 2010); Johnson v. Nexus Gas Transmission, LLC, 493 F.Supp.3d 592, 595 (N.D. Ohio 2020). Here, Plaintiff has not pled the citizenship of each of the members of RHB nor has it asserted that this Court has diversity jurisdiction over RHB. However, Plaintiff is an Ohio resident and he alleges that he has an ownership interest in RHB. Therefore, there would not appear to be complete diversity in any event. With regard to RHBA, the sole bases provided by RHBA for removal are federal question jurisdiction over Plaintiff's COBRA/ERISA claim and supplemental jurisdiction over Plaintiff's state law claims. (Doc. No. 1 at pp. 1, 3.) Plaintiff does not allege in the Second Amended Complaint that this Court has diversity jurisdiction over RHBA nor does he allege any facts regarding the citizenship of the members of RHBA. (Doc. No. 16.) Moreover, in light of Plaintiff's ownership interest, there would not appear to be complete diversity since Plaintiff himself is an Ohio resident.
The Court does, however, have original jurisdiction over Plaintiff's “COBRA/ ERISA” claim against RHBA. If a court has original jurisdiction over one claim, the court can exercise supplemental jurisdiction “over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy.” 28 U.S.C. § 1367(a). “Claims form part of the same case or controversy when they ‘derive from a common nucleus of operative facts.'” Blakely v. United States, 276 F.3d 853, 861 (6th Cir. 2002) (quoting Ahearn v. Charter Twp. of Bloomfield, 100 F.3d 451, 454-55 (6th Cir. 1996)). “Operative facts are facts that are relevant to the resolution of the claim.” Vogel v. Ne. Ohio Media Grp. LLC, 2017 WL 3157920 at *1 (N.D. Ohio July 25, 2017).
However, “[t]he decision to exercise supplemental jurisdiction ‘is committed to the district court's discretion and is not mandatory.'” Filing v. Phipps, 2008 WL 11380153 at *4 (N.D. Ohio Oct. 17, 2008) (quoting Cemer v. Marathon Oil Co., 583 F.2d 830, 832 n.2 (6th Cir. 1978)); see also Habich v. City of Dearborn, 331 F.3d 524, 535 (6th Cir. 2003) (“Supplemental jurisdiction is a doctrine of discretion, not of plaintiff's right.”) (citations and internal quotations omitted). “[E]ven if a district court has supplemental jurisdiction under § 1367(a), § 1367(c) makes clear that it need not exercise that jurisdiction in certain circumstances.” Filing, 2008 WL 11380153 at *4. Specifically, § 1367(c) provides:
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.28 U.S.C. § 1367(c). In addition to looking to the existence of one or more of the four circumstances enumerated in § 1367(c) to determine whether to exercise supplemental jurisdiction, “courts should treat the state law claims ‘in the manner that best serves the principles of [judicial] economy, convenience, fairness, and comity which underlie the pendent jurisdiction doctrine.'” Filing, 2008 WL 11380153 at *5 (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 357 (1988)).
The Court first finds that it does not have supplemental jurisdiction over Plaintiff's claims against RHB under § 1367(a). In their briefing before this Court, the parties focus on whether Plaintiff's claims that RHB breached the Operating and Incentive Agreements share a common nucleus of operative facts with Plaintiff's claims that RHBA breached the Employment Agreement. However, that is not the proper analysis under § 1367(a). That Section provides for supplemental jurisdiction where the state law claims are “so related to the claims in the action within [the district court's] original jurisdiction that they form part of the same case or controversy.” 28 U.S.C. § 1367(a) (emphasis added). See also Carnegie Mellon University, 484 U.S. at 349 (stating that “a federal court has jurisdiction over an entire action, including state-law claims, whenever the federal-law claims and state-law claims in the case ‘derive from a common nucleus of operative fact') (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966)); Kubala v. Smith, 984 F.3d 1132, 1137 (6th Cir. 2021) (interpreting § 1367(a), stating that “[t]he test in Gibbs remains the standard for [supplemental] jurisdiction: ‘the state and federal claims must derive from a common nucleus of operative fact'”) (quoting Gibbs, 383 U.S. at 725).
Here, the only claim over which this Court has original jurisdiction is Plaintiff's “COBRA/ERISA” claim against RHBA. The question, then, under § 1367(a) is not whether Plaintiff's breach of contract claims against RHB are part of the same case or controversy as Plaintiff's breach of contract claims against RHBA. Rather, the question is whether Plaintiff's claims against RHB are part of the same case or controversy as Plaintiff's “COBRA/ERISA” claim against RHBA.
The Court finds that they are not. Plaintiff asserts four claims against RHB. Three of these claims (Counts 6, 8 and 9) allege that RHB breached the Operating and Incentive Agreements by:
(1) failing to disclose and/or purposefully misrepresenting certain material facts to Plaintiff concerning “investment, growth strategies, acquisitions, and capital contributions;” conducting membership meetings, making decisions, and taking corporate action without notice to Plaintiff; and failing to provide Plaintiff with certain business and financial information and documentation (Count 6);
(2) unlawfully and improperly demanding that Plaintiff sell his Incentive Units to RHB for no consideration (Count 8); and
(3) failing to recognize Plaintiff's “put option” with respect to his Common Units under Section 10.07(a) of the Operating Agreement and failing to provide him with financial information and documentation relating to either RHB or RHBA (Count 9).(Doc. No. 16.) The fourth claim against RHB (Count 10) alleges abuse of process based on RHB's filing of “a duplicative legal proceeding in the same Cuyahoga County Court of Common Pleas from which RHB caused its wholly owned subsidiary (RHBA) to remove this action.” (Id. at p. 18.)
None of these claims share a common nucleus of operative facts with Plaintiff's “COBRA/ERISA” claim, which solely involves whether RHBA properly provided written notice to the plan administrator regarding Plaintiff's qualification for benefits under COBRA. The operative facts relating to Plaintiff's COBRA/ERISA claim include whether Plaintiff paid his health insurance premiums prior to termination and whether and when RHB provided notice to the plan administrator that Plaintiff had experienced a “qualifying event.” None of these factual issues are relevant or similar to the operative facts relating to whether RHB breached the Operating and/or Incentive Agreements when it demanded repurchase of Plaintiff's Incentive Units, failed to recognize a “put option” with respect to his Common Units, or failed to provide financial or business information regarding RHB and RHBA. Nor is there any factual overlap between Plaintiff's abuse of process claim against RHB and Plaintiff's COBRA/ERISA claim against RHBA. In sum, aside from the mere fact of Plaintiff's termination, there is no “substantial similarity between the predicate factual findings necessary to the resolution of both the federal and state law claims.” Kubala, 984 F.3d at 1138 (quoting Province v. Cleveland Press Publ'g Co., 787 F.2d 1047, 1055 (6th Cir. 1986)). Accordingly, the Court finds that it does not have supplemental jurisdiction over Plaintiff's claims against RHB (Counts 6, 8, 9 and 10) under § 1367(a).
Specifically, in Count 7, Plaintiff alleges that “[u]nder COBRA, RHBA was required to notify the benefit plan administrator that an employee has experienced a ‘qualifying event' within thirty (30) days of the qualifying event, after which the plan administrator was required to provide written notice to Lautermilch within fourteen (14) days of written notice of the qualifying event.” (Doc. No. 16 at ¶ 70.) Plaintiff alleges that “RHBA violated COBRA by immediately terminating Lautermilch's health insurance and failing to provide the plan administrator with notice of a ‘qualifying event.'” (Id. at ¶ 71.) Plaintiff alleges that “[p]ursuant to 29 U.S.C. § 1132(c)(1) and federal law, [he] is entitled to an award of up to $110 per day from the date of the failure to provide timely notice as required by COBRA, ” as well as “an award of such other relief as may be deemed proper, including but not limited to the reimbursement of medical expenses incurred and additional costs and premiums incurred for replacement insurance.” (Id. at ¶¶ 74, 76.)
Moreover, even if supplemental jurisdiction did exist, the Court would decline to exercise it because Plaintiff's state law claims against RHB substantially predominate over his lone federal claim. As noted above, § 1367(c)(2) provides that a district court may decline to exercise supplemental jurisdiction over related state claims if “the claim[s] substantially predominate[] over the claim or claims over which the district court has original jurisdiction.” 28 U.S.C. § 1367(c)(2). “[D]istrict courts have broad discretion in deciding whether to exercise supplemental jurisdiction, ” including in cases where state law predominates under § 1367(c)(2). See Pinney Dock & Transp. Co. v. Penn Cent. Corp., 196 F.3d 617, 620 (6th Cir. 1999) (internal quotation marks and citation omitted); Ohio ex rel. Armstrong v. Stow-Munroe Falls CSD Bd. of Educ., 2013 WL 5406807 at * 2 (N.D. Ohio Sept. 25, 2013) (citing Dashields v. Robertson, 2000 WL 564024 at *3 (4th Cir. May 10, 2000) (per curiam)).
In exercising its discretion, a district court can consider such factors as judicial economy, convenience, fairness and comity. Pinney, 196 F.3d at 620. “Although there appears to be no definitive test to determine whether state law predominates over federal claims, courts have considered such factors as whether they outnumber the federal law claims; whether the claims are distinct; and whether [the] state law claims involve proof that is not needed to establish the federal law claims.” Williamson v. Recovery Ltd. P'ship, 2009 WL 649841 at *9 (S.D. Oh. March 11, 2009). See also Gibbs, 383 U.S. at 716 (in determining whether state law claims substantially predominate over federal law claims, courts should compare state and federal claims “in terms of proof, of the scope of the issues raised, or of the comprehensiveness of the remedy sought”); Reed v. Pape Management Inc., 2016 WL 5405248 at * 4 (N.D. Ohio Sept. 28, 2016).
Here, Plaintiff's state law claims against RHB substantially predominate over Plaintiff's federal claim. As an initial matter, Plaintiff's four state law claims against RHB clearly outnumber his single federal law claim. See Dietrich v. Simon, 2017 WL 5201919 at * 2 (6th Cir. May 17, 2017) (“Because Dietrich's complaint alleged only a single federal claim and five state law claims, the state law claims predominated, and the district court did not abuse its discretion in declining to exercise supplemental jurisdiction over them.”) While a simple “edge in numbers . . . does not necessarily mean that the state law claims substantially predominate, ” Detroit Edison Co.v. Michigan Dept. of Env'tal Quality, 29 F.Supp.2d 786, 793 (E.D. Mich. 1998), the Court finds the disparity between the number of Plaintiff's state and federal claims supports a finding of substantial predomination.
More importantly, Plaintiff's state law claims against RHB are factually and legally distinct from, and broader in scope than, his COBRA/ERISA claim. See, e.g., Ohio ex rel. Armstrong v. Stow-Munroe Falls CSD Bd. of Educ., 2013 WL 5406807 at * 3 (N.D. Ohio Sept. 25, 2013) (““Federal courts have not hesitated to dismiss or remand state causes of action under § 1367(c)(2) when the state claims would require elements of proof distinct from the federal claim and cause a substantial expansion of the suit beyond that necessary and relevant to the federal claim.”) As discussed above, Plaintiff's COBRA/ERISA claim does not appear to share any common facts or legal issues with his state law breach of contract and abuse of process claims against RHB. Indeed, the factual and legal issues associated with Plaintiff's COBRA/ERISA claim appear to be confined to the issue of whether RHB provided proper written notice of a “qualifying event” and, thus, are fairly narrow in scope. By contrast, the factual and legal issues associated with Plaintiff's breach of contract claims against RHB appear to be much broader, relating to such wide-ranging issues (among others) as the issuance of Incentive and Common Units by RHB to Plaintiff; the parties' interpretations of, and responsibilities under, various provisions of the Operating and Incentive Agreements with respect to those Units; and RHB's alleged failure to provide financial and business information to Plaintiff.
Unsurprisingly, this difference in the nature and scope of Plaintiff's state and federal claims translates to significant differences in the proof that will likely be required to substantiate such claims. Given the more expansive and varied nature of Plaintiff's state law claims, the discovery necessary to develop those claims is likely to be much broader in scope and volume than that which will be necessary to develop Plaintiff's COBRA/ERISA claim. This factor, too, then weighs in favor of dismissing Plaintiff's state claims under § 1367(c)(2). See, e.g., Filing, 2008 WL 11380153 at * 9 (finding plaintiff's state law claims substantially predominated where those claims “require proof of issues completely independent of those required for his federal claim”).
As another court in this District observed, “[s]tate law claims substantially predominate ‘when it appears that a state law claim constitutes the real body of the case, to which the federal claim is only an appendage.'” Filing, 2008 WL 11380153 at * 8 (quoting Parker v. Scrap Metal Processors, Inc., 468 F.3d 733, 734 (11th Cir. 2006) (citing Gibbs, 383 U.S. at 727). See also De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 309 (3rd Cir.2003) (“Generally, a district court will find substantial predomination where a state claim constitutes the real body of a case, to which the federal claim is only an appendage-only where permitting litigation of all claims in the district court can accurately be described as allowing a federal tail to wag what is in substance a state dog.”) (internal quotation marks and citations omitted). See also Dotson v. Ally Financial Inc., 2019 WL 5847848 at * 7 (E.D. Tenn. Nov. 7, 2019); Commodities Export Co. v. City of Detroit, 2010 WL 3905482 at * 17 (E.D. Mich. Sept. 30. 2010). Here, the Court finds that Plaintiff's state law claims constitute “the real body of [the] case” and should be resolved by a state court applying the law of its own state. See Gibbs, 383 U.S. at 726 (“Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties. . .”)
Accordingly, and for all the reasons set forth above, even if this Court possessed supplemental jurisdiction over Plaintiff's state claims against RHB under § 1367(a), it would decline to exercise such jurisdiction under § 1367(c)(2) because Plaintiff's state claims against RHB substantially predominate over his lone federal claim.
Plaintiff appears to argue that this Court is required to exercise supplemental jurisdiction over his state law claims against RHB because it “has already asserted supplemental jurisdiction over the state law claims, relating to and arising from [his] Employment Agreement.” (Doc. No. 23 at p. 9.) This argument is without merit. The Sixth Circuit has made clear that “[t]he question of whether a court has properly assumed supplemental (pendent) jurisdiction ‘remains open throughout the litigation.'” Kubala, 984 F.3d at 1137 (quoting Gibbs, 383 U.S. at 727). Indeed, “[e]ven after a jury trial, ‘dismissal of the state claim might ... be merited.'” Id. Thus, this Court may examine the issue of supplemental jurisdiction at any time in this litigation. Plaintiff's suggestion to the contrary is rejected.
Lastly, although not raised by the parties, the Court finds that Plaintiff's state claims against RHBA likewise substantially predominate over his sole federal claim. See Filing, 2008 WL 11380153 at * 4 (“[T]he district court may determine sua sponte whether the exercise of supplemental jurisdiction is prudent, and may dismiss plaintiff's supplemental claims without prejudice if it finds in the negative.”) (collecting cases). Plaintiff's state claims against RHBA clearly outnumber the single federal claim in this case. Moreover, like Plaintiff's state claims against RHB, Plaintiff's state claims against RHBA likewise involve distinct factual and legal issues that do not significantly overlap with his COBRA/ERISA claim and will likely, therefore, require proof of issues completely independent of those required for the federal claim. Finally, the interests of both comity and judicial economy weigh heavily in favor of declining supplemental jurisdiction over Plaintiff's state claims against RHBA as it would allow the state court to rule in the first instance on all of the state law claims by and between Plaintiff, RHB, and RHBA.
Therefore, for the reasons set forth above, the Court declines to exercise supplemental jurisdiction over Plaintiff's state law claims against RHBA under § 1367(c)(2) and hereby remands those claims to state court. The Court will, however, retain jurisdiction over Plaintiff's COBRA/ERISA claim and stay proceedings relating to that claim until the state court proceedings relating to the claims between Plaintiff, RHB, and RHBA are complete. See, e.g., Hindelang v. City of Grosse Pointe, 2020 WL 5411338 (E.D. Mich. Sept. 9, 2020) (in removal case, declining to exercise supplemental jurisdiction over state law claims and remanding those claims to state court, but retaining original jurisdiction over remaining federal claims); Williamson v. Recovery Limited Partnership, 2009 WL 649841 (S.D. Ohio March 11, 2009) (same); Smelley v. City of Detroit, 2007 WL 4326905 (E.D. Mich. Dec. 7, 2007) (same); Broad, Vogt & Conant, Inc. v. Alsthom Automation, Inc., 186 F.Supp.2d 787, 790-791 (E.D. Mich. 2002) (same).
In light of the fact that the Court declines supplemental jurisdiction over Plaintiff's state claims against RHBA and remands those claims to state court, the Court will not reach Plaintiff's argument that RHB is a necessary and indispensable party under Fed.R.Civ.P. 19.
IV. Conclusion
For the reasons set forth above, Defendant RHB Acquisition, LLC's Motion to Dismiss (Doc. No. 21) is GRANTED. In addition, the Court sua sponte remands Plaintiff's state law claims against Defendant RHBA Acquisitions, LLC to the Cuyahoga County Court of Common Pleas for further proceedings. The Court retains jurisdiction over Plaintiff's COBRA/ERISA claim (Count 7) and stays proceedings relating to that claim until the state court proceedings relating to the claims between Plaintiff, RHB, and RHBA are complete. The parties are hereby directed to promptly notify the Court once the state court proceedings are complete. Finally, in light of the stay, the telephonic status conference set for December 9, 2021 is CANCELLED.
IT IS SO ORDERED.