Golden Gate National Senior Care Llc et al v. Gaffney et al

REPLY BRIEF re MOTION to Dismiss Petitioners' Petition

M.D. Pa.September 22, 2016

1 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA ______________________________________________________________________ GOLDEN GATE NATIONAL SENIOR CARE, LLC; GGNSC CAMP HILL WEST SHORE, LP, d/b/a GOLDEN LIVING CENTER – WEST SHORE; GGNSC CAMP HILL WEST SHORE GP, LLC; GPH CAMP HILL WEST SHORE LP; GGNSC EQUITY HOLDINGS, LLC; GGNSC HOLDINGS, LLC; GGNSC ADMINISTRATIVE SERVICES, LLC; GGNSC CLINICAL SERVICES, LLC; GOLDEN GATE ANCILLARY, LLC v. Petitioners, GREGORY J. GAFFNEY, Executor for the Estate of DORIS J. SNAVELY, deceased. Respondent. CIVIL DIVISION No. 16-cv-01327-JEJ The Honorable John E. Jones, III REPLY IN SUPPORT OF RESPONDENT’S MOTION TO DISMISS Respondent, Gregory J. Gaffney, as Executor for The Estate of Doris J. Snavely, deceased, by and through undersigned counsel and Wilkes & McHugh, P.A., files the following Reply in Support of Respondent’s Motion to Dismiss the Petition to Compel Arbitration under Federal Rule of Civil Procedure 12(b)(6) based on Res Judicata/Issue Preclusion and under Rule 12(b)(1) for lack of subject matter jurisdiction (Docs. 11 & 12). Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 1 of 14 2 ADDITIONAL ARGUMENT Golden Living Petitioners’ Response includes almost no substantive discussion of the doctrines of issue preclusion or res judicata, and much of Respondent’s Motion is left unchallenged. Instead, Golden Living criticizes the merits of the State Court Order which was based upon the Pennsylvania Superior Court’s opinion in Taylor v. Extendicare Health Facilities, Inc., 113 A.3d 317 (Pa. Super. 2015), appeal granted, 122 A.3d 1036 (Pa. 2015). However, the propriety of the State Court Order is not at issue. Rather, this Court must only determine whether Pennsylvania state courts would consider the Order preclusive – not whether a federal court would decide the underlying issues differently. As set forth below, and in Respondent’s Motion to Dismiss and Brief in Support thereof (Docs. 11 & 12), this Court should follow controlling precedent from the Third Circuit, thereby joining the four consecutive Western District courts who confronted this exact issue, by dismissing this federal arbitration action on res judicata/collateral estoppel grounds.1 1 See GGNSC Altoona Hillview LP v. Martz, 2016 WL 502089 at *5 (W.D. Pa. Feb 8, 2016) (Gibson, J.); GGNSC Erie Western Reserve, LP v. Stubits, CA 15-61 (ECF No. 33) (W.D.Pa. Nov. 9, 2015) (Rothstein, J.); GGNSC Uniontown, LP v. Bauer, 2015 WL 9304508, at *2 (W.D. Pa. Dec. 22, 2015) (Bissoon, J.); and Erie Operating, LLC v. Foster, CA 14-72 (W.D. Pa. July 20, 2016) (copies attached as exhibits to Original brief (Doc. 20)). Contrary to Golden Living’s claims, none of these decisions is on appeal to the Third Circuit. Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 2 of 14 3 I. Golden Living Petitioners Failed to Address the Full Faith and Credit Statute, 28 USC § 1738, which is Controlling in This Case. In opposing Respondent’s Motion to Dismiss on res judicata and issue preclusion grounds (Doc. 14), Golden Living fails to address, let alone refute, the actual issue at bar: Whether the Full Faith and Credit Statute, 28 U.S.C. § 1738 and case-law interpreting same requires this Court to give preclusive effect to the State Court Order. Petitioners do not even cite this statute or the applicable binding case-law interpreting same. The Full Faith and Credit Statute provides in pertinent part: “…the acts, records, and judicial proceedings of any State… shall have the same full faith and credit in every court within the United States and its Territories…as they have by law or usage in the courts of such State from which they are taken.” 28 U.S.C. § 1738. To resolve the question of whether the state court’s order denying Arbitration should be given full faith and credit in the federal action, this Court must determine whether Pennsylvania state courts would give preclusive effect to this judgment – not whether a federal court would decide the underlying issues and claims differently. See Allen v. McCurry, 449 U.S. 90, 96 (1980) (“Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so.”); and Towers, Perrin, Forster & Crosby, Inc., v. Brown, 732 F.2d 345, 350-351 (3rd Cir. 1984) (rejecting a supremacy clause argument against res Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 3 of 14 4 judicata, holding that a state court order denying arbitration is res judicata if the state court would deem it so, regardless of whether a federal court believes the order was incorrect on the law). In Towers, Perrin, Forster & Crosby, Inc., the Third Circuit Court of Appeals held that the California State Court order denying arbitration was a final order and that res judicata applied to the Federal Court action seeking to compel arbitration in the same underlying claim. Id. at 348. In Towers, employees filed a declaratory judgment action in state court seeking to render portions of an employment contract unenforceable. Id. In their state-court answer, the employer/ Defendant filed a petition to compel arbitration, which the state court denied and the employer/Defendant appealed. Id. at 346-347. While the state order was on appeal, the employer filed a petition in the District Court for the Eastern District of Pennsylvania to compel arbitration pursuant to the FAA and to stay the state court proceedings. Id. at 347. The district court granted the employer/Petitioner’s motion to compel arbitration and stayed the state court proceedings, and the employees/Respondents appealed to the Third Circuit. Id. The Third Circuit Court of Appeals reversed the District Court’s decision on the basis of res judicata, holding that the California state court order denying arbitration had preclusive effect under 28 U.S.C. § 1738. Id. at 347, 351. Applying the Full Faith and Credit statute, the proper analysis was to determine Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 4 of 14 5 what preclusive effect California would give its own judgment and then the same preclusive effect would be warranted in district court. Id. at 347. In other words, the federal district court must give the prior order the same preclusive effect as the state court would. The Towers court reasoned that res judicata applied, because per California law both actions attempted to enforce the same right among the same parties (and thus was the same cause of action) and the state court order was a final order on the issue of arbitration in state court, even though it was “interlocutory” and subject to appeal. Id. This case is directly analogous to Towers, and the same result is warranted here. Like Towers, in this case the state court has issued a final order on the merits denying Golden Living’s motion to compel arbitration, yet Golden Living is seeking to override that Order through the same motion to compel arbitration in federal court. As the Third Circuit Court held in Towers, the Full Faith and Credit statute applies to the Order in this case, and this Court must look to whether Pennsylvania Courts would give this order preclusive effect. As discussed in Respondent’s Brief (Doc. 12), under Pennsylvania law, another court’s determination of an issue will have preclusive effect under Pennsylvania law if: (1) the issue decided in the prior adjudication was identical to the one presented in the later action; (2) there was a final judgment on the merits; (3) the party against whom issue preclusion is asserted was a party to the prior adjudication; and (4) the Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 5 of 14 6 party against whom it asserted has had a full and fair opportunity to litigate the issue in question in the prior action. See Cemex, Inc. v. Indus. Contracting & Erecting, Inc., 2006 WL 1785564, at *3 (W.D. Pa. June 26, 2006), aff’d, 254 F. App’x 146 (3d Cir. 2007 (citing Tucker v. Philadelphia Daily News, 848 A.2d 113, 120 (Pa. 2004). As argued in Respondent’s Brief (Doc. 12), clearly all four prongs for issue preclusion are met in this case. Per Towers and the Full Faith and Credit Statute, since Pennsylvania courts would give this order preclusive effect, issue preclusion and res judicata applies and this Court must give the order preclusive effect as well. II. The State Court Order Is A Final Judgment On The Merits Golden Living claims, without any meaningful analysis on the issue, that res judicata does not apply because the state court order is not a final judgment on the merits. No relevant authority is cited that supports this position. To the contrary, the Western District jurists in Bauer, Martz, Stubits and Foster (see footnote 1, supra), correctly applied Pennsylvania’s “broad view on what constitutes a ‘final judgment’ for purposes of res judicata.” Gen. Acc. Fire & Life Assur. Corp. v. Flamini, 445 A.2d 770, 772 (Pa. Super. 1982). Golden Living implies that the Order is not “final” because it is appealable. However, Pennsylvania law instructs otherwise. A “judgment is deemed final for purposes of res judicata or collateral estoppel unless or until it is reversed on Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 6 of 14 7 appeal.” Shaffer v. Smith, 673 A.2d 872, 874 (Pa. 1996) (emphasis added) (citations omitted).2 In Pennsylvania, an order resolving a party’s request for arbitration is preclusive on other Pennsylvania courts. See Gen. Acc. Fire & Life Assur. Corp. v. Flamini, 445 A.2d 770, 773 (Pa. Super. 1982) (a prior order compelling arbitration of claims was res judicata on subsequent action to enjoin the same court-ordered arbitration). As the Third Circuit explained in Towers, Perrin, Forster & Crosby, Inc., v. Brown, 732 F.2d 345, 350 (3rd Cir. 1984), this conclusion is consistent with common sense and analogous decisions from other courts.3 III. Golden Living Petitioner’s “Choice of Law” and Supremacy Arguments Fail for two reasons: (1) they are irrelevant to the Issue Preclusion / Res Judicata Analysis and (2) there is not conflict in law While sidestepping the Full Faith and Credit Statute and controlling issue/claim preclusion case-law such as Towers, Golden Living tries in vain to 2 See also Regscan, Inc. v. Brewer, 2006 WL 401852, at *6 (E.D. Pa. Feb. 17, 2006) aff’d, 289 Fed. Appx. 488 (3d Cir. 2008) (“The Court in this case is applying Pennsylvania rules of preclusion, and the Shaffer case clearly establishes that a possible appeal by RegScan of the state court summary judgment order does not prevent the application of res judicata or collateral estoppel in the federal action.”); 10 Standard Pennsylvania Practice 2d § 65:83 (“pending appeal does not destroy finality of decision for purposes of collateral estoppel”). 3 Citing, inter alia, Merrill Lynch, Pierce, Fenner & Smith v. Haydu, 637 F.2d 391, 397–98 (5th Cir.1981) (if prior state determination that dispute was not arbitrable was a final order it would be res judicata, even if rights under the federal act were not asserted in the state court); Manes Organization, Inc. v. Standard Dyeing & Finishing Co., 472 F.Supp. 687 (S.D.N.Y.1979) (state court order compelling arbitration was res judicata in subsequent federal action for a stay of arbitration pending adjudication of the merits). Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 7 of 14 8 undercut the four Western District decisions who have decided the same issue preclusion / res judicata issue before this court.4 Golden Living claims that those decisions “miss the pertinent choice of law and federal preemption issues.” To that end, Golden Living claims there is a “material distinction” between the arbitration agreement at issue here and the one in Taylor; and that the distinction somehow prohibits application of issue/claim preclusion. These arguments fail because they have nothing to do with the analysis required to answer the narrow question of whether the state court order has preclusive effect. Regardless of whether the state court order dealt with federal law and/or relied upon erroneous law, it nonetheless constitutes a final judgment on the merits involving the same issue and same parties. Golden Living essentially asks this Court to review the correctness of the state court order, rather than its preclusive effect, despite the fact that the binding, applicable law says it is irrelevant whether the federal court would have decided differently. See Towers, 732 F.2d 345, 350-351 (3rd Cir. 1984) (rejecting a similar supremacy clause argument because lower federal courts have no appellate jurisdiction to review decisions of state courts, and the Full Faith and Credit Statute requires looking 4 See GGNSC Altoona Hillview LP v. Martz, 2016 WL 502089 at *5 (W.D. Pa. Feb 8, 2016) (Gibson, J.); GGNSC Erie Western Reserve, LP v. Stubits, CA 15-61 (ECF No. 33) (W.D.Pa. Nov. 9, 2015) (Rothstein, J.); GGNSC Uniontown, LP v. Bauer, 2015 WL 9304508, at *2 (W.D. Pa. Dec. 22, 2015) (Bissoon, J.); and Erie Operating, LLC v. Foster, CA 14-72 (W.D. Pa. July 20, 2016) (copies attached as exhibits to Doc. 20). Contrary to Golden Living’s claims, none of these decisions is on appeal to the Third Circuit. Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 8 of 14 9 only to how a California state court would treat the prior judgment and then give it the same preclusive effect). Furthermore, by attempting to distinguish these facts from those in Taylor, Golden Living is simply re-litigating the same argument already advanced and rejected in state court. In their legal briefs and during oral argument, Golden Living Defendants argued that the FAA preempts state law and that the case should proceed to arbitration.5 It is disingenuous for Golden Living to say the state court in this case refused to address Defendants’ FAA arguments, as the same arguments were briefed, orally argued, and then rejected based upon binding Pennsylvania case-law. In their attempt at distinguishing Taylor from this case, Defendants claim that the arbitration agreement in Taylor was governed by the Pennsylvania Uniform Arbitration Act (PUAA), whereas the FAA and its corresponding U.S. Supreme Court case law govern the Arbitration Agreement here. In addition to this analysis being irrelevant to the issue of res judicata, it is also an inaccurate attempt to distinguish. First, there is no “conflict” between the PUAA and the FAA, as Defendants suggest. In fact, they are “functionally equivalent” to one another. See e.g., PaineWebber Inc. v. Hartmann, 921 F.2d 507, 510 n.3 (3d Cir. 1990), overruled on 5 Golden Living Defendants’ Preliminary Objections and Brief in Support thereof (without exhibits) were attached to the Original Brief in Support of Summary Judgment (Doc. 12). Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 9 of 14 10 other grounds by implication by, Howsam v. Dean Witter Reynolds, 537 U.S. 79, 85 (2002) (“the Federal Arbitration Act and the Pennsylvania Uniform Arbitration Act, and the case law that has developed under each, are functionally equivalent as regards to the authority of a district court to review an agreement to arbitrate and to stay or compel arbitration. . . . Indeed, because the relevant federal and Pennsylvania case law...and we will refer to them interchangeably”) (emphasis added). See also State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 n.1 (3d Cir. 2000) (“There is no meaningful difference between federal and Pennsylvania law when reviewing the scope of an arbitration clause.”). Second, even if there was a meaningful difference between the PUAA and FAA, the arbitration agreement in Taylor makes clear – in no uncertain terms – that if arbitration is not possible under the PUAA, then the FAA will ultimately apply. The agreement at issue in Taylor provides in pertinent part: 5. Governing Law: [T]his Agreement shall be governed by the terms of the Pennsylvania Uniform Arbitration Act which is set forth at 42 Pa. Cons. Stat. § 7301 et. seq. If for any reason there is a finding that Pennsylvania law cannot support the enforcement of this Agreement, then the Parties agree to resolve their disputes by arbitration (and not by recourse to a court of law) pursuant to the Federal Arbitration Act (9 U.S.C. Sections 1-16), and the Federal Arbitration Act shall apply to this Agreement and all arbitration proceedings arising out of this Agreement, including any Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 10 of 14 11 action to compel, enforce, vacate or confirm any proceeding and award of an arbitrator.6 Consequently, the same federal preemption arguments were made and rejected by the Superior Court in Taylor. Despite the fact that Taylor is not distinguishable from the arbitration agreement in this case, the “correctness” of Taylor is immaterial to the issue of issue preclusion and res judicata. The district court cases cited by Golden Living7 that found that Taylor was wrongly decided had the right to make that decision because they decided the arbitration issue before the state court issued a ruling on the issue. They were not in the same posture as this case, where a state court has already made a final ruling on the Arbitration issue and therefore the preclusion analysis per the Full Faith and Credit Statute is what controls. As the Third Circuit Court of Appeals held in the Towers case, lower federal courts have no appellate jurisdiction to review decisions of state courts, and under the Full Faith and Credit Statute they look only to how a the state court would treat the prior judgment and then give it the same preclusive effect. Id. at 350-351. 6 See copy of the Arbitration Agreement at issue in Taylor, attached as Exhibit “A.” Note that the purported Arbitration Agreement at issue in this case was attached to Doc. 12 as Exhibit “B.” 7 Golden Living cites Beavens and Sulpizio, district court cases that were not in a posture of deciding a Motion to Dismiss based upon res judicata and/or issue preclusion grounds. Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 11 of 14 12 IV. CONCLUSION Simply put, Golden Living filed the same motion to compel arbitration in both State and Federal court, and now that the State court has issued a final ruling on the issue, res judicata applies. A Pennsylvania court would give the State Court Order preclusive effect. Given the dispositive authority discussed in this Reply and in Respondent’s initial Brief (Doc. 12), this Court should do the same. Respectfully submitted this 22nd day of September, 2016, By: Lorraine H. Donnelly, Esquire /s/ Lorraine H. Donnelly PA ID# 93352 Wilkes & McHugh, P.A. Three Parkway 1601 Cherry Street Suite 1300 Philadelphia, PA 19102 Ph: 215-972-0811 Ldonnelly@wilkesmchugh.com Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 12 of 14 13 CERTIFICATE OF COMPLIANCE WITH L.R. 7.8(b)(2) I, Lorraine H. Donnelly, attorney for Respondent, attest and certify that the foregoing Reply Brief complies with L.R. 7.8(b)(2) in that the aforementioned Brief contains 3,076 words. WILKES & MCHUGH, P.A. Date: September 22, 2016 Lorraine H. Donnelly /s/ Lorraine H. Donnelly, Esquire Attorney for Respondent Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 13 of 14 14 CERTIFICATE OF SERVICE I, Lorraine H. Donnelly, attorney for Respondent, hereby certifies that on September 22, 2016, the Reply in Support of Respondent’s Motion to Dismiss and Brief in Support thereof, was served via the Court’s CM/ECF System, email, and first class mail upon the following: Jacqueline M. Carolan, Esquire Eric E. Reed, Esquire Christopher M. Varano, Esquire FOX ROTHSCHILD LLP 2000 Market Street, Twentieth Floor Philadelphia, PA 19103 Attorneys for Petitioners jcarolan@foxrothschild.com ereed@foxrothschild.com cvarano@foxfothschild.com By: Lorraine H. Donnelly, Esquire /s/ Lorraine H. Donnelly PA ID# 93352 Wilkes & McHugh, P.A. Three Parkway 1601 Cherry Street Suite 1300 Philadelphia, PA 19102 Ph: 215-972-0811 Ldonnelly@wilkesmchugh.com Case 1:16-cv-01327-JEJ Document 15 Filed 09/22/16 Page 14 of 14 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 1 of 6 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 2 of 6 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 3 of 6 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 4 of 6 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 5 of 6 Case 1:16-cv-01327-JEJ Document 15-1 Filed 09/22/16 Page 6 of 6