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RCZ Management, LLC v. Hunt

United States District Court, D. New Mexico

August 15, 2018

RCZ MANAGEMENT, LLC, Plaintiff,
v.
LEE HUNT, as personal representative of the Wrongful Death Estate of SUI YAN, deceased, Defendant.

          MEMORANDUM OPINION AND ORDER

          JERRY H. RITTER, UNITED STATES MAGISTRATE JUDGE

         THIS MATTER comes before the Court on Plaintiff's Motion and Memorandum of Law in Support of its Motion to Compel Arbitration, filed on December 29, 2017 (the “Motion to Compel Arbitration”) (Doc. 6); Defendant Lee Hunt's Motion to Dismiss for Failure to Establish Subject Matter Jurisdiction, Failure to State a Claim Upon Which Relief May Be Granted, and Failure to Join a Necessary and Indispensable Party, filed on January 16, 2017 (the “Motion to Dismiss”) (Doc. 9); Defendant Lee Hunt's Motion to Dismiss Pursuant to the Colorado River Abstention Doctrine, filed on January 25, 2018 (the “Colorado River Motion”) (Doc. 14); and Defendant Lee Hunt's Motion for Summary Judgment Based on Collateral Estoppel, filed on May 9, 2018 (the “Collateral Estoppel” Motion) (Doc. 26). Having thoroughly reviewed the parties' submissions and the relevant law, the Court finds that Defendant's Motion for Summary Judgment Based on Collateral Estoppel is well taken and should be granted. This Motion being dispositive of Plaintiff's entire claim seeking to arbitrate Defendants' state court case, the Motion to Compel Arbitration should be denied, and the Motion to Dismiss and Colorado River Motion should also be denied as moot.

         Background

         This case originated with a state court wrongful death case filed in the First Judicial District of New Mexico on May 11, 2017 captioned Lee Hunt v. The Rio at Rust Centre, LLC, et al., D-101-CV-2017-01314. RCZ Management was added as a defendant in Plaintiff Lee Hunt's First Amended Complaint for Wrongful Death, filed on December 5, 2017. In its answer filed on January 12, 2017, RCZ Management, LLC's Sixteenth Affirmative Defense states that the state court “lacks subject matter jurisdiction as a result of an enforceable arbitration agreement, and [Lee Hunt's] Amended Complaint should be dismissed and the parties compelled to arbitrate pursuant to their agreement to arbitrate disputes.” (Doc. 26-2 at 2).

         RCZ, along with OnPointe Business Services, LLC, also joined The Rio at Cabezon's Motion to Compel Arbitration in the state court case, which was based on the same arbitration contract at issue in the instant case. (See Defendants RCZ Management, LLC and OnPointe Business Services, LLC's Notice of Joinder in Motion to Compel Arbitration, filed on January 22, 2018, D-101-CV-2017-01314; and Defendant The Rio at Cabezon's Motion to Compel Arbitration and Memorandum Brief in Support, filed on July 26, 2017, Exhibit B, D-101-CV-2017-01314). The Rio at Cabezon's Motion to Compel Arbitration requests the state court to “enforce the Arbitration Agreement that Sui Yan's general durable power of attorney agreed to on Sui Yan's behalf and to compel Plaintiff to arbitrate all of the claims raised in Plaintiff's Complaint for Wrongful Death against The Rio at Cabezon and its officers, directors, employees, agents, and representatives.” (Motion to Compel Arbitration, filed July 26, 2017, at 2, D-101-CV-2017-01314).

         On December 29, 2017, Plaintiff RCZ Management, LLC (“RCZ”) filed its Complaint in this Court to Compel Arbitration. (Doc. 1). On January 9, 2018, Plaintiff also filed a Motion to Compel Arbitration in this case, arguing that Defendant was bound to arbitrate the claims he brought in state court pursuant to the arbitration agreement. (Doc. 6). The Complaint and Motion to Compel Arbitration both rely on the arbitration agreement that is at issue in the state court case, and which was attached to both pleadings. (See Doc. 1-1 at 4-7; Doc. 6-2; Motion to Compel Arbitration and Memorandum Brief in Support, Exhibit B, filed July 26, 2017, D-101-CV-2017-01314).

         On January 24, 2018, Defendant Lee Hunt filed his response to the Motion to Compel Arbitration, in which he argued: (1) that the Court lacked subject-matter jurisdiction because RCZ is not diverse from Lee Hunt; (2) RCZ failed to join The Rio at Rust Centre, LLC, which is a necessary and indispensable party; (3) RCZ failed to state a claim due to it not being a party to the subject arbitration agreement; and (4) the arbitration agreement is an unconscionable adhesion contract that cannot be enforced. (Doc. 12 at 18-23). On February 7, 2018, Plaintiff filed a reply in support of its Motion to Compel Arbitration, in which it argued that its members are diverse from Plaintiff and therefore the Court has proper subject-matter jurisdiction, that The Rio at Rust Centre, LLC is not a necessary and indispensable party to this action, that RCZ is a party to the agreement as a “director” of The Rio at Cabezon, and that the arbitration agreement is not an adhesion contract, because it contains safeguards rendering the arbitration provision non-mandatory for admission to the nursing facility. (Doc. 18).

         On January 16, 2018, Defendant Lee Hunt filed his Motion to Dismiss in which he reiterated his arguments in his Response to the Motion to Compel Arbitration, namely that: (1) pursuant to Fed.R.Civ.P. 12(b)(1), the Court lacks subject matter jurisdiction because Plaintiff, having one member of its LLC domiciled in New Mexico, has not established diversity of citizenship for purposes of 28 U.S.C. § 1332(a)(1), (Doc. 9 at 4-10); (2) Plaintiff has failed to join The Rio at Rust Centre, LLC as a necessary and indispensable party under Fed.R.Civ.P. 19 (Id. at 10-14); and (3) Plaintiff is neither a party nor a third-party beneficiary to the subject arbitration agreement. (Id. at 14-18). Plaintiff then filed an Amended Complaint to Compel Arbitration on January 29, 2018, in which it sought to establish its LLC members' respective domiciles in response to the first Motion to Dismiss. (Doc. 15). Because the first Motion to Dismiss reiterates the arguments Defendant makes in his Response to the Motion to Compel, in Plaintiff's Response to the Motion to Dismiss, Plaintiff incorporated the arguments made therein as to the issues of subject-matter jurisdiction and failure to join a necessary and indispensable party. (Doc. 16).

         Defendant also filed a Motion to Dismiss Pursuant to the Colorado River Abstention Doctrine on January 29, 2018. (Doc. 14). He argues that the Court should abstain from hearing this matter because there is a pending state court case, where the same issue of the enforceability of the arbitration contract as to RCZ is being heard in its joinder to The Rio at Cabezon's Motion to Compel Arbitration in state court. (Id. at 2). Plaintiff filed its response on February 7, 2018, arguing that the parallel proceedings do not, alone, allow for abstention, and that the authority to consolidate matters to be arbitrated under the New Mexico Uniform Arbitration Act would negate any prejudice suffered by Defendant in having to litigate two separate actions. (Doc. 17 at 2-3). Defendant's Reply, filed February 15, 2018, which outlines the differences between the parties' positions on each respective factor governing abstention under the Colorado River doctrine, contends that the application of the Colorado River doctrine's factors to this case weigh in favor of abstention. (Doc. 22 at 3).

         On February 1, 2018, Plaintiff Lee Hunt filed a Motion for Partial Summary Judgment, asking the state court to “find as a matter of law that RCZ and OnPointe are not entitled to enforce the Arbitration Agreement [between The Rio at Cabezon and Sui Yan] and that Plaintiffs may proceed with their lawsuit in this Court regardless of the Court's decision regarding The Rio at Cabezon's Motion to Compel Arbitration.” (Doc. 26-4 at 4). On May 4, 2018, after hearing oral arguments from the parties, the state court granted Plaintiff's Motion for Partial Summary Judgment on the Issue of RCZ Management, LLC and OnPointe Business Services, LLC's Affirmative Defenses Regarding Arbitration. (Doc. 26-8). Based on the state court's decision that RCZ could not seek to enforce the arbitration agreement, Defendant Lee Hunt filed a Motion for Summary Judgment based on Collateral Estoppel in this Court. (Doc. 26). Lee Hunt argues that RCZ cannot maintain its suit in federal court to compel arbitration because the doctrine of collateral estoppel precludes RCZ from making the same claim that has already been determined in state court. (Id. at 10). Plaintiff responded that collateral estoppel does not apply to this case, because the ruling in the state court proceeding was purely an issue of law, and continues to argue that it is a party or third-party beneficiary to the arbitration contract. (Doc. 32 at 12). Defendant replied that the only question before the Court is whether collateral estoppel applies, and the enforceability of the arbitration contract is not a relevant issue at this juncture of the case. (Doc. 33 at 6). He also argues that the state court's ruling was an application of facts to the law, not a pure issue of law. (Id. at 7-9).

         The Court has thoroughly considered each of the parties' briefs in the Motion to Compel Arbitration, the Motion to Dismiss, the Colorado River Doctrine Motion, and the Collateral Estoppel Motion. Because the Court finds that Plaintiff's claim is precluded under the doctrine of collateral estoppel by the state court's ruling in the Motion for Partial Summary Judgment, the Court will grant Defendant's Motion to Dismiss for Plaintiff's failure to state a claim upon which relief may be granted. In granting Defendant's Motion to Dismiss and dismissing the action to compel arbitration with prejudice, the Motion to Compel Arbitration is also necessarily denied. The Colorado River Doctrine Motion is denied as moot.

         Legal Standard

         Under Fed.R.Civ.P. 56, a party may move for summary judgment on a claim or defense, which shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” “Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Sealock v. Colorado, 218 F.3d 1205, 1209 (10th Cir. 2000). For purposes of summary judgment, a verified complaint is treated as an affidavit. Mark v. Jackson, No. CIV-11-426-M, 2012 WL 1035879, at *8 n. 11 (W.D. Okla. Mar. 12, 2012), report and recommendation adopted, No. CIV-11-426-M, 2012 WL 1035761 (W.D. Okla. Mar. 28, 2012) (citing Conaway v. Smith, 853 F.2d 789, 792 (10th Cir.1988) (per curiam )).

         When reviewing a motion for summary judgment, the Court views “‘the evidence and draw[s] reasonable inferences therefrom in the light most favorable to the nonmoving party.'” Beers v. Ballard, 248 Fed.Appx. 988, 990 (10th Cir. 2007) (quoting Lawmaster v. Ward,125 F.3d 1341, 1346 (10th Cir.1997)). However, a non-moving party who bears the burden of proof at trial on a dispositive issue “must go beyond the pleadings and designate specific facts so as to make a showing sufficient to establish the existence of an element essential to that party's ...


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