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Salem Homes of Florida, Inc. v. Res-Care, Inc.

United States District Court, M.D. North Carolina

March 21, 2019

SALEM HOMES OF FLORIDA, INC., Plaintiff,
v.
RES-CARE, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          OSTEEN, JR., DISTRICT JUDGE

         This matter is before this court for review of the Magistrate Judge's Memorandum Opinion and Order, (the “Order” (Doc. 24)), in accordance with 28 U.S.C. § 636(b)(1)(A) and Fed.R.Civ.P. 72(a). In the Order, the Magistrate Judge denied Defendant Res-Care, Inc.'s motion to transfer this case, (Doc. 16), to the Middle District of Florida. The Magistrate Judge's Order and findings were not clearly erroneous, based on the arguments presented to the Magistrate Judge. This court finds that the case must be transferred based on a new argument submitted only to this court even though, as will be explained herein, Defendant's failure to raise that argument before the Magistrate Judge was entirely improper. Therefore, this court will vacate the Magistrate Judge's Order, grant Defendant's motion to transfer, and transfer this case to the Middle District of Florida.

         I. PROCEDURAL HISTORY

         Plaintiff Salem Homes of Florida, Inc., originally filed a complaint in the Forsyth County Superior Court, alleging that Defendant breached the terms of an Amended and Restated Management Agreement (the “Management Agreement”) between the parties and was liable to Plaintiff for breach of contract, an accounting, and conversion. (Doc. 1-2.) Defendant removed this matter to the Middle District of North Carolina as a diversity jurisdiction case under 28 U.S.C. §§ 1441 and 1446. (Doc. 1.)

         Defendant then simultaneously moved to dismiss for failure to state a claim, (Doc. 13), and to transfer the case to the Middle District of Florida pursuant to 28 U.S.C. § 1404(a). (Doc. 16.) Defendant filed a memorandum in support of its motion to transfer, (Doc. 17); Plaintiff responded opposing the motion, (Doc. 21); and Defendant replied. (Doc. 22.) The Magistrate Judge then issued a Memorandum Opinion and Order denying Defendant's motion to transfer. (See Order (Doc. 24).) Defendant objected to the Magistrate Judge's Order, (Def.'s Obj. to Order (“Def.'s Objs.”) (Doc. 25)), and Plaintiff responded, (Pl.'s Resp. in Opp'n to Def.'s Objs. to Order (“Pl.'s Resp.”) (Doc. 26).) This court ordered supplemental briefing on the issue of whether the forum selection clause, which was not raised as a basis for transfer in front of the Magistrate Judge, nevertheless requires that this action be transferred. (See Doc. 27.) Defendant, (Doc. 28), and Plaintiff, (Pl.'s Supp. Resp. in Opp'n to Def.'s Obj. (“Pl.'s Supp. Resp.”) (Doc. 29)), each submitted a supplemental brief addressing this issue.

         II. FACTUAL BACKGROUND

         Plaintiff is a Florida corporation whose principal place of business is Winston-Salem, North Carolina. (Complaint (“Compl.”) (Doc. 3) ¶ 1.) Defendant is a Kentucky corporation whose principal place of business is Louisville, Kentucky. (Def.'s Mem. in Supp. of Mot. to Dismiss (“Def.'s Mem.”) (Doc. 14) at 2.)[1][2]

         Plaintiff's claims relate to a business arrangement in which Defendant provided management services at residential facilities for developmentally-disabled adults in Florida leased and operated by Plaintiff. (Compl. (Doc. 3) ¶¶ 3-4.) Plaintiff paid Defendant a monthly management fee per facility for these services. (Id., Management Agreement, Ex. A at 20-21.)

         As explicitly contemplated by the Management Agreement, (Id., Ex. A at 26), the parties contemporaneously executed a Security Agreement. (See Def.'s Mem., Affidavit of Dennis Roberts, Security Agreement, Ex. B (Doc. 14-1) at 9-19.) Under the Security Agreement, Plaintiff granted Defendant a first-priority security interest in certain collateral, including accounts receivable from the managed facilities, to secure Plaintiff's payment of the management fee. (Id. at 9-10.) Plaintiff also executed a promissory note in favor of Defendant, (id., Promissory Note, Ex. A at 5-8), due and payable upon Plaintiff's breach of the Security Agreement.

         The Management Agreement is governed by Florida law but silent regarding venue. (Compl., Management Agreement, Ex. A (Doc. 3) at 39.) The Security Agreement contains the following provision:

Each party hereto hereby irrevocably submits to the exclusive jurisdiction of any United States federal or Florida state court sitting in Jacksonville, Florida in any action or proceeding arising out of or relating to this agreement or the note and each such party hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum.

(Def.'s Mem., Security Agreement, Ex. B (Doc. 14-1) at 17.)

         Defendant managed Plaintiff's facilities from a corporate office in Gainesville, Florida, (Def.'s Mem. (Doc. 14) at 3), which is in the Northern District of Florida. See 28 U.S.C. § 89(a). Jacksonville is located in the Middle District of Florida. See 28 U.S.C. § 89(b). Thirteen of the fourteen facilities subject to the Management Agreement are located in the Middle District of Florida. (See Def.'s Objs., Supplemental Affidavit of Robert Barnes (“Barnes Aff.”), Ex. A (Doc. 25-1) at 6.) However, neither party provided information about facility locations prior to the Magistrate Judge's Order denying Defendant's motion to transfer.

         III. STANDARD OF REVIEW

         Because Defendant's motion to transfer is not dispositive of the case, the Magistrate Judge was authorized to rule on the motion and this court reviews only to “consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law.” Fed.R.Civ.P. 72(a); see also Stonecrest Partners, LLC v. Bank of Hampton Rds.,770 F.Supp.2d 778, 782 (E.D. N.C. 2011) (reviewing a magistrate judge's non-dispositive pre-trial order under the clearly erroneous standard). The parties agree that a “clearly erroneous” standard of review applies in this instance. (See Def.'s Objs. (Doc. 25) at 6; Pl.'s Resp. (Doc. 26) at 3.) “A finding is clearly erroneous when although there is evidence to support it, the reviewing ...


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