Dante v. Schwartz

THERESA DANTE; TED HUSS; JULIET HINRICHS; SAMANTHA OGGS; and MARGARET GATES, Plaintiffs, v. JOSEPH SCHWARTZ; ROSIE SCHWARTZ; SKYLINE HEALTH CARE, LLC; SKYLINE MANAGEMENT GROUP, LLC; CORNERSTONE QUALITY CARE, LLC; COTTONWOOD HEALTHCARE, LLC; FIRST LANDING INFORMATION SERVICES, LLC; and JACK JAFFA a/k/a CHAVA JAFFA, Defendants.

Civil Action No. 20-01047

United States District Court, D. New Jersey

April 13, 2022

Not for Publication

OPINION

John Michael Vazquez, U.S.D.J.

In this putative class action, Plaintiffs claim that they paid for insurance coverage, but Defendants stole the money, leaving Plaintiffs without coverage. Currently before the Court is the motion of Defendant Jack Jaffa (“Defendant” or “Jaffa”) to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), Plaintiffs' Second Amended Complaint. D.E. 38. The Court has reviewed the parties' submissions^[1] and decided the motion without oral argument pursuant to Federal Rule of Civil Procedure 78(b) and Local Civil Rule 78.1(b). For the reasons set forth below, Defendant's motion is GRANTED in part and DENIED in part.

I. BACKGROUND

Plaintiffs worked at nursing homes in Georgia, South Dakota, Kansas Arkansas, and Nebraska. D.E. 33 (“SAC”) ¶¶ 7-11. The nursing homes were owned by Defendant Skyline Healthcare, LLC (“Skyline”), whose sole members were Joseph Schwartz and his wife Rosie Schwartz. Id. ¶¶ 30-31. Skyline was founded in 2008 to manage nursing homes in New Jersey and Pennsylvania. Id. As of 2017, Skyline owned over 100 nursing homes in several states, with major expansion occurring from 2015 to 2017. Id. ¶ 31. To facilitate this growth the Schwartzes formed several LLCs, including Defendants Skyline Management Group, Cottonwood Healthcare, and First Landing Information Services. See id. ¶¶ 12, 14, 16-17. Plaintiffs allege that the Schwartzes grew their holdings quickly, siphoned off the revenue, and then divested themselves of the facilities. Id. ¶ 43.

On December 13, 2016, Defendant Jack Jaffa formed Defendant Cornerstone Quality Care, LLC (“Cornerstone”), as its sole member. Id. ¶¶ 15, 18, 33, 45. Cornerstone's official address is 4581 Route 9, Site 100, Howell, N.J. 07731. Id. ¶ 47. Cornerstone was the employer-of-record for Skyline's staff members, including Plaintiffs, and Plaintiffs' W2 and 1095 tax forms list Cornerstone as the employer. Id. ¶¶ 7-11, 33, 46, 55. Plaintiffs' 1095 forms, however, listed Cornerstone's address as 40 Vreeland Avenue, Totowa, N.J. 07512, which is the registered address of Joseph Schwartz's companies. Id. ¶ 47. Plaintiffs had no other familiarity with Cornerstone. Id. ¶ 46.

Defendants offered Plaintiffs and other employees health, dental, and supplemental insurance. Id. ¶¶ 44, 48. Jaffa sent unnamed salespersons to Skyline's facilities, and the salespersons represented to the employees that the employees could participate in an insurance plan, with Defendants taking the premium amount directly from employees' paychecks. See id. ¶¶ 44, 48-49. Employees signed up and premium amounts were withheld from their paychecks. See id. ¶¶ 48-49.

Defendants retained American Plan Administrators as a third-party administrator. Id. ¶ 51. However, insurance was never provided to the employees, and Defendants did not fund the insurance plan. Id. ¶¶ 49, 51. On March 29, 2018, American Plan Administrators sent a termination letter to Joseph Schwartz and Jaffa, indicating that

you have not been paying your claims in a timely manner and we had several meetings at which you made us numerous promises that you will fund your claims timely. To date you have not kept up to these promises and we now have substantial outstanding balances. We are getting hammered from providers and members about open claims that have not been paid.

Id. ¶ 51. Later, Tall Tree Administrators was retained as a third-party administrator. Id. ¶ 53. Tall Tree Administrators encountered the same issues as American Plan Administrators, indicating that “[t]he self-funded employer group, Skyline Healthcare, has failed to provide Tall Tree with any funding for their employee claims. After multiple attempts, it appears that the funding for claims will not occur, and therefore Tall Tree has terminated our services on behalf of Skyline Healthcare.” Id. Plaintiffs were unaware that the insurance plans had not been funded and, as a result, received medical and dental care for which they were (unknowingly) responsible financially. Id. ¶¶ 54-68.^[2]

By 2018 or 2019, Skyline began to divest itself of recently acquired nursing homes. Id. ¶ 43. Over fifty of Skyline's facilities have gone into state-run receiverships because of nonpayment of bills. Id. ¶¶ 38, 41. Plaintiffs allege that the formation of Cornerstone and the nonpayment of insurance costs were part a larger conspiracy between Joseph Schwartz and Jaffa to pocket those sums and run the facilities solely for their benefit. See id. ¶¶ 4, 52. Plaintiffs refer to the Defendants collectively as “the Skyline Enterprise” and allege that the constituent entities were formed to improperly further Defendants' personal interests. See id. ¶¶ 20-29.

Plaintiffs filed their first Complaint on January 30, 2020. D.E. 1. Plaintiffs amended their Complaint on October 21, 2020, to, inter alia, add Jaffa as a defendant. D.E. 21. Plaintiffs then filed the SAC on August 17, 2021. D.E. 33. The SAC asserts one, overarching class and several subclasses based on the state in which Plaintiffs worked. See SAC ¶¶ 82-127. The overarching class brings claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962, (Count I); conspiracy to violate RICO, 18 U.S.C. § 1962(d), (Count II); and breach of fiduciary duty, (Count VIII); negligence, (Count IX); and conversion (Count X). Id. ¶¶ 91-95, 128-42. Plaintiffs also assert four subclasses: (1) a South-Dakota class pursuant to the South Dakota Consumer Protection Law (“SDCPL”), S.D. Codified Laws § 37-24-1 et seq., (Count III); and the South Dakota Fraudulent Concealment Law (“SDFCL”), S.D. Codified Laws § 20-102(3), (Count VI); (2) a Kansas class under the Kansas Consumer Protection Act (“KCPA”), Kan. Stat. Ann. § 50-623 et seq., (Count IV); (3) a Nebraska class under the Nebraska Consumer Protection Act (“NCPA”), Neb. Rev. Stat. § 59-1061 et seq., (Count V); and (4) an Arkansas class, under the Arkansas Deceptive Trade Practices Act (“ADTPA”), Ark. Code Ann. § 4-88-107 et seq., (Count VII).

Jaffa moved to dismiss all counts brought against him individually. D.E. 38.

II. STANDARD OF REVIEW

To withstand a motion to dismiss under Rule 12(b)(6), a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint is plausible on its face when there is enough factual content “that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although the plausibility standard “does not impose a probability requirement, it does require a pleading to show more than a sheer possibility that a defendant has acted unlawfully.” Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (internal quotation marks and citations omitted). As a result, a plaintiff must “allege sufficient facts to raise a reasonable expectation that discovery will uncover proof of [his] claims.” Id. at 789.

In evaluating the sufficiency of a complaint, a district court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). A court, however, is “not compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions disguised as factual allegations.” Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007). If, after viewing the allegations in the complaint most favorable to the plaintiff, it appears that no relief could be granted under any set of facts consistent with the allegations, a court may dismiss the complaint for failure to state a claim. DeFazio v. Leading Edge Recovery Sols., LLC, No. 102945, 2010 WL 5146765, at *1 (D.N.J. Dec. 13, 2010).

“Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a heightened pleading requirement of factual particularity with respect to allegations of fraud.” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Thus, pursuant to Rule 9(b), when “alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). A party alleging fraud must therefore support its allegations with factual details such as “the who, what, when, where and how of the events at issue.” U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016). Accordingly, “[t]o satisfy the particularity standard, ‘the plaintiff must plead or allege the date, time and place of the alleged fraud or otherwise inject precision or some measure of substantiation into a fraud allegation.'” Feingold v. Graff, 516 Fed.Appx. 223, 226 (3d Cir. 2013) (citing Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)). This heightened pleading standard is designed to “ensure that defendants are placed on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of fraud.” Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989) (internal quotation marks omitted).

III. ANALYSIS

A. Group Pleading and Rule 9(b)

Defendant first argues that Plaintiffs have...