Index Words: motion to dismiss; breach of fiduciary duties, not-for-profit law violations; fraud; breach of covenant of good faith and fair dealing; professional malpractice tortuous interference with a contract; aiding and abetting breaches of fiduciary duty/fraud; fraudulent transfers; bankruptcy code fraudulent transfer claims; civil conspiracy; corporate status
In a February 2, 2009 decision, Justice Fried addressed a motion to dismiss 19 of 20 causes of action stemming from attempts to restructure the St. Vincent Merical Centers of New York.
The action was brought against a turn-around specialists hired by St. Vincent named Speltz & Weiss and Huron; and the individual owners of Spetz & Weiss.
The court denied dismissal of the breach of fiduciary duties cause of action, finding that it was not a restatement of the breach of contract cause of action, but rather alleged breaches of a duty arising out of the relationship created by the contract which is nonetheless independent of the contract. The court also found that the “business judgment rule” did not protect corporate officials who engage in fraud or self-dealing when they make decisions affected by inherent conflicts of interest.
The court affirmed the not-for-profit law violations, against the individual Spetz & Weiss defendants, because N-PCL §§ 717 and 720 creates an independent fiduciary duty to the not-for-profit corporation. But the court dismissed the claims as against the corporate entities, because the statutes only apply to offices and directors.
The court declined to dismiss the common-law-fraud claims, finding that they were pled with sufficient particularity and that they are duplicative of the breach of contract claims because they allege fraudulent conduct that was collateral to the parties’ contract. The court also declined to dismiss the breach of covenant of good faith and fair dealing claims for similar reasons.
The court dismissed the professional malpractice claims, finding that the business the Spetz & Weiss defendants engaged in was not a “profession” for professional malpractice claim purposes.
The court declined to dismiss the tortuous interference with a contract claim against the Huron defendants, who purchased Spetz & Weiss during the restructuring of the hospital, because it was sufficiently pled, because the sale was on terms which created an irreconcilable conflict of interested between the hospistal and Spetz & Weiss;
The court denied dismissal of all but one of the aiding and abetting breaches of fiduciary duty claims against Huron and the Spetz and Weiss defendants. The reason the court did dismiss one of the claim was because plaintiff failed to alleged that the Huron defendants were aware of any particular instances of outright fraud being committed by the Spetz and Weiss defendants.
The court dismissed the fraudulent transfer claims because the plaintiff failed to alleged the elements of such claims and failed to plead them with sufficient particularity.
Nevertheless, the court allowed to remain the Bankruptcy Code Fraudulent transfer claims, holding that there was no case law which restricted such claims to the Bankruptcy Court and that the claims were ultimately made for the benefit of the benefit of St. Vincent’s estate.
The court dismissed the civil conspiracy cause of action, because it is not recognized as an independent tort in New York.
The court allowed the punitive damages claim to remain, because the acts complained of were sufficient if proven to be intentional or deliberate, with wonton disregard of the right of a charitable hospital and at a time that the hospital was in the middle of a financial crisis.
The court allowed the plaintiff to correct a pleading failure, its failure to plead that it was a limited liability company authorized to do business in New York, through the submission of documentary evidence and that “plaintiff has cured what is a non-jurisdiction defect by obtaining the requisite authority to maintain this lawsuit” after commencing the lawsuit.