Affirmative Defenses are Barred by Guaranty's Express Waiver Provision: J. Remora Maintenance LLC v Efromovich
In a January 4, 2012 decision by Justice Fried, the court granted the plaintiff’s motion for summary judgment to enforce a guaranty executed by the defendant in connection with the plaintiff’s sale of its interest in a company to a third party. The court found that because the two express conditions set forth in the guaranty for its enforcement were met, the plaintiff established entitlement to summary judgment as a matter of law. The court then determined that the defendant failed to raise an issue of fact through its affirmative defenses of fraudulent inducement and lack of consideration. Based on the Court of Appeal’s decision in Citibank v Plapinger, the court concluded that an express waiver contained in the guaranty barred the defendant from asserting the substantive defenses. The court rejected the defendant’s argument that the waiver did not apply to the two affirmative defenses at issue because it did not contain the words “absolutely and unconditional”, finding that such language was unnecessary under New York law for a waiver to effectively waive substantive defenses. The court also granted the plaintiff’s motion to dismiss the defendant’s fraudulent inducement counterclaim under CPLR § 3016(b) on the grounds that the circumstances surrounding the alleged fraudulent inducement were not alleged in sufficient detail.
J. Remora Maintenance LLC v Efromovich, Sup Ct New York County, January 4, 2012, Fried, J, Index No. 650943/11
Court Holds Complaint Sufficiently Alleges Anticipatory Repudiation: Israel Cancer Research Fund, Inc. v Harvey & Gloria Kaylie Foundation, Inc.
In a December 14, 2011 decision by Justice Fried, the court denied the defendant’s motion to dismiss the complaint which alleged anticipatory breach of contract. Taking the plaintiff’s allegations as true for purposes of a motion to dismiss, the court found that allegations that the defendant persistently refused to make payments owed to the plaintiff unless the plaintiff agreed to take on obligations beyond those set forth in the parties’ agreements demonstrated a positive and unequivocal repudiation of the defendant’s obligations, and therefore satisfied the pleading requirements to state a claim for anticipatory breach.
Israel Cancer Research Fund, Inc. v Harvey & Gloria Kaylie Found., Inc., Sup Ct NY County, December 14, 2011, Fried, J, Index No. 651993/2010
Court Enjoins Operation of Non-Compete Provision Containing No Practical Geographic or Temporal Limitations: Crossroads ABL, LLC v Canaras Capital Mgt., LLC
In a November 2, 2011, decision by Justice Fried, the court denied in part and granted in part plaintiffs’ motion for a preliminary injunction. Plaintiffs sought to enjoin dissolution of their ownership interest in an LLC formed with defendants, which was effected by an allegedly unauthorized sale of outstanding common units of the LLC. Plaintiffs also sought to enjoin the operation of the non-solicitation and non-competition provisions of the related operating agreement. The court denied plaintiffs’ motion as to the dissolution of their ownership interest, finding that the issuance of additional common and preferred units of the LLC did not require the consent of a supermajority of the members under the operating agreement and that, therefore, plaintiffs failed to establish a likelihood of success on the merits of their claim. The court, however, granted plaintiffs’ motion as to the non-solicitation and non-competition provisions in the operating agreement, finding no limitations with respect to temporal duration or geographical scope in the language of the provisions and that, therefore, plaintiffs would likely succeed on the merits of the non-enforceability of such provisions under Delaware law.
Crossroads ABL, LLC v Canaras Capital Mgt., LLC, Sup Ct, New York County, November 2, 2011, Fried, J., Index No. 651268/2011
Court Lacks Personal Jurisdiction Over New Jersey Recruiter: KForce Inc. v Foote
In a September 21, 2011 decision by Justice Fried, the court granted defendant Kam’s motion to dismiss the complaint on the grounds that the court lacked personal jurisdiction. Kam was employed by the plaintiff staffing firm as a recruiter. Almost one year after Kam resigned his position and began working for a different staffing firm, defendant Solomon-Page, the plaintiff brought suit alleging that Kam breached a restrictive covenant. The court found that Kam, a non-New York domiciliary, did not have the minimum contacts necessary to confer personal jurisdiction under CPLR § 302(a)(1) because he: (i) resided in New Jersey; (ii) formed his contract with the plaintiff in New Jersey; (iii) worked only in the plaintiff’s New Jersey office; (iv) placed job candidates with New Jersey businesses; and (v) worked only in Solomon-Page’s New Jersey office recruiting job candidates for New Jersey positions. The court rejected the plaintiff’s “laundry list” of activities Kam allegedly performed in New York as overstated and misrepresented, and noted that the plaintiff failed to allege that Kam engaged in activities in New York since resigning from the plaintiff’s employ and joining Solomon-Page. The court also rejected the plaintiff’s argument that Kam received e-mails from the plaintiff’s New York employees and contacted clients in New York regarding job positions, finding that such conduct was neither “transacting business” nor sufficient to establish that Kam purposefully availed himself of New York. The court also found that it lacked jurisdiction under CPLR § 302(a)(3) because the plaintiff failed to establish that Kam regularly solicited business in New York, derived substantial revenue from New York, expected his tortious conduct to have an impact in New York, or that the plaintiff sustained an injury in New York.
Kforce Inc. v Foote, Sup Ct NY County, Sept. 21, 2011, Fried, J, Index No. 601146/10
Derivative Claims Brought on Behalf of an LLC Cannot Be Intermingled with Individual Claims: Waxman Real Estate LLC v Sacks
In a September 7, 2011, decision by Justice Fried, the court granted in part defendant-LLC members’ motion to dismiss and denied their motion to compel arbitration. The court also denied plaintiff-investors’ cross-motion for injunctive relief under CPLR 6301, as well as for an order under LLCL 414, removing the defendants from a real estate investment company. In the action, plaintiffs alleged that defendants misled them into forming the company by, among other things, grossly misrepresenting the costs of the development project for which the company was formed. The court rejected defendants’ argument 1) that plaintiffs’ action was barred by an exculpation clause in the operating agreement because it depended on the resolution of fact issues regarding whether defendants’ alleged conduct was “objectionable” – an express exception to the exculpatory clause in the agreement; 2) that plaintiffs’ waived their status as fiduciaries in the operating agreement because such a clause “does not bar a claim based on LLC Law § 409” regarding the duties of managing members; and 3) that plaintiffs’ consented to arbitration of disputes among the members of the company in the operating agreement because the conduct alleged constituted “material decisions” – an express exception to the arbitration clause in the agreement. The court also rejected defendants’ argument that plaintiffs failed to state a derivative claim because the complaint alleged sufficient harm to the company and reasons supporting the futility of a demand but nonetheless dismissed plaintiffs’ derivative claims (without prejudice) because, as with corporations and partnerships, such claims cannot be intermingled with individual claims. The court otherwise 1) granted defendants’ motion to dismiss plaintiffs’ unjust enrichment claim on the basis of the existence of an enforceable written contract because “plaintiffs d[id] not contest this claim in their opposition papers”; and 2) denied plaintiffs’ cross-motion for injunctive relief because of issues of fact as to their success on the merits and because LLCL 414 “does not authorize a court to remove an LLC manager.”
Waxman Real Estate LLC v Sacks, Sup Ct, New York County, September 27, 2011, Fried, J., Index No. 652057/2010
Motions for Summary Judgment Granted in Part, Denied in Part, in Action Brought by Hospital Against Insurer to Recover for Breach of Contract for Premiums Drawn Down from Letter of Credit: Lenox Hill Hosp. v. Amer. Int'l Group, Inc.
In a June 7, 2011 decision by Justice Fried, the Court granted in part and denied in part cross-motions for summary judgment. Defendant Lexington issued two consecutive excess healthcare professional liability insurance policies with plaintiff as the first named insured. The Court concluded that plaintiff and Lexington entered into two contracts, i.e., the 2004 and 2005 policies, and that plaintiff paid the standard premiums for each contract. The Court also found that there was no question that a Letter of Credit was issued after the first retrospective rating adjustment. As a result of the 2008 retrospective rating adjustment, defendants claimed additional premium was due. Plaintiff sued, claiming breaches of contract and fiduciary duty by the insurer. In addition, plaintiff sought injunctive relief barring draw downs from the Letter of Credit.
Both plaintiff and Lexington contend that the other party breached the contracts. Lexington and AIG by making retrospective rating adjustments outside of what was agreed upon between the parties and memorialized in the contract; and plaintiff by failing to pay the additional premium that Lexington determined and thereafter billed to plaintiff.
The Court dismissed the breach of fiduciary duty claim, since plaintiff failed to establish the existence of a fiduciary relationship between it and AIG or Lexington. As to the breach of contract claims, the Court concluded, after analyzing the parties’ agreement, that it could not determine, as a matter of law, the intentions of the parties concerning undefined terms in the Retrospective Rating Endorsement, thus denied the motions for summary judgment on those claims.
Plaintiff also moved for leave to amend the complaint to add fraud claims against both defendants and tortuous interference claim against AIG. The Court rejected the defendants’ argument that plaintiff’s delay in seeking leave should preclude amendment, since there appears to have been no prejudice to defendants. However, after analyzing the proposed amendments, the Court allowed plaintiff leave to amend only to add one cause of action for fraud against AIG.
Finally, the Court considered defendants’ motion, pursuant to CPLR 3126, to strike portions of plaintiff’s summary judgment submission on the ground that plaintiff was relying on actuarial reports not produced during discovery. The Court held there was no proffered evidence that plaintiff failed to disclose the requested documents and therefore denied the motion to strike.
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Arbitrator Empowered to Award Attorneys' Fees If Both Parties Demand Them: Matter of Bear Sterns & Co., Inc. v. International Capital & Mgt. Co., Inc.
In a June 16, 2011 decision by Justice Fried, the court affirmed an arbitration award that granted over $300,000 in attorneys’ fees to the respondent in a FINRA arbitration. The parties litigated in the arbitration a number of claims for, among other things, breach of contract, negligence, promissory estoppels, fraud, breach of fiduciary duty, and negligent misrepresentation. Both parties sought attorneys’ fees in their initial pleadings and revised pleadings.
The arbitration panel dismissed the petitioner’s claims and awarded the respondents (Bear Sterns et al.) their attorneys’ fees for defending themselves in the arbitration. Bear Sterns sought to confirm the award in the Supreme Court. The petitioner in the arbitration opposed confirmation, arguing that the arbitration panel had no contractual or statutory basis for the award of attorneys’ fees. The court rejected that argument, holding that both parties had “acquiesced in the award of fees” by including a request for fees in their initial and revised pleadings. The court also rejected petitioner’s argument that its request to withdraw its claim for attorneys fees during its closing argument was sufficient to modify its initial acquiescence.
Matter of Bear Sterns & Co., Inc. v. International Capital & Mgt. Co., Inc., Sup Ct, New York County, June 16, 2011, Fried, J. Index No. 650125/11.
Claim for Real Estate Broker's Commission Survives Motion to Dismiss: Eastern Consol. Props., Inc. v. Extell Dev. Co.
In a March 24, 2011 decision by Justice Fried, the Court decided defendant’s motion to dismiss plaintiff’s complaint seeking recovery of real estate brokerage commission. Specifically, defendant claimed that the breach of contract claim should be dismissed pursuant to CPLR 3211(a)(1) based on documentary evidence, and that the unjust enrichment and quantum meruit claims were duplicative of the contract claim.
Plaintiff and defendant Extell entered into a brokerage commission agreement in which Extell agreed to pay plaintiff either 3% of the purchase price or $371,800 in connection with Extell’s purchase of air rights to certain property on West 25th Street in New York City. The initial proposed transaction never closed. Years later, the air rights were ultimately sold to a third party, the Sabet Group, who later in turn sold to Extell in 2010. Plaintiff claims it is now owed a commission on the sale, which Extell disputes.
Construing the complaint liberally, the Court concluded that plaintiff sufficiently plead a breach of contract claim. The Court reasoned that the commission agreement did not identify who the seller of the property had to be in order to entitle plaintiff to a commission. The Court rejected Extell’s attempt to establish plaintiff was not entitled to a commission based upon certain documents from the initial proposed transaction that did not close. The Court did, however, dismiss both the unjust enrichment and quantum meruit claims on the ground that there was an enforceable contract between the parties, which supersedes such claims.
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Court Vacates Notice of Pendency on Property Owned By Real Estate Venture: Ostad v Nehmadi
In an April 8, 2011 decision by Justice Fried, the court granted the defendants’ motion pursuant to CPLR § 6501 to vacate a notice of pendency. The plaintiff formed an “Enterprise” with the defendants to engage in real estate ventures and specifically alleged in the complaint that the title to the real property was held on behalf of the Enterprise. The court found that a notice of pendency was inappropriate because the claimed interest was in a partnership or corporation that deals in real property because such interest was in personality and does not affect the title to real property. The court rejected the plaintiff’s arguments that a request to impose a constructive trust on the property established a basis for the notice of pendency, finding that under New York law, a cause of action for a constructive trust does not alone permit a filing of a notice of pendency. The court also concluded that the true action behind the plaintiff’s request for a constructive trust was to enforce the defendants’ an oral agreement to share with the plaintiff the profits and income the Enterprise had generated. Thus, the court found that the right to a constructive trust over the proceeds of the real property did not render the claim sufficient to satisfy the notice of pendency requirements.
Ostad v Nehmadi, Sup Ct, NY County, April 8, 2011, Fried, J, Index No. 650460/10
Conditional Order of Discovery Enforce, Reply to Counterclaims Stricken and Liability in Favor of Defendant Entered: 23KT Gold Collectibles, LTD. v. Daily News, LP
In a March 24, 2011 decision by Justice Fried, the Court considered defendant’s motion to strike plaintiffs’ reply to counterclaims, based upon plaintiffs’ failure to comply with a conditional order of discovery. Plaintiffs, in turn, filed a cross-motion, pursuant to CPLR 3103, for a protective order.
The case arose out of a contractual dispute between plaintiffs and Daily News LP. In 2010, the Court granted Daily News’s motion for summary judgment, dismissing the complaint, leaving alive only the counterclaims. The Preliminary Conference Order set August 20, 2010 as the date by which all discovery demands were to be served; September 20 as the date by which responses were due. Plaintiffs were late in responding to Daily News’s demands, and the parties further agreed among themselves to extend plaintiffs’ deadline to October 15. On October 19, plaintiffs responded, and claimed that the response included all relevant documents. No objections were interposed by plaintiffs. The Court ultimately entered a “conditional order” against plaintiffs, providing that if plaintiffs fail to comply with the discovery demand by December 10, then plaintiffs’ “reply to counterclaims shall be stricken and a finding of liability on all counterclaims entered in favor of Counterclaim-Plaintiff”.
On December 14, Daily News received plaintiffs’ responses, consisting of nine documents, 8 of which had been previously produced. Based on that production, Daily News moved to enforce the conditional order. Plaintiffs cross-moved for a protective order.
Since a conditional order is self-executing, the Court noted that the defaulting party must demonstrate reasonable excuse for its failure to produce, and an affidavit showing a meritorious defense or claim. In opposition to the motion, plaintiffs failed to produce an affidavit showing meritorious defense to the counterclaims, the application to enforce the conditional order was granted. As to plaintiffs’ motion for a protective order, the Court granted the motion only as to two items only—tax returns and other documents not related to the relationship of the parties. Since those two items were “palpably improper”, that is, material irrelevant to the issue in controversy, the Court granted the motion for a protective order.
23KT Gold Collectibles, LTD. v. Daily News, LP, Sup Ct, New York County, March 24, 2010, Fried, J, Index No. 650236/2009.
Court Reads Clear Condition Precedent to Coverage In Owner Controlled Insurance Policy: Zurich Am. Ins. Co. v Illinois Natl. Ins. Co.
In a December 23, 2010, decision by Justice Fried, the court granted defendant’s motion for summary judgment and denied plaintiff’s cross-motion for the same relief. Plaintiff-subcontractor and its carrier sued defendant-general liability insurer for coverage under an “owner controlled insurance policy” (OCIP). Defendant had declined coverage due to plaintiff’s failure to obtain a written subcontract and to enroll in the OCIP program before the loss, both requirements under the policy. The court granted defendant’s motion and dismissed the complaint, finding that requirements were “unambiguous” conditions precedent to coverage under the policy – namely, that “the language is clear: no enrollment, no coverage.” The court rejected plaintiff’s equitable estoppel argument, finding no evidence that defendant took actions to mislead plaintiff into believing that coverage was available or that plaintiff had relied on such allegedly-misleading activity.
Zurich Am. Ins. Co. v Illinois Natl. Ins. Co., Sup Ct, New York County, December 23, 2010, Fried, J., Index No. 105533/09
Fraud Claim Based on Falsely Notarized Document Dismissed: Saleh Holdings Group, Inc. v Chernov
In a January 31, 2011 decision by Justice Fried, the court dismissed the plaintiff’s claims for fraud and aiding and abetting fraud which were based on allegations that the defendant notarized a signature on a guaranty knowing that the purported signatory did not sign the document because: (1) the plaintiff failed to satisfy the pleading requirements of CPLR § 3016; (2) the defendant’s notarization was not the proximate cause of the plaintiff’s damages where 11 years elapsed between when the guaranty was notarized, during which the plaintiff orally modified terms of the guaranty; and (3) the damages alleged were not out-of-pocket losses recoverable on a fraud claim and admittedly caused by other factors.
Saleh Holdings Group, Inc. v Chernov, Sup Ct NY County, January 31, 2011, Fried, J, Index No. 650177/10
Court Dismisses Conversion and Civil Conspiracy Claims on Pre-Answer Motion: Bahiri v Madison Realty Capital Advisors, LLC
In a December 23, 2010, decision by Justice Fried, the court granted defendants’ motion to dismiss plaintiff’s conversion and civil conspiracy claims based on failure to state a cause of action. Plaintiff, a withdrawing member of defendant-LLC, alleged that defendants failed fully to redeem his membership interest and breached the related redemption agreement and promissory note by paying salaries to defendant-members instead. The court dismissed plaintiff’s conversion claim because he failed specifically to identify and segregate the funds allegedly converted and failed to demonstrate an immediate possessory right over the funds, “which simply represent[ed] damages in contract.” The court also dismissed plaintiff’s civil conspiracy claim as duplicative of his related fraudulent transfer claim, concluding that “a conspiracy to commit a tort is never itself a cause of action.”
Bahiri v Madison Realty Capital Advisors, LLC, Sup Ct, New York County, December 23, 2010, Fried, J., Index No. 650743/09
Court Grants Motion for Summary Judgment in Lieu of Complaint Based on Guaranty: GSO RE Onshore LLC v Sapir
In a November 24, 2010, decision by Justice Fried in connection with an action by plaintiff-lender against defendant-guarantor to recover under a personal guaranty after a default on a construction loan, the court granted plaintiff’s motion for summary judgment in lieu of complaint and denied defendant’s cross-motion to dismiss for lack of personal jurisdiction. The court found that despite the fact that proper documentation was not filed with the county clerk as prescribed by CPLR 318, service of plaintiff’s motion on an agent designated in the guaranty was sufficient because “parties can contractually agree to other methods of service beyond those set forth in the CPLR, and a contract provision designating a party’s service agent is valid.” Because a motion for summary judgment in lieu of complaint may be based on a guaranty, and because the law recognizes waiver-of-defenses provisions in guaranties as valid and enforceable, the court found that plaintiff was entitled to summary judgment as a matter of law and granted the motion. The court also denied defendant’s motion to supplement the record with a medical report suggesting that defendant “lacked the requisite contractual capacity” to enter the guaranty for lack of good cause shown because the motion, initially proposed informally during oral argument, clearly was an afterthought motivated by defendant’s perception that plaintiff was going to prevail.
GSO RE Onshore LLC v Sapir, Sup Ct, New York County, November 24, 2010, Fried, J., Index No. 650367/10
Complaint Dismissed For Lack of Personal Jurisdiction and Failure to Adequately Plead Claims: MediaXposure Ltd. (Cayman) v Omnireliant Holdings, Inc.
In an October 25, 2010 decision by Justice Fried the Court granted dismissal of claims against defendants for lack of personal jurisdiction and failure adequately plead causes of action for adding and abetting a breach of fiduciary duty and unjust enrichment. The litigation stemmed from the alleged looting of a dissolved British company in the infomercial business. Plaintiff, an investment company, alleged the individual defendants who were officers and directors engaged in the looting and the other directors and corporate owners allowed the looting.
The individual defendants moved to dismiss for lack of personal jurisdiction, arguing that all of the alleged improper acts occurred in Florida. The Court granted that part of the motion as to all of the defendants, save one. The Court found that as to the one defendant the plaintiff alleged sufficient allegations of contacts with New York to warrant limited discovery and a hearing on that issue which would be addressed by a special referee. The Court also found that other than conclusory allegations, plaintiff failed to adequately plead that the corporate defendants added and abetted the alleged breaches of fiduciary duties or were unjustly enriched by the alleged wrongful acts.
MediaXposure Ltd. (Cayman) v Omnireliant Holdings, Inc., Sup Ct, New York County, October 25, 2010, Fried, J, Index No. 603325/09
Elizabeth Arden, Inc. and FD Management, Inc. v Abelman, Frayne & Schwab, et al., Sup Ct New York County, October 22, 2010, Fried, J, Index No. 603778/05
In an October 22, 2010 decision by Justice Fried the court dismissed a number of malpractice claims arising from plaintiff’s failure to timely pay a patent renewal fee. Plaintiff alleged that this failure was due to the legal malpractice of its attorneys. Of note, this failure occurred over the course of a number of years and while plaintiff switched attorneys, eventually bringing the patent work in-house.
The court granted summary judgment dismissing one of the law firms from the suit because the claims against it were time barred and the continuing representation doctrine did not apply. The court dismissed other claims because one of the ways an application to revive the patent could have been made was if the attorneys violated their ethical obligations and argued to the Patent and Trademark Office that the late payment was due to unintentional delay, when in fact it was originally intentionally decided to not make the payment when it was originally due (it could then have been made within a six-month grace period without excuse but plaintiff did not do so). However, the court allowed a malpractice claim to continue against one of the defendants because it allegedly failed to advise plaintiff that the patent expired, even though it was purportedly obligated to do so years earlier and plaintiff may have suffered some level of damages for this delay.
CP Energy Group, Inc. v Windy Point Partners, LLC, Sup Ct, NY County, October 5, 2010, Fried, J, Index No. 650026/10
In an October 5, 2010, decision by Justice Fried in connection with plaintiff-consultant’s action for breach of contract against defendant-property owners under a consulting agreement to find a buyer for defendants’ property, and on defendants’ motion to dismiss the complaint under CPLR 3211 [a] [4] and CPLR 327, the court denied defendants’ motion, finding that the plain language of the jurisdiction clause in the parties’ consulting agreement was sufficiently particular and mandatory – i.e. “chose a particular forum, New York, and selected it ‘unconditionally and irrevocably’” – to be deemed a mandatory forum-selection clause rather than a permissive service-of-suit clause. Because contractual provisions for the selection of a forum for litigation are prima facie valid in New York, the court enforced the provision in the parties’ agreement and denied defendants’ motion.
Anglo Irish Bank Corp. Ltd. v Ashkenazy, Sup Ct., NY County, Aug. 4, 2010, Fried, J, Index No. 103006/10
In an August 4, 2010 decision by Justice Fried, the court granted the plaintiff’s motion for summary judgment in lieu of a complaint pursuant to CPLR § 3213 based on the defendants’ non-payment of a guaranty. The court found there was no genuine issue of fact because the plaintiff undisputedly established that: (1) the defendants executed an absolute and unconditional guaranty promising to pay all of the liabilities of a non-party under a note given by that non-party in favor of the plaintiff bank; (2) the defendants waived any right to notice of default under the note; (3) the plaintiff was not required to take action against the third-party before exercising its rights under the guaranty; (4) the non-party defaulted under the note; and (5) neither the third-party nor the defendants made the requisite payments.
The court also denied the defendants’ motion to dismiss the complaint which argued that the plaintiff lacked the capacity to sue because it was a foreign banking institution that could only foreclose on property, and because there was a prior action pending in Florida. The court rejected both arguments finding: (1) the Banking Law does not contain the defendants’ asserted restriction, but rather permits a foreign banking corporation which maintains an office in New York (as the plaintiff does) to enforce obligations it acquired in the transaction of business outside of the state; (2) dismissal was not required under CPLR § 3211(a)(4) because the Florida action was not between the same parties for the same cause of action; and (3) RPAPL §1301(3) was inapplicable because the property securing the note was located outside of New York.
Gray & Assoc., LLC v. Speltz & Weis, LLC et al., Supreme Court, New York County Index No. 150446/07 (February 2, 2009)
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.
