Opinion
1915/05.
Decided January 3, 2006.
Meyer, Suozzi, English Klein, P.C., Mineola, New York, Counsel for Plaintiff.
Abrams, Fensterman, Fensterman, Flowers, Greenberg Eisman, LLP, Lake Success, New York, Counsel for Defendant.
Defendants move to dismiss the complaint pursuant to CPLR 3211(a)(1), (3), (5) and (7).
BACKGROUND
On or about August 14, 1992, Defendant Islandia MRI Limited Partnership ("Islandia MRI") entered into a Turnkey Lease Agreement with Defendant Islandia MRI Associates, P.C. ("MRI Associates") pursuant to which MRI Associates leased premises located at 200 Corporate Plaza, Suite A104, Islandia, New York, along with a magnetic resonance imaging system, as well as ancillary equipment (i.e., furniture, fixtures and office equipment), from Islandia MRI.
Under the Turnkey Lease Agreement, MRI Associates was to provide all technicians and other medical personnel necessary to operate an MRI facility.
In connection with the development of this facility, Plaintiff Ashley MRI Management Corp. ("Ashley") was engaged by Islandia MRI, pursuant to a Consulting Agreement dated June 16, 1992, to, inter alia,:
— Develop, update and oversee an ongoing marketing program;
— Monitor database of referring physicians for practice;
— Design and revise strategic planning for the business;
— Monitor proper levels of quality control for medical imaging services;
— Seek strategic alliances for sources of additional MRI referrals; and
— Set up medical billing and collection standard operating systems.
For its services, Ashley was to be compensated by Islandia MRI based upon a percentage of the net revenues Islandia MRI received from MRI Associates in accordance with the Turnkey Lease Agreement which provided, in pertinent part, that MRI Associates was to pay a set "use fee" to Islandia MRI for each MRI, other scan, test or service performed by it using the MRI system.
According to the complaint, after Islandia MRI had been operating successfully for a number of years, Defendants, in violation of the Consulting Agreement, systematically began to isolate and transition Ashley out of the operation of the business by excluding from the calculation of Ashley's fees monies generated by use of the MRI machine and facilities by unaffiliated radiologists outside the control of MRI Associates. In particular, Ashley alleges that Defendants diverted over $1,000,000.00 in partnership funds (fees for usage of Islandia MRI's equipment and facilities) to Defendants Edward Perkes, M.D. ("Perkes") and Joel Reiter, M.D. ("Reiter") and that Perkes and Reiter along with Defendants Merik Dolber ("Dobler") and Jill Vincente ("Vicente") mismanaged Islandia MRI. Ashley also challenges the propriety of the sale of assets of Islandia MRI to North Ocean Imaging Holdings, LP, allegedly owned and operated by Dolber.
The complaint alleges twelve causes of action pleaded against all Defendants without differentiation or relevant dates. They include a request for an accounting a full and complete inspection of financial books and records of Islandia MRI and its general partner, Scanning of Suffolk, LP ("Scanning"), of which Plaintiff is a limited partner; the imposition of a constructive trust over the money and property allegedly diverted and looted from Islandia MRI and Scanning; an injunction enjoining Defendants from further violation of the Consulting Agreement and prohibiting the sale and/or transfer of any of Islandia MRI's assets; appointment of a receiver to manage the affairs of Islandia MRI and Scanning. Plaintiff also seeks recovery of damages arising from Islandia MRI's alleged breach of the Consulting Agreement; breach of the Scanning Partnership Agreement by Defendants Islandia MRI Management Corp. ("Management") and Techmed LI Corporation ("Techmed"); tortious interference with the Consulting Agreement by the individual Defendants, MRI Associates, PC ("MRI Associates") and Techmed; tortious interference with the Scanning Partnership Agreement by the individual Defendants and MRI Associates; and breach of fiduciary duty to Ashley, as a limited partner of Scanning, by Management.
In the tenth, eleventh and twelfth causes of action, respectively, Ashley asserts claims, derivatively on behalf of Islandia MRI and Scanning, against Management for breach of fiduciary duty and for Defendants' conversion of the funds of Islandia MRI for their own personal gain. The wrongs alleged in the complaint fall into three basic categories:
1) breach of the Ashley Consulting Agreement;
2) payment of $60 to Defendant Perkes and Reiter for MRI scans performed by outside radiologists using MRI Islandia's office and equipment; and
3) sale of Islandia MRI's assets at a discounted price on inadequate notice to the limited partners.
DISCUSSION
A. Overview
In the context of a motion to dismiss pursuant to CPLR 3211, the court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide the Plaintiff the benefit of every possibly inference. Goshen v. Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 (2002); Leon v. Martinez, 84 NY2d 83 (1994); and Paterno v. CYC, LLC, 8 AD3d 554 (2nd Dept. 2004). Whether a Plaintiff can ultimately establish its allegations is not part of the calculus in determining the motion. The inquiry is restricted to whether "the relevant allegations of the complaint liberally construed state a theory on which relief can be granted." CAE Indus. Ltd. v. KPMG Peat Marwick, 193 AD2d 470, 472 (1st Dept. 1993). See also, Guggenheimer v. Ginzburg, 43 NY2d 268 (1977). Legal conclusions or factual claims which are either inherently incredible or flatly contradicted by documentary evidence need not be accepted as true. Greene v. Doral Conference Center Assocs., 18 AD3d 429, 430 (2nd Dept. 2005). Where the motion particularizes each of the claims in the complaint, even though it is nominally addressed to the complaint as a whole, the motion will be treated as applying to each individual cause of action alleged. Skillgames, LLC v. Brody, 1 AD3d 247, 252 (1st Dept. 2003).
Dismissal based upon a defense founded upon documentary evidence is warranted only if the documentary evidence submitted conclusively establishes a defense to the claims asserted as a matter of law. 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 152 (2002); Montes Corp. v. Charles Freihfer Baking Co., Inc., 17 AD3d 330 (2nd Dept. 2005); and Berger v. Temple Beth-El of Great Neck, 303 AD2d 346 (2nd Dept. 2003). In this case, the documentary evidence presented by Defendants does not conclusively resolve all factual issues as a matter of law.
Here, the alleged facts, accepted as true, accorded the benefit of every possible favorable inference and evaluated only as to whether they fit within any cognizable legal theory ( Guggenheimer v. Ginzburg, supra; and Well v. Yeshiva Rambam, 300 AD2d 580 [2nd Dept. 2002]), sufficiently state causes of action for an accounting (first cause of action), breach of contract (fifth and sixth causes of action), breach of fiduciary duty (ninth cause of action) and a derivative claim for breach of fiduciary duty brought on behalf of Scanning (eleventh cause of action) and the resultant damages which may have accrued by reason thereof which cannot be resolved on the papers submitted. All other causes of action must be dismissed.
Defendants contend, and this Court agrees, that all claims asserted against Perkes and Reiter, shareholders of Management which is Scanning's general partner, and MRI Associates, and Merik Dolber and Jill Vincente, shareholders of Techmed, a limited partner of Scanning, in their individual capacities, must be dismissed. A corporate officer is not subject to personal liability for actions taken in furtherance of the corporation's business in the absence of clear and explicit evidence that he/she intended to assume personal liability for the acts of the corporation. Worthy v. New York City Housing Auth., 21 AD3d 284, 286 (1st Dept. 2005). See also, Port Chester Elec. Constr. Corp. v. Atlas, 40 NY2d 652, 656-657 (1976), where the Court of Appeals held "[c]orporations, of course, are legal entities distinct from their managers and shareholders and have an independent legal existence. Ordinarily, their separate personalities cannot be disregarded."
The doctrine of piercing the corporate veil, a limitation on the aforementioned principles, is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners to hold them liable for some underlying corporate obligation. Morris v. New York State Dept. of Taxation and Finance, 82 NY2d 135, 141 (1993). Ashley has submitted no evidence that the privilege of conducting business in the corporate form was so abused as to warrant piercing the corporate veil to impose personal liability on the individual Defendants. Brown v. 3392 Bar Corp., 2 AD3d 324, 326 (1st Dept. 2003).
B. First Cause of Action
Notwithstanding Defendants' assertions to the contrary, the language of the first cause of action seeking an accounting of the books and records of Islandia MRI and Scanning is sufficient to withstand dismissal in that it alleges that prior demand has been made for information about the financial affairs of said entities and that the request has been refused albeit partially granted by Islandia MRI. Conroy v. Cadillac Fairview Shopping Center Properties, Inc., 143 AD2d 726 (2nd Dept. 1988). The complaint sufficiently alleges Defendants' failure to provide complete information vis-a-vis the disposition of partnership funds so as to support a cause of action for an accounting.
C. Second Cause of Action
The second cause of action seeks the imposition of a constructive trust over monies allegedly diverted and looted from Islandia MRI and Scanning by Management. To warrant the imposition of a constructive trust, a Plaintiff must plead and prove four elements: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer in reliance thereon; and (4) unjust enrichment caused by a breach of that promise. Valvo v. Spitale, 305 AD2d 668, 669 (2nd Dept. 2003). The doctrine is not limited by rigid definition, and its very purposes requires flexibility in its application. Beatty v. Guggenheim Exploration Co., 225 NY 380, 386 (1919). Here, however, the allegations of the second cause of action are deficient in that Plaintiff has failed to allege a specific transfer in reliance on a promise.
D. Third Cause of Action
The third cause of action for a permanent injunction to prevent Defendants from violating the various contractual agreements set forth in the complaint, and from diverting partnership funds to their own use, is deficient in that it fails to allege irreparable harm and the absence of an adequate legal remedy. McNeary v. Niagra Mohawk Power Corporation, 286 AD2d 522, 525 (3rd Dept. 2001). The allegations of the complaint, if proved, will result in the legal remedy of money damages. McDermott v. City of Albany, 309 AD2d 1004, 1005 (3rd Dept. 2003), lv. app. den. 1 NY3d 509 (2004). The third cause of action is, in effect, merely incidental to and in aid of the monetary relief Plaintiff seeks. As such, the cause of action is deficient on its face and must be dismissed.
E. Fourth Cause of Action
The appointment of a receiver is, like an injunction, an extraordinary remedy, and ought never to be made except in cases of necessity, and upon a clear showing, not here present, that an emergency exists in order to protect Plaintiff's interest. Meineke Discount Muffler Shops, Inc. v. Noto, 603 F. Supp. 443, 444-445 (E.D.NY 1985). The fourth cause of action must, therefore, be dismissed.
F. Fifth and Sixth Causes of Action
The fifth and sixth causes of action sufficiently allege the elements of a claim for breach of the Ashley Consulting Agreement and the Scanning Agreement of Limited Partnership. Therefore, they should not be dismissed. The elements of a breach of contract are: the existence of a contract; plaintiff's performance under the contract; defendants' breach of that contract; and resulting damages. Furia v. Furia, 116 AD2d 694 (2nd Dept. 1986). See also, Ross v. FSG PrivatAir Inc., 2004 WL 1837366 at *3 (S.D.NY 2004). The complaint adequately alleges all of these elements.
G. Seventh and Eighth Causes of Action
In the seventh cause of action, Plaintiff alleges that Defendants intentionally interfered with it's rights under its Consulting Agreement with Islandia MRI by soliciting outside radiologists and introducing them to Islandia MRI thereby causing the limited partnership to breach its obligations to Ashley under the Consulting Agreement by entering into contracts (Excess Capacity License Agreements) with radiologists other than those employed by MRI Associates. Even accepting the facts alleged in the complaint as true, the seventh and eighth causes of action fail to adequately plead causes of action to recover damages for tortious interference with the Ashley Consulting Agreement and the Scanning Agreement of Limited Partnership respectively. A tortious interference with contract claim requires the existence of a valid contract between the Plaintiff and a third party; Defendant's knowledge of the contract; Defendant's intentional procurement of the third party's breach of that contract without justification; and damages resulting therefrom. Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413 (1996). Of these elements, the element of intentional procurement of the third party's breach requires a showing that, but for the Defendant's acts, the agreement would not have been breached. Lana Samer, Inc. v. Goldfine, 7 AD3d 300 (1st Dept. 2004). The complaint contains no allegations that Defendants deliberately sought to procure breaches by Islandia MRI or Scanning of their respective contracts.
The eighth cause of action for tortious interference with the Scanning Agreement of Limited Partnership repeats the allegations of the seventh cause of action with the only difference being a change in the contract being interfered with from the Consulting Agreement to the Scanning Agreement of Limited Partnership between Islandia MRI Management Corp. as general partner, and Plaintiff and Techmed LI Corporation. Since the breach of the Scanning Agreement of Limited Partnership consisted of the alleged failure by Scanning to make distributions to Ashley not the existence of the Express Capacity Agreements, Defendants' alleged facilitation/solicitation of outside radiologists does not amount to tortious interference Agreement.
H. Ninth Cause of Action
In the ninth cause of action, Plaintiff alleges that Management, a general partner of Scanning, which owed it a fiduciary duty as a limited partner, intentionally diverted funds from Islandia MRI for the express benefit of Defendants thereby reducing the contractually required distribution to Scanning and, in turn, to the limited partners of Scanning, including Ashley. It is well settled that a cause of action to recover damages for breach of a fiduciary relationship may be found to exist where one party reposes confidence in another and reasonably relies on the other's superior expertise or knowledge. WIT Holding Corp. v. Klein, 282 AD2d 527, 529 (2nd Dept. 2001). Those in control of a business must deal fairly with the interests of the other investors regardless of whether the business is in corporate or partnership form. Lichtyger v. Franchard Corp., 18 NY2d 528, 536 (1966). A partner has a fiduciary obligation to the other partners in a partnership and, as a fiduciary, must "single-mindedly pursue the interests of those to whom a duty of loyalty is owed. Birnbaum v. Birnbaum, 73 NY2d 461, 466, rearg. den., 74 NY2d 843 (1989). Generally, a managing or general partner of a limited partnership is bound in a fiduciary relationship with the limited partners. Friedman v. Dalmazio, 228 AD2d 549, 550 (2nd Dept.), lv. app. den., 88 NY2d 815 (1996). Under these principles, the ninth cause of action is sufficient to withstand Defendants' dismissal motion.
Given that a six year statute of limitations period is applicable to a breach of fiduciary claim ( Posner v. Posner, 280 AD2d 318, 319 [1st Dept. 2001]), Plaintiff may recover only for those breaches which occurred within said limitations period. Even if some of the purported acts of wrongdoing occurred prior to the cut off date, the breach of contract and breach of fiduciary duty claims cannot be dismissed because allegations of a continuing breach cause a new claim to accrue each time the offending party fails to turn over monies rightfully due and owing a Plaintiff. Butler v. Gibbons, 173 AD2d 352, 353 (1st Dept. 1991). Plaintiff has sufficiently pleaded a continuing wrong.
I. Tenth, Eleventh and Twelfth Causes of Action
As a limited partner of Scanning, Plaintiff's derivative claim (eleventh cause of action) on behalf of that limited partnership to recover damages arising from rights belonging to it ( Sterling v. Minskoff, 226 AD2d 125 [1st Dept. 1996]), as well as in his individual capacity to recover his own damages ( Benedict v. Whitman Breed Abbott Morgan, 282 AD2d 416, 418 [2nd Dept. 2001]), is sufficient and will be sustained. Since, however, Ashley is not a partner in Islandia MRI, it has no standing to maintain the tenth cause of action for breach of fiduciary duty on behalf of Islandia MRI.
It is well settled that an action for conversion cannot be validly maintained where damages are sought merely for breach of contract. Yeterian v. Heather Mills N.V., Inc., 183 AD2d 493, 494 (1st Dept. 1992). Where money is the subject of a conversion action, the Plaintiff must seek recovery from a specifically identifiable fund ( Fiorenti v. Central Emergency Physicians, PLLC, 305 A.D. 453 [2nd Dept. 2003]; and Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 AD2d 883 [1st Dept. 1982]), and allege legal ownership of it or an immediate superior right of possession. AMF Inc. v. Algo Distributors, Ltd., 48 AD2d 352, 356 (2nd Dept. 1975). Absent such allegations, the mere failure to pay proper consulting fees does not give rise to a conversion claim. Even if the elements of conversion are technically pled, the claim should be dismissed where, as here, it arises from the same facts underlying an existing cause of action for breach of contract. The twelfth cause of action must, therefore, be dismissed.
Accordingly, it is,
ORDERED, that Defendants' motion to dismiss the complaint is granted to the extent that the second, third, fourth, seventh, eighth, tenth and twelfth causes of action which are hereby dismissed and denied with regard to the remaining causes of action; and it is further,
ORDERED, that counsel for the parties are directed to appear for a status conference on January 30, 2006 at 9:30 a.m.
This constitutes the decision and Order of the Court.