Opinion
1:18-cv-01005 (AT) (SDA)
05-25-2022
Indira Kairam, M.D., Plaintiff, v. West Side GI, LLC, Defendant.
HONORABLE ANALISA TORRES, UNITED STATES DISTRICT JUDGE.
REPORT AND RECOMMENDATION
STEWART D. AARON United States Magistrate Judge.
Plaintiff Indira Kairam, M.D. (“Dr. Kairam” or “Plaintiff”) brings her consolidated action against defendants West Side GI, LLC (“WSGI”), Peter Distler, M.D. (“Dr. Distler”) and Ricardo Pou, M.D. (“Dr. Pou”) (collectively, “Defendants”). Presently before the Court is Defendants' partial motion to dismiss the Amended Consolidated Complaint (“ACC”). (Defs.' 12/13/21 Not. of Mot., ECF No. 195.) For the reasons set forth below, I respectfully recommend that Defendants' motion be GRANTED IN PART and DENIED IN PART.
By Stipulation and Order, entered July 7, 2021, this action was consolidated with 19-CV-00953 and 20-CV-09141. (See 7/7/21 Stip. & Order, ECF No. 160.)
Defendants' notice of motion does not delineate which of the 33 Counts contained in the ACC Defendants are seeking to dismiss. This report and recommendation addresses the 10 Counts discussed in Defendants' memorandum of law. (See Defs.' Mem., ECF No. 196.) Defendants are not moving to dismiss the other 23 Counts.
For purposes of this motion to dismiss, the Court assumes that the well-pleaded allegations of the ACC are true. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (when “well-pleaded factual allegations” are present, “a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief”). The Court also considers the Membership Subscription Agreement (“MSA”) (ECF No. 189-1), WSGI Operating Agreement (ECF No. 189-2) and Gould Practice Operating Agreement (“GPOA”) (ECF No. 189-3), which were attached as exhibits to the ACC. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (court may consider “any written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in [the complaint] by reference” (citation omitted)).
WSGI is a New York limited liability company which owns and operates an outpatient ambulatory surgery center for endoscopy procedures located in Manhattan. (ACC, ECF No. 187, ¶¶ 2, 12.) Dr. Kairam, Dr. Distler and Dr. Pou are members of WSGI. (ACC ¶ 13.) Dr. Distler and Dr. Pou also are Board Members of WSGI's Board of Managers. (Id.)
Prior to becoming a member of WSGI, Dr. Kairam performed procedures in her own Office Based Surgery (“OBS”) practice. (ACC ¶¶ 15, 65.) At some point, Dr. Distler approached Dr. Kairam about joining WSGI. (ACC ¶ 16.) Between 2012 and the autumn of 2014, Dr. Kairam engaged in negotiations with Dr. Distler and Jordan Fowler, on behalf of WSGI, regarding the terms of a membership agreement. (ACC ¶¶ 15, 21.) At the time of these negotiations, Mr. Fowler was the Chief Executive Officer of Frontier Healthcare Holdings, LLC (“Frontier”), which was the company that provided billing services for anesthesia for Dr. Kairam's OBS. (ACC ¶ 19.) Mr. Fowler also was a member of WSGI, although Dr. Kairam did not know that at the time. (ACC ¶ 22.) During the negotiations, Dr. Kairam told Dr. Distler and Mr. Fowler that she wanted to purchase at least a five to six percent interest in WSGI, but they represented that WSGI would only sell her units in proportion to her caseload and insurance mix, which Mr. Fowler represented was two to three percent. (ACC ¶¶ 22, 24.)
In negotiating the MSA, Dr. Distler and Mr. Fowler also represented that the valuation used to price Dr. Kairam's shares was supported by WSGI's financials, but never provided Dr. Kairam with an independent valuation. (ACC ¶¶ 30, 32, 33, 40.) Dr. Kairam alleges that WSGI actually relied upon a higher valuation based on a cash-flow from referrals by its then-member doctors, even though WSGI knew that such methodology voided the Ambulatory Surgery Center (“ASC”) safe harbor provision of the Anti-Kickback Statute (“AKS”). (ACC ¶¶ 32, 33, 37.) Dr. Kairam wanted to purchase additional units, but Dr. Distler and Mr. Fowler represented that units she was offered “were related to the proportion of cases she was performing and that WSGI would only sell her units in proportion to her work.” (ACC ¶¶ 47, 54.)
The AKS, 42 U.S.C. § 1320a-7b(b), includes a “safe harbor” exception for any payment practice authorized by the Secretary of Health and Human Services (“HHS”). See DeBartolo v. Healthsouth Corp., 569 F.3d 736, 738 (7th Cir. 2009). “In 1999 the Secretary of HHS used that safe-harbor authority to permit some payments from ambulatory surgical centers to qualified physician-investors.” Id. (citation omitted). “Ambulatory surgical centers are non-hospital facilities equipped with operating and recovery rooms where physicians perform outpatient surgeries and other procedures.” Id. (citation omitted).
Dr. Kairam began performing medical procedures at WSGI in September 2014. (ACC ¶¶ 28, 67.) For approximately four to six months, Dr. Kairam was in a “transition period,” pending approval by the New York State Department of Health for her to join WSGI. (ACC ¶ 66.) Although she could have continued to run her OBS, Defendants induced her to begin performing her procedures at WSGI by representing that she would get credit for the procedures and would be compensated so there would be no decrease in her income. (ACC ¶ 67.)
On October 30, 2014, Dr. Kairam entered into a Membership Subscription Agreement with WSGI, whereby she purchased a 2.65% membership interest in WSGI for $528,121.15. (ACC ¶ 14; see also MSA at PDF p. 13) Dr. Kairam became a member of WSGI in “Spring 2015.” (ACC ¶ 70.)
In Autumn of 2016, WSGI obtained an independent valuation of its business in connection with an acquisition of the private practice of another doctor, Dr. Gould (the “Gould Practice”). (ACC ¶ 61.) Each unit was valued at approximately $100,000. (Id.) Dr. Kairam discussed this valuation with WSGI's Board Members, including Dr. Distler and Dr. Pou, and the Board Members agreed that Dr. Kairam had been shorted on her interest and her units should be increased to reflect a purchase price of $100.000 per unit. (ACC ¶ 62.) However, Dr. Kairam alleges that “the Board never intended to increase [her] units when it made the agreement.” (Id.) Dr. Kairam further alleges that Dr. Distler agreed that her percent interest was not in proportion to her cases and that she should be compensated with additional units. (ACC ¶ 63.) Dr. Distler repeatedly represented to Dr. Kairam that units from members who were leaving WSGI would be reallocated to her, even though he never intended to allocate units to her. (Id.) Dr. Kairam also alleges that, through discussions in 2016 with Dr. Pou, WSGI agreed to compensate her $200,000 for income she lost from performing procedures at WSGI during the transition period, but WSGI never paid her the $200,000. (ACC ¶ 72.)
As a result of WSGI's failure to resolve these issues, Dr. Kairam entered negotiations with another endoscopy center and informed WSGI that she intended to leave. (ACC ¶ 74.) Dr. Kairam alleges that Dr. Distler and Dr. Pou induced her to stay by promising to resolve the outstanding issues and offering her part-time employment with WSGI to “perform administrative duties,” for which she would be compensated at the annual rate of $100,000 for a term of two years. (ACC ¶¶ 74, 81.)
As part of her administrative duties, Dr. Kairam agreed to chair WSGI's Billing Committee and undertake a review of WSGI's billing practices to increase efficiency and revenue. (ACC ¶ 81.) Over the course of her career, Dr. Kairam had developed expertise in the optimization of medical billing, referred to in the industry as revenue cycle management (“RCM”), including claims submission, accounts receivable management, denial analysis and re-submission. (ACC ¶ 75.) Using her expertise, Dr. Kairam developed “proprietary systems, methods, processes and practices” that provide a commercial advantage in medical billing, including a billing template. (ACC ¶¶ 75, 78.) Dr. Kairam disclosed this information to members of the Billing Committee as part of her work on the Billing Committee. (ACC ¶ 84.) However, WSGI never paid her for her work. (ACC ¶ 97.)
Also in 2016, WSGI acquired the Gould Practice. (ACC ¶ 105.) Dr. Kairam alleges that the Board Members of WSGI also are the Board for the Gould Practice, and that Dr. Distler and Dr. Pou are the Member Managers of the Gould Practice. (ACC ¶¶ 105, 135.) Dr. Kairam alleges that Dr. Distler and Dr. Pou did not run the Gould Practice in accordance with the GPOA. (ACC ¶ 136.) Among other things, Dr. Kairam alleges that the Gould Practice failed to pay creditors including Dr. Rieber, who worked at the Gould Practice. (ACC ¶ 137.) Dr. Kairam alleges that, when Dr. Rieber wanted his payments, Dr. Distler and Dr. Pou induced Dr. Rieber to sue individual members of the Gould Practice, including her, for money he was owed. (Id.)
At some point, WSGI charged Dr. Kairam for a retirement plan and then failed to enroll her in the plan. (ACC ¶ 126.) Instead, WSGI used the premiums for other doctors. (Id.) In 2018 and 2019, WSGI deducted Dr. Kairam's retirement contribution from her pay but failed to timely make the contribution to the plan, causing her to miss out on the earnings in the account for portions of 2018 and 2019. (ACC ¶ 127.)
PROCEDURAL HISTORY
Following consolidation (see footnote 1, supra), on November 19, 2021, Plaintiff filed the ACC. (See ACC.) Defendants filed the partial motion to dismiss that is now before the Court on December 13, 2021. (See Defs.' 12/13/21 Not. of Mot.) Plaintiff filed her opposition on January 18, 2022 (Pl.'s Opp. Mem., ECF No. 199) and Defendants filed their reply on February 8, 2022. (Reply Mem., ECF No. 200.)
The prior procedural history of these actions is set forth in earlier decisions of this Court and the Second Circuit. See Kairam v. W. Side GI, LLC, No. 18-CV-01005 (AT) (SDA), 2018 WL 6717280 (S.D.N.Y. Nov. 9, 2018), report and recommendation adopted, 2019 WL 396573, aff'd in part, vacated in part, remanded, 793 Fed.Appx. 23 (2d Cir. 2019); Kairam v. W. Side GI, LLC, No. 18-CV-01005 (AT) (SDA), 2020 WL 9256467, at *2 (S.D.N.Y. Nov. 3, 2020), report and recommendation adopted in part, rejected in part, 2021 WL 942735 (S.D.N.Y. Mar. 12, 2021).
LEGAL STANDARDS
To survive a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6), a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. The Court “must accept as true all of the factual allegations contained in the complaint[,]” but “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citation omitted). Further, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id.; see also Rothstein v. UBS AG, 708 F.3d 82, 94 (2d Cir. 2013) (“we are not required to credit conclusory allegations or legal conclusions couched as factual allegations”) (citing Twombly, 550 U.S. at 555, 557).
DISCUSSION
Defendants argue that Plaintiff's claims for tortious interference, breach of fiduciary duty, fraud, negligent misrepresentation and breach of contract should be dismissed for failure to state a claim and that certain of Plaintiff's claims against Dr. Distler and Dr. Pou, including negligent misrepresentation and breach of contract, are barred under the terms of the WSGI Operating Agreement. (See Defs.' Mem. at 6-30.) The Court considers Defendants' arguments below.
The Court does not consider Defendants' arguments to dismiss additional claims, which arguments were raised only in a footnote in the conclusion. See Sec. & Exch. Comm'n v. Allaire, No. 03-CV-04087 (DLC), 2019 WL 6114484, at *3 (S.D.N.Y. Nov. 18, 2019) (“An argument mentioned only in a footnote is not adequately raised and need not be considered.”) (citing Niagra Mohawk Power Corp. v. Hudson RiverBlack River Regulating Dist., 673 F.3d 84, 107 (2d Cir. 2012)), aff'd sub nom. Sec. & Exch. Comm'n v. Romeril, 15 F.4th 166 (2d Cir. 2021).
I. Tortious Interference Claims (Counts 11, 28 and 29)
Plaintiff asserts claims for tortious interference with business relations against WSGI, Dr. Distler and Dr. Pou and claims for tortious interference with contract against Dr. Distler and Dr. Pou only. (ACC ¶¶ 176-78, 230-35.)
The Court previously dismissed the same claim brought by Plaintiff against WSGI because she failed to identify any specific contracts and she failed to adequately allege breach. See Kairam, 2020 WL 9256467, at *15. The ACC does not include a tortious interference of contract claim against WSGI.
A. Tortious Interference With Contract Against Dr. Distler And Dr. Pou (Count 29)
“Under New York law, the elements of tortious interference with contract are (1) ‘the existence of a valid contract between the plaintiff and a third party;' (2) the ‘defendant's knowledge of the contract;' (3) the ‘defendant's intentional procurement of the third-party's breach of the contract without justification;' (4) ‘actual breach of the contract;' and (5) ‘damages resulting therefrom.'” Trahan v. Lazar, 457 F.Supp.3d 323, 359 (S.D.N.Y. 2020) (quoting Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006)).
Defendants argue that Plaintiff's tortious interference with contract claims against Dr. Distler and Dr. Pou should be dismissed because she fails to identify any specific, valid contracts between herself and third parties with which Dr. Pou or Dr. Distler allegedly interfered. (Defs.' Mem. at 8-9.) Further, to the extent Plaintiff's tortious interference claims are based on the GPOA, Defendants argue that, because Dr. Distler and Dr. Pou are parties to the GPOA, they cannot be liable for tortious interference with that contract. (See id. at 2; Reply Mem. at 8-9.)
Plaintiff alleges that she “had valid contracts with the Gould Practice, other doctors and WSGI which entitled her to payments and other benefits” and that Dr. Pou and Dr. Distler “induced them to breach their obligations to Dr. Kairam, including inducing Dr. Rieber to sue her.” (ACC ¶¶ 234-35.) In opposing Defendants' motion, Plaintiff points to the GPOA and the alleged agreement she had with WSGI for her work on the Billing Committee as the relevant contracts. (See Pl.'s Opp. Mem. at 17-18.)
With respect to contracts with other doctors, Plaintiff does not identify any specific contract with “other doctors” on which she purports to base her claims. As the Court previously has explained, in order to state a claim for interference with contract, it is not enough to identify the parties to a contract. The actual contracts which a plaintiff alleges have been interfered with must be pled. See AIM Inf Trading, L.L.C. v. Valcucine S.p.A., No. 02-CV-01363 (PKL), 2003 WL 21203503, at *4 (S.D.N.Y. May 22, 2003) (“the complaint must identify a valid contract between plaintiffs and a third party”). Accordingly, I recommend that her tortious interference with contract claims based on contracts with other doctors be dismissed.
With respect to the GPOA, Plaintiff appears to argue that Dr. Pou and Dr. Distler interfered with the GPOA by inducing Dr. Rieber to sue her for money the Gould Practice owed him, despite knowing that he could not sue for damages because the GPOA contained an arbitration clause. (See Pl.'s Opp. Mem. at 17-18 (citing ACC ¶ 137-38).) However, a plaintiff asserting a tortious interference claim “must also show that the defendant was not a party to the contract with which he allegedly interfered.” TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 88 (2d Cir. 2005) (citing Finley v. Giacobbe, 79 F.3d 1285, 1295 (2d Cir. 1996)). Dr. Distler and Dr. Pou are parties to the GPOA (see GPOA at 45) and, thus, could not have tortiously interfered with their own contract. See Campeggi v. Arche Inc., No. 15-CV-01097 (PGG), 2016 WL 4939539, at *10 (S.D.N.Y. Sept. 14, 2016) (“Defendants cannot, as a matter of law, have tortiously interfered with their own contract.”).
Plaintiff attempts to skirt this requirement by arguing that Dr. Distler and Dr. Pou were not acting within the scope of their employment. (See Pl.'s Opp. Mem. at 18.) However, that distinction is relevant when the alleged interferer is an officer/employee of the signatory to a contract and not a signatory himself. See, e.g., Hoag v. Chancellor, Inc., 246 A.D.2d 224, 228 (1st Dep't 1998) (“To establish a corporate officer's liability for inducing a breach of a contract between the corporation and a third party, the complaint “‘must allege that the officers' . . . ‘acts were taken outside the scope of their employment or that they personally profited from their acts.'”); cf. Murtha v. Yonkers Child Care Ass'n, Inc., 45 N.Y.2d 913, 915 (N.Y. 1978) (“[A] corporate officer who is charged with inducing the breach of a contract between the corporation and a third party is immune from liability if it appears that he is acting in good faith as an officer [and did not commit] independent torts or predatory acts directed at another.”). Here, Dr. Distler and Dr. Pou themselves are signatories to the GPOA. Accordingly, I recommend that Plaintiff's claim for tortious interference of contract based on the GPOA be dismissed. Accord Winicki v. City of Olean, 203 A.D.2d 893, 894 (1st Dep't 1994) (“Plaintiffs cannot state a claim for tortious interference against one of the contracting parties.”).
With respect to the alleged contract with WSGI for her work on the Billing Committee, Plaintiff argues that that Dr. Distler tortiously stopped WSGI from paying Dr. Kairam for her work on the Billing Committee after the Board had approved the payment. (Pl.'s Opp. Mem. at 18.) Defendants contend that the alleged oral agreement with WSGI is not enforceable under the statute of frauds and, in any event, Plaintiff's allegation that Dr. Distler “tortiously stopped” payment is too vague to state a claim. (Defs.' Reply Mem. at 8 n.4.) However, Plaintiff alleges that the Board approved her position and her salary and “recorded in a writing the terms of the employment contract with Dr. Kairam.” (ACC ¶ 97.) As for interference, Plaintiff alleges that Salima Abdin, who worked at WSGI, already had written a check to pay Dr. Kairam her first payment, but Dr. Distler prevented Ms. Abdin from paying Dr. Kairam. (ACC ¶ 98.) At the motion to dismiss stage, I find that these allegations are sufficient to state a plausible claim for relief.
Accordingly, I recommend that Defendants' motion to dismiss Plaintiff's tortious interference with contract claim against Dr. Distler and Dr. Pou (Count 29) be granted, except with respect to Dr. Distler's alleged interference with a contract between Plaintiff and WSGI for her work on the Billing Committee.
B. Tortious Interference With Business Relations Against WSGI, Dr. Distler And Dr. Pou (Counts 11 and 28)
“To state a claim for tortious interference with business relations under New York law, a plaintiff must show that ‘(1) the plaintiff had business relations with a third party; (2) the defendant interfered with those business relations; (3) the defendant acted for a wrongful purpose or used dishonest, unfair, or improper means; and (4) the defendant's acts injured the relationship.'” Convergen Energy LLC v. Brooks, No. 20-CV-03746 (LJL), 2020 WL 5549039, at *22 (S.D.N.Y. Sept. 16, 2020) (quoting 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 261 (2d Cir. 2015)). “[C]laims for tortious interference with business relations face a higher burden than claims of interference with an existing contract, as a plaintiff must show more culpable conduct on the part of the defendant.'” Guzik v. Albright, No. 16-CV-02257 (JPO), 2018 WL 4386084, at *5 (S.D.N.Y. Sept. 14, 2018) (internal citation, quotation marks and alterations omitted).
Plaintiff alleges that WSGI “interfered with the established contracts and relations [she] had with patients, insurers and the providers, such as the anesthesia providers to her OBS.” (ACC ¶ 177.) Plaintiff further asserts that Dr. Distler and Dr. Pou interfered with “the established contracts and relations Dr. Kairam had with patients, vendors, insurers, WSGI and the Gould Practice.” (ACC ¶ 231.) As a result, Plaintiff alleges that insurers and other payors paid WSGI, and not Dr. Kairam's practice, the facility fees for procedures. (ACC ¶¶ 178, 232.)
The Court previously dismissed Plaintiff's similar claim against WSGI because Plaintiff failed to adequately allege “specific, non-generalized interference with particular and ongoing business relationships, or the requisite culpable conduct by WSGI.” Kairam, 2020 WL 9256467, at *15. The Court also found that Plaintiff failed to adequately allege interference because she made the decision to conduct procedures at WSGI's facilities instead of her own office during the transition period. See id. Defendants argue that the ACC fails to remedy these deficiencies. (See Defs.' Mem. at 10.) The Court agrees.
First, Plaintiff's contention that Defendants interfered with the “operations” of her practice plainly are insufficient. See Nourieli v. Lemonis, No. 20-CV-08233 (JPO), 2021 WL 3475624, at *6 (S.D.N.Y. Aug. 6, 2021) (generalized allegations about hypothetical business relations not enough to state claim for tortious interference with business relations). In any event, Plaintiff does not allege harm to any business relationship and, instead argues that she lost facility fees. But, again, that harm resulted from Plaintiff's decision to perform procedures at WSGI during the transition period and, thus, cannot be the basis for a tortious interference claim.
Plaintiff does not allege any other business relationship with which Dr. Distler or Dr. Pou allegedly interfered. With respect to WSGI, Plaintiff also alleges that it interfered with her contractual relationship with Frontier “to wrongfully obtain her confidential financial data” and “used that against her to claim she should have fewer shares in the company.” (Pl.'s Opp. Mem. at 19 (citing ACC ¶¶ 19-22).) Plaintiff further argues that WSGI interfered with the “advisory relationship she had with Frontier, when she took Mr. Fowler's advice to close her OBS and join WSGI, including doing cases for 6 months at WSGI for which she received no facility [fees].” (Id. (citing ACC ¶¶ 15-53, 65-69).) However, these allegations do not describe conduct by WSGI directed to Frontier. See Insight Glob., LLC v. Wenzel, No. 17-CV-08323 (PGG), 2018 WL 11318728, at *3 (S.D.N.Y. Aug. 27, 2018) (tortious interference with business relations claims requires plaintiff to “allege conduct directed at its customers or other business”); see also Carvel Corp. v. Noonan, 3 N.Y.3d 182, 192 (2004) (“[C]onduct constituting tortious interference with business relations is, by definition, conduct directed not at the plaintiff itself, but at the party with which the plaintiff has or seeks to have a relationship.”)). Moreover, although Mr. Fowler had access to Plaintiff's confidential business information through her relationship with Frontier, Plaintiff separately alleges that she gave Mr. Fowler access to her confidential data as part of the negotiations with WSGI and, thus she has not adequately alleged that WSGI interfered with her relationship with Frontier to obtain her data. (ACC ¶ 20.)
In any event, Plaintiff also fails to state a tortious interference claim because she has not alleged that WSGI's alleged acts injured her relationship with Frontier. See Insight Glob., 2018 WL 11318728, at *5 (“Where the underlying business relations remained undisturbed . . . a claim for tortious interference is fatally defective.”) (internal quotation marks and alteration omitted). Rather, as Defendants point out, Plaintiff frames all her alleged harm in terms of the facility fees she lost when she chose to begin doing procedures at WSGI. (Defs.' Reply Mem. at 10 (citing Pl.'s Opp. Mem. at 19).) For these reasons, I recommend that Plaintiff's tortious interference with business claims be dismissed.
II. Breach of Fiduciary Duty Claims Against Dr. Distler And Dr. Pou (Count 23)
Although Count 23 makes allegations against “Defendants,” it is under the section for “Claims Against Defendants Dr. Distler and Dr. Pou.” (See ACC at PDF p. 50.) Moreover, it is clear from the content of the allegations that this Count only is asserted against Dr. Pou and Dr. Distler. For example, the ACC alleges in Count 23 that “Defendants breached their fiduciary duties as members and Managers of WSGI” (ACC ¶ 214), which plainly is referring to Dr. Pou and Dr. Distler.
“To state a breach of fiduciary duty claim under New York law, a plaintiff must plead: (i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” Spinelli v. Nat'l Football League, 903 F.3d 185, 207 (2d Cir. 2018) (internal citation and quotation marks omitted). “A fiduciary relationship exists under New York law when one [person] is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.” Spinelli, 903 F.3d at 207 (citation omitted). “Put differently, a fiduciary relation exists when confidence is reposed on one side and there is a resulting superiority and influence over the other.” Bos. Consulting Grp., Inc. v. NCR Corp., No. 19-CV-10156 (LGS), 2020 WL 5731963, at *3 (S.D.N.Y. Sept. 24, 2020) (quoting Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 561 (2009)). “Such a relationship is fact specific and is grounded in a higher level of trust than is normally present between those involved in an arm's-length business transaction.” Id. (internal citation omitted).
Plaintiff alleges that Dr. Distler and Dr. Pou breached “their fiduciary duties as members and Managers of WSGI to Dr. Kairam by, inter alia, (1) improperly representing the number of units purchased, (2) failing to correct the error by allocating the correct number of units to Dr. Kairam, (3) targeting older doctors, including Dr. Kairam, for either involuntary alienation of a member's LLC interest or voluntary alienation triggering a non-compete, (4) discriminating against Dr. Kairam based on her sex, color and/or national origin, including their refusal to sell Dr. Kairam more shares in WSGI and their refusal to allocate Gould Practice cases to her, (5) willfully failing to pay Dr. Kairam her salary and willfully failing to correct the failure to pay salary after the Board became aware that Dr. Distler had blocked the payment after it had been approved, (6) illegally retaliating against Dr. Kairam for asserting her rights in a lawsuit against WSGI, (7) wasting assets, (8) misappropriating retirement plan premiums, (9) intentionally allocating Dr. Kairam's retirement plan premiums to other members, (10) diverting assets from the Gould Practice, and (11) directing Dr. Rieber to sue Dr. Kairam.” (ACC ¶ 215.)
First, the Court finds that Plaintiff has not alleged the existence of a fiduciary duty with Dr. Distler or Dr. Pou prior to her membership in WSGI and, thus, cannot state a claim for breach of fiduciary duty against them for conduct that occurred prior to her membership, i.e., ground (1) and the part of ground (4) relating to refusing to sell her more shares. The Court also agrees with Defendants that Plaintiff's claims based on “wasting assets” of WSGI (ground 7) and “diverting assets from the Gould Practice” (ground 10) are derivative claims for which Plaintiff has not satisfied the procedural requirements. (See Defs.' Mem. at 15-17.) “Because LLC members owe fiduciary duties to both the entity itself and its members, when an LLC member asserts breach of fiduciary duty, a court must ordinarily address whether the particular duty is owed to the LLC or the individual member and thus whether the LLC or the individual member was harmed.” Rennaker Co. Consulting, Inc. v. TLM Grp., LLC, No. 16-CV-03787 (DAB), 2017 WL 2240235, at *4 n.7 (S.D.N.Y. Mar. 29, 2017); see also Amusement Indus., Inc. v. Stern, No. 07-CV-11586, 2010 WL 2976199, at *6 (S.D.N.Y. July 26, 2010) (noting that a claim is derivative if a plaintiff “cannot demonstrate any harm to himself for his causes of action without first demonstrating an injury to [the company]”). Where, as here, the harm is to the LLC, a plaintiff must plead additional elements, including a demand that the corporation initiate an action or that such a demand would be futile. See Rennaker, 2017 WL 2240235, at *4 n.7 (citing Marx v. Akers, 88 N.Y.2d 189, 193 (1996). Plaintiff has not alleged that she has met these requirements. Accordingly, I recommend her breach of fiduciary duty claims based on waste and diversion of assets be dismissed.
To the extent the parties discuss Dr. Kairam's negotiations with Dr. Fowler on behalf of WSGI, the Court notes that Plaintiff has not asserted a breach of fiduciary duty claim against WSGI. To the extent Plaintiff asserts a separate “duty to disclose” claim, the Court considers that claim as part of her claim for common law fraud. See infra, Discussion Section III.
Plaintiff's claim based on diversion of assets from the Gould Practice also fails since she no longer is a member of the Gould Practice and thus lacks standing to assert a derivative claim. (See Defs.' Mem. at 17.)
However, the Court finds that Plaintiff adequately has alleged breach of fiduciary claims based on the other alleged conduct by Dr. Pou and Dr. Distler. See Rennaker, 2017 WL 2240235, at *4 (“Under New York law, LLC members owe one another . . . various fiduciary duties.”). Although these claims overlap with Plaintiff's contract, discrimination and retaliation claims, Defendants have not established that each of these claims is “premised on the same facts and seeking the identical relief” as her to warrant dismissal at this stage. Cf. Clarendon Nat. Ins. Co. v. Health Plan Administrators, No. 08-CV-06279 (GBD), 2009 WL 3053736, at *3 (S.D.N.Y. Sept. 24, 2009). Moreover, Plaintiff may plead these claims as an alternative ground for relief.
For these reasons, I recommend that Defendants' motion to dismiss be granted as to Plaintiff's breach of fiduciary duty claims against Dr. Pou and Dr. Distler (Count 23) based on grounds (1), (4) (to the extent it relates refusing to sell her more shares), (7) and (10), and denied with respect to the remaining grounds.
III. Fraud Claims Against WSGI, Dr. Distler and Dr. Pou (Counts 8 and 22)
“Under New York law, to state a claim for fraud, a plaintiff must demonstrate (1) a misrepresentation or omission of material fact; (2) which the defendant knew to be false; (3) which the defendant made with the intention of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff.” Pan-Am. Life Ins. Co. v. Antarctica Cap. Mgmt., LLC, No. 20-CV-09236 (ALC), 2022 WL 992840, at *7 (S.D.N.Y. Mar. 31, 2022). “A claim for fraudulent inducement must satisfy the same elements as a claim for common law fraud.” Ithaca Cap. Invs. I S.A. v. Trump Panama Hotel Mgmt. LLC, 450 F.Supp.3d 358, 369 (S.D.N.Y. 2020); see also Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 580 (2d Cir. 2005). “A claim for fraudulent concealment shares these same elements with the additional requirement that a claimant must show that the other party had ‘a duty to disclose the material information.'” Ithaca Cap., 450 F.Supp.3d at 369 (quoting Woods v. Maytag Co., 807 F.Supp.2d 112, 119 (E.D.N.Y. 2011)); see also Pan-Am. Life, 2022 WL 992840, at *7.
Fraud claims are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which “requires that the plaintiff (1) detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent.” Pauwels v. Deloitte LLP, No. 19-CV-02313 (RA), 2020 WL 818742, at *12 (S.D.N.Y. Feb. 19, 2020). “In addition, a plaintiff must also allege facts that give rise to a strong inference of fraudulent intent.” Pan-Am Life, 2022 WL 992840, at *4.
Plaintiff alleges fraud claims under theories of intentional misrepresentation, fraudulent inducement and fraudulent concealment. (ACC ¶¶ 165, 212.) Defendants first argue that Plaintiff cannot state a fraud claim based on failure to disclose the lower valuation because there was no duty to disclose. (Defs.' Mem. at 18-19.) “Under New York law, a duty to disclose material facts arises in one of three ways: (1) where the parties stand in a confidential fiduciary relationship, (2) where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge, or (3) where a party to a business transaction has made a partial or ambiguous statement, on the theory that once a party has undertaken to mention a relevant fact to the other party it cannot give only half of the truth.” Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F.Supp.2d 162, 201 (S.D.N.Y. 2011).
Plaintiff alleges that Defendants knowingly and falsely (1) represented the price to Dr. Kairam for her interest was related to the value of the company, (2) represented the amount of units WSGI would agree to sell to her/shares she purchased was related to her proportion of procedures, (3) represented that the number of units was based on a valuation that was permitted under the ASC Safe Harbor and that the price could not be negotiated, (4) represented that WSGI was in compliance with the ASC Safe Harbor provisions promulgated by HHS when WSGI knew the transaction with Dr. Kairam would void the Safe Harbor, (5) induced Dr. Kairam to perform her procedures at WSGI during the transition period by representing that her compensation would remain the same as if she continued to practice at her own OBS, (6) induced Dr. Kairam to stay at WSGI in 2016 when she had prepared to move to another ASC by promising to resolve her outstanding claims and promising her new employment, (7) agreed to pay $200,000 to resolve the loss of income to Dr. Kairam, (8) failed to negotiate outstanding issues in good faith, (9) charged her premiums for a retirement plan and then intentionally credited the premiums to other doctors, (10) failed to disclose the lower valuation and (11) withheld that using the higher valuation would, or was likely to void the ASC Safe Harbor. (ACC ¶¶ 165, 212.)
In the present case, even if Plaintiff can show a duty to disclose, the Court agrees with Defendants that Plaintiff's fraud claims based on the lower valuation fail because she cannot allege reasonable reliance. (Defs.' Mem. at 20-21.) In the MSA, Plaintiff explicitly disclaimed any reliance on any representations by WSGI or its managers or members regarding the value of the company or its units. (See id. (citing MSA § 5(t).) Plaintiff's other fraud claims based on her purchase of shares in WSGI, their value, or the risks associated with the purchase fail for the same reasons. Although Plaintiff alleges that she did not know Mr. Fowler was a member of WSGI,she also alleges that Mr. Fowler was negotiating on behalf of WSGI. (ACC ¶¶ 21, 30.) Thus, any representations by Mr. Fowler would have been on behalf of WSGI. And even if Plaintiff believed Mr. Fowler owed her a separate duty, that would not give rise to a fraud claim against WSGI. Accordingly, Plaintiff's fraud claims based on her units or their value should be dismissed. See Harsco Corp. v. Segui, 91 F.3d 337, 345 (2d Cir. 1996) (“where a party specifically disclaims reliance upon a particular representation in a contract, that party cannot, in a subsequent action for common law fraud, claim it was fraudulently induced to enter into the contract by the very representation it has disclaimed reliance upon.”).
The Court notes that such a disclaimer “will not be given effect where the facts are peculiarly within the knowledge of the party invoking it.” Banque Arabe et Internationale D'Investissement v. Maryland Nat. Bank, 57 F.3d 146, 155 (2d Cir. 1995) (quoting Stambovsky v. Ackley, 169 A.D.2d 254 (1st Dep't 1991)). However, Plaintiff has not adequately alleged any facts that were within the peculiar knowledge of Defendants. Indeed, in the MSA, Plaintiff agreed that she had access to “such information, documents and records as an investor would customarily require to evaluate the benefits and risks of the proposed investment together with such additional information as is necessary to verify the accuracy of the information supplied.” (MSA § 5(t).) Under New York law, a “party cannot claim reliance on a misrepresentation when he or she could have discovered the truth with due diligence.” Paraco Gas Corp. v. Travelers Cas. & Sur. Co. of Am., 51 F.Supp.3d 379, 393 (S.D.N.Y. 2014).
In a letter to the Court, dated May 23, 2022, Plaintiff appears to contend that Defendants deceived Plaintiff about Mr. Fowler's membership status because they knew that Mr. Fowler ended his relationship with WSGI and knew that shareholder information in the WSGI Operating Agreement was incorrect. (Pl.'s 5/23/2022 Letter, ECF No. 211.) As Defendants point out, the idea that Defendants did not disclose that Mr. Fowler was no longer a member of WSGI runs counter to Plaintiff's allegations in the ACC that Plaintiff was not aware that Mr. Fowler was a member. (See Defs.' 5/25/2022 Letter, ECF No. 213, at 2.) For purposes of this motion, the Court only is considering the allegations in the ACC. Moreover, the Court finds that Mr. Fowler's membership status in WSGI is irrelevant to the disposition of Plaintiff's claims.
To the extent Plaintiff argues in her opposition memorandum that she believed Defendants and Mr. Fowler “deliberately concealed that they would work together to deceive Dr. Kairam into believing that Mr. Fowler was negotiating with WSGI on her behalf while, instead he was working for them” (Pl.'s Opp. Mem. at 1), that assertion is contradicted by numerous allegations in the ACC that make clear that Mr. Fowler was negotiating on behalf of WSGI. (See, e.g., ACC ¶¶ 15, 22, 24, 30, 32, 40, 42, 54, 67.) Indeed, many of Plaintiff's claims against WSGI are based on alleged representations by Mr. Fowler.
In her opposition memorandum, Plaintiff, for the first time, argues that WSGI engaged in securities fraud. (Pl.'s Opp. Mem. at 12-14.) The ACC does not contain a claim for securities fraud. To the extent Plaintiff attempts to use these allegations to void her own representations of non-reliance contained in the MSA, the Court agrees with Defendants (see Reply Mem. at 3-4) that she has failed to put forth an adequate legal basis for such an argument.
Nor can Plaintiff state a fraud claim based upon purported representations that WSGI believed it was in compliance with the ASC Safe Harbor to the AKS since such statements do not constitute statements of fact. Nor can she allege reliance based on any representation regarding compliance with the AKS, where the MSA warned investors like Plaintiff that it might be found not to be in compliance. (See MSA Ex. A § 24.)
Further, Plaintiff's claims based on purported contracts-including her claims that Defendants induced her to perform her procedures at WSGI during the transition period; induced her to stay at WSGI in 2016 by promising to resolve her outstanding claims and promising her new employment, agreeing to pay $200,000 to resolve her loss of income and failing to credit her retirement plan premiums-fail for the same reason. See Lenard v. Design Studio, 889 F.Supp.2d 518, 529 (S.D.N.Y. 2012) (internal quotations omitted) (“[A] fraud claim cannot exist when [it] arises out of the same facts as a breach of contract claim with the sole additional allegation that the defendant never intended to fulfill its express contractual obligations.”).
Moreover, Plaintiff's allegations that Defendants never intended to perform under these alleged contracts, along with her claims that Defendants failed to negotiate in good faith and credited her retirement premiums to other doctors, fail to meet the scienter requirement under Rule 9(b) because she has not alleged facts to support a strong inference of an intent to defraud. See, e.g., Grewal v. Cuneo, No. 13-CV-06836 RA, 2015 WL 4103660, at *15 (S.D.N.Y. July 7, 2015), aff'd sub nom. Grewal v. Cuneo Gilbert & LaDuca LLP, 803 Fed.Appx. 457 (2d Cir. 2020) (plaintiff's allegations did not sufficiently bolster otherwise conclusory allegations that defendants never intended to provide her with compensation to which she was entitled and, thus, did not satisfy Rule 9(b)'s strict pleadings standards). For these reasons, I recommend that Plaintiff's fraud claims be dismissed.
IV. Negligent Misrepresentation Against WSGI, Dr. Distler And Dr. Pou (Counts 9 and 30)
“Under New York law, ‘a claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information.'” McCaffrey v. Gatekeeper USA, Inc. et al., No. 14-CV-00493 (VSB), 2022 WL 902423, at *6 (S.D.N.Y. Mar. 28, 2022) (quoting Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 180 (2011)); see also Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 788 (2d Cir. 2003).
Duty may be demonstrated when there is “actual privity of contract between the parties or a relationship so close as to approach that of privity.” Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 114 (2d Cir. 2012) (internal quotation marks omitted); see also Sykes v. RFD Third Ave. 1 Assocs., LLC, 15 N.Y.3d 370, 372 (2010) (“It has long been the law in New York that a plaintiff in an action for negligent misrepresentation must show either privity of contract between the plaintiff and the defendant or a relationship so close as to approach that of privity.”) (internal quotation marks omitted). “Under New York law, a statement made in the context of an arms-length commercial transaction, without more, cannot give rise to such a duty.” EED Holdings v. Palmer Johnson Acquisition Corp., 387 F.Supp.2d 265, 281 (S.D.N.Y. 2004) (citing Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996)). “Rather, an arms-length commercial transaction can only give rise to a negligent misrepresentation claim if a special relationship exists between the parties such that plaintiff's reliance on defendant's representation was justifiable.” Id.; see also Landesbank Baden-Wurttemberg v. Goldman, Sachs & Co., 478 Fed.Appx. 679, 682 (2d Cir. 2012) (“The law of negligent misrepresentation requires a closer degree of trust between the parties than that of the ordinary buyer and seller in order to find reliance on such statements justified.”) (alteration omitted).
In determining whether a complaint adequately pleads justifiable reliance, courts “consider whether the person making the representation held or appeared to hold unique or special expertise; whether a special relationship of trust or confidence existed between the parties; and whether the speaker was aware of the use to which the information would be put and supplied it for that purpose.” Landesbank Baden-Wurttemberg, 478 Fed.Appx. at 682 (quoting Kimmell, 89 N.Y.2d at 264). “A sparsely pled special relationship of trust or confidence is not fatal to a claim for negligent misrepresentation where the complaint emphatically alleges the other two factors enunciated in Kimmell.” Id. (alteration omitted).
A. WSGI
Plaintiff alleges that WSGI and its representatives made negligent misrepresentations to Dr. Kairam when, inter alia, they falsely (1) represented the price to Dr. Kairam for her interest was related to the value of the company, (2) represented the amount of units WSGI would agree to sell to her/shares she purchased was related to her proportion of procedures, (3) represented that the number of units was based on a valuation that was permitted under the ASC Safe Harbor and that the price could not be negotiated, (4) represented that WSGI was in compliance with the ASC Safe Harbor provisions promulgated by HHS when WSGI knew the transaction with Dr. Kairam would void the Safe Harbor, (5) induced Dr. Kairam to perform her procedures at WSGI during the transition period by representing that her compensation would remain the same as if she continued to practice at her own OBS, (6) induced Dr. Kairam to stay at WSGI in 2016 when she had prepared to move to another ASC by promising to resolve her outstanding claims and promising her new employment, (7) agreed to pay $200,000 to resolve the loss of income to Dr. Kairam, (8) represented it would negotiate outstanding issues in good faith, and (9) misrepresented how the premiums for her retirement would be handled. (ACC ¶ 168.)
First, for Plaintiff's claims that occurred before she entered into the MSA, the Court finds that Plaintiff has not plausibly alleged the requisite special relationship with WSGI given that she had no prior relationship with WSGI. See JTRE Manhattan Ave. LLC v. Cap. One, N.A., No. 21-CV-5714 (VEC), 2022 WL 392914, at *4 (S.D.N.Y. Feb. 9, 2022) (“Because the parties did not have a relationship prior to this arm's-length transaction, there was no special relationship of trust or confidence.”). Although Plaintiff alleges that she had known Dr. Distler and Mr. Fowler for many years and had a “long history of trust and professional respect” with each of them (ACC ¶¶ 15, 18), these allegations are insufficient to establish a special relationship with WSGI. See, e.g., Jin Chai-Chen v. Metro. Life Ins. Co., 190 A.D.3d 635, 141 (1st Dep't 2021) (plaintiff's preexisting personal relationship with agent of insurer did not create a heightened or fiduciary duty); see also Of A Feather, LLC v. Allegro Credit Servs., LLC, No. 19-CV-09351 (DLC), 2020 WL 3972752, at *5 (S.D.N.Y. July 14, 2020) (preexisting friendship between agent of lender and agent of borrower insufficient to adequately allege special relationship).
Plaintiff's reliance on Kortright Cap. Partners LP v. Investcorp Inv. Advisers Ltd., 257 F.Supp.3d 348 (S.D.N.Y. 2017), is misplaced. (See Pl.'s Opp. Mem. at 9.) In Kortright, Judge Pauley found that the plaintiff and defendants had a closer degree of trust than that of the ordinary buyer and seller since defendant was plaintiff's self-proclaimed strategic partner and had special privileges, including the ability to veto numerous proposed actions by plaintiff. Id. at 358. Prior to the time that Plaintiff became a member of WSGI, no similar relationship existed here between Plaintiff and WSGI.
In any event, even if Plaintiff adequately alleged a special relationship based on her prior relationships with Dr. Distler and others, these claims also fail because Plaintiff has not adequately alleged reasonable reliance. “As with fraud claims, courts consider the entire context of the transaction, including . . . the sophistication of the parties, and the content of any agreements between them to determine whether reliance was reasonable.” 42-5021stSt. Realty LLC v. First Cent. Sav. Bank, No. 20-CV-05370 (RPK) (RLM), 2022 WL 1004187, at *13 (E.D.N.Y. Apr. 4, 2022) (internal quotation marks omitted). Here, as with Plaintiff's fraud claims, she cannot allege reasonable reliance on representations regarding her units or their value when she explicitly disclaimed such reliance in the MSA. Nor can she allege reliance based on any representation regarding compliance with the AKS, where the MSA warned investors like Plaintiff that it might be found not to be in compliance. (See MSA Ex. A § 24.)
Plaintiff's negligent misrepresentations claims against WSGI based on grounds (5) through (7) fail because they are promises of future conduct and, thus, do not constitute factual misrepresentations. See Hydro Invs., Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20-21 (2d Cir. 2000) (alleged misrepresentations must be factual in nature and not promissory or relating to future events); see also Murray v. Xerox Corp., 811 F.2d 118, 123 (2d Cir. 1987) (“[Plaintiff's] efforts to frame broken promises into misrepresentations of present facts are fruitless.”). Finally, Plaintiff's remaining claims (grounds (8) and (9)) fail because Plaintiff has not alleged any representation that was incorrect. For example, Plaintiff does any allege any false representation made regarding her retirement premiums. She alleges only that WSGI charged her premiums and used them for other doctors. (ACC ¶ 126.) This is insufficient to state a claim for negligent misrepresentation.
B. Dr. Distler and Dr. Pou
Plaintiff further alleges that Dr. Distler and Dr. Pou made negligent misrepresentations to Dr. Kairam by, inter alia, (1) falsely representing the price of the units she purchased, (2) falsely representing the number of units she paid for, (3) falsely representing that Dr. Kairam would not lose income for moving her procedures to WSGI during the transition period, (4) falsely representing that WSGI would compensate her for her losses to prevent her from moving to a different ASC, (5) falsely representing their role in the Gould Practice, and (6) falsely representing her responsibilities to the Gould Practice and WSGI. (ACC ¶ 237.)
The first four grounds fail for similar reasons as her claims against WSGI, namely failure to allege reasonable reliance and/or a factual misrepresentation as opposed to a promise of future conduct. The Court finds that the remaining two grounds fail because Plaintiff has not identified any representations made by Dr. Distler and/or Dr. Pou regarding “their role in the Gould Practice” or “her responsibilities to the Gould Practice and WSGI” upon which these claims are based. Moreover, the Court finds that any claims that arose after Plaintiff became a member of WSGI would be barred under § 5.12(b) of the WSGI Operating Agreement. (See Defs.' Mem. at 1, 6-8; Reply Mem. at 1-2.)
Section 5.12(b) of the WSGI Operating Agreement provides, in relevant part:
Except as otherwise required by law, no Member shall be liable, responsible, or accountable in damages or otherwise to the Company, any other Member or any third party for any and all claims and demands whatsoever incurred in such Member's capacity as a Member.(WSGI Operating Agreement § 5.12(b) at PDF p. 55.)
Plaintiff responds that, because she is suing Dr. Distler and Dr. Pou in their capacity as managers of WSGI, § 5.12 is limited by § 417 of New York's Limited Liability Company (“LLC”) Law and, thus, cannot shield Dr. Distler and Dr. Pou from liability “if a judgment or other final adjudication adverse to such manager establishes that the manager's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law, or that the manager gained personally in fact a financial profit or other advantage to which the manager was not legally entitled.” (See Pl.'s Opp. Mem. at 14-15 (quoting N.Y. LLC Law § 417(a)).) However, Plaintiff's claims for negligent misrepresentation would not result in such a showing and, thus, the Court recommends that those claims which arose during the time Plaintiff was a member be dismissed on this ground as well.
Defendants do not appear to dispute that Dr. Distler or Dr. Pou were acting in their capacity as managers, but assert that § 5.12(b) applies because managers are members. (See Reply Mem. at 1.) Regardless, the WSGI Operating Agreement also contains a similar exculpatory clause for managers. (See WSGI Op. Agmt. §6.9(a).) In any event, the parties agree that any release is limited by NY LLC Law § 417. (See Reply Mem. at 1-2.)
V. Breach Of Contract (Counts 7 and 33)
“To state a claim for breach of contract under New York law, a plaintiff must allege “(i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages.” Of A Feather, 2020 WL 3972752, at *7 (citing Orchard Hill Master Fund Ltd. v. SBA Commc'ns Corp., 830 F.3d 152, 156 (2d Cir. 2016); Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 A.D.3d 804, 806 (2d Dep't 2011)). “A sufficient pleading for breach of contract must, at a minimum, allege the terms of the contract, each element of the alleged breach and the resultant damages in a plain and simple fashion.” Deutsch v. JPMorgan Chase & Co., No. 18-CV-11655 (VSB), 2019 WL 4805689, at *7 (S.D.N.Y. Sept. 30, 2019) (internal quotation marks omitted). “New York courts require plaintiffs to plead the provisions of the contract upon which the claim is based-in other words, a complaint in a breach of contract action must set forth the terms of the agreement upon which liability is predicated.” Id. (internal quotation marks and citations omitted).
Plaintiff alleges that “WSGI and its Board breached contracts with Dr. Kairam by, inter alia, (1) failing to sell Dr. Kairam the promised investment in an ASC in compliance with the ASC Safe Harbor provisions promulgated by HHS, (2) failing to allocate the number of shares to her membership interest which she paid for, (3) overcharging her for her membership interest, (4) failing to pay Dr. Kairam for the procedures she performed during the transition period, (5) failing to pay Dr. Kairam the negotiated amount for her lost income, (6) failing to pay Dr. Kairam her salary and (7) failing to credit her retirement plan premiums to her and instead allocating her premiums to other doctors.” (ACC ¶ 162.) Plaintiff asserts these same claims against Dr. Pou and Dr. Distler, and further alleges that they breached a contract by “failing to pay her for the Gould Practice revenue.” (ACC ¶ 247.)
The Court previously dismissed Plaintiff's breach of contract claims against WSGI based on grounds (1) and (2) because she failed to adequately identify specific provisions of an agreement that were breached and/or how such provisions were breached. See Kairam, 2020 WL 9256467, at *11. The same defect still applies and also applies to Plaintiff's claim that she was overcharged for her membership interest. To the extent Plaintiff purports to rely on language in § 24 of Exhibit A to the MSA as the basis for her claim (see ACC ¶¶ 48-49; Defs.' Mem. at 25-26), as the Court previously explained, that language does not allege any representation or promise by WSGI regarding compliance, see Kairam, 2020 WL 9256467, at *11 n.12, and, thus, she cannot adequately allege breach. Rather, the Court pointed out that the MSA warned investors like Plaintiff that it might be found not to be in compliance. See id. In opposition, Plaintiff attempts to shift her claims based on the MSA from claims for breach of contract to claims for reformation of contract based on unilateral mistake coupled with fraud. (See Pl.'s Opp. Mem. at 19-20.) These allegations, however, do not state a claim for breach of contract, which is the claim Plaintiff asserts in the ACC. Accordingly, I recommend that her breach of contract claims based on grounds (1) through (3), all of which relate to the MSA, be dismissed.
The Court also previously recommended dismissing Plaintiff's breach of contract claims based on grounds (4) through (6). See Kairam, 2020 WL 9256467, at *11. To the extent that these claims were based on an oral contract, the Court found that Plaintiff had not adequately alleged sufficient facts such as the date the contract was made or the material terms of the contract. See id. The Court finds that Plaintiff still has failed to adequately allege breach based on failure to pay her for procedures she performed during the transition period. Plaintiff alleges that “Mr. Fowler and Dr. Distler told her on behalf of the Board that she would be compensated so there would be no decrease in her income.” (ACC ¶ 67.) She further alleges that she sent an email on September 9, 2014 about her understanding and no one told her she was misinformed. (Id.) These allegations still do not identify the material terms of the alleged contract.
With respect to ground (5) and (6), however, the Court finds that Plaintiff has alleged sufficient facts to state a plausible claim for relief against WSGI. First, she alleges that through negotiations with Dr. Pou in 2016, she was to be compensated $200,000 for her lost income. (ACC ¶ 72.) Regarding her claim based on failure to pay her salary, she alleges that in autumn of 2016 Dr. Pou offered her part-time employment with WSGI for $100,000 per year for administrative duties, including work on the Billing Committee. (ACC ¶ 81.) Plaintiff further alleges that the terms were recorded in writing and that she never received her salary. (ACC ¶ 97.) Accepting these facts as true, the Court finds these allegations are sufficient to nudge Plaintiff's claims “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570.
Defendants' motion does not address Plaintiff's claim based on retirement premiums and, thus, the Court does not address that claim as to WSGI.
However, with respect to Dr. Distler and Dr. Pou, the Court recommends that all of Plaintiff's breach of contract claims based on ground (1) through (7) be dismissed because she has failed to allege that they were parties to any of the relevant contracts. Under New York law, non-parties, including corporate officers and LLC members, generally cannot be held liable for a breach of contract. See Rennaker Co. Consulting, Inc. v. TLM Grp., LLC, No. 16-CV-03787 (DAB), 2017 WL 2240235, at *3 (S.D.N.Y. Mar. 29, 2017) (citing cases).
Although there are “limited exceptions to this rule, such as when an individual member acts in a way that would pierce the LLC veil,” Rennaker, 2017 WL 2240235, at *3 (citing Ixe Banco, S.A. v. MBNA Am. Bank, N.A., No. 07-CV-00432 (LAP), 2008 WL 650403, at *12 (S.D.N.Y. Mar. 7, 2008)), Plaintiff has not met the “heavy burden of showing that the corporation was dominated as to the transaction attacked and that such domination was the instrument of fraud or otherwise resulted in wrongful or inequitable consequences.” Ixe Banco, 2008 WL 650403, at *12 (quoting TNS Holdings, Inc. v. MKI Secs. Corp., 92 N.Y.2d 335, 339 (1998)) (internal quotation marks omitted).
Plaintiff also asserts a claim against Dr. Distler and Dr. Pou for failure to pay her for the Gould Practice Revenue. However, Plaintiff has not alleged any facts regarding a contract between her and Dr. Distler or Dr. Pou regarding revenue from the Gould Practice or how such agreement was breached.
To the extent Plaintiff purports to assert a claim based on breach of the GPOA (see Pl.'s Opp. Mem. at 20-21 (citing ACC ¶ 136 (alleging that when members of the Gould Practice did not make capital contributions demanded by Dr. Distler and Dr. Pou, “they made secret, unauthorized loans to the company in violation of § 3.3(b) of the [GPOA] and then purported to charge members for the loans”)), the Court finds that Plaintiff has failed to state a claim against them individually. Section 3.3(b) authorizes certain action by “the Company” and thus could not have been breached by Dr. Distler or Dr. Pou, except in some capacity as an officer of the LLC, in which they case they could not be held individually liable. See Value Time, Inc. v. Windsor Toys, Inc., 709 F.Supp. 436, 438 (S.D.N.Y. 1989) (“Because he was acting in his capacity as an officer, [individual defendant] cannot be held individually liable for the corporation's alleged breach of contract.”). Accordingly, I recommend that this claim be dismissed.
For these reasons, the Court recommends that Defendants' motion to dismiss the breach of contract claims (Counts 7 and 33) be granted, except with respect to Plaintiff's claims against WSGI only based on allegations that WSGI failed to pay Dr. Kairam the negotiated amount for her lost income and failed to pay Dr. Kairam her salary.
VI. Leave to Amend
Plaintiff requests leave to amend, “particularly with respect to any new claim, such as the claims from the action against Dr. Distler and Dr. Pou in [20-CV-09141],” for which she “has not had the benefit of judicial guidance.” (Pl.'s Opp. Mem. at 21.) Plaintiff already has had the benefit of judicial guidance with respect to claims for breach of fiduciary duty, breach of contract, fraud, tortious interference with contract and tortious interference with business relations. See Kairam 2020 WL 9256467, report and recommendation adopted in part, rejected in part, 2021 WL 942735. The only claims addressed herein for which she has not had the benefit of judicial guidance are her negligent misrepresentation claims. However, the Court finds that amendment of these claims would be futile since, for the reasons set forth above, Plaintiff cannot allege reasonable reliance and/or her claims are based on future promises which cannot form the basis of a negligent misrepresentation claim. Moreover, any claims against Dr. Distler and Dr. Pou which arose after she became a member of WSGI are otherwise barred by § 5.12 of the WSGI Operating Agreement. Accordingly, I recommend that leave to amend be denied.
CONCLUSION
For the foregoing reasons, I respectfully recommend that Defendants' partial motion to dismiss be GRANTED IN PART and DENIED IN PART, as follows:
A) Defendants' motion to dismiss Plaintiff's tortious interference with contract claim against Dr. Pou and Dr. Distler (Count 29) should be GRANTED, except with respect to Dr. Distler's alleged interference with a contract between Plaintiff and WSGI for her work on the Billing Committee;
B) Defendants' motion to dismiss Plaintiff's tortious interference with business relations claims against the Defendants (Counts 11 and 28) should be GRANTED;
C) Defendants' motion to dismiss Plaintiff's breach of fiduciary duty claims against Dr. Pou and Dr. Distler (Count 23) should be GRANTED based on grounds (1), (4) (to the extent it relates refusing to sell her more shares), (7) and (10), and DENIED with respect to the remaining grounds;
D) Defendants' motion to dismiss Plaintiff's fraud claims against the Defendants (Counts 8 and 22) should be GRANTED;
E) Defendants' motion to dismiss Plaintiff's negligent misrepresentation claims against the Defendants (Counts 9 and 23) should be GRANTED;
F) Defendants' motion to dismiss Plaintiff's breach of contract claims (Counts 7 and 33) should be GRANTED, except with respect to Plaintiff's claims against WSGI only based on failure to pay Dr. Kairam the negotiated amount for her lost income; failure to pay Dr. Kairam her salary; and failure to credit her retirement plan premiums; and
G) Plaintiff's request for leave to amend should be DENIED.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Torres.
THE FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).