Williams v. Philips Med. Sys. (Cleveland), Inc.

Full title: THOMAS H. WILLIAMS, Plaintiff, v. PHILIPS MEDICAL SYSTEMS (CLEVELAND)…

Court: STATE OF NEW YORK SUPREME COURT COUNTY OF ONONDAGA

Date published: Mar 21, 2016

2016 N.Y. Slip Op. 32753 (N.Y. Sup. Ct. 2016)

Opinion

Index No.: 2014EF5188

03-21-2016

THOMAS H. WILLIAMS, Plaintiff, v. PHILIPS MEDICAL SYSTEMS (CLEVELAND), INC., a Division of PHILIPS ELECTRONICS NORTH AMERICA CORPORATION, PHILIPS MEDICAL SYSTEMS MR, INC., PHILIPS ELECTRONICS NORTH AMERICAN CORPORATION, PHILIPS ELECTRONICS NORTH AMERICA FOUNDATION and C.F. MEDICAL, INC., Defendants.

APPEARANCES: JARROD W. SMITH, ESQ. For Plaintiff WILLIAM J. HARRINGTON, ESQ., OF GOODWIN, PROCTER, LLP For Philips Defendants EDWARD G. MELVIN, ESQ., OF BARCLAY DAMON, LLP For Defendant C.F. Medical, Inc.

HON. DONALD A. GREENWOOD Supreme Court Justice

NYSCEF DOC. NO. 65 At a Motion Term of the Supreme Court of the State of New York, held in and for the County of Onondaga on March 15, 2016. PRESENT: HON. DONALD A. GREENWOOD Supreme Court Justice

DECISION AND ORDER ON MOTION

RJI No.: 33-14-0018

APPEARANCES: JARROD W. SMITH, ESQ.

For Plaintiff

WILLIAM J. HARRINGTON, ESQ., OF GOODWIN, PROCTER, LLP

For Philips Defendants

EDWARD G. MELVIN, ESQ., OF BARCLAY DAMON, LLP

For Defendant C.F. Medical, Inc.

The four Philips defendants, who are represented by one counsel, and defendant C.F. Medical, Inc., who is represented by a separate counsel, made a joint motion to dismiss pursuant to CPLR §3211(a) and for sanctions. By Letter Order dated January 14, 2016, this Court notified the parties that it intended to treat the motion as one for summary judgment, as requested by plaintiff. See, CPLR §3211(c); see also, Santos v. State of New York, 291 AD2d 851 (4^th Dept. 2002).

The complaint in this matter was filed in January of 2014. The plaintiff worked as a sales representative for defendant C.F. Medical, Inc. (CF) between 1998 and 2005. CF sells medical equipment and supplies on behalf of the manufacturers of those products. Many of the products sold by it was manufactured by the Phillips co-defendants. The complaint essentially alleges that defendants engaged in two wrongful practices, improper revenue recognition and misclassification of employees as independent contractors. With respect to improper revenue recognition allegations, plaintiff alleges that defendants improperly recognized revenue from the sale of medical devices relating to an event that took place in 2004 and 2005. He claims that on December 30, 2004 Highland and Strong Memorial Hospitals placed an order with CF for defibrillators, which included a line item for the sale of invasive blood pressure (IBP) modules, which were not yet approved by the Federal Drug Administration (FDA) to be delivered once the FDA approval had been obtained. It is further alleged that in January of 2005 before the defibrillators were shipped to the hospitals, plaintiff received a commission check he believed to be his commission for the defibrillators. Plaintiff alleges that because commissions tended to be paid only following the receipt of payment, he was suspicious that defendants recognized the revenue for defibrillator order in the fourth quarter of 2004 even though they had not been delivered. In the third quarter of 2005 a portion of plaintiff's sales commission was backed out and plaintiff believed that portion backed out corresponded to the line item for the IBP modules sold to the hospitals. Plaintiff alleges that he was forced to repay that portion of his commission and spoke with defendants regarding his concern over this type of practice, suggesting that defendants seek legal advice concerning Securities Exchange Commission (SEC) regulations. In October of 2005 plaintiff was informed that his serves were no longer required. With respect to the employment classification allegations, plaintiff claims that defendants intentionally misclassified their sales representatives as independent contractors rather than employees. The complaint contains eleven causes of action.¹

1 The causes of action are as follows: (1) securities fraud in violation of General Business Law §§352 and 353; (2) securities fraud in violation of General Business Law §352-c(a)(a); (3) affirmative misrepresentations, in violation of General Business Law §§352, 352-c(1)(c) and 353; (5) persistent fraud or illegality, in violation of Executive Law §63(12); (6) violation of New York State False Claims Act, specifically State Finance Law §189(1)(a); (7) violation of the New York False Claims Act, specifically State Finance Law §189(1)(b); (8) violation of the New York State False Claims Act, specifically State Finance Law §189(1)(g); (9) unjust enrichment; (10) failure to disclose and common law fraud; (11) manipulation of prices of securities; and (12) violation of the False Claims Act, specifically State Finance Law §191. Note - there is no fourth cause of action.

Inasmuch as the defendants' motion has been converted to one for summary judgment, the burden is on the defendants to establish in the first instance through the tender of admissible evidence that they are entitled to judgment as a matter of law. See, Smalls v. AJI Industries, 10 NY3d 733 (2009). It is then the plaintiff's burden in opposition to raise an issue of fact. See, Hunt v. Kostarellis,27 AD3d 1178 (4^th Dept. 2006). Defendants have done so here through their multitude of legal arguments and submissions, including, inter alia, documentation concerning a federal lawsuit filed in the Northern District of New York. The plaintiff, however, has failed in his burden in opposition to demonstrate the existence of a material fact with respect to any of the causes of action.

Defendants have established that plaintiff lacks the requisite standing to bring causes of action 1, 2, 3, 5 and 11. In the first three causes of action of his complaint plaintiff alleges defendants engaged in a fraudulent practices, committed fraud in connection with the sale of securities and made false statements in violation of the Martin Act. As a private citizen, however, he had no standing to bring the claims as the Act does not provide a private right of action. Instead the AG is the only plaintiff who has the authority to bring such a claim. See, CPC International, Inc. v. McKesson Corp., 70 NY2d 268 (1987). Nor is there a private right of action under Executive Law §63 as set forth in the fifth cause of action. Plaintiff claims defendants violated Executive Law §63(12) by engaging in repeated fraudulent or illegal acts or otherwise demonstrating persistent fraud or illegality in the carrying or conducting of business. However, the statute specifically provides that the authority to enforce a statute is left only to the New York State Attorney General, which has declined to intervene here. Likewise, with respect to plaintiff's eleventh cause of action pursuant to General Business Law §339-b, defendants have shown that there is no private right of action. It is alleged that defendants manipulated the prices of securities in violation of this statute providing that any person who so manipulates is guilty of a misdemeanor. Therefore, inasmuch as defendants have established their entitlement to dismissal as a matter of law of causes of action 1, 2, 3 ,5 and 11 and plaintiff has offered no substantive opposition, the motion is granted.

Defendants have also met their initial burden concerning dismissal of the 9^th and 10^th causes of action of unjust enrichment and common law fraud respectively, as being time barred. A cause of action for unjust enrichment claims is governed by either a three year statute of limitations where, as here, monetary relief is sought. See, Grynberg v. Eni S. P. A.,2007 WL 2584727 (SDNY 9/5/07). Defendants have shown that the last specific allegation was in the complaint occurred in October or 2005 when plaintiff was informed his contract was not renewed. The complaint was filed in January of 2014, more than eight years later. Plaintiff has offered no opposition to this portion of the motion and has submitted nothing to demonstrate the existence of any allegations within the statute of limitations. Likewise, the defendants have shown that the tenth cause of action is also untimely. An action based on fraud must be brought within six years from the time of the fraud or within two years from the time of discovery or with reasonable diligence when it could have been discovered, whichever is longer. See, Coleman v. Wells Fargo & Co, 125 AD3d 716 (2d Dept. 2015); see also, CPLR §213(8). Defendants point to the allegations in the complaint that plaintiff believed in 2004 and 2005 that the defendants were misclassifying independent contractors and prematurely recognizing revenue, arguing that the time to file an action expired at the latest in 2011. In opposition, plaintiff argues only that the complaint sufficiently alleges a cause of action for fraud and entirely ignores the timeliness issue. Again, since plaintiff has failed to raise an issue of fact concerning any allegations of fraudulent acts that fall within the statute of limitations, plaintiff fails in his burden in opposition. As such, the defendants' motions for dismissal of the 9^th and 10^th causes of action are granted.

The remainder of the plaintiff's causes of action numbered 6, 7, 8 and 12 relate to alleged violations of the State Finance Law and the New York False Claims Act through the mis-classification of employees as independent contractors. See, State Finance Law §§189 and 191.The plaintiff has offered no opposition to defendants' motion seeking dismissal of the 12^th cause of action. As such, the motion to dismiss that cause of action is granted. With respect to the remaining causes of action, plaintiff specifically alleges that defendants, as part of the alleged misclassification, presented a false claim for payment (sixth cause of action); used a false record in support of a claim for payment (seventh cause of action); and created false records to avoid state taxes (eighth cause of action) all in violation of State Finance Law §189. In moving for summary judgment dismissal, defendants contend that these (and other causes of action related to employee misclassification) are estopped. Defendants rely upon a case entitled Williams v. CF Medical, Inc., Case 5:06-CV-0827, involving the plaintiff and defendant CF concerning various claims related the parties' employment relationship. In that case, the Honorable Neal McCurn, Senior US District Judge, issued a Memorandum, Decision and Order dated March 4, 2009 granting the defendant's cross-motions for dismissal of the plaintiff's age discrimination claims and of his remaining breach of contract claim pursuant to New York common law. In that decision, Judge McCurn found that plaintiff was an independent contractor as a matter of law. Plaintiff did not appeal that decision. Defendants thus argue that all causes of action relating to plaintiff's employment classification are barred by the doctrine of collateral estoppel because plaintiff made this very argument in the federal action. The federal court rejected those arguments, holding that "plaintiff is deemed to have been an independent contractor and was therefore not an employee within the meaning of [New York and Federal statutes prohibiting age discrimination]". Memorandum, Decision and Order, p. 8. There are two necessary requirements for the invocation of the doctrine of collateral estoppel. First, there must be an identity of issue which has been necessarily been decided in the prior action and is decisive in the present action. See, Hines v. City of Buffalo, 79 AD2d 218 (4^th Dept. 1981). Second, there must have been a full and fair opportunity to contest the decision now said to be controlling. See, Hines, supra. The doctrine is founded "upon the necessity of conserving judicial resources by discouraging redundant litigation and is premised on the view that once a person has been afforded a full and fair opportunity to litigate a particular issue, that person may not be permitted to do so again." Id.The doctrine has been found to apply in barring a party is barred from relitigating in a state action a claim or issue that was litigated and resolved in a prior federal action. See, Lodal v. Home Ins. Co., 309 Ad2d 634 (1^st Dept. 2003); see also, NY Jur2d, Judgments §428 at 193. The burden is on the defendants to demonstrate that collateral estoppel apples. See, Hines, supra. Defendants have established that the federal court thoroughly evaluated plaintiff's relationship with CF against common law agency factors for determining whether a worker is an employee or independent contractor and determined after extensive analysis of a number of factors that "[c]ombining these factors with the lack of day to day control by Defendant of Plaintiff's work, as well as Plaintiff's exceptional discretion over when and how long to work, Plaintiff's status as an independent contractor is evident." Memorandum, Decision and Order, p. 16. They have also shown that plaintiff had a full and fair opportunity to litigate the issue there and to present evidence and extensive arguments on those issues. See, BDO Seidman, LLP v. Strategic Resp. Corp., 70 AD3d 556 (1^st Dept. 2010). In addition, the plaintiff, as the party to be precluded from relitigating the issue, has failed in his burden of demonstrating the absence of full and fair opportunity to contest the prior determination. See, Beuchel v. Bain,97 NY2d 295 (2001). Plaintiff's vague and conclusory argument that the federal court applied a different analysis in determining that plaintiff was an independent contractor is also without merit. Both New York Labor Law and Federal Discrimination Law, as applied by the federal court, involve the same common law based inquiry focusing on the hiring party's control of the hired party. In either situation the critical factor is the hiring party's control of the manner and means by which a worker completes his tasks. See, Matter of Best, 95 AD3d 1536 (3^rd Dept. 2012). An employer/employee relationship is established when the evidence shows that the employer exercises control over the results produced or the means used to achieve the results, with control over the means the more important factor to consider. The federal court placed the "greatest emphasis" on "the extent to which the hiring party controls the manner and means by which the worker completes his or her assigned tasks." Memorandum, Decision and Order, p. 9-10. The relevant factors as argued by plaintiff are precisely what the federal court evaluated when concluding that CF properly classified plaintiff as an independent contractor and not an employee. After balancing thirteen factors in a thorough analysis, that court found that "giving the appropriate weight to each, it is clear that Plaintiff here was an independent contractor." Id., at 16. It further noted that "the majority of plaintiff's time was spent as he saw fit in order to achieve the sales quotas pursuant to his contract unsupervised by [CF Medical]" and that plaintiff had "the ability to seek out new accounts and had control over the manner and means by which he accomplished his sales." Id at 15. The court concluded that plaintiff "carried out his responsibilities as a sales representative on a day to day basis generally unsupervised by defendant" Id at 16. Plaintiff has failed in his burden in opposition to the defendants' motion to demonstrate in any way how the applicable legal standard differs. Because the federal court already decided the identical issue in this case, plaintiff had a full and fair opportunity to contest the determination, he is now estopped from the employee misclassification argument.

Finally, defendants seeks sanctions for plaintiff's alleged frivolous conduct in bringing this action. Such conduct includes the submission of a court filing that is, inter alia, completely without merit in law or is undertaken primarily to harass or maliciously injure another. See, 22 NYCRR §130-1.1. The rule provides that in determining whether the conduct undertaken was frivolous, the court must consider issues including the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct and whether or not the conduct was continued when its lack of legal or factual basis was apparent, should have been apparent or was brought to the attention of counsel or the party. Defendants claim that plaintiff and his counsel filed this lawsuit for vindictive purposes, asserting claims that clearly lacked merit inasmuch as they were barred by the statute of limitations, plaintiff lacked standing to bring many of the claims and that plaintiff was aware that he was estopped from asserting many of the causes of action due to collateral estoppel. They also cite the extensive and expensive litigation in federal court, dating back to 2006 and plaintiff's persistence in bringing this lawsuit despite notice from defendants as to the lack of merit. Defendants have demonstrated that pursuing the complaint was frivolous conduct and that a reasonable inquiry into the causes of action would have shown that they were subject to dismissal under New York law. Therefore, sanctions are appropriate here and serve as a desirable and appropriate way to discourage abusive litigation tactics. See, Watson v. City of New York, 178 AD2d 126 (1^st Dept. 1991).

NOW, therefore, for the foregoing reasons, it is

ORDERED, that the defendants' motion for summary judgment dismissal is granted in its entirety, and it is further

ORDERED, that the defendants' motion for sanctions is granted, and that the defendants are ordered to submit a Bill of Costs concerning all costs and attorney's fees incurred in connection with this motion within thirty (30) days or recovery for sanctions will be waived. Dated: March 21, 2016

Syracuse, New York

ENTER

/s/ _________

DONALD A. GREENWOOD

Supreme Court Justice Papers Considered: 1. Defendants' Notice of Motion to Dismiss and for Sanctions, dated June 1, 2015; 2. Affidavit of Edward G. Melvin, Esq. in support of defendants' motion, dated June 1, 2015, and attached exhibits; 3. Defendants' Joint Memorandum of Law in Support of Defendants' Motion to Dismiss and for Sanctions, dated June 1, 2015; 4. Affidavit of Thomas H. Williams in opposition to motion, dated September 27, 2015, and attached exhibits; 5. Affidavit of Thomas Michael Marston to Authenticate, dated September 29, 2015; 6. Affidavit of Joseph A. Hardick, C.P.A. in opposition to motion for summary judgment, dated September 24, 2015, and attached exhibits; 7. Plaintiff's Memorandum of Law in Opposition, dated September 30, 2015; and 8. Joint Reply Memorandum of Law in Support of Defendants' Motion to Dismiss and for Sanctions, dated November 2, 2015.