Gray & Assoc., LLC v Speltz & Weis LLC

[*1] Gray & Assoc., LLC v Speltz & Weis LLC 2009 NY Slip Op 50275(U) [22 Misc 3d 1124(A)] Decided on February 2, 2009 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 2, 2009
Supreme Court, New York County

Gray & Associates, LLC, in its capacity as Trustee, on behalf of the SVCMC LITIGATION TRUST, Plaintiff,

against

Speltz & Weis LLC a.k.a. WELLSPRING MANAGEMENT SERVICES LLC, WELLSPRING MANAGEMENT SERVICES LLC, DAVID E. SPELTZ, TIMOTHY C. WEIS, HURON CONSULTING GROUP INC. and HURON CONSULTING SERVICES LLC f.k.a. HURON CONSULTING GROUP, LLC, Defendants.



150446/2007



For Plaintiff:

Lowenstein Sandler

1251 Avenue of the Americas

New York, New York 10020

(Franklin R. Weissberg, Stefan Kalina)

Whiteford, Taylor & Preston L.L.P.

Seven Saint Paul Street

Baltimore, Maryland 21202

(William F. Ryan, Jr., Paul M. Nussbaum,

Kevin G. Hroblak)

Law Offices of Arnold M. Weiner

2002 Clipper Park Road, Unit No.108

Baltimore, Maryland 21211

(Arnold M. Weiner, Barry L. Gogel)

For Defendants:

Mayer Brown LLP 1675 Broadway

New York, New York 10019

(Jean-Marie L. Atamian, Richard A. Lafont)

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, New York 10038

(Kenneth Pasquale, Jennifer Arnett, Stephen B. Marseille)

Bernard J. Fried, J.

Defendants move, pursuant to CPLR 3015 (b), 3016 (b), 3211 (a) (1), and 3211 (a) (7), for dismissal of all but one of the twenty causes of action in the Amended Complaint or, in the alternative, to fix an undertaking as security for costs pursuant to CPLR 8501.

On July 5, 2005, Saint Vincents Catholic Medical Centers of New York d/b/a Saint Vincent Catholic Medical Centers and several of its affiliates (Saint Vincent) filed for Chapter 11 bankruptcy protection in the United States District Court for the Southern District of New York. On June 29, 2007, the Bankruptcy Court entered an order approving Saint Vincent's assignment to the official committee of unsecured creditors (Creditors) Committee of Saint Vincent's right to prosecute all claims, rights, and causes of action against the named defendants herein. The Creditors Committee filed this action on July 3, 2007. Pursuant to the terms of Saint Vincent's plan of reorganization, confirmed on July 27, 2007 and effective on August 30, 2007, the right to pursue claims against the defendants was assigned to the SVCMC Litigation Trust and, on November 27, 2007, I approved the substitution of plaintiff Gray & Associates, LLC as trustee in place of the Creditors Committee.

This dispute arises from Saint Vincent's retention of defendant Speltz & Weis LLC (S & W) in late 2003 or early 2004 as professional turnaround and restructuring advisors to address the hospital system's worsening operational and financial problems. S & W, at that time, had only two employees, defendants David E. Speltz and Timothy C. Weis, who held themselves out as providing specialized experience and expertise in turnaround situations for hospitals and healthcare facilities. Under the terms of the proposed engagement, Speltz became Saint Vincent's President and Chief Executive Officer and Weis became its Chief Financial Officer. Although their engagement required regulatory approval, and a formal Management Agreement was not signed until April 13, 2004, Speltz and Weis began their consulting services sometime in early 2004.

The Management Agreement called for Saint Vincent to make monthly base payments to S & W of $265,000, which were adjusted to $272,660 in January 2005. These monthly payments were for the services of Speltz, Weis and Robert R. Fanning, Jr., who served as Chief Operating Officer of Saint Vincent, but did not include services provided by other individuals sourced by S & W. Rather, the Management Agreement required Saint Vincent to pay for such services separately, calculated on the basis of set hourly rates. By March of 2004, S & W had placed approximately 20 people at Saint Vincent. [*2]

Paragraph 6 (a) of the Management Agreement required Speltz and Weis to "devote substantially their full time efforts to the business and affairs of the Institution; provided, however, that the executives may each pursue other activities related to the normal course of business of [S & W] to the extent that such activities do not interfere with the performance of their duties to the Institution hereunder." Gogel Aff., Exh. 2, at p. 5. Plaintiff alleges that, in addition to this restriction, Speltz and Weis were, as corporate officers, required by the hospital's bylaws and "conflict of interest" policy, to disclose to Saint Vincent's Board of Directors (the Board) any potential conflict of interest, including any transaction that could result in a direct or indirect financial or personal benefit to them, and otherwise not to take part in any transaction in which they had a vested personal or financial interest.

The Management Agreement required Speltz, Weis and Fanning to "perform their respective duties and discharge their respective responsibilities in a diligent, efficient and faithful matter [sic], and to the best of their respective abilities." Gogel Aff., Exh. 2, ¶ 3 (d), at p. 3. Plaintiff alleges that, in addition to and apart from these contractual obligations, Speltz and Weis, as corporate officers of Saint Vincent, together with S & W, owed fiduciary duties pursuant to the New York Not-For-Profit Corporation Law (N-PCL) and common law.

The detailed allegations of the Amended Complaint allege that Speltz and Weis, in concert with the other defendants, committed numerous breaches of the Management Agreement, violated their fiduciary duties to the hospital and committed other tortious and illegal acts during the course of their sojourn at Saint Vincent in various ways.

More specifically, plaintiff alleges that, immediately upon their engagement, Speltz and Weis embarked upon a campaign to terminate key Saint Vincent employees in order to replace them with numerous independent contractors who were employed by S & W, and, in turn, whose services were billed to Saint Vincent on a marked-up basis. It is further alleged that some of these independent contractors did not have the skills and/or background to adequately perform the jobs assigned to them, and that large turnover of staff created the need for training and orientation, which was provided at the expense of Saint Vincent and profit to S & W. Allegedly as the result of the placement of excessive numbers of independent contractors billed through S & W, instead of permanent employees who would be paid for directly and for less by Saint Vincent, S & W billed the hospital as much as $1.8 million monthly, or more than $20 million annually. Plaintiff also claims that Saint Vincent was charged over $2 million for unreasonable and improper expenses for these independent consultants.

In addition to the claim of excessive staffing, plaintiff contends that S & W entered into secret negotiations to sell their business, which caused an irreconcilable conflict of interest. On September 30, 2004, Saint Vincent hired the law firm of McDermott Will & Emory LLP to plan for a potential Chapter 11 bankruptcy filing. The McDermott firm, with Saint Vincent's approval, hired a Chicago consulting firm then known as Huron Consulting Group, LLC (Huron Consulting) to act as financial advisors to provide additional financial advice relative to a potential bankruptcy filing. Defendant Huron Consulting Group Inc. (Huron Inc.) is the parent of Huron Consulting. Plaintiff alleges, that unbeknownst to Saint Vincent or its Board, Speltz and Weis began negotiations to sell their business to Huron Inc. for a value derived from the revenue generated from the Saint Vincent engagement. These admittedly secret negotiations, which began in the Fall of 2004, led S & W and Huron Inc. to enter into a confidentiality agreement in January 2005, and [*3]ultimately into a May 2005 acquisition agreement for Huron Inc. to buy S & W. Huron Inc. agreed to pay $17 million in the form of $14 million in up-front cash and a $3 million promissory note, plus substantial earn-out payments based on future fees to be obtained from the Saint Vincent engagement.

Prior to May 6, 2005, neither Speltz nor Weis had disclosed to the Board their discussions with Huron Inc. Elizabeth St. Clair was the hospital's Chief Legal Officer. In mid-April, Ms. St. Clair approached Speltz to discuss a rumor that S & W was to be acquired by Huron Inc. Speltz falsely denied the rumor and did not disclose the ongoing negotiations. Once the hospital learned of the acquisition in early May 2005, at Ms. St. Clair's urging, the Board retained, as special counsel, Leo Crowley, Esq. of Pillsbury Winthrop Shaw Pittman LLP to investigate the matter. His final report, issued on or about July 18, 2005, found that the negotiations between S & W and Huron Inc. gave rise to serious breaches of the Management Agreement, breaches of fiduciary duty and conflicts of interest on the part of Speltz and Weis.

Allegedly acting out of greed and totally conflicted by their desire to continue the revenue stream from the Saint Vincent engagement to facilitate the sale of their business to Huron Inc., Speltz and Weis repeatedly and wrongly advised the hospital's Board that significant progress had been made to rehabilitate the hospital system's ailing financial condition. On June 1, 2005, the S & W Defendants presented the Board with, what plaintiff contends, was a new and totally unrealistic restructuring plan which falsely portrayed the hospital as being on the road to recovery, falsely advised that the prior turnaround plan had seen "significant progress over the past year" and was "moving toward stabilizing cash flow and rebuilding operational infrastructure," with a positive cash flow to occur in the next year. Amended Complaint, ¶ 104. Plaintiff alleges that just the opposite was the case. On or about June 1, 2005, Saint Vincent's principal lender had declared the hospital's working capital facility to be in default. The day before the Board presentation, McDermott Will & Emory LLP told Speltz and Weis that both HUD and the Dormitory Authority for the State of New York may be underwhelmed with the restructuring plan, explaining, it was too little and too late. On June 30, 2005, less than a month after the June 1st presentation, Speltz told the Board at an emergency meeting that the hospital system would not be able to meet a payroll in just six days, unless it received an emergency advance of funds from the Dormitory Authority. When that request was denied, and Saint Vincent's principal lender advised it was cutting off any availability of funds under its working capital facility, the Board was faced with no alternative but to authorize the filing for Chapter 11 bankruptcy protection, which occurred on July 5th.

Plaintiff alleges that the bankruptcy laws and procedures would have prohibited the dual employment of S & W and Huron Consulting, as affiliated entities, as Saint Vincent's advisors. In addition, a bankruptcy filing would also have required full public disclosure of the relationships among the defendants and the terms of Huron Inc.'s acquisition of S & W, including the future earn-out provisions tied to the revenue stream from Saint Vincent. Thus, plaintiff alleges that having led the hospital into a death spiral, the defendants and the McDermott law firm delayed the critically necessary, and now inevitable, bankruptcy filing out of concern for their own financial interests and maintaining their positions as controlling officers and financial and legal consultants. Filing for bankruptcy earlier than the actual filing date of July 5, 2005 allegedly would have resulted in tremendous savings for Saint Vincent.

Plaintiff further alleges that, following the belated July 5th filing, the defendants continued [*4]to put their interests above their client's interests and embarked on a plan doomed for failure to attempt to obtain the Bankruptcy Court's approval of the retention of both S & W and Huron Consulting, which simply could not be authorized as Bankruptcy Judge Adlai S. Hardin, Jr. later found. This strategy was pursued at significant expense to Saint Vincent, and at the cost of serious and harmful delays in the reorganization process during the critical months immediately following the bankruptcy filing. Plaintiff alleges that the defendants, together with the McDermott law firm, engaged in a pattern of confrontational, dilatory and misleading conduct with the United States Trustee for Region II and well as with the court-appointed representatives of Saint Vincent's creditors. This conduct allegedly compromised Saint Vincent's reorganization and led to the extraordinary situation of the U.S. Trustee demanding a direct meeting with the members of the Board in August of 2005, at which time the Board was made aware of the situation. Shortly thereafter, the services of Speltz, Weiss and the McDermott law firm were terminated. Saint Vincent continued to employ Huron Consulting allegedly out of necessity due to the fact that so many key independent contractors, who were now controlled by Huron Inc. as a result of its acquisition of S & W in May 2005, were embedded into Saint Vincent over the 18 months following the hiring of S & W.

Plaintiff further alleges that S & W unreasonably failed to recognize Saint Vincent's urgent and immediate need to undertake comprehensive restructuring efforts when they conducted their initial evaluation, and that any reasonable turnaround crisis management professional would have recommended the prompt closing or disposition of all of the historically unprofitable hospitals in the system, saving the $10 million per month that was being lost by Mary Immaculate and St. John's Hospitals in Queens and Saint Vincent Staten Island, collectively, and the $20 million being lost annually by Saint Mary's Hospital in Brooklyn. Speltz and Weis are faulted with recommending that Saint Vincent continue to borrow to fund is enormous operating losses, and criticized for the hospital's entry into a working capital facility with Healthcare Finance Group, Inc. that included terms extremely unfavorable to Saint Vincent, one being what plaintiff contends is an "exorbitant" $2 million early termination fee. The Amended Complaint alleges other performance failures such as failing to take reasonable steps to assure that Saint Vincent's accounting information, which would form the basis for the assumptions underlying their plans, was accurate and complete. At one point, S & W allegedly miscalculated Saint Vincent's future net realizable accounts receivable by more than $60 million.

The 77-page Amended Complaint purports to assert 20 separate causes of action against the defendants. These claims are summarized as follows: (1) breach of fiduciary duty by S & W and Messrs. Speltz and Weis (collectively, the S & W Defendants); (2) breach of N-PCL §§ 717 and 720 by the S & W Defendants; (3) professional malpractice by the S & W Defendants; (4) breach of the Management Agreement by S & W; (5) tortious interference with the Management Agreement by Huron Consulting and Huron Inc. (collectively, the Huron Defendants); (6) aiding and abetting a breach of fiduciary duties by the S & W Defendants as against the Huron Defendants; (7) fraudulent transfers in violation of Bankruptcy Code § 548 (a) (1) against S & W; (8) fraudulent transfers in violation of Bankruptcy Code § 548 (a) (1) (a) against S & W; (9) recovery of avoided transfers from the S & W Defendants and Huron Inc. pursuant to Bankruptcy Code § 550 (a); (10 - 13) fraudulent conveyances in violation of sections 273, 274, 275 and 276, respectively, of the New York Debtor and Creditor Law against S & W and avoidance of those transfers pursuant to such law and/or [*5]Bankruptcy Code § 544; (14) recovery of fraudulent conveyances pursuant to New York State law and/or Bankruptcy Code § 550 (a) from the S & W Defendants and Huron Inc.; (15) breach of the implied duty of good faith and fair dealing by S & W; (16) fraud by the S & W Defendants; (17) aiding and abetting the S & W Defendants' fraud as against the Huron Defendants; (18) negligent misrepresentations by the S & W Defendants; (19) aiding and abetting the McDermott law firm's breach of fiduciary duty as against the S & W Defendants; and (20) civil conspiracy against all defendants.

Defendants, for their part, move to dismiss all of the 19 non-breach of contract claims as various legal grounds. In their defense, they argue that this action is merely a transparent attempt to second-guess the business judgment of highly-skilled professionals who labored diligently to save an admittedly financially-ailing hospital system. S & W was retained with the specific mandate to "rehabilitate the fiscal health" of the hospital and even though their missions was to assist Saint Vincent in avoiding bankruptcy, they are now being criticized for not filing for bankruptcy earlier. They contend that all of their fees were authorized by the Management Agreement and approved by the Board, and that the reason so many S & W personnel were hired for key management positions was because qualified candidates were difficult to attract due to the hospital's poor financial condition and uncertainly about the future ownership of the various affiliated hospitals. With respect to Huron Inc.'s acquisition of S & W in May 2005, defendants contend that it was not prohibited by the Management Agreement and further that, following an investigation commissioned by the Board and upon the advice of independent outside counsel, all issues arising from the acquisition were resolved by the parties and that the hospital received full recompense for any conceivable damages or expenses that it may have incurred as a result of any alleged breach of fiduciary duty. Defendants maintain that the Amended Complaint is a "massive 77-page amalgamation of inconsistent, duplicative and unsustainable claims," and that all but the fourth cause of action which alleges a breach of the Management Agreement by S & W should be dismissed.

Faced with a CPLR 3211 motion to dismiss, the court's task is to determine whether plaintiff's Amended Complaint states a cause of action. The motion must be denied if the factual allegations, taken together, manifest any cause of action cognizable at law. 511 W. 232nd Owners Corp. v Jennifer Realty Corp., 98 NY2d 144, 151-152 (2002); Richbell Info. Servs., Inc. v Jupiter Partners, L.P., 309 AD2d 288, 289 (1st Dept 2003). The Amended Complaint must be construed liberally, all factual allegations contained therein and in plaintiff's other submissions made in opposition to the motion accepted as true, and plaintiff accorded the benefit of every possible favorable inference. 511 W. 232nd Owners Corp., supra at 152. " Whether a plaintiff can ultimately establish its allegations is not part of the caluclus in determining a motion to dismiss.'" Braddock v Braddock, - AD3d -, 2009 WL 22307 at *3 (1st Dept 2009), quoting EBC I, Inc. v Goldman Sachs & Co., 5 NY3d 11, 20 (2005). When the motion is based upon documentary evidence, pursuant to CPLR 3211 (a) (1), dismissal of a cause of action is warranted "only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Leon v Martinez, 84 NY2d 83, 88 (1994); see also Goshen v Mutual Life Ins. Co. of New York, 98 NY2d 314, 326 (2002). Turning to the various causes of action.

(1)Breach of Fiduciary Duty by the S & W Defendants

Defendants argue that the breach of fiduciary duty claim against S & W must be dismissed as duplicative of the fourth cause of action asserting breaches of the Management Agreement. [*6]

A cause of action for breach of fiduciary duty that merely restates contract claims and does not allege tort liability or a breach of a duty distinct from, or in addition to, the breach of contract claim, is subject to dismissal. See LaSalle Hotel Lessee, Inc. v Marriott Hotel Servs., Inc., 29 AD3d 464 (1st Dept 2006); Layden v Boccio, 253 AD2d 540, 541 (2d Dept 1998). However, "conduct amounting to breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by contract which is nonetheless independent of such contract." Bullmore v Ernst & Young Cayman Islands, 45 AD3d 461, 463 (1st Dept 2007), citing Sally Lou Fashions Corp. v Camhe-Marcille, 300 AD2d 224, 225 (1st Dept 2002).

Plaintiff has alleged sufficient facts demonstrating that S & W's role as the hospital's turnaround advisor, supervising the day-to-day executive, operational and financial affairs of the hospital through the services of Speltz, Weis and Fanning at the very top level, created a fiduciary duty to Saint Vincent. See EBC I, Inc. v Goldman Sachs & Co., 5 NY3d at 19-20; Restatement (Second) of Torts § 874, Comment a. Thus, S & W had an independent fiduciary obligation to exercise due care and diligence in ensuring that the services provided by their principals and employees were not in anyway harmful or not in the best interests of the hospital.[FN1]

The allegations underlying plaintiff's fiduciary duty claim against the S & W Defendants are based on their alleged self-dealing in providing their management services; undertaking contractual obligations that were inconsistent with their duty of disclosure to Saint Vincent; engaging in transactions that created inherent conflict of interests; making affirmative misrepresentations to, and concealing material information from, the Board for personal gain; and failure to restructure the hospital or timely file for bankruptcy protection in order to churn fees and protect their secret sale plans with Huron Inc. See Amended Complaint ¶ 156. In the fourth cause of action, plaintiff alleges that S & W breached specific provisions of the Management Agreement by, inter alia, "failing to appropriately develop and implement strategic, operational and financial plans for Saint Vincent;" "failing to cause Speltz and Weis to perform their duties and discharge their responsibilities as officers in a diligent, efficient and faithful manner;" "failing to cause Speltz and Weis to devote substantially their full-time efforts to the business and affairs of Saint Vincent;" "seeking reimbursement for improper and unreasonable fees and expenses allegedly incurred by individuals performing services on behalf of [S & W];" and "failing to provide appropriate turnaround management services." Id., ¶ 181. Thus, while both claims overlap in certain instances, they arise from different duties.

In addition, the claims are not wholly duplicative. The first cause of action alleges that S & W elevated its personal interests over the best interests of Saint Vincent by engaging in activity that, while ostensibly allowed by the Management Agreement, i.e., hiring independent contractors at certain defined rates, amounted to a breach of fiduciary duty because hiring permanent full time employees would have better served the institution. Other alleged breaches of fiduciary duty, not [*7]part of the fourth cause of action, include misrepresenting and concealing material information from the hospital's Board. Likewise, S & W is alleged to have breached the Management Agreement, but not any fiduciary duty, by delegating responsibilities under the Management Agreement to successor entities without the knowledge of the Board and by failing to ensure that Speltz and Weis devote substantially their full time efforts to the business and affairs of Saint Vincent. See Amended Complaint ¶ 181.

As against Speltz and Weis, individually, defendants argue that plaintiff's breach of fiduciary claim must be dismissed, because the hospital, during the bankruptcy, was made whole with respect to any purported breach resulting from Huron Inc.'s acquisition of S & W and because the Board allegedly ratified the conduct underlying the plaintiff's claims. Defendants maintain, that on the advice of independent outside counsel, namely the Crowley report, Saint Vincent entered into a binding compromise with Huron Inc. to resolve any concerns resulting from Huron Inc.'s acquisition of S & W whereby (I) Speltz and Weis reimbursed Saint Vincent $191,485 for the alleged and complained 10% mark-up by S & W of Huron Consulting's fees, (ii) Speltz and Weis agreed to forego any earn out payments or other incentive-based compensation resulting from the Saint Vincent engagement, and (iii) Huron Inc. paid for the cost of the Crowley investigation.

Plaintiff, however, contends that this agreement was made in October of 2005, after Speltz and Weis were terminated, as part of an agreement to permit certain Huron Consulting personnel to remain temporarily while a newly-appointed chief executive officer and chief restructuring officer took over management of the bankrupt hospital. At that time, there were still 27 S & W and Huron Consulting personnel functioning as middle management. The October 21, 2005 agreement specifically states that: all parties reserve all of their respective rights with respect to, and nothing in their agreement constitutes a release or waiver of, (a) the reasonableness of any and all fees paid or to be paid to Huron and S & W, whether pre-petition or post-petition, and (b) any and all potential claims and causes of action that SVCMC, and the SVCMC bankruptcy estate, the Committee and any other party in interest may have against Huron or S & W arising from or relating to ( i) the services Huron and S & W rendered or will render to SVCMC, (ii) the amounts billed or to be billed for their services and expenses, (iii) the amounts paid or to be paid to Huron and S & W for those services and expenses, (iv) any breaches of any duties owed by Huron or S & W, or any individuals employed or engaged by Huron or S & W, to SVCMC or the creditors of SVCMC, (v) any conflicts of interest between S & W or Huron on the one hand, and SVCMC, on the other, or (vi) the relationship between S & W and Huron.

Gogel Aff., Exh. 13, Exh. C at p. 5. Likewise, the application to the Bankruptcy Court to retain Huron Consulting and S & W personnel specifically and clearly preserves all of Saint Vincent's rights. In exchange for the Debtors, the U.S. Trustee, and the Creditors' Committee supporting the retention of Huron under the terms herein, Huron has agreed to numerous concessions, including financial compensation to the estates and cooperating with parties in interest in any investigations into the prepetition [*8]relationship between and activities of Huron and [S & W]. . . . Importantly, despite the parties' agreement . . . , the rights of all parties with respect to the prepetition relationship among Huron, [S & W], and the Debtors, including over $30 million paid by the Debtors to Huron and [S & W], are expressly preserved (emphasis added).

Gogel Aff., Exh. 13 at ¶ 2, p. 3. Thus, the documentary evidence submitted does not conclusively establish defendant's claim that the hospital was "made whole" or that the Board fully and knowingly ratified the defendants' actions and waived any of the claims asserted herein.

Finally, while defendants rely on the business judgment rule, that rule does not protect corporate officials who engage in fraud or self-dealing or corporate fiduciaries when they make decisions affected by inherent conflict of interest. In re Comverse Technology, Inc., 56 AD3d 49, 866 NYS2d 10, 16 (1st Dept 2008); Wolf v Rand, 258 AD2d 401, 404 (1st Dept 1999); Higgins v New York Stock Exchange, 10 Misc 3d 257, 278-79 (Sup Ct, NY County 2005). The Amended Complaint alleges, with sufficient particularity to satisfy CPLR 3016 (b), much more than mere errors of judgment, mistakes or just plain incompetence on the part of the defendants. Rather it alleges a host of facts, which, if proven to be true, demonstrate bad faith, self-dealing and fraud on the part of the S & W Defendants. Moreover, while defendants attempt to shift responsibility to the hospital's Board, the Amended Complaint alleges, and the Bankruptcy Judge found at least with respect to the retention of S & W and Huron Consulting as financial advisors to the debtor, that the Board was not "fully-informed" as defendants maintain on this motion, and that the defendants misled the Board into making uninformed and erroneous decisions. Indeed the Amended Complaint alleges that the defendants, together with William P. Smith, Esq. of the McDermott law firm, went to great lengths to actively mask their incompetence and their self-dealings from the Board in furtherance of their overall scheme to consummate the hidden deal with Huron Inc., prolong their pre-bankruptcy retention and enhance the profits they earned from the Saint Vincent engagement.

For these reasons, defendants' motion to dismiss is denied with respect to the first cause of action alleging a breach of fiduciary duty against the S & W Defendants.

(2)Not-For-Profit Law Violations

The second cause of action alleges breaches of N-PCL §§ 717 and 720 by the S & W Defendants. N-PCL § 717 (a) provides that "[d]irectors and officers shall discharge the duties of their respective positions in good faith and with that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions." Under N-PCL § 720, a not-for-profit corporation or statutorily-authorized representative may compel an officer or director to account, set aside an unlawful conveyance, or enjoin an unlawful conveyance. With respect to Speltz and Weis, in addition to the fiduciary duties imposed upon them as turnaround/restructuring advisors to Saint Vincent pursuant to the Management Agreement, their appointment as officers of a not-for-profit corporation creates an independent fiduciary duty to that corporation pursuant to statute. To the extent the first and second causes of action are duplicative, there can be no double recovery of the same damages to the hospital, but it would be error to dismiss both causes of action on a pre-answer dismissal motion, particularly since they permit different types of relief and the plaintiff seeks both compensatory damages and disgorgement of all fees paid to the S & W Defendants. [*9]

The statute, however, only applies to officers and directors not corporate entities and thus these statutory claims must be dismissed as against S & W. Plaintiff's attempt to impose liability under the N-PCL on S & W through the common-law principle of respondent superior is misplaced. This case presents an unusual situation, wherein a corporate officer remains an employee of another company and, specifically by agreement, is not an employee of the charity he is appointed to serve. See Management Agreement, § 4(a), Gogel Aff., Exh. 1. The liability plaintiff seeks to impose on Speltz and Weis pursuant to the N-PCL is not, therefore, as employees or agents of S & W, but as a result of their dual role as officers of Saint Vincent. The common-law doctrine of respondeat superior, by which an employer may be held liable for the tortious acts of an employee committed within the scope of his employment, is thus inapplicable. See In re Global Crossing Ltd. Sec. Litig., 2005 WL 1881514, *3, Lynch, J. (SD NY, Aug. 5, 2005) (emphasizing that directors had fiduciary duties to act on behalf of the shareholders of the corporation itself, not on behalf of the entities that appointed them to the corporation's board of directors, and thus those appointing entities could not be held liable under respondeat superior theory for the director's breaches).

Accordingly, the second cause of action is dismissed as against S & W.

(3)Common Law Fraud

Defendants also move to dismiss the sixteenth cause of action as duplicative of the breach of contract claim. Where a plaintiff, suing for breach of a contract, also alleges that a fraud was committed because the defendant harbored an undisclosed intention from the outset to never comply with the parties' agreement, the fraud claim is subject to dismissal as merely duplicative of the breach of contract cause of action. See Clark Const. Corp. v BLF Realty Holding Co., 28 AD3d 367, 368-69 (1st Dept), lv denied 7 NY3d 717 (2006); Coppola v Applied Electric Corp., 288 AD2d 41, 42 (1st Dept 2001); Modell's NY Inc. v Noodle Kidoodle, Inc., 242 AD2d 248, 249-50 (1st Dept 1997); Chase v United Hosp., 60 AD2d 558, 559 (1st Dept 1977).

The Amended Complaint does not allege merely a lack of intention to perform the Management Agreement, but that the S & W Defendants engaged in deceptive and fraudulent conduct after entering into that agreement; made material misrepresentations to the Board about the progress of their turnaround plan; concealed material information material to the Board's timely consideration of a Chapter 11 alternative; affirmatively lied to the hospital's Chief Legal Officer cover up the secret sale to Huron Inc.; and took advantage of their positions of authority at Saint Vincent to overcharge for their services. As the claims alleged in the sixteenth cause of action alleges fraudulent conduct that is collateral to the Management Agreement, the claim is not subject to dismissal as duplicative of the breach of contract claim.

(4)Breach of the Covenant of Good Faith and Fair Dealing

A party may be in breach of the implied duty of good faith and fair dealing, which is implicit in every contractual arrangement, when it exercises a contractual right as part of a scheme to realize gains that the contract implicitly denies or to deprive the other party of the fruit of its bargain. Moran v Erk, NY2D, 2008 WL 4975380 (2008); Dalton v Educational Testing Service, 87 NY2d 384, 389 (1995); Outback/Empire I, Ltd. Partnership v Kamitis, Inc., 35 AD3d 563, 563 (2d Dept 2006). "[E]ven where one has an apparently unlimited right under a contract, that right may not be exercised solely for personal gain in such a way as to deprive the other party of the fruits of the contract. This limitation on an apparently unfettered contract right may be grounded . . . on the construction of the parties' fiduciary obligations." Richbell Info. Servs., Inc. v Jupiter Partners, L.P., [*10]309 AD2d 288, 302 (1st Dept 2003).

I decline to dismiss the fifteenth cause of action on the ground it is duplicative of the breach of contract claim. The Amended Complaint alleges a bad faith scheme on the part of S & W to realize improper economic gains for itself in a variety of ways while purporting to act pursuant to contractual rights either granted to it, or not explicitly precluded by, the Management Agreement, and ultimately depriving Saint Vincent of what it ultimately sought from the parties' contractual arrangement honest, efficient and effective turnaround and restructuring advice and management to address the institution's worsening operational problems and financial distress.

(5)Professional Malpractice

The third cause of action for professional malpractice against the S & W Defendants is dismissed. These defendants were not engaged in a "profession," i.e., "an occupation generally associated with long-term educational requirements leading to an advanced degree, licensure evidencing qualifications met prior to engaging in the occupation, and control of the occupation by adherence to standards of conduct, ethics and malpractice liability." Santiago v 1370 Broadway Assocs., L.P., 264 AD2d 624, 624-625 (1st Dept 1999), mod on other grounds 96 NY2d 765 (2001); see also Chase Scientific Research, Inc. v NIA Group, Inc., 96 NY2d 20, 29-30 (2001); Leather v U.S. Trust Co. of New York, 279 AD2d 311, 312 (1st Dept 2001).

(6)Tortious Interference With Contract

Defendants argue that the fifth cause of action fails to state a claim for tortious interference with the Management Agreement by the Huron Defendants for three reasons. First, defendants contends that the Amended Complaint's underlying breach of contract allegations do not support a claim for breach of the Management Agreement, as a matter of law. Second, plaintiff has allegedly failed to sufficiently allege that "but for" the Huron Defendants' conduct, the Management Agreement would not have been breached. Third, defendants contend that, absent a showing of malice or illegality, economic justification is a defense to a tortious interference claim.

The claim against the Huron Defendants for tortious interference with a contract is sufficiently pleaded. Defendants argue that the Management Agreement did not prohibit the sale of S & W nor require it to inform Saint Vincent's Board of the existence of the May 2005 confidentiality agreement with Huron Inc. However, the Management Agreement required the full-time efforts of Speltz and Weis, and they were allowed to pursue other activities only if related to the normal course of their business and only to the extent such activities did not interfere with the performance of their duties for Saint Vincent. The Amended Complaint sufficiently alleges that the sale of their business to Huron Inc. was on terms which created an irreconcilable conflict of interest between the hospital and the S & W Defendants, one such conflict being that S & W rendered itself incapable of supervising the work of Huron Consulting.

"A cognizable claim for tortious interference does not require an allegation that the defendant's conduct was the sole proximate cause of the alleged harm." Kronish Lieb Weiner & Hellman LLP v Tahari, Ltd., 35 AD3d 317, 318 (1st Dept 2006). The fact that plaintiff alleges breaches of the Management Agreement separate and apart from the secret sale of S & W to Huron Inc. does not negate the plaintiff's claim that the Huron Defendants induced further breaches of the Management Agreement by requiring S & W to negotiate in secret and sign a confidentiality agreement, thus keeping material information from Saint Vincent's Board.

Finally, "since the cause of action is for interference with an existing contract, rather than a [*11]prospective economic relationship, the defense of economic justification is inapplicable and it is not necessary to allege that defendant used improper means or that its conduct was for the sole purpose of harming plaintiff." Kronish Lieb Weiner & Hellman LLP v Tahari, Ltd., 35 AD3d at 318-19, citing Carvel Corp. v Noonan, 3 NY3d 182, 189-90 (2004) (further citations omitted). "[W]here there is an existing, enforceable contract and a defendant's deliberate interference results in a breach of that contract, a plaintiff may recover damages for tortious interference with contractual relations even if the defendant was engaged in lawful behavior."NBT Bancorp Inc. v Fleet/Norstar Fin. Group, Inc., 87 NY2d 614, 621 (1996).

(7)Aiding and Abetting Breaches of Fiduciary Duty/Fraud

Defendants argue for dismissal of all three of the aiding and abetting claims. They contend that the sixth and seventeenth causes of action against the Huron Defendants must be dismissed for failure to allege that they had actual knowledge of any breach of fiduciary duty or fraud being committed by the S & W Defendants. The nineteenth cause of action, which asserts that the S & W Defendants aided and abetted fiduciary breaches by Smith and the McDermott law firm, also allegedly suffers from this pleading defect as well as the failure to plead an underlying breach of fiduciary duty by the hospital's lawyers.

A cause of action for aiding and abetting a breach of fiduciary duty or fraud requires a prima facie showing of a fiduciary duty owed to plaintiff, a breach of that duty, and the defendant's knowing inducement of or substantial assistance in effecting the breach, together with resulting damages. Yuko Ito v Suzuki, 57 AD3d 205, 869 NYS2d 28, 31 (1st Dept 2008); Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 865 NYS2d 14, 22 (1st Dept 2008); Kaufman v Cohen, 307 AD2d at 125, supra ; De Pinto v Ashley Scott, Inc., 222 AD2d 288 (1st Dept 1995). Liability for aiding and abetting fraud or breach of fiduciary duty requires "actual knowledge" of the underlying tort; allegations of constructive knowledge, or that defendant was on notice as to the tortious behavior of the wrongdoer, are not legally sufficient to sustain a cause of action. Kaufman v Cohen, 307 AD2d at 125, supra . "A person knowingly participates in a breach of fiduciary duty only when he or she provides substantial assistance to the primary violator. Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur (citations omitted)." Id. at 126. In addition, "where the actual assistance allegedly given the fraud is not clearly substantial, the allegations of scienter must be all the more detailed if the requisite connection of the purported aider and abettor with the fraud is to be made out" National Westminster Bank USA v Weksel, 124 AD2d 144, 150 (1st Dept), appeal denied 70 NY2d 604 (1987).

The Amended Complaint provides, at paragraph 195, allegations of how the S & W Defendants' fiduciary breaches could not have occurred absent the Huron Defendants' knowledge (gained from its own engagement by the McDermott firm in September 2004 to act as financial advisors to prepare and plan for a Chapter 11 bankruptcy) of the revenue stream to S & W created by the Saint Vincent engagement. Participation and assistance is alleged by the negotiation of an agreement to purchase S & W and thus share in that revenue stream despite the negative consequences of the sale to Saint Vincent; insistence on keeping the proposed acquisition of S & W secret from Saint Vincent; agreeing to allow Huron Consulting to become a subcontractor to S & W without the Board's knowledge; entering into employment agreements with Speltz and Weis; and by working with the S & W Defendants and the McDermott law firm to pursue the bankruptcy retention [*12]application of both Huron Consulting and S & W.

The nineteenth cause of action alleges that the McDermott law firm committed a breach of fiduciary duty by failing to disclose to its client, Saint Vincent, material facts about Huron Inc.'s acquisition of S & W and by failing to be open and frank with the Board regarding the conflicts and implications that arose from the acquisition, specifically with respect to the disinterested standard under the Bankruptcy Code and the Jay Alix Protocol governing the employment of professionals and management in the bankruptcy process.[FN2] The Amended Complaint sets forth the extensive interaction between Smith and the S & W Defendants regarding the secret sale of S & W to Huron Inc. and Smith's role in seeking to ensure that the S & W Defendants, together with his law firm, remained a member of the "team" in the event of a bankruptcy filing. See Amended Complaint, ¶¶ 67-68, 70-76, 134-149. Construing these factual allegations as favorably as possible to the plaintiff and taking into account the findings of Bankruptcy Judge Hardin that the McDermott firm was, as alleged in the Amended Complaint, retained by the Board on Speltz' recommendation, and that Smith was acting in the best interests of Speltz and Weis, the conflicted senior management, as opposed to the hospital itself acting through the Board, the Amended Complaint adequately pleads that the S & W Defendants knowingly participated in the law firm's breaches of its fiduciary duty.

Accordingly, I find that these claims satisfy the pleading requirements of a claim for aiding and abetting a breach of fiduciary duty.

Unlike the allegations of the sixth cause of action which allege that the Huron Defendants aided and abetted readily apparent breaches of fiduciary duties on the part of the S & W Defendants, the Amended Complaint fails to allege any facts to support the conclusion in paragraph 257 that the Huron Defendants were aware of any particular instances of outright fraud being committed by the S & W Defendants. There are simply no allegations that Huron Inc. or Huron LLC had any knowledge of or assisted in making misrepresentations to the Board about the progress of the S & W turnaround plan; or helped to conceal information material to the Board's timely consideration of a Chapter 11 alternative; or participated in or directed Speltz' alleged misrepresentation to Elizabeth St. Clair, Esq. about the proposed acquisition; or had anything to do with S & W overcharging the hospital for its services. The fact that Huron Inc., a publicly-traded company, required the S & W Defendants to sign a confidentiality agreement in connection with the proposed acquisition or that Huron Consulting was hired as a subcontractor to S & W in January 2005 is insufficient to charge the Huron Defendants with fraud. Thus, the seventeenth cause of action is dismissed.

(8)Alleged Pleading Deficiencies of the Fraudulent Transfer Claims

I am not persuaded by defendants' argument that the seventh, tenth, eleventh and twelfth [*13]causes of action, which challenge the fees and expenses paid to S & W pre-petition under the Bankruptcy Code and the New York Debtor and Creditor Law as constructive fraudulent transfers, must all be dismissed because the Amended Complaint does not provide enough detail regarding the allegation that Saint Vincent did not receive "reasonably equivalent value" or "fair consideration" for the $24 million paid to S & W in the year preceding the bankruptcy filing. The entire Amended Complaint is replete with assertions that the hospital received little or no value from the S & W Defendants' services.

In addition to the claims of excessive staffing and improper billing (Amended Complaint, ¶¶ 39-43, 56, 84, 87), the Amended Complaint alleges that the services provided by S & W were negligent, wrongful and injurious to the hospital (id., ¶¶112-33, 150-51), and were "largely useless" and "had to be repeated (at further cost) by the Defendants' successors." Id., ¶ 150. "The quality of professional services is within the scope of a fraudulent conveyance action.'" In re Oakwood Homes Corp., 340 BR 510, 525 (Bankr D Del 2006), quoting BCP Liquidating LLC v PricewaterhouseCoopers LLP (In re BCP Mgmt., Inc.), 320 BR 265, 280 (Bankr D Del 2005). The complaint states that hospital did not receive reasonably equivalent value in return for the fees and expenses paid to S & W. As the defendants obviously disagree with this factual allegation, it may be contested at trial.

Along a similar vein, defendants challenge the sufficiency of the eighth and thirteenth causes of action against S & W, which plead actual fraudulent transfer claims under Bankruptcy Code § 548 (a) (1) (A) and Debtor and Creditor Law § 276, arguing that the Amended Complaint does not plead actual intent on the part of the hospital to defraud its creditors by making the payments to S & W with the particularity required by CPLR 3016 (b).

With regard to the pleading requirements for a claim under Debtor and Creditor Law § 276, because direct evidence of fraudulent intent by the debtor is difficult to prove, " the pleader is allowed to rely on badges of fraud' to support his case, i.e., circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent.'" In re Sharp Intl. Corp., 403 F3d 43, 56 (2d Cir 2005), quoting Wall St. Assoc. v Brodsky, 257 AD2d 526, 529 (1st Dept 1999). These "badges of fraud" include "a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor's knowledge of the creditor's claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance." Wall St. Assoc., supra ; see also Pen Pak Corp. v LaSalle Natl. Bank of Chicago, 240 AD2d 384, 386 (2d Dept 1999).

The Amended Complaint alleges that Speltz, as CEO, and Weis, as CFO, caused the hospital to make significant payments to S & W ahead of, and to the detriment of, other creditors of the hospital at a time when Saint Vincent could not pay all of its debts. Amended Complaint, ¶¶ 209-210, 235. While a transferee's intentional fraud may be imputed to the transferor (Saint Vincent) if the transferees were in a position to control the debtor's disposition of the property transferred (see In re Adler, Coleman Clearing Corp., 218 BR 689, 704 [Bank SD NY 1998]; In re Parker Steel Co., 149 BR 834, 855 [Bank ND Ohio 1992]), the situation normally arises where the transferee is the debtor's sole or dominant shareholder, and "[t]he cases are careful to point out that vicarious intent is an extreme situation that is dependent upon nearly total control of a debtor by a transferee. See In re Bob's Sea Ray Boats, Inc., 144 BR 451, 459 (Bankr D ND1992). The Amended Complaint fails to allege such total control by S & W. [*14]

In addition, the Amended Complaint fails to allege with the requisite particularity that an intentional fraud was committed against the hospital's creditors by S & W. The only "badges of fraud" pled are inadequacy of consideration and that the S & W Defendants were aware of the hospital's dismal financial situation. Plaintiff argues that these defendants "used their positions to ensure their fees and expenses were paid prior to other creditors such as trade creditors and pension funds," citing paragraphs 131 and 210 of the Amended Complaint. But paragraph 131 merely states that the S & W Defendants negligently failed to make certain pension fund payments in 2004 and 2005 which harmed the hospital, not that they did so in order to ensure that their own fees and expenses could be paid, and paragraph 210 merely states a legal conclusion. Thus, while the Amended Complaint clearly pleads fraud against Saint Vincent, it does not allege facts to show any actual intent to defraud any of the hospital's creditors.

For these reasons, the eighth and thirteenth causes of action are dismissed for failure to state a cause of action, pursuant to CPLR 3211 (a) (7), and for failure to plead fraud with the requisite particularity, pursuant to CPLR 3016 (b).

(9)Subject Matter Jurisdiction Over the Bankruptcy Code Fraudulent Transfer Claims

Defendants argue that the seventh and eighth causes of action, which allege fraudulent transfers in violation of Bankruptcy Code § 548, and the tenth, eleventh, twelfth, thirteenth and fourteenth causes of action to the extent they seek relief under Bankruptcy Code § 550 (a), must all be dismissed on the ground that they fall within the exclusive jurisdiction of the bankruptcy courts.

There is no doubt that a fraudulent conveyance claim under the Bankruptcy Code is considered to be a "core proceeding." 28 USC § 157 (b) (2) (H); see also In re Boss-Linco Lines Inc., 55 BR 299, 305 (Bank WD NY 1985); 1800Postcards, Inc. v Morel, 153 F Supp 2d 359, 366 (SD NY 2001) (A core proceeding is one "that involves rights created by bankruptcy law, or that could arise only in a bankruptcy case"). However, the classification of a proceeding as core or non-core does not determine the court's jurisdiction, but relates to whether the bankruptcy court may enter a final order or judgment. 28 USC § 157 (c); In re Resorts Intl., Inc., 372 F3d 154, 162-63 (3d Cir 2004); In re EXDS, Inc., 352 BR 731, 732 n 1 (Bankr D Del 2006). The United States Code provides that although the federal district courts [FN3] have original and exclusive jurisdiction over "all cases under title 11," i.e., the bankruptcy case itself (28 USC § 1334 [a]) and all property of the debtor where a bankruptcy case has been commenced or is pending (28 USC § 1334 [e] [1]), the district courts "shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 USC § 1334 (b).

The cases cited by defendants for the proposition that the bankruptcy courts have exclusive jurisdiction over core proceedings are all distinguishable. Carr v McGriff (8 AD3d 420 [2d Dept 2004]), merely stands for the unremarkable proposition that bankruptcy courts have exclusive jurisdiction to grant relief with respect to the automatic stay. In re Murphy (331 BR 107 [Bank SD NY 2005]), involved an adversary proceeding that had been brought in bankruptcy court by a chapter 7 trustee seeking to avoid a town's tax forfeiture of a debtor's residential real estate as a fraudulent conveyance under Bankruptcy Code § 548. The town moved to intervene, and sought dismissal of the claim on principles of comity in deference to local taxation, and the court, in denying that [*15]defense, ruled only that the trustee would have no other venue in which to pursue the Section 548 claim if the court were to dismiss the proceeding. Finally, the bankruptcy court in In re PRS Ins. Group, Inc. (335 BR 77, 84 [Bank D Del 2005]), determined that it need not dismiss an adversary proceeding alleging that a proof of claim filed by the subsidiary of an insurance holding company was a fraudulent conveyance in deference to state court liquidation proceedings involving the subsidiary, because whether the allowance of the subsidiary's claim and the amount to be distributed from the estate on that claim are within the exclusive province of the bankruptcy court.

None of the case law cited by defendants support their argument that the Supreme Court of the State of New York either lacks subject matter jurisdiction or is pre-empted from exercising such jurisdiction over federal statutory fraudulent conveyance claims, in a situation where a plan of reorganization has been approved and put into place, and, as part of that reorganization, the debtor has assigned the right to bring "all claims, rights . . , and causes of action, including claims, rights, or causes of action arising out of or under chapter 5 of the Bankruptcy Code, that could have been brought or raised by or on behalf of the Debtors"[FN4] against certain entities to a litigation trust benefitting the official creditors committee.

(10)Dismissal of All Claims For Relief Under Bankruptcy Code § 550 (a)

Defendants further argue that, even if the underlying Bankruptcy Code claims are not dismissed, dismissal of the ninth and fourteenth causes of action is appropriate, because plaintiff fails to allege that any recovery would be "for the benefit of the [bankruptcy] estate," as required by Bankruptcy Code § 550 (a). To the contrary, plaintiff alleges that the debtors' rights were assigned to the Creditors Committee, who assigned those rights to the SVCMC Litigation Trust, and that any recovery would be "for the benefit of the Saint Vincent bankruptcy estate." Amended Complaint, at pp. 74-75. At oral argument of this motion, defense counsel contended that "[a] group of speculators . . . bought these claims at a big discount. Those are the ones prosecuting this claim, not St. Vincent's. So any recovery is going to Gray Associates not St. Vincent's." Tr. at 39. However, the documentary evidence submitted in opposition to this motion, namely the First Amended Plan of Reorganization (Gogel Aff., Exh. 17) and the SVCMC Litigation Trust Agreement (id., Exh. 20) provide that the ultimate beneficiaries of a successful litigation are, first, the unsecured creditors, second, medical malpractice claimants and, third, the hospital's pension funds.[FN5]

(11)Civil Conspiracy

Civil conspiracy is not recognized as an independent tort in New York. Steier v Schreiber, 25 AD3d 519, 522 (1st Dept 2006); Shared Communications Servs. of ESR, Inc. v Goldman Sachs & Co., 23 AD3d 162, 163 (1st Dept 2005); Bell v Alden Owners, Inc., 299 AD2d 207, 209 (1st Dept 2002), lv denied 100 NY2d 506 (2003). Here, plaintiff alleges that all of the defendants participated [*16]in the underlying torts, and the twentieth cause of action for civil conspiracy is merely repetitive of those other causes of action and must be dismissed. This is not a situation, such as in Gross v Empire Healthchoice Assur., Inc. (16 Misc 3d 1112(A), 847 NYS2d 896 [Sup Ct, NY County 2007]), where civil conspiracy allegations were permitted only to connect the individual actions of separate defendants with an otherwise actionable tort. Thus, this cause of action is dismissed.

(12)Punitive Damages

"The limitation of an award for punitive damages to conduct directed at the general public applies only in breach of contract cases, not in tort cases for breach of fiduciary duty." Don Buchwald & Associates, Inc. v Rich, 281 AD2d 329, 330 (1st Dept 2001), citing

Sherry Assocs. v Sherry-Netherland, Inc., 273 AD2d 14, 15 (1st Dept 2000). "Punitive damages are available in a tort action where the wrongdoing is intentional or deliberate, has circumstances of aggravation or outrage, has a fraudulent or evil motive, or is in such conscious disregard of the rights of another that it is deemed willful and wanton." Swersky v Dreyer & Traub, 219 AD2d 321, 328 (1st Dept 1996), citing Prozeralik v Capital Cities Communications, Inc., 82 NY2d 466, 479 (1993).

The Amended Complaint alleges that the tortious acts of the defendants, some acting as corporate fiduciaries, were undertaken and performed intentionally and secretly, with wanton disregard for the rights of a venerable New York charitable institution that has devoted itself to providing medical care for the poor and uninsured citizens of New York, and at a time when the hospital was in the midst of a major financial crisis and could ill afford to pay millions of dollars for financial advisory services that is now alleged to have been worthless as well as harmful. If these allegations prove true, the trier of fact could well conclude that punitive damages are warranted.

(13)Plaintiff's Corporate Status and Security For Costs Pursuant to CPLR 8501

Defendants rightly point out that, in the entire 77-page Amended Complaint, plaintiff fails to include any party allegations describing itself as a limited liability company, pursuant to CPLR 3015(b), and that it may not be able to maintain this action if it is an unregistered foreign company doing business in New York. See NY Limited Liability Company Law § 808(a). In opposition to the motion, plaintiff has submitted documentary proof that it is a Maryland limited liability company, in good standing in that state, and that, on May 1, 2008, it received a certificate of authority to do business in New York. Thus, plaintiff has cured what is a non-jurisdiction defect by obtaining the requisite authority to maintain this lawsuit. Tri-Terminal Corp. v CITC Indus., Inc., 78 AD2d 609 (1st Dept 1980) (interpreting BCL 1312, the analogous door-closing statute for foreign corporations).

Defendants also ask the court to order plaintiff to post a $20,000 bond pursuant to both subsections of CPLR 8501. Although the posting of a bond as security for costs is no longer mandated by plaintiff's status as an unlicensed foreign company pursuant to CPLR 8501 (a), the court still has discretion to order the posting of a bond, pursuant to CPLR 8501 (b) due to plaintiff's status as a "trustee for the benefit of creditors. I find that a bond in this amount is appropriate, because the Amended Complaint raises numerous and complex claims against the defendants and the document discovery to date has been quite voluminous and the electronic discovery contemplated by the parties is estimated to be very expensive. The prevailing party may be able to recover some or all of these duplication costs and computer forensic fees as taxable disbursements at the conclusion of this case.For the foregoing reasons, it is hereby

ORDERED that defendants' motion to dismiss the Amended Complaint is granted with respect to the second cause of action as against Speltz & Weis LLC, and the third, eighth, [*17]thirteenth, seventeenth and twentieth causes of action, which are hereby dismissed, and the motion is denied in all other respects; and it is further

ORDERED that defendants shall serve and file an answer to the Amended Complaint within twenty (20) days of service of a copy of this order with notice of entry; and it is further

ORDERED that plaintiff Gray & Associates, LLC shall, within ten (10) days of service of a copy of this order with notice of entry, either (1) pay into the Court the sum of $20,000 to be applied to the payment of statutory costs and allowable disbursements, if any, awarded against the plaintiff in this action, or (2) at its election, file with the Clerk of the

Court an undertaking with sufficient surety in a like amount to be applied to the payment of statutory costs and allowable disbursements, if any, awarded against the plaintiff in this action.

Dated:February 2, 2009

ENTER:

__________________________________

J.S.C. Footnotes

Footnote 1: To the extent that defendants argue for dismissal of the eighteenth cause of action, which alleges negligent misrepresentations on the part of the S & W Defendants, on the ground that the relationship between S & W and Saint Vincent was merely an "arms-length business relationship," I reject those arguments and defendants' reliance on Atkins Nutritionals, Inc. v Ernst & Young, LLP (301 AD2d 547 [2d Dept 2003]).

Footnote 2:The McDermott firm's breaches of duty are described in great detail in Judge Hardin's August 29, 2007 decision by which he substantially reduced the McDermott firm's legal fee award in the bankruptcy proceeding. See "Decision on Objections to Application For Fees and Expenses," Gogel Aff., Exh. 19 at pp. 25-26. Since none of the defendants herein were parties to that proceeding nor called to testify, Judge Hardin's decision is instructive only as raising inferences favorable to the plaintiff's claims.

Footnote 3:Although subject matter jurisdiction is vested in the district courts, cases and proceedings are referred or delegated to the bankruptcy courts. 28 USC §§ 151, 157.

Footnote 4:Quoting from Article 1.75 of the debtors' First Amended Plan of Reorganization, Gogel Aff., Exh. 17 at p.12.

Footnote 5:In a subsequent submission, defense counsel admits that "the interests of [Saint Vincent] and Plaintiff are clearly aligned if Plaintiff recovers, so does [Saint Vincent]. . . ." Memo. of Law in Support of Defendants' Motion to Partially Vacate the September 4, 2008 Ruling of Special Referee Howard G. Leventhal, dated September 9, 2008, at p. 11.