Lower Manhattan Dialysis Ctr., Inc. v Lantz

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Lower Manhattan Dialysis Ctr., Inc. v Lantz 2012 NY Slip Op 33477(U) April 16, 2012 Sup Ct, NY County Docket Number: 602547/07 Judge: Barbara R. Kapnick Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 04/17/2012 1] INDEX NO. 602547/2007 NYSCEF DOC. NO. 45 RECEIVED NYSCEF: 04/17/2012 SUPREME COURT OF THE STATE_OJ: NEW YORK r~ __BARBARA R. KAPNICK - NEW YORK COUNTY PART~ lI Index Number: 602547/2007 LOWER MANHATTAN DIALYSIS ! VS. I INDEX NO. SEQUENCE NUMBER : 003 ¢ I MOTION SEQ. NO. DISMISS I MOTION CAL. NO. LANTZ, JOHN P., M;D. / 1 '================::::=::=J -------- '"- Notice of Motion/ Order to Show Cause - L --~-) Affidavits - MOTION DA TE motion t o / f o r - - - - - - - Exhibits ... -n e z Answering Affidavits - E x h i b i t s - - - - - - - - - - - - - en Cross-Motion: 0 cs: w a: " Replying A f f i d a v i t s - - - - - - - - - - - - - - - - - D Yes V o Upon the foregoing papers, it is ordered that this motion wz o- ~~ "' ::> ...J .., 0 0 u.. MOTION IS DECIDED IN ACCORDANCE WITH ACCOMPANYING MEMORANDUM DECISION w c l::c w a: a: a: 0 I- ~ u.. w a: > ...J ...J ::> u.. l- o w a.. en w a: en w en cs: 0 z 0 l- o ~ Dated: --'-1(+-/_!~--+-ft_L.... _ __ _ PAPERS NUMBERED [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IA PART 39 --------------------------------------x LOWER MANHATTAN DIALYSIS CENTER, INC., L-M DIALYSIS CORPORATION, LANTZ-MATALON CHINATOWN ASSOCIATES, INC. and CHINATOWN DIALYSIS CENTER, LLC, Plaintiffs, DECISION/ORDER Index No. 602547/07 Motion Seq. No. 003 -againstJOHN P. LANTZ, M.D. and MARIE LANTZ, Defendants. --------------------------------------x JOHN P. LANTZ, M.D. and MARIE LANTZ, Counterclaim Plaintiffs, -againstLOWER MANHATTAN DIALYSIS CENTER, INC., LANTZ-MATALON CHINATOWN ASSOCIATES, INC., CHINATOWN DIALYSIS CENTER, LLC, ROBERT MATALON, M. D., Counterclaim Defendants. --------------------------------------x BARBARA R. KAPNICK, J.: Before the Court is counterclaim defendants' motion to dismiss the counterclaims, to strike prejudicial material unnecessarily inserted in a pleading, and to preclude expert depositions. At the outset, the Court notes that defendant/counterclaim plaintiff John P. Lantz, M.D. 2009, after the commencement ("Dr. Lantz") passed away on June 1, of this litigation. His widow, defendant/counterclaim plaintiff Marie Lantz ("Mrs. Lantz") stated 1 [* 3] in her papers that she moved pursuant to CPLR 1021 to substitute the Estate of Dr. Lantz However J it outcome is (the "Estate") unclear when was. that Nevertheless, for her deceased husband. motion Mrs. was Lantz, made who and what the prosecutes the counterclaims in her capacity as executor of the Estate, was the attorney-in-fact for Dr. Lantz under a power of attorney which granted her all of the rights, powers and privileges of Dr. Lantz as a shareholder of Lower Manhattan Dialysis Center, Inc. and Lantz-Matalon Chinatown Associates, life. (Amended Counterclaims, ~~ Inc. ("LMCA") ("LMDC") during his 1-2.) In 1985, Dr. Lantz and counterclaim defendant Robert Matalon, M.D. ("Dr. Matalon") organized LMDC as an independent, free- standing dialysis center in order to provide out-patient dialysis care. A decade later, Drs. Lantz and Ma talon established additional dialysis center, L-M Dialysis Corporation ("L-M"). an Ors. Lantz and Matalon were the sole, equal shareholders of both LMDC and L-M. (Verified Complaint, Thereafter, in 2001, ~~ Ors. 4, 5.) Lantz Chinatown Dialysis Center, LLC ("CDC"), standing dialysis center, located Lafayette Street ("150 Lafayette"). 2 at and al~o Matalon established an independent, free- 9-11 Crosby Street/150 LMCA holds the lease for 150 [* 4] Lafayette and CDC is its only subtenant . 1 i (Verified 6; Amended Counterclaims, ! H Complaint, <j[ i 13). <j[ I From 2001 until his death on June 1",,' 2009' Dr. Lantz was i gravely ill and required around-the-clock care at his home in New I Jersey. (Amended Counterclaims, <j[ 14.) i ~ l ~ ! The counterclaim plaintiffs assert that, unbeknownst to them, i between 2005 and 2007, Dr. Matalon was eng~ged in the negotiation j of a lease Lafayette. buy-out (the "Buyout") withj the landlord of 150 Further, the counterclaim plaintiffs allege and Dr . ., Matalon admits that Dr. Matalon did not inform either Dr. or Mrs. Lantz of the proposed Buyout until after all negotiations with the landlord were finalized. Lapatine Affirm., (Amended ' Counterclaims, . <j[<j[ 17, 18; I Matalon]). Ex. Nat 174:20-176:5 ![Deposition of Robert While it seems from the Amended Counterclaims and the Declaration of Marie Lantz, sworn to on s·eptember 9, 2007, that i Mrs. Lantz first learned of the Buyout negoiiations on May 20, 2007 when she signed the Buyout Agreement, the Cburt notes that counsel I for Dr. and Mrs. Lantz states in a letter dated July 23, 2007 that l Mrs. l Lantz and her family "were not notified of the $15,000,000 u 1 Currently, Dr. Matalon holds a 100% knterest in both LMDC and LMCA. (Amended Counterclaims, <j[ 8.) ~LMDC owns a ninety percent (90%) membership interest in CDC. (Verified Complaint, <j[ 6.) 3 [* 5] lease buyout [2007]." until approximately (Lapatine Affirm., Lantz and Errata thereto], Ex. Ex. two weeks prior to May 20, E [9/9/07 Declaration of Marie I [7 /23/07 Letter from Jerome A. Deener, Esq. to Arthur Katz, Esq.], Ex. L [Amended Counterclaims]). On May 20, 2007, Dr. Matalon called Mrs. Lantz and asked to visit the Lantz home that same day. allege that during this visit, Lantz sign a one-page Dr. handwritten Matalon, authorizing the Buyout and anticipated $15 million (Amended Counterclaims, ~~ The counterclaim plaintiffs Ma talon agreement, governi~g proceeds 20, 22). requested that Mrs. (the drafted by Dr. the allocation of the "Buyout Agreement"). Also present at this meeting were the adult children of Dr. and Mrs. Lantz, Pericles and Athena Lantz, both of whom are physicians. 2 (Lapatine Affirm, Ex. E, ~~ 6, 10-11 [Declaration of Marie Lantz]). During Dr. Matalon's visit to the Lantz home, Dr. Matalon, in his capacity as shareholder of LMDC, L-M and LMCA, and Mrs. Lantz, as attorney-in-fact for Dr. Lantz in his capacity as shareholder of those same entities, entered into the Buyout Agreement, which provided, in pertinent part, that: (1) 2 [LMCA] will be bought out of its lease at Although physically present in another room at their home at the time of the "meeting," Dr. Lantz was very ill and unresponsive and, therefore, did not participate. [* 6] 150 Lafayette Street, NY, NY, currently the site of the [CDC], for the sum of 15 million dollars. The proceeds will be disbursed as follows: (a) 4 million dollars will be set aside in LMDC for the relocation, renovation and reequiping [sic] of [CDC] and related costs (the "Set-aside Provision") (b) the remaining 11 million dollars will be divided equally between John P. Lantz and Robert Matalon, except that: (c) up to 10% of the 11 million dollars, less; expenses including professional fees and other related costs, to be paid to Miriam Sinitzky in recognition of her future role in the operation and expansion of LMDC and related entities. Although neither Dr. Matalon nor Dr. or Mrs. Lantz had the benefit of legal counsel at the time of the signing of the Buyout Agreement, both had previously been represented by counsel in other matters between the parties. (Declaration of Marie Lantz, ~ 14). The counterclaim plaintiffs allege that the day after signing the Buyout Agreement, gain clarification of Mrs. the Lantz consulted with her attorney to terms of the Buyout Agreement. Thereafter, Mrs. Lantz, through counsel, contacted Dr. Matalon to inform him that Dr. Lantz's half of the $4 million to be set-aside 5 [* 7] for the relocation, renovation and re-equipping of CDC (the "Setaside") should investment. be treated Counsel for as a Ors. loan Lantz as opposed to a capital and Ma talon continued to communicate regarding this issue over the course of the four months following the Counterclaims, execution ~~ of the Buyout Agreement. (Amended 26, 28.) Although copies were not provided to the Court, the lease and sublease cancellation documents were apparently executed on June 26, 2007, more than a month after entered into the Buyout Agreement. Memo. of Law in Support, p. 4.) Dr. Matalon and Mrs. Lantz (See Counterclaim defendants' Almost two weeks earlier, on June 12, 2007, counterclaim plaintiffs' attorney received a copy of the near-final drafts of the documents to be executed in connection with the cancellation of the lease and sublease. Ex. (Beitel Deel. , H.) The counterclaim plaintiffs contend that Dr. Matalon knew or should have known that Dr. Lantz's half of the $4 million Set-aside would be treated as a loan because Dr. Lantz was unlikely to live long enough to reap the benefits of any capital investments in LMDC or CDC. (Amended Counterclaims, ~ 6 2 9.) [* 8] On July 27, 2007, plaintiffs commenced this action alleging two causes of action, but according to counsel, all that is left in this case are the counterclaims. (3/24/11 Oral Arg. Tr. at 4:17- 5: 21.) On August 9, 2010, the counterclaim plaintiffs filed their Amended Counterclaims for (1) breach of fiduciary duty; and breach of implied covenant of good faith and fair dealing. (2) The counterclaim plaintiffs request relief in the form of fifty percent (50%) of the $4 million Set-aside, an accounting, and compensatory and consequential damages. Counterclaim defendants now move this Court: (a) pursuant to CPLR 3211 (a) (1) and (7) to dismiss the Amended Counterclaims on the grounds that (i) they fail to state a cause of action, (ii) they are barred by documentary evidence, and (iii) that no cause of action is asserted by Mrs. Lantz in her individual capacity; (b) pursuant to CPLR 3024 to unnecessarily inserted in a (c) pursuant to precluding CPLR 3101, pre-trial strike plea~ing; 3103 expert submission of any testimony, witnesses, prejudicial ¢ and matter and 4515 for depositions an and order the including that of expert as to the construction or interpretation of 7 [* 9] the Shareholders Consent, dated May 20, grounds that expert testimony is 2007, upon the impermissible and extraneous given that the issues before this Court solely involve the interpretation and enforcement of an unambiguous contract, which is a matter of law. Motion to Dismiss It is well settled that on a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction. We accept the facts as alleged in the complaint [or counterclaim] as true, accord plaintiffs the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Under CPLR 3211 (a) (1), a dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law. In assessing a motion under CPLR 3211(a) (7), however, a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint and the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one. Leon v. Martinez, 84 NY2d 83, 87-88 (1994) quotation marks omitted). conclusions, with no (internal citations and Allegations consisting of bare legal factual specificity, insufficient to survive a motion to dismiss." however, "are Godfrey v. Spano, 13 NY3d 358, 373 (2009); (citing Caniglia v. Chicago Tribune N.Y. News Syndicate, 204 AD2d 233, 233-34 [1st Dep't 1994]). 8 [* 10] Breach of Fiduciary Duty The counterclaim plaintiffs allege that Dr. Matalon breached his fiduciary duty by (1) not presenting the buyout opportunity to Dr. Lantz at the time he was approached by~ and negotiating with, the landlord; question as (2) treating Dr. Lantz' s share of the $4 million in a capital disclose to Dr. investment or Mrs. in CDC, Lantz how Dr. million Set-aside was spent. and Lantz' s ( 3) failing to share of the $4 (Amended Counterclaims, ~~ 35, 37, 38.) "To plead a claim for breach of fiduciary duty, plaintiff must allege the (1) misconduct by existence defendant; defendant's misconduct." (SONY Feb. 23, 2011) of and a fiduciary (3) damages relationship; directly caused ( 2) by Kohler v. Errico, 2011 WL 1077722, at *8 (citing Rut v. Young Adult Inst., Inc., 74 AD3d 776, 777 [2d Dep' t 2010]). New York courts recognize that the "'relationship between shareholders in a close corporation, vis-a-vis each other, is akin to that between partners and imposes a high degree of fidelity and good faith.'" Brunetti v. Musallam, 11 A.D.3d 280, 281 (1st Dep't 2004) (citing Fender v. Prescott, 101 A.D.2d 418, ij 1984), aff'd, 64 NY2d 1077, 1079 (1985)). ;, 9 422 (l5t Dep't [* 11] The duty of conduct that a fiduciary requires undiluted loyalty. I II a fiduciary the beneficiary of a to Frame v. Maynard, 2011) (citations omitted). with "imposes stringent act with standard of 'undivided 83 AD3d 599, 602 nst Thus, " ... 'when a fiduciary . the duty in a matter relating and Dep' t deals to the fiduciary relationship, the fiduciary is strictly obligated to make "full disclosure" of all material facts,' meaning those "that could reasonably bear on [the beneficiary's] consideration of [the fiduciary's] offer.'" (Id.) Here, there is no dispute that Ors. each other a fiduciary duty. Matalon and Lantz owed Thus, the Court must consider whether the counterclaim plaintiffs have sufficiently alleged a claim for breach of fiduciary duty against Dr. Matalon. Dr. Matalon was engaged in negotiating the Buyout with the landlord of 150 Lafayette between 2005 and 2007. Dr. or Mrs. He did not inform Lantz about the negotiations until after the final terms of the Buyout had been reached. Al though there ambiguity in the record about when exactly, and Dr. Lantz, is some on behalf of herself Mrs. Lantz first learned of the Buyout proposal, there is no dispute that Dr. Matalon did ultimately present the Buyout to the Lantz family for their approval and that Mrs. Lantz did in fact sign the Agreement. 10 [* 12] Further, the Court notes that Mrs. Lantz has not alleged duress and has admitted under oath that she freely entered into the Buyout Agreement. (Lapatine Affirm., [5/6/08 Deposition of Marie Lantz]). weeks passed between Mrs. Lantz Ex. G at 109:17 Moreover, approximately five first consul ting with regarding the meaning of the Buyout Agreement and Dr. execution of the lease cancellation documents. foregoing, 112:24 counsel Matalon's In light of the the Court finds that Dr. Matalon's presentation of the landlord's offer to Dr. and Mrs. Lantz, while perhaps dilatory, cannot constitute a breach of his fiduciary duty. The Court will next consider counterclaim plaintiffs' argument that Dr. Ma talon "breached his fiduciary duty to Dr. Lantz by treating Dr. Lantz's share of the $4,000,000 governed by the Set~ Aside Provision as a capital reinvestment in CDC," as opposed to a loan. a According to counterclaim plaintiffs, "[s]uch treatment is breach of interests unlikely fiduciary above to those survive capital counterclaim of long reinvestment" regard, judicial duty Dr. in that Lantz enough to it who places was enjoy plaintiffs interpretation of an argue allegedly that Matalon's seriously the (Amended Counterclaims, Dr. benefits <JI "ambiguous and of any In this merely seek 37) . they ill contractual provision through examination of extrinsic evidence of the parties' intent at the time the contract was entered into." 11 (Counterclaim [* 13] Plaintiffs' Memo. of Law in Opp., pp. 17-18). To this end, the Court must first look to the four corners of the Buyout Agreement to interpret its meaning and determine whether it is ambiguous, as counterclaim plaintiffs argue. 77 NY2d 157, 162 See W.W.W. Assoc. v. Giancontieri, (1990). Under New York law, a contract is ambiguous if "on its face [it] is reasonably susceptible of more than one interpretation." Telerep, LLC v. U.S. Intl Media, LLC, 2010) (internal citation omitted). 74 AD3d 401, 402 (1st Dep't "A contractual provision is not ambiguous merely because the parties urge different interpretations of it." 2004) Pfizer, Inc. v. Stryker Corp., 348 FSupp2d 131, 142 (SONY (applying New York law). If a court concludes that a contract is ambiguous, "it cannot be construed as a matter of law." Telerep, LLC v. U.S. On the other Intl Media, LLC, hand, "[a] supra at 402. contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion (citation omitted)." LLC, supra at 402 On its face, Telerep, LLC v. U.S. Int'l Media, (internal quotations omitted) the Buyout Agreement 12 uses language which is [* 14] "definite and misconception precise" in the and purport is of" reasonable basis for counterclaim Set-aside was intended to be because the Buyout Agreement "unattended the by danger agreement. There is of no plaintiffs' allegation that the treated is as silent a loan, most notably regarding an applicable interest rate, maturity date of the principal or other repayment terms. Therefore, fiduciary duty by the argument that not treating the Dr. Ma talon breached his Set-aside as a loan is unavailing and is hereby rejected. Lastly, the Court will consider counterclaim plaintiffs' argument that Dr. Matalon breached his fiduciary duty by failing to disclose how Dr. Lantz's half of the Set-aside was spent. Counterclaim defendants contend that this information was produced to counterclaim plaintiffs on June 18, 2010 and August 2, 2010, and additional counterclaim records were plaintiffs counterclaim plaintiffs made on do available September not refute for 14, this inspection 2010. statement by Because in their opposition papers, this allegation is rejected. Accordingly, counterclaim plaintiffs' first counterclaim for breach of fiduciary duty is dismissed. 13 [* 15] J Breach of the Implied Covenant of Good Faith and Fair Dealing ~ The counterclaim plaintiffs next l allege that Dr. Ma talon breached the implied covenant of good faith and fair dealing by treating Dr. Lantz' s share of the Set-aside funds as a ~ as opposed to a loan. ~ investment in CDC, A Further, Dr. capital Ma talon ~ allegedly breached the ' implied covenant O,f good faith and fair dealing by refusing to repay with interest~Dr. Lantz's $2 million I ~ share of the Set-aside funds Counterclaims, ~~ upon Dr. Lantz' s death. (Amended 42, 44.) The Court of Appeals has articulated "the well-established principle that the implied covenant of good faith and fair dealing will be enforced only to the extent ! it is ~ consistent with the ,, provisions of Ellington Mgt. the contract. " Group, L.L. C., Phoenix : Capital i 51 AD3d 54 9' 550 Invs. LLC v. (2008) (citing to Q Q Murphy v. American Home Prods. Corp., 58 NY2d 293, 304 [1983]). For the same reasons discussed supra regarding the meaning of the Buyout Agreement, it cannot be alleged that Dr. Matalon breached the implied covenant of good faith and fair dealing. Therefore, the second counterclaim is also dismissed.: ¢ Motion to Strike Prejudicial Matter from Pleading Counterclaim defendants further argue that paragraph 31 and decretal paragraph 2 of the Counterclaims ,are false and should be ~ 14 [* 16] stricken from the pleadings. Paragraph 31 states that "Dr. Matalon never provided [the counterclaim plaintiffs] with an accounting of Dr. Lantz's share of the $4,000,000 [actually $3,745,635.39] governed by the Set Aside Provision of the Lease Buyout Agreement.u Decretal paragraph 2 contains counterclaim .plaintiffs' request for an accounting related to same. Counterclaim defendants contend that the information at issue was produced to counterclaim plaintiffs on June 18, 2010 and August 2, 2010. additional In addition, records were counterclaim defendants available made for assert that inspection by counterclaim plaintiffs on September 14, 2010. ~ Counterclaim plaintiffs do not oppose the foregoing argument in their opposition papers. motion to strike the Accordingly, counterclaim defendants' language contained in paragraph 31 and decretal paragraph 2 of the Counterclaims is hereby granted. Motion to Preclude Expert Testimony Counterclaim depositions and Buyout Agreement. defendants testimony also regarding moved the to preclude interpretation In light of the Court's findings above, not necessary to reach this issue. 15 expert of the it is [* 17] Accordingly, counterclaims is counterclaim defendants' granted, and the motion to dismiss the Amended Counterclaims are dismissed with prejudice and without costs or disbursements. The Clerk shall enter judgment accordingly. Moreover, Paragraph 31 and Decretal Paragraph 2 are stricken from the Amended Counterclaims. That portion of the motion seeking to preclude expert depositions and testimony is denied as moot. This constitutes the decision and order of this Court. Date: April /b, Ba~iek 2012 J. s.c. ~It KAPNtet\ J.s.c. 16

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