Micro Bio-Medics, Inc. v Westchester Med. Ctr.
Annotate this CaseDecided on June 18, 2004
Supreme Court, Westchester County
MICRO BIO-MEDICS, INC., d/b/a CALIGOR HOSPITAL SUPPLY, Plaintiff,
against
WESTCHESTER MEDICAL CENTER and ST. AGNES MANAGEMENT LLC, Defendants.
9578/03
KRAMER LEVIN NAFTALIS
& FRANKEL LLP
Attorneys for Defendants
919 Third Avenue
New York, New York 10022
EISEMAN LEVINE
LEHRHAUPT & KAKOYIANNIS
Attorneys for Plaintiff
845 Third Avenue
New York, New York 10022
Kenneth W. Rudolph, J.
This is an action to recover payment for medical supplies provided by plaintiff to St. Agnes Hospital for which no payments were made since October 2002.
In its amended verified complaint, plaintiff asserts eight causes of action against defendants. Six causes of action are asserted as against defendant Westchester Medical Center (WMC) based on the alleged liability of WMC for the debts of St. Agnes Hospital as St. Agnes Hospital's successor under the de facto merger doctrine. Plaintiff asserts two causes of action against both defendants, alleging quantum meruit and unjust enrichment in which plaintiff contends that WMC was running the Hospital through defendant St. Agnes Management, LLC (SAM).
In August 1996, plaintiff Caligor and St. Agnes Hospital (Hospital) entered into a contract pursuant to which Caligor would provide healthcare products and supplies to the Hospital. In May 2001, the contract was renewed for an additional five years.
In December 2001, the Hospital entered into a contract with defendant SAM for management services for the Hospital.
In April 2003, as more particularly set forth below, St. Agnes Hospital ceased operating as a hospital and WMC obtained emergency authority to operate an acute care facility on the Hospital's property which was leased to WMC.
In April 2003, plaintiff commenced an action against the Hospital for breach of contract based on the Hospital's failure to pay for supplies delivered by plaintiff, The Hospital defaulted and a default judgment was entered on June 5, 2003, in the amount of $1,275,480.86, including interest to June 30, 2003.
This action was commenced in June 2003. Plaintiff alleges that WMC formed SAM and caused SAM to enter into a management agreement with St. Agnes Hospital, and that WMC through SAM effectively took over all day to day operations of the hospital including purchasing, and then in April 2003, WMC changed the name of the hospital to Westchester Medical Center White Plains Division, hired all of the hospital's employees that had not been laid off and continued running the hospital with the same management team that was in place under the management agreement. Plaintiff seeks to hold WMC liable for the debts of [*2]the Hospital on a theory of de facto merger establishing WMC's successor liability for the Hospital's debts. Plaintiff alleges that WMC first operated the hospital through its subsidiary SAM, and then operated the hospital directly, and that in reality WMC has effectively merged with St. Agnes. Defendants assert that there was no de facto merger and that there is no liability on behalf of either WMC or SAM for the amounts claimed to be due to plaintiff. Defendants have provided numerous contracts and leases in support of its position as set forth below.
In December 2001, during the period of Caligor's contract renewal, defendant SAM was formed by WMC-CS Inc (a wholly owned subsidiary of WCHHC) and Catholic Health Care System of Hudson Valley ("CHCS), (an entity unrelated to WCHHC). On January 9, 2002, SAM then entered into a three-year agreement with St. Agnes Hospital (the "Management Agreement"), pursuant to which SAM was managing authority for the Hospital and was to to provide the Hospital with management services including a Chief Executive Officer (CEO) and Chief Financial Officer(CFO) who were to be employees of the Manager or an Independent Contractor, and not employees of St. Agnes Hospital.
The contract provided in relevant part that SAM was to "conduct, supervise and effectively manage the day to day operations of Hospital" [Article 1.2] and that "Hospital shall be and remain the owner and holder of all licenses, contracts, certificates and accreditations relating to Hospital's operation" [Article 1.2(I]).
SAM's responsibilities included the following: (1) to arrange for and oversee payment of payroll, trade accounts, and all other obligations of St. Agnes, further providing that "Nothing contained in this Agreement shall be construed to... constitute either party as a guarantor with respect to any obligations of the other party..." [Article 1.3(d)]; (2) for "management of all purchases and leases of equipment, drugs, supplies and all materials and services in the ordinary course of business" and further providing that "Hospital shall be solely responsible for payment therefor" [Article 1.3(h). The contract further provided that SAM would be paid a management fee and that St. Agnes "shall continue to pay the costs and expenses associated with hospital, including those costs of operating Hospital that are expended by Manager in fulfilling its duties under this agreement" [Article 6.1].(Emphasis Added).
In April 2003, allegedly due to the Hospital's financial problems, St. Agnes Hospital entered into a "Settlement Agreement" with the Dormitory Authority of the State of New York [*3](DASNY) from which the Hospital had borrowed money to operate the Hospital. The Agreement recites that a foreclosure action is to be commenced by DASNY, that the Hospital had no defense to the action, and that both parties sought to expeditiously conclude the foreclosure action. St. Agnes Hospital agreed to convey the property to DASNY by deed in lieu of foreclosure and to transfer portions of the mortgaged property, including the acute care facility, to one or more temporary or replacement operators, and DASNY consented to lease of the acute care facility to WMC [Para. 1(c)]. Pursuant to this agreement, St. Agnes Hospital was required to surrender its operating certificate and cease operations [Para. 1(f)], and the Hospital agreed to lease its premises to Westchester Medical Center ("WMC") which is operated by WCHCC, a public benefit corporation. The Hospital was also required to deposit all rents and gross receipts into a Pledge Fund and assign all of its rights to this money to DASNY [Paragraph l(e)(I), (ii), (iii) and (iv)] and required St. Agnes Hospital to put its assets in a lock box that would be operated by DASNY. This settlement agreement was approved by the Department of Health ("DOH").
WMC applied to the DOH for a license to operate 100 beds on the St. Agnes Hospital premises and also entered into a Funding Agreement with DOH and DASNY dated April 9, 2003 to provide funding to WMC to run the 100 beds. On April 4, 2003, emergency approval was granted to Westchester Medical Center on the St. Agnes Hospital site to be operated as a division of the Westchester Medical Center. The Hospital entered into a lease agreement with WMC on April 10, 2003, for $1 plus payment of real estate taxes (pursuant to Para. 4 and 5 of the DASNY Agreement) for use as a not-for-profit hospital (paragraph 6). On April 10, 2003 WCHCC commenced operation of l00 beds as part of the Medical Center, and called the site the Westchester Medical Center, White Plains Pavilion ("White Plains Pavilion").
The Funding Agreement between WMC and DASNY provides that "Nothing in this Agreement shall be construed to give the Medical Center any rights under the Settlement Agreement or the Lock Box Documents...or to any moneys in the Pledge Fund established in connection with such Agreement or to make the Medical Center a third-party beneficiary of such Settlement Agreement (Para. 5) and that "[t]he Medical Center is not expected nor required to provide any direct financial support to the Acute Care Facility from the Medical Center's Revenue, other than revenue earned from services provided at, or other revenues derived from the Acute Care Facility, to support the operation of the Acute Care Facility...[paragraph 3(c)] (emphasis added). [*4]
On September 19, 2003, WCHCC sought permission from DOH to close the White Plains Pavilion. That request was granted on September 23, 2003, and the site was then closed on October 10, 2003.
Plaintiff alleges six causes of action against WMC based on the de facto merger doctrine: "to enforce default judgment (successor liability)" in which plaintiff seeks the amount of the $1,275,480.86 default judgment obtained against St. Agnes' Hospital (first cause of action); for goods sold and delivered (pursuant to CPLR 3016(f) and for account stated in the amount of $936,523.79 representing goods ordered by the St. Agnes Hospital between October 2002 and April 2003 (second and third causes of action); for good sold and delivered and for breach of contract beginning in January 2000 in the amount of $213,970.37 (fourth cause of action); for breach of plaintiff's contract with St. Agnes Hospital between January 2000 and April 2003 in the amount of $1,222.671.16 (fifth cause of action); and for quantum meruit based on the fair and reasonable value of the goods and services ordered by St. Agnes Hospital in the amount of $1,162,671 (sixth cause of action).
Plaintiff contends that WMC controlled the Hospital through the management agreement with SAM and therefore WMC had responsibility for the Hospital's day to day operations, and that in April 2003, WMC began operating the Hospital directly as the Westchester Medical Center
White Plains Division. Plaintiff contends that WMC effectively merged with St. Agnes Hospital and continued running the business of the Hospital without interruption, that the Hospital has become a mere empty shell, and that the lease was the vehicle by which WMC implemented its takeover of St. Agnes.
"The de facto merger doctrine creates an exception to the general principle that an acquiring corporation does not become responsible thereby for the pre-existing liabilities of the acquired corporation. This doctrine is applied when the acquiring corporation has not purchased another corporation merely for the purpose of holding it as a subsidiary, but rather has effectively merged with the
acquired corporation. The hallmarks of a de facto merger include: continuity of ownership; cessation of ordinary business and dissolution of the acquired corporation as soon as possible; [*5]assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity of management, personnel, physical location, assets and
general business operation ( cite omitted ). Not all of these elements are necessary to find a de facto merger. Courts will look to whether the acquiring corporation was seeking to obtain for itself intangible assets such as good will, trademarks, patents, customer lists and the right to use the acquired corporation's name (cite omitted). The concept upon which this doctrine is based is 'that a successor that effectively takes over a company in its entirety should carry the predecessor's liabilities as a concomitant to the benefits it derives from the good will purchased' (cite omitted). So long as the acquired corporation is shorn of its assets and has become, in essence, a shell, legal dissolution is not necessary before a finding of a de facto merger will be made (cites omitted)." (Fitzgerald v. Fahnestock & Co., 286 AD2d 573, 574-575, [1st Dep't., 2001]).
"While factors such as shareholder and management continuity will be evidence that a de facto merger has occurred (cite omitted) those factors alone should not be determinative. 'It is apparent from the nature of the inquiry required that the court is to make, on a case-by- case basis, an analysis of the weight and impact of a multitude of factors that relate to the corporate creation, succession, dissolution, and successorship' (cite omitted)" (Sweatland v Park, 181 AD2d 243, 246 [4th Dept., 1992]).
Based on the above documentary evidence movant has demonstrated prima facie its entitlement to summary judgment with respect to defendant WMC as to the first six causes of action which are based on de facto merger. The terms of these documents demonstrate that WMC did not purchase or acquire the assets of St. Agnes Hospital, but that it merely leased the property and commenced its own hospital operations there. There was no sale or transfer of assets to WMC. St. Agnes did not dissolve. The assets of St. Agnes were pledged to DASNY. There is no common ownership or continuity of ownership. WMC did not assume the name of St. Agnes Hospital or agree to assume its liabilities, and St. Agnes Hospital did not dissolve but continued as an [*6]independent entity although it had ceased its hospital operations.
In opposition, plaintiff asserts that discovery is necessary in order to discover facts which are in the exclusive knowledge of defendants and would support the existence of a de facto merger.
Plaintiff has now been provided with all relevant contracts including the operating agreement for SAM, financial statements of WCHCC as of December 31, 2002 and 2001, and all other documents and agreements referred to herein.
Discovery requests served prior to service of this motion requested, inter alia, information concerning the formation and operation of SAM, and WMC's involvement, SAM's management agreement and performance of the contract with Caligor, WMC's decision to take over operations of St. Agnes Hospital and the Hospital's operating results during WMC's tenure. However, plaintiff has failed to identify any evidentiary basis to suggest that discovery may lead to relevant evidence, and plaintiff's "mere hope" that further discovery will reveal the existence of triable issues of fact is insufficient to delay determination on the issue of summary judgment. (See Wyllie v. District Attorney of County of Kings, 2 AD3d 714 [2d Dept., 2003]). Plaintiff must show that "there was a likelihood of discovery leading to such evidence, i.e., that facts 'may' exist but cannot be stated at that time." (Frierson, v. Concourse Plaza Associates, 189 AD2d 609, 610 ([lst Dept., 1993]). Plaintiff has failed to make such a showing on this motion, and has failed to raise any genuine triable issues of fact as to the claims in the first six causes of action.
Plaintiff alleges that, regardless of WMC successor liability, plaintiff provided goods and services directly to WMC thorough its subsidiary and alter-ego SAM which ordered the goods from plaintiff, that WMC and SAM obtained the benefits of receipt of the goods and that they have been unjustly enriched in the amount of the
fair and reasonable value of the goods used by them, and that they are therefore liable in quantum meruit (seventh cause of action) and for unjust enrichment (eighth cause of action).
Pursuant to the terms of SAM's 2001 management contract with St. Agnes Hospital, the Hospital was the owner and holder of all contracts relating to the hospital's operations(Article [*7]1.2(I), and the Hospital was to remain solely responsible for payment of costs of operating the Hospital (see Articles 1.3(d)], 1.3(h), and 6.1, supra). SAM never entered into any agreement with Caligor.
"'To prevail on a claim of unjust enrichment, [a] plaintiff must show that (1) defendant was enriched (2) at plaintiff's expense, and (3) that 'it is against equity and good conscience to permit defendant to retain what is sought to be recovered'(cite omitted). Notably, it is the plaintiff's burden to 'demonstrate that services were performed for the defendant resulting in [the latter's] unjust enrichment' (cite omitted) and the mere fact that the plaintiff's activities bestowed a benefit on the defendant is insufficient to establish a cause of action for unjust enrichment (cite omitted)."( Clark v. Daby, 300 AD2d 732 [3rd Dept., 2002], lv. den. 100 NY2d 503 [2003]).
"In order to make out a cause of action in quantum meruit or quasi contract, a plaintiff must establish (1) the performance of services in good faith; (2) the acceptance of those services by the person to whom they are rendered; (3) an expectation of compensation therefor; and (4) the reasonable value of the services (cites omitted)." Landcom, Inc., v. Galen-Lyons Joint Landfill Commission, 259 AD2d 967, 968.
Based on the terms of the contracts between St. Agnes Hospital and plaintiff, and between SAM and St. Agnes Hospital, plaintiff's goods and services were supplied to and were accepted by the Hospital and not supplied to or accepted by SAM (or WMC through SAM).
Further, neither of these claims will lie where there is an express contract governing the subject matter of the contract . A claim for unjust enrichment is precluded where there is an express contract governing the same subject matter, even if the party seeking to dismiss the claim is not a party to the contract (see e.g. Vitale v. Steinberg, 307 AD2d 107, 111; see also Bellino Schwartz Padob Adv. v Solaris Mktg. Group, 222 AD2d 313; Feigen v. Advance Capital Mgt., 150 AD2d 281, 283, lv dismissed, lv denied 74 NY2d 874). Quantum
meruit,"only applies in the absence of an express agreement ( Landcom, Inc., v. Galen-Lyons Joint Landfill Commission, 259 AD2d 967, 968). Since there is an express contract between plaintiff and St. Agnes Hospital, these claims may not be asserted against WMC and SAM.
[*8]
Plaintiff has not raised any genuine triable issues of fact as to these claims, or demonstrated that discovery will reveal more than a "mere hope" that further discovery will reveal any genuine triable issues of fact. (See e.g. Wyllie v. District Attorney of County of Kings, 2 AD3d 714 ( [2d Dept., 2003]); Frierson v. Concourse Plaza Associates, 189 AD2d 609 [lst Dept., 1993]).
Accordingly, defendants' motion for summary judgment is granted, and all claims are dismissed.
The foregoing constitutes the Decision and Order of this Court.
Dated: White Plains, New York
June 18, 2004
E N T E R,
___________________________
HON. KENNETH W. RUDOLPH
Justice of the Supreme Court
TO:
KRAMER LEVIN NAFTALIS
& FRANKEL LLP
Attorneys for Defendants
919 Third Avenue
New York, New York 10022
EISEMAN LEVINE
LEHRHAUPT & KAKOYIANNIS
Attorneys for Plaintiff
845 Third Avenue
New York, New York 10022
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