Otto v Melman

[*1] Otto v Melman 2009 NY Slip Op 52421(U) [25 Misc 3d 1235(A)] Decided on December 2, 2009 Supreme Court, Queens County Markey, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 2, 2009
Supreme Court, Queens County

John Otto, Plaintiff,

against

Arnold Melman, Defendant.



8371/09



Appearances:

For the Plaintiff: Goldstein & Greenlaw, LLP, by Abbey Goldstein, Esq., 118-35 Queens Blvd., Forest Hills, NY 111375

For the Defendant: David S. Hammer, Esq., 99 Park Avenue, New York, NY 10016



Charles J. Markey, J.

In the present case, defendant Arnold Melman has moved for an order pursuant to CPLR 3211(a)(1), (5), and (7) dismissing the complaint against him.

The complaint, whose only cause of action is for breach of fiduciary duty, makes the following allegations: Plaintiff John Otto received medical treatment from defendant Arnold Melman, a urologist, beginning about ten years ago and ending in June, 2006. During an office visit, Melman informed Otto that he and George Christ had organized a new company, Ion Channel Innovations, LLC, for the purpose of developing a new drug and that the company would welcome new investors. Melman had knowledge about the nature of the new drug being developed by Ion and of the procedures for testing and marketing it which Otto lacked. Melman knew that Otto relied upon him regarding the wisdom and value of investing in the new company, and he knew further that but for the physician-patient relationship, Otto would not invest in Ion.

The complaint further contends that Otto invested a total of $1,075,000 in Ion at a time when he depended on Melman for medical services that were of a "highly specialized nature." To date, Otto has received no return on his investment which he made at "a cost that was disproportionate to its value." Melman, according to the complaint, committed a breach of fiduciary duty when he induced Otto to invest in Ion.

The Court turns first to that branch of the motion which the defendant brought pursuant to CPLR 3211(a)(5). The plaintiff purchased his shares in six separate installments covering a period of approximately three years. The last investment occurred on January 21, 2004. CPLR 214, which has a three-year statute of limitations period, applies to a cause of action for breach of fiduciary duty which seeks only monetary damages. See, Kaufman v Cohen, 307 AD2d 113. The plaintiff did not bring this action until on or about April 2, 2009 when he filed a summons with notice. However, the statutory period applicable to a cause of action for breach of fiduciary duty "does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated ***." Westchester Religious Institute v Kamerman, 262 AD2d 131, 131-132; see, People ex rel. Spitzer ex rel. Ultimate Charitable Beneficiaries v Ben, 55 AD3d 1306.

The complaint alleges that the plaintiff had a physician-patient relationship with the defendant "commencing about ten years ago and continuing until June of 2006," and the defendant admits, "For a number of years, ending in June 2006, John Otto was my patient." The plaintiff timely commenced this action, though just two months before the statute of limitations expired. [*2]

Accordingly, that branch of the motion which is for an order pursuant to CPLR 3211(a)(5) dismissing the complaint on Statute of Limitations grounds is denied.

The Court turns next to that branch of the motion which the defendant brought pursuant to CPLR 3211(a)(7). "It is well-settled that on a motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7), the pleading is to be liberally construed, accepting all the facts alleged in the complaint to be true and according the plaintiff the benefit of every possible favorable inference***." Jacobs v Macy's East, Inc., 262 AD2d 607, 608; Leon v Martinez, 84 NY2d 83. Nevertheless, on a CPLR 3211(a)(7) motion, the court need not accept as true "allegations consisting of bare legal conclusions, as well as factual claims that are inherently incredible or flatly contradicted by documentary evidence ***." Kaisman v Hernandez, 61 AD3d 565, 566; see, Kliebert v McKoan, 228 AD2d 232.

Courts do not determine the merits of a cause of action on a CPLR 3211(a)(7) motion (see, Stukuls v State of New York, 42 NY2d 272; Jacobs v Macy's East Inc., supra ) and will not examine affidavits submitted on a CPLR 3211(a)(7) motion for the purpose of determining whether there is evidentiary support for the pleading. See, Rovello v Orofino Realty Co., Inc., 40 NY2d 633. The plaintiff may submit affidavits and evidentiary material on a CPLR 3211(a)(7) motion for the limited purpose of correcting defects in the complaint. See, Rovello v Orofino Realty Co., Inc., supra ; Kenneth R. v Roman Catholic Diocese of Brooklyn, 229 AD2d 159.

The elements of a cause of action for breach of fiduciary duty are:

(1) the existence of a fiduciary relationship,

(2) misconduct by the defendant, and

(3) damages directly caused by the defendant's misconduct. See, Daly v Kochanowicz, ___ AD3d ___, 884 NYS2d 144; Fitzpatrick House III, LLC v Neighborhood Youth & Family Services, 55 AD3d 664; Kurtzman v Bergstol, 40 AD3d 588.

The complaint must also adequately allege domination and control by the fiduciary and reliance by the plaintiff. (See, People ex rel. Cuomo v Coventry First LLC, 13 NY3d 108; Doe v Roman Catholic Diocese of Rochester, 12 NY3d 764; Marmelstein v Kehillat New Hempstead, 11 NY3d 15.)

The issues presented by this CPLR 3211(a)(7) motion are whether the complaint adequately alleges (1) that Melman had a fiduciary relationship with Otto, (2) that the investment transaction was within the scope of the fiduciary relationship, and (3) that Melman committed misconduct, i.e., a breach of duty imposed by the fiduciary relationship.

A physician-patient relationship is a fiduciary one concerning matters within the scope of that relationship. "A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation' ***." EBC I, Inc. v Goldman Sachs & Co., 5 NY3d 11, 19, quoting Restatement [Second] of Torts § 874, Comment a; see, People ex rel. Cuomo v Coventry First LLC, supra ; Marmelstein v Kehillat New Hempstead, supra ; Mandelblatt v Devon Stores, Inc., 132 AD2d 162. "It exists only when a person reposes a high level of confidence and reliance in another, who thereby exercises control and dominance over him ***." People ex rel. Cuomo v Coventry First LLC , supra , 115. "[T]wo essential elements of a fiduciary relation are ... de facto control and dominance ***." Marmelstein v Kehillat New Hempstead, supra , 21 [internal quotation marks omitted].

A physician "stands in a relationship of confidence and trust to his patient" and a "special [*3]relationship akin to a fiduciary bond *** exists between the physician and patient." Aufrichtig v Lowell, 85 NY2d 540, 546. "The relationship of physician and patient has its foundation on the theory that a physician is learned, skilled, and experienced in those subjects about which the patient ordinarily knows little or nothing, but which are of the most vital importance and interest to him, and therefore the patient must necessarily place great reliance, faith, and confidence in the professional word, advice, and acts of the physician or other practitioner. Thus, the physician-patient relationship is a fiduciary one, based on trust and confidence and obligating the physician to exercise good faith." 61 Am Jur 2d, "Physicians, Surgeons, Etc." § 142; see, 83A NY Jur 2d, "Physicians, Etc.," § 194.

A breach of fiduciary duty is a tort. See, Sergeants Benev. Ass'n Annuity Fund v Renck, 19 AD3d 107. "One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation." Restatement (Second) of Torts § 874; see, Sergeants Benev. Ass'n Annuity Fund v Renck, supra . "[L]iability for breach of a fiduciary duty is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation' ***." Sergeants Benev. Ass'n Annuity Fund v Renck, supra , quoting Restatement [Second] of Torts § 874, Comment b.

In the case at bar, defendant Melman's service to plaintiff Otto as a physician and as a fiduciary did not include the solicitation of the latter for investment in the new drug company. Such solicitation was not one of the " matters within the scope of the relation." Defendant Mellman's "control and dominance" over plaintiff Otto arose from the former's position as the latter's medical doctor, not his investment adviser. The complaint lacks sufficient allegations that Otto came under Melman's dominance and control in regard to financial matters. See, Doe v Roman Catholic Diocese of Rochester, supra ; Marmelstein v Kehillat New Hempstead, supra . Otto's participation in an entrepreneurial adventure is so distinct from his employment of Mellman for medical treatment that there is no " liability to the other for harm resulting from a breach of duty imposed by the relation." The complaint does not adequately state a cause of action for the tort of breach of fiduciary duty.

This Court is mindful that financial transactions between a physician and his patient will be given judicial scrutiny. "The peculiar duty of good faith and fair dealing of the physician with the patient, which arises out of the relation of trust and confidence which exists between them, does not extend only to the professional obligation of the physician to the patient, but extends also to other transactions between patient and physician." 61 Am Jur 2d, "Physicians, Surgeons, Etc.," § 142. A court will scrutinize all transactions between a physician and a patient to assure fairness. See, 83A NY Jur 2d. "Physicians, Etc.," § 194; 61 Am Jur 2d, "Physicians, Surgeons, Etc.," § 143. However, the case at bar is distinguishable from those in which a party sought to set aside a deed or a gift or other transaction on the ground of undue influence or unfairness. See, e.g., In re Gordon's Estate, 17 AD2d 165 [government bonds and savings and loan association account gifted from 81-year-old mother and stroke victim to her physician son]; Shurman v Look, 63 Cal App 347 [deed to physician]; Ostertag v Donovan, 331 P2d 355 [gift of stock certificates].)

In the case at bar, the plaintiff is not seeking to set aside the transaction he entered into with his physician, but rather to impose liability for general and punitive damages upon him for breach of fiduciary duty. While transactions outside of the scope of a fiduciary relationship can be set aside on the grounds of undue influence, etc., the rule imposing liability for breach of fiduciary duty contemplates matters coming within "the scope of the relation." See, Restatement [Second] of Torts § 874, Comment a. [*4]

The Court is also mindful that defendant Melman's conduct toward plaintiff Otto may have been objectionable as a matter of medical ethics. Opinion 8.062 of the Code of Medical Ethics, "Sale of Non-Health Related Goods from Physicians' Offices," provides: "The sale of non-health-related goods by physicians presents a conflict of interest and threatens to erode the primary obligation of physicians to serve the interests of patients before their own. Furthermore, the activity risks placing undue pressure on the patient and risks demeaning the practice of medicine." However, Opinion 8.062 does not strictly forbid all non-medical transactions between a physician and a patient, and its language ("risks," "threatens") is merely cautionary. The Court's independent legal research has not found any case holding that a violation of Opinion 8.062 rose to the level of a breach of fiduciary duty.

Accordingly, that branch of the motion which is for an order pursuant to CPLR 3211(a)(7) dismissing the complaint is granted.

The Court turns, finally, to that branch of the motion which the plaintiff brought pursuant to CPLR 3211(a)(1). In order to prevail on a CPLR 3211(a)(1) motion, the documentary evidence submitted "must be such that it resolves all the factual issues as a matter of law and conclusively and definitively disposes of the plaintiff's claim ***." Fernandez v Cigna Property and Casualty Insurance Company, 188 AD2d 700,702; Vanderminden v Vanderminden, 226 AD2d 1037; Bronxville Knolls, Inc. v Webster Town Center Partnership, 221 AD2d 248. Although affidavits may be used on a CPLR 3211(a)(1) motion as "connecting links," affidavits may not be used as proof in themselves of a fact in issue. See, Realty Investors of USA Inc. v Bhaidaswala, 254 AD2d 603; Standard Charted Bank v D. Chabbott, Inc., 178 AD2d 112; 7 Weinstein-Korn-Miller, NY Civ Prac ¶ 3211.06.Melman supplied Otto with a document captioned "Confidential Private Offering Memorandum" before the latter made his investments. In relevant part, the document reads in bold-faced, large type capitals:

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING INCLUDING THE RELATIVE MERITS AND RISKS INVOLVED. *** AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THESE SECURITIES ARE HIGHLY SPECULATIVE AND SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER RISK FACTORS' BEFORE PURCHASING SUCH SECURITIES.

The memorandum then discusses the risk factors over three pages before the section concludes with another strongly worded bold faced warning. The plaintiff failed to produce evidence sufficient to show that there is a genuine issue of fact concerning whether he was so under the domination and control of the defendant that the disclosures and warnings in the Confidential Private Offering Memorandum had no meaning for him. In the case at bar, the plaintiff failed to show that genuine issues of fact pertaining to the elements of reliance, domination, and control exist. The documentary evidence submitted by the defendant, left unrebutted by the plaintiff, effectively disposes of the claim of breach of fiduciary duty.

Accordingly, that branch of the motion which is for an order pursuant to CPLR 3211(a)(1) dismissing the complaint is granted. [*5]

Short form order signed herewith.

_____________________________

J.S.C.