Alexander Infusion, LLC v Professional Home Care Servs., Inc.

[*1] Alexander Infusion, LLC v Professional Home Care Servs., Inc. 2009 NY Slip Op 52498(U) [25 Misc 3d 1240(A)] Decided on October 26, 2009 Supreme Court, Nassau County Driscoll, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 26, 2009
Supreme Court, Nassau County

Alexander Infusion, LLC, Plaintiff,

against

Professional Home Care Services, Inc., Defendant.



006855-09



Plaintiffs' counsel: Johnson & Associates

Defendants' counsel: Bonner, Kiernan, Trebach & Croci

Timothy S. Driscoll, J.

This matter is before the court on the motion by Defendant, filed on August 10, 2009 and submitted August 21, 2009 for an Order dismissing the Second Cause of Action in the Complaint on the grounds that the Second Cause of Action does not plead with particularity the circumstances constituting the alleged fraud. For the reasons set forth below, the Court denies Defendant's motion to dismiss the second cause of action in the Complaint.

BACKGROUND

A. Relief Sought

Defendant Professional Home Care Services, Inc. ("PHCS") moves for an Order, pursuant to CPLR §§ 3211(a)(7) and 3016(b), dismissing the Second Cause of Action in the Complaint on the grounds that the Second Cause of Action does not plead with particularity the circumstances constituting the alleged fraud. Plaintiff opposes Defendant's motion.

B. The Parties' History

Plaintiff's Complaint, filed on or about April 10, 2009, alleges as follows:

Plaintiff Alexander Infusion LLC ("Alexander Infusion") is a New York limited [*2]liability company that, inter alia, provides licensed home health care and pharmacy services. Alexander Infusion has an office located in Nassau County, New York. PHCS is a Delaware corporation that transacts business in the State of New York.

On or about June 20, 2008, Alexander Infusion and PHCS entered into a written agreement ("Purchase Agreement"), pursuant to which, inter alia, PHCS would acquire all the membership interests in Alexander Infusion, and Alexander Infusion would assign certain of its licenses and leases to PHCS. Pursuant to this Purchase Agreement, PHCS was to pay to Alexander Infusion a total of not less than $12,125,000, in the form of cash and the assumption of certain liabilities. The Purchase Agreement provided that the closing for PHCS' acquisition, as described above, was to take place within three (3) business days of Alexander Infusion satisfying certain conditions, or PHCS' waiver of this requirement.

Pursuant to the Purchase Agreement, PHCS was permitted to terminate that Agreement only 1) if one hundred eighty (180) days had passed since June 20, 2008; 2) Alexander Infusion became unable to comply with a condition, through no fault of PCHS; or 3) there was an occurrence that had a materially adverse effect on Alexander Infusion's financial condition.

As of October 27, 2008, Alexander Infusion had fully performed its obligations under the Purchase Agreement by, inter alia, 1) taking all necessary actions to transfer the membership interests to PHCS; 2) taking all necessary actions to transfer the licenses and leases to PHCS;3) providing PHCS with all information that PHCS requested of Alexander Infusion;4) converting its accounting computer software to software that was compatible with PHCS'; and 5) providing PHCS with access to Alexander Infusion's financial books and records.

On October 27, 2008, PHCS sent a letter to Alexander Infusion ("Termination Letter") terminating the Purchase Agreement on the grounds that 1) Alexander Infusion was unable to satisfy one or more of the conditions precedent to closing on the Purchase Agreement; and2) there were occurrences that materially affected Alexander Infusion's financial condition.Alexander Infusion alleges, however, that, on or before October 27, 2008, PHCS waived Alexander Infusion's performance of the conditions to which the Termination Letter referred. In light of this waiver, there were no conditions precedent that Alexander Infusion had to satisfy prior to the closing and PHCS' refusal to close constituted a breach of its obligations pursuant to the Purchase Agreement. Alexander Infusion alleges, further, that PCHS in fact terminated the Purchase Agreement due to PCHS' inability to raise money for the acquisition contemplated by the Purchase Agreement, as well as similar acquisitions.

The first cause of action is for breach of contract, for PCHS' allegedly unreasonable refusal to close under the Purchase Agreement. Alexander Infusion seeks damages of not less than $3,500,000 ($3.5 million) on that cause of action.

The second cause of action is for common law fraud. In addition to the factual allegations outlined supra, Alexander Infusion alleges, inter alia, that 1) beginning on or before June 20, 2008, a representative of Critical Homecare Solutions, Inc. ("CHS"), acting on behalf of PHCS, repeatedly advised representatives of Alexander Infusion that PHCS would purchase all the membership interests in Alexander Infusion; 2) beginning on or before June 20, 2008, representatives of CHS, acting on behalf of PHCS, repeatedly advised representatives of Alexander Infusion that Alexander Infusion had satisfactorily responded to PHCS' inquiries regarding Alexander Infusion's finances and operation; 3) beginning on or before June 20, 2008, [*3]legal counsel for PHCS repeatedly advised Alexander Infusion's legal counsel that PHCS had sufficient assets to close pursuant to the Purchase Agreement, and would proceed with the closing, even if PHCS lacked sufficient assets to make other similar acquisitions; 4) PHCS knew or had reason to know that the above representations were false; 5) Alexander Infusion reasonably relied on these false representations in deciding to enter into the Purchase Agreement; and 6) as a result of this reasonable reliance, Alexander Infusion suffered damages. The damages allegedly flowed, inter alia, from 1) Alexander Infusion's principal pharmaceutical wholesaler terminating it as a customer, 2) Alexander Infusion's loss of the services of key employees and incurrence of the costs of hiring replacement employees, 3) Alexander Infusion's incurrence of legal and accounting fees, and 4) the decline of Alexander Infusion's financial strength.

Notably, paragraph 10.7 of the Purchase Agreement, titled "Governing Law," provides as follows:

In all respects, including all matters of construction, validity and performance, this

Agreement shall be governed by, and construed and enforced in accordance with,

the internal laws of the State of Delaware applicable to contracts made and performed

in that State (without regard to the choice of law or conflicts of law provisions thereof)and any applicable laws of the United States of America.

C. The Parties' Positions

Preliminarily, Plaintiff argues that, because the fraud claim in the second cause of action is "separate and distinct" from the breach of contract claim in the first cause of action, and is not founded on the terms of the Purchase Agreement, New York common law governs the second cause of action. Although Defendant's position on this issue is unclear, Defendant does submit that the issue is not significant because the applicable substantive law of fraud is essentially the same in New York and Delaware. The motion papers reflect the parties' agreement that the procedural aspects of this litigation are governed by New York law, and, therefore, that the Court should apply New York CPLR § 3016(b), and other relevant sections of the CPLR, in determining the sufficiency of the second cause of action.

Defendant submits that Plaintiff has failed to plead, with specificity, all of the required elements to maintain a cause of action for common law fraud. Specifically, Defendant contends that Plaintiff has not pled with specificity that: 1) the representations made by PHCS were false; 2) that PHCS knew they were false when made or made them with reckless indifference to the truths; and 3) PHCS had the intent to defraud Alexander Infusion at the time the alleged misrepresentations were made.

Defendant argues, further, that Plaintiff has failed to 1) specify the exact nature of the alleged misrepresentations; or 2) provide details regarding those alleged misrepresentations including the dates and content of the alleged misrepresentations. Defendant also submits that PHCS' alleged misrepresentations regarding its proposed purchase of the membership interests, including its ability to raise funding, are not the type of promises that can constitute fraud.

Plaintiff submits that the allegations in the Complaint, which are outlined supra, [*4]provide the required degree of specificity. Plaintiff also argues that fraud, by its nature, rests on facts exclusively within the knowledge of the defendant and a plaintiff must draw inferences and deductions from the circumstances constituting the alleged fraud. Finally, Plaintiff disputes Defendant's contention that PHCS' alleged misrepresentations are merely opinions or statements of future intention that do not constitute fraud.

RULING OF THE COURT

A. Delaware Substantive Law Applies to the First and Second Causes of Action

The Court concludes that the "Governing Law" provision in the Purchase Agreement reflects the parties' intent that Delaware law apply to all the substantive issues related to the Agreement, including whether PHCS engaged in fraudulent conduct during the negotiation and execution of that Agreement. When the parties to a contract have set down their agreement in a clear and complete document, the document should, as a rule, be enforced according to its terms. Heinrich v. Phazar Antenna Corp., 33 AD3d 864, 865 (2d Dept. 2006). The Court concludes that the Governing Law Provision reflects the parties' agreement that the Court should apply substantive Delaware law to the first and second causes of action in the Complaint.

B. Standards for Dismissal and Particularity

It is well settled that a motion interposed pursuant to CPLR §3211 (a)(7), which seeks to dismiss a complaint for failure to state a cause of action, must be denied if the factual allegations contained in the complaint constitute a cause of action cognizable at law. Guggenheimer v Ginzburg, 43 NY2d 268 (1977); 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 (2002). When entertaining such an application, the Court must liberally construe the pleading. In so doing, the Court must accept the facts alleged as true and accord to the plaintiff every favorable inference which may be drawn therefrom. Leon v Martinez, 84 NY2d 83 (1994).

An action for fraud must be pled "with particularity, including specific dates and items, if necessary and insofar as practicable." CPLR § 3016(b). Conclusory allegations of fraud will not be sufficient. Sargiss v. Magarelli, 50 AD3d 1117 (2d Dept. 2008); Dumas v. Fiorito, 13 AD3d 332 (2d Dept. 2004). It is sufficient, however, to plead facts that would allow a reasonable inference of the alleged fraud. Pludeman v. Northern Leasing Systems, Inc., 10 NY3d 486 (2008).

C. Elements of Fraud

In Delaware, the elements of a cause of action for common law fraud are: 1) a false representation, usually one of fact, made by the defendant, 2) the defendant's knowledge or belief that the representation was false, or was made with reckless indifference to the truth, 3) an intent to induce the plaintiff to act or to refrain from acting, 4) the plaintiff's action or inaction taken in justifiable reliance upon the representation, and 5) damages to the plaintiff as a result of such reliance. Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992).[FN1]

PHCS cites certain cases in support of its argument that its alleged misrepresentations regarding its purchase of the membership interests of Alexander Infusion, or its ability to raise capital to make similar purchases, are not the type of statements that can [*5]constitute fraud. In one such case, plaintiff ("Trust") claimed that the board of a holding company engaged in an imprudent business strategy that rendered the holding company and its top subsidiary insolvent. Trenwick America Litigation Trust v. Ernst & Young, 906 A.2d 168, 172 (Del. Ch. 2006). Trust had been created during the reorganization plan for the subsidiary, and was assigned all causes of action that the subsidiary owned. Id.

The complaint contained allegations that the directors of parent and subsidiary companies acted together fraudulently to conceal certain information regarding the financial condition and true value of certain companies. Id. at 208. The court, in holding that the allegations lacked the requisite specificity for a fraud claim, observed that "Notably absent from the complaint are particularized allegations identifying what aspects of [the relevant] financial statements were tainted by improper accounting practices, when those financial statements were made public, and the circumstances that suggest that any inaccuracies were intentional, rather than good faith mistakes in estimation." Id.

By contrast, Plaintiff cites Houbigant, Inc. v. Deloitte & Touche LLP, 303 AD2d 92 (1st Dept. 2003), in support of its claim that it has alleged the fraud claim with adequate particularity. In Houbigant, the Court held:

The language of CPLR 3016(b) requires that a claim of fraud be pleaded in sufficient

detail to give adequate notice [citations omitted]. Indeed, the Court of Appeals has

specifically noted that this rule "is not to be interpreted so strictly as to prevent an

otherwise valid cause of action in situations where it may be impossible to state

in detail the circumstances constituting a fraud [citations omitted].'"

Id. at 97-98.[FN2]

Here, although the Court views Plaintiff's allegations of fraud as somewhat thin, those allegations are nevertheless sufficiently pled in accordance under both CPLR § 3016 and the substantive law of the state of Delaware. As set forth above, Plaintiff's allegations include1) beginning on or before June 20, 2008, a representative of Critical Homecare Solutions, Inc. ("CHS"), acting on behalf of PHCS, repeatedly advised representatives of Alexander Infusion that PHCS would purchase all the membership interests in Alexander Infusion; 2) beginning on or before June 20, 2008, representatives of CHS, acting on behalf of PHCS, repeatedly advised representatives of Alexander Infusion that Alexander Infusion had satisfactorily responded to PHCS' inquiries regarding Alexander Infusion's finances and operation; 3) beginning on or before June 20, 2008, legal counsel for PHCS repeatedly advised Alexander Infusion's legal counsel that PHCS had sufficient assets to close pursuant to the [*6]Purchase Agreement, and would proceed with the closing, even if PHCS lacked sufficient assets to make other similar acquisitions; 4) PHCS knew or had reason to know that the above representations were false; 5) Alexander Infusion reasonably relied on these false representations in deciding to enter into the Purchase Agreement; and 6) as a result of this reasonable reliance, Alexander Infusion suffered damages. These allegations are sufficiently particular, and state a cause of action for fraud. Accordingly, the Court denies Defendant's motion to dismiss the second cause of action in the Complaint.

All matters not decided herein are hereby denied.

This constitutes the decision and order of the Court.

The Court directs counsel for the parties to appear before the Court for a Preliminary

Conference on December 8, 2009 at 9:30 a.m.

ENTER

DATED: Mineola, NY

October 26, 2009

__________________________

HON. TIMOTHY S. DRISCOLL

J.S.C. Footnotes

Footnote 1: These elements are substantially similar to those in New York. See, e.g., Richmond Shop Smart, Inc. V. Kenbar Development Center, 32 AD2d 3d 423 (2d Dept. 2006).

Footnote 2:PHCS also cites Great Lakes v. Pharmacia Corporation, 788 A.2d 544 (Del. Ch. 2001) in which defendants argued that plaintiff had not sufficiently pled that defendant knew that its representations or omissions were material or false when they were made. Id. at 553. This Court views Great Lakes as distinguishable from the matter at bar, in light of the numerous disclaimer provisions in the purchase agreement at issue in Great Lakes, id. at 551-552, which are not present in the matter sub judice.