Wallkill Medical Development, LLC v. Catskill Orange Orthopaedics

In an action, inter alia, to recover damages for breach of a lease, breach of fiduciary duty, and fraudulent misrepresentation, the defendants Catskill Orange Orthopaedics, P.C., Bonehead, Inc. South, Bradley Wiener, Ronald Israelski, Charles Episalla, and Eric Martin appeal, as limited by their brief, from so much of an order of the Supreme Court, Orange County (Marx, J.), dated July 25, 2013, as granted those branches of the plaintiff’s motion which were for a preliminary injunction and an order of attachment and denied those branches of their cross motion which were pursuant to CPLR

Ordered that the order is modified, on the law, (1) by deleting the provision thereof granting that branch of the plaintiff’s motion which was for an order of attachment, and (2) by deleting the provision thereof granting the cross motion of the defendant Charles Peralo pursuant CPLR 3211 (a) to dismiss the amended complaint insofar as asserted against him, and substituting therefor a provision denying that cross motion; as so modified, the order is affirmed insofar as appealed from, with one bill of costs to the plaintiff, and the matter is remitted to the Supreme Court, Orange County, for a hearing on that branch of the plaintiff’s motion which was for an order of attachment and a new determination of that branch of the motion thereafter.

The plaintiff, Wallkill Medical Development, LLC (hereinafter Wallkill Medical), was formed in or about 2004 for the purpose of constructing and thereafter owning a medical office building (hereinafter the medical building). The defendant Bonehead, Inc. South (hereinafter Bonehead, Inc.), owns a 15% membership interest in Wallkill Medical. The shareholders of Bonehead, Inc., are the individual defendants, Bradley Wiener, Ronald Israelski, Charles Episalla, Charles Peralo, and Eric Martin (hereinafter collectively the individual defendants).

In approximately 2006, the defendant Catskill Orange Orthopaedics, P.C. (hereinafter Catskill Orange), a medical practice owned by the individual defendants, began occupying space in the medical building pursuant to a 10-year lease with Wallkill Medical. As provided for in Wallkill Medical’s restated operating agreement (hereinafter the operating agreement), Catskill Orange entered into the lease as Bonehead, Inc.’s “Member Affiliate.” In 2011, Catskill Orange allegedly began experiencing financial difficulties when Peralo surrendered his medical license. In early 2013, Catskill Orange notified Wallkill Medical of its intent to default under the lease and vacate the leased space in the medical building.

Wallkill Medical commenced this action to recover damages, inter alia, for breach of the lease, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent misrepre

Contrary to the contention of the Catskill Orange defendants, the Supreme Court properly denied those branches of their cross motion which were pursuant to CPLR 3211 (a) (7) to dismiss the causes of action alleging breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, and fraudulent concealment insofar as asserted against them.

In considering a motion to dismiss a complaint pursuant to CPLR 3211 (a) (7), the court must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Non-non v City of New York, 9 NY3d 825 , 827 [2007]; Leon v Martinez, 84 NY2d 83 , 87-88 [1994]; Paolicelli v Fieldbridge Assoc., LLC, 120 AD3d 643 , 644 [2014]). Applying this standard here, Wallkill Medical sufficiently alleged “special circumstances” that, if proven, would transform the parties’ business relationship into a fiduciary one (see AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6 , 21 [2008]). The amended complaint alleges that the individual defendants are both officers and shareholders of Catskill Orange, a tenant of the medical building, and of Bonehead, Inc., a member of Wallkill Medical. The amended complaint also alleges that, pursuant to the operating agreement, Catskill Orange is a “Member Affiliate” and an “Affiliated Lessee” of Wallkill Medical, that the individual defendants are members of Wallkill Medical “through defendant Bonehead,” and that the individual defendants executed the operating agreement in their individual capacities. Furthermore, the amended complaint alleges that Wallkill Medical pledged the Catskill Orange lease as security for its mortgage. Through an affidavit submitted in opposition to the Catskill Orange defendants’ motion, the plaintiff asserts that

The amended complaint also sufficiently pleads the remaining elements of the causes of action alleging breach of fiduciary duty and aiding and abetting breach of fiduciary duty (see AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d at 22 ; Nathanson v Nathanson, 20 AD3d 403 , 404 [2005]; see also Operative Cake Corp. v Nassour, 21 AD3d 1020 , 1021 [2005]; Don Buchwald & Assoc., Inc. v Marber-Rich, 11 AD3d 277 , 278-279 [2004]), fraudulent concealment (see Consolidated Bus Tr., Inc. v Treiber Group, LLC, 97 AD3d 778 , 779 [2012]; High Tides, LLC v DeMichele, 88 AD3d 954 , 957 [2011]), negligent misrepresentation (see RBE N. Funding, Inc. v Stone Mtn. Holdings, LLC, 78 AD3d 807 , 809-810 [2010]), and fraudulent misrepresentation (see McDonnell v Bradley, 109 AD3d 592 , 593-594 [2013]; Kaufman v Cohen, 307 AD2d 113 , 120 [2003]), as against the Catskill Orange defendants. Additionally, the amended complaint sufficiently pleads, at this juncture, facts potentially warranting piercing the corporate veil with respect to the individual defendants (see Love v Rebecca Dev., Inc., 56 AD3d 733 , 734 [2008]; Ventresca Realty Corp. v Houlihan, 28 AD3d 537 , 538 [2006]). Accordingly, the Supreme Court properly denied those branches of the Catskill Orange defendants’ cross motion which were pursuant to CPLR 3211 (a) (7) to dismiss the causes of action alleging breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, and fraudulent concealment insofar as asserted against them. The Catskill Orange defendants’ remaining contentions relating to their cross motion are without merit.

The Supreme Court should have denied Peralo’s separate

The Supreme Court properly granted that branch of Wallkill Medical’s motion which was for a preliminary injunction enjoining Catskill Orange from transferring, pledging, diverting, or disposing of its assets, except in the ordinary course of business, during the pendency of this action (see CPLR 6301; Hair-man v Jhawarer, 122 AD3d 570 , 572 [2014]; Fairfield Presidential Assoc. v Pollins, 85 AD2d 653 [1981]). However, with respect to that branch of Wallkill Medical’s motion which was for an order of attachment, the defendants disputed allegations relevant to that request for relief, including the time frame of any alleged dissipation of assets, and whether any such actions were taken with the intent to defraud the plaintiff. Therefore, the matter must be remitted to the Supreme Court, Orange County, for a hearing on that branch of Wallkill Medical’s motion which was for an order of attachment, and a new determination of that branch of the motion thereafter (see CPLR 6201, 6211, 6212 [a]).

Eng, P.J., Hall, Cohen and Barros, JJ., concur.