Barnum v. Millbrook Care Ltd. Partnership

• Decision Date: 12 May 1994
• Docket Number: No. 93 Civ. 4670 (RWS).,93 Civ. 4670 (RWS).
• Citation: 850 F. Supp. 1227
• Parties: Vivian June BARNUM, Plaintiff, v. MILLBROOK CARE LIMITED PARTNERSHIP, Reis Capital Management, Inc., David Reis, individually and in his capacity as President of Reis Capital Management, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

850 F. Supp. 1227

Vivian June BARNUM, Plaintiff, v. MILLBROOK CARE LIMITED PARTNERSHIP, Reis Capital Management, Inc., David Reis, individually and in his capacity as President of Reis Capital Management, Inc., Defendants.

No. 93 Civ. 4670 (RWS).

United States District Court, S.D. New York.

May 12, 1994.

COPYRIGHT MATERIAL OMITTED

Holtzman & Taikeff, New York City, for plaintiff (Stuart Holtzman and Edwin Oppenheimer, of counsel).

Hofheimer Gartlir & Gross, New York City, for defendants (Douglas Gross, of counsel).

OPINION

SWEET, District Judge.

Defendants Millbrook Care Limited Partnership ("Millbrook"), Reis Capital Management, Inc. ("Reis Inc."), and David Reis ("Reis"), individually and as President of Reis Inc., (collectively, the "Defendants"), move to dismiss the Complaint of Plaintiff Vivian June Barnum (the "Plaintiff" or "Barnum"), pursuant to Rule 12(b)(6) or Rule 9(b), Fed.R.Civ.Pro. or, in the alternative, for an order granting summary judgment, pursuant to Rule 56, Fed.R.Civ.Pro., on Plaintiff's second claim for relief. Barnum opposes the Defendants' motion to dismiss and cross moves for an order of Summary Judgment in her favor, pursuant to Rule 56, Fed. R.Civ.Pro.

For the reasons set forth below, the Defendants' motion to dismiss the Complaint with prejudice is granted.

The Parties

Barnum, a domiciliary of the state of Texas, is the holder of a promissory note (the "Promissory Note" or "Note") in the amount of $78,810 executed in her favor by the Defendants on December 21, 1990.

Millbrook is a Connecticut limited partnership and the owner of a retirement center formerly known as Greercrest Retirement Center ("Greercrest"), now known as Millbrook Meadows.

Reis Inc., a corporation formed under the laws of the State of Connecticut, is a general partner of Millbrook.

David Reis is the President of Capital Management.

Prior Proceedings and Facts

Barnum, at the time of filing her complaint in 1993, is an 80 year old woman who had been a resident in Greercrest Retirement Community ("Greercrest"), a managed care retirement community located in Millbrook, New York. Barnum had paid a $78,810 entrance fee to the sponsor and operator of Greercrest, Greer-Woodycrest Children's Services, Inc. ("Greer-Woodycrest Inc.") pursuant to the terms of a Life Occupancy Agreement (the "Offering Plan").

Barnum ceased living in Greercrest at some point in the fall of 1990, but no later than November 29, 1990. (Am.Compl.Ex.D.) Although a section of the Offering Plan stated it would reimburse the entrance fee if residency in Greercrest was terminated, (Am.Compl.Ex.A.), Greer-Woodycrest did not refund Barnum's entrance fee upon her termination of residency.¹

In 1990, Greer-Woodcrest became insolvent. On October 5, 1990, a Purchase and Sale Agreement (the "Agreement") was entered into between Reis Inc. and Greer-Woodycrest Inc.² On November 30, 1990, Reis Inc. assigned its rights under the Agreement to Millbrook Care.

The Agreement provided that Reis Inc. would agree to assume Greer-Woodycrest's obligation to repay entrance fees pursuant to the following conditions set forth in Section 8.15:

All persons who are entitled to receive repayment from Purchaser of entrance fees previously paid to Seller on account of Purchaser's assumption of the Assumed Liabilities shall have entered into agreements satisfactory in form and substance to Purchaser regarding such repayments. Such agreements shall provide, inter alia, that: (i) such repayments are to be made from funds paid to Purchaser as the loan portion of entrance fees paid under New Residency Agreements entered into after the Closing Date with respect to units of the Retirement Community which were subject to no Residency Agreements or to Residency Agreements with Terminating Residents, as of the Closing Date (the "Repayment Funds"); (ii) the Repayment Funds shall be paid promptly after receipt by Purchaser to the persons entitled thereto in the chronological order of the dates on which of such persons are entitled to receive repayment of their entrance fees under their Residency Agreements with Seller; (iii) such repayments shall all be made no later than two years after the Closing Date, whether or not the Repayment Funds are then sufficient; (iv) such repayments shall bear interest at the rate of nine percent per annum, payable quarterly, commencing with the Closing Date; and (v) Purchaser's obligation to make such payments shall be secured by a lien on the RC Retirement Community Parcel.

(Agreement § 8.15.) Reis Inc. further indemnified Greer-Woodycrest from liabilities arising from a breach of Reis Inc.'s representations, warranties, covenants or undertakings pursuant to the Agreement, (Agreement § 12.1.), under an abbreviated liabilities limitation period of 15 months after the sale closing date.

On November 21, 1990, the terms of the Agreement were set forth to the residents in the Second Amendment which stated in the first paragraph that, "THE SALE IS CONDITIONAL ON ... ALL PERSONS WHO ARE ENTITLED TO RECEIVE REPAYMENT OF ENTRANCE FEES PREVIOUSLY PAID HAVING ENTERED INTO AGREEMENTS SATISFACTORY TO MILLBROOK CARE REGARDING SUCH REPAYMENT OF ENTRANCE FEES OWED TO THEM." (Gross Reply Decl.Ex. 1.)

Attached as Exhibits G and H of the Second Amendment are the Form of Consent for Terminated Residents ("Consent Form"), which was to be executed by terminated residents in exchange for Exhibit H, the "Promissory Note." On November 29, 1990, Barnum executed the Consent Form which stated she agreed to the contents of the Second Amendment and the attached Note.³

On December 21, 1990, Millbrook took title to Greercrest from Greer-Woodycrest pursuant to the Agreement. Barnum received the Note, dated December 21, 1990, from Millbrook in the amount of $78,810. (Am. Compl.Ex.E.) The Note does not differ from the model Promissory Note attached as Exhibit H of the Second Amendment and to which Barnum agreed to in the Consent Form.

Section Nine of the Note, entitled "Non-Recourse," stated that it "expressly limited the Resident's Barnum's rights and recourse to the reversionary interest in the Real Estate, it being expressly understood, that the Resident shall have no rights against, and shall seek no judgment against the undersigned or any other assets of the undersigned." (Gross Decl.Ex. 1, Note § 9.)

Millbrook was to pay principal upon the Note from 90% of the funds received from new residents of Greercrest with respect to units that were being vacated or had been vacated by the terminated residents as of the closing date. The original maturity date of the Note was December 21, 1992.

The following year, in November 1991, Millbrook's president, Reis, sent a letter to the terminated residents asking them to agree to a modification of the Notes. The modification sought by Millbrook sought to use a portion of the Vacant Pooled Funds to subsidize the Millbrook's operating deficit. In the letter, Reis stated that he had submitted the proposed modification to Robert Levine ("Levine"), the lawyer for Millbrook Meadows Residents Association, and that Levine did not object to the "form" of the amendment.⁴ Barnum agreed to the modification of her Note in late November or early December of 1991.

In her cover letter, returned with the signed modifications, Barnum inquired as to how many terminated residents were before her on the list of former residents waiting for repayment. Barnum contends that instead of answering the question she asked, in a letter of December 12, 1991, the Defendants wrote the following:

In your letter to David Reis you requested to know where you stand on the list of terminated residents waiting for payment. Let me bring you up to date on our efforts. We have already paid $300,950 to terminated residents who are on the Pool A list. Before we come to your name on the list, there is an additional $674,150 to be paid. It is difficult to project how quickly you can expect to receive your refund.

(Am.Compl. ¶ 39.)

Barnum alleges that the November 30, 1992 Amendment to the Restated Offering Plan, filed a year later with the Attorney General of New York painted "an entirely different and decidedly bleaker financial picture" than that which had been portrayed to her in Reis' November 1991 letter.⁵ (Am. Compl. ¶ 41.)

On May 12, and June 1, 1993, Reis informed Barnum that Millbrook could only repay 40% of the amount due to her under the Note. (Am.Compl. ¶ 42.)

On July 12, 1993, Barnum filed her Amended Complaint in this action which alleges the following three claims: (1) breach of contract to her as a third-party beneficiary to the Agreement; (2) common law fraud by means of a scheme to induce her to modify the terms of the Note, for which she is entitled $2,000,000 in punitive damages; and (3) and emotional distress and mental suffering, for which she is entitled $1,000,000.

Initially, Barnum had filed a Complaint alleging that Defendants had violated the Securities Act of 1933. At a conference before this Court, counsel to the Defendants stated that Plaintiff had not stated a claim for which relief could be granted. On October 5, 1993, at the suggestion of the Court, Defendants' counsel provided Plaintiff's counsel with a draft memorandum of law in support of a motion to dismiss which the Defendants intended to file unless Plaintiff withdrew or amended her Complaint.

Barnum subsequently amended her Complaint on November 24, 1993. Defendants filed their motion to dismiss the Amended Complaint on December 28, 1993 and Barnum cross-moved for Summary Judgment on March 14, 1994. Oral argument on the motions was heard on April 6, 1994. The motions were considered fully submitted as of that date.

Discussion

On a Rule 12(b)(6) motion to dismiss, the factual allegations of the complaint are presumed to be true and all factual inferences must be drawn in their favor and against the defendants. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686,...