Chen v. Fox Rehab. Servs.

• Citation: 2022 NY Slip Op 50986 (U)
• Decision Date: 11 October 2022
• Docket Number: Index No. 800365/22E
• Parties: Daniel Z. Chen, NANCY KLINE, BLAIR ROTHMAN, FRANK SCALLON, EDWARD SIROTA, Plaintiff(s), v. Fox Rehabilitation Services, P.C., FOX REHABILITATION PHYSICAL, OCCUPATIONAL AND SPEECH THERAPY SERVICES, L.L.C., TIMOTHY FOX, ROBYN KJAR, NEIL WEISSHAAR, Defendant(s).
• Court: New York Supreme Court

2022 NY Slip Op 50986(U)

Daniel Z. Chen, NANCY KLINE, BLAIR ROTHMAN, FRANK SCALLON, EDWARD SIROTA, Plaintiff(s),
v.
Fox Rehabilitation Services, P.C., FOX REHABILITATION PHYSICAL, OCCUPATIONAL AND SPEECH THERAPY SERVICES, L.L.C., TIMOTHY FOX, ROBYN KJAR, NEIL WEISSHAAR, Defendant(s).

Index No. 800365/22E

Supreme Court, Bronx County

October 11, 2022

Unpublished Opinion

Attorney for plaintiffs: Josh Bernstein, PC

Attorney for defendants: Blank Rome, LLP

HON. FIDEL E. GOMEZ, AJSC

In this action for, inter alia, breach of contract, defendants move seeking an order pursuant to CPLR § 3211(a)(8) dismissing all claims asserted by plaintiff BLAIR ROTHMAN (Rothman) in the amended complaint against all defendants except defendant FOX REHABILITATION PHYSICAL OCCUPATIONAL AND SPEECH THERAPY SERVICES, L.L.C. (FTS). All defendants except FTS aver that this Court has no personal jurisdiction over them with regard to Rothman's claims because neither Rothman nor the individual defendants reside in New York, defendant FOX REHABILITATION SERVICES, P.C. (Fox) is not incorporated in New York, and because none of the wrongs alleged in the complaint arise from the remaining defendants' business in New York or that any of the wrongs alleged occurred in New York.

Defendants also move for an order dismissing the amended complaint against all defendants pursuant to, inter alia, CPLR § 3211(a)(7). Defendants, inter alia, aver that the allegations in the amended complaint, when read against the contents of the documents referenced therein, fail to state a cause of action for breach of contract and implied covenant under New Jersey law, that the breach of contract cause of action bars the quasi-contract unjust enrichment claim, and that the independent duty doctrine bars all tort claims sounding in fraud since the duties alleged to have been breached by defendants all arose from, and are the same as those imposed by agreement between the parties, upon which the breach of contract claim is premised.

Plaintiffs oppose the instant motion asserting that the amended complaint does, in fact, state a cause of action for breach of contract inasmuch as the contract alleged to have been breached is the employer/employee relationship and not the agreement between the parties. As a result, plaintiffs oppose dismissal of the remaining causes of action in the amended complaint, asserting, inter alia, that the agreement submitted by defendants, governing the deferred compensation at issue, does not bar the causes of action for fraud and unjust enrichment. Plaintiffs oppose dismissal of Rothman's claims for want of personal jurisdiction over the defendants, asserting that Rothman's claims, even if arising outside of New York, are nevertheless related to the claims made by the remaining plaintiffs, over which this Court has personal jurisdiction.

For the reasons that follow hereinafter, defendants' motion is granted, in part.

The instant action is for fraud, fraud by omission, fraudulent concealment, negligent misrepresentation, unjust enrichment, breach of contract, breach of the covenant of good faith and fair dealing, and violations of the New York Labor Law and the New Jersey wage and Hour Law.

According to the amended complaint, on January 1, 2007, Fox, a provider of physical therapy services in the tri-state area and headquartered in New Jersey, and FTS, Fox's corporate vehicle for purposes of payment to plaintiffs, incorporated in New York and headquartered in New Jersey (hereinafter at times collectively referred to as "the company") created an Employee Equity Appreciation Rights Plan (the Plan). In connection therewith, Fox and FTS' employees were provided with a Notice of Plan Participation (the Notice) and an Amended and Restated Fox Rehabilitation Services PC Employee Equity Appreciation Rights Plan Summary Plan Description (the SPD). Per the SPD, the Plan was intended to provide Fox and FTS' employees with a share of appreciation in the company's value, earned by the employees during their tenure. The SPD stated that it was intended to induce employees to remain with the company by providing employees with supplemental deferred payment - a cash payout upon a change in control, namely an acquisition of the company - all based on the company's increased value. Per the SPD, a change in control constituted a payment event, defined as when more than 50% of the company's stock or assets were acquired and when the eligible employee continued employment for twelve months thereafter. Per the SPD, employees of the company became eligible to participate in the Plan after two years of employment and on the anniversary of an employee's second year, the company would issue the Notice, informing the employee that he/she was a participant in the Plan. The Notice listed the base value of the company as of the date of participation and the amount an employee would be paid under the Plan. Pursuant to the Plan an employee's cash benefit would be determined by, inter alia, the difference between the company's base value upon an employee's entry into the program and the company's value upon a change in control. In 2009, when one of the plaintiffs became a participant on the Plan, the company's base value was $10 million.

In 2019, when all plaintiffs were fully vested in the Plan, the company was acquired by Blue Wolf capital Partners, LLC (Blue Wolf), and at the time of acquisition the company's value was between $120-300 million. Twelve months after the acquisition, plaintiffs requested payment under the Plan and the company and the individual defendants declined to pay, asserting that the Plan, which was never provided to plaintiffs, defined a change in control as the acquisition by another of 75% or more of the company's stocks or assets, and such acquisition had not occurred. Denial of payment was further premised on the assertion that in December 2015, the Plan had been abolished in its entirety. Plaintiffs appealed the decision to deny them payment and the appeal was decided against them on grounds identical to the initial determination.

In December 2015, defendant TIMOTHY FOX (TF), director of Fox, and the sole member of the company, executed a document, simultaneously in New York and in New Jersey, which purported to terminate the Plan, premised upon the company's claimed right to effectuate the termination and on the basis that the company's value at the time was less than the value at the time that each of the company's employees became participants in the Plan. It is alleged that TF and the company knew that the company's value at the time the Plan was terminated was higher than the value when plaintiffs and other employees became participants in the Plan, that the value of the company had increased between the time that the company's employees became participants in the date the Plan was terminated, that termination of the Plan required a decision by a majority of the company's board, such that the basis for the Plan's termination was false and its termination ineffective. It is alleged that because the company's base value in 2009 was $10 million and that in 2019, the company sold for between $120-300 million, the company, which in 2010 had 400 clinicians, operated in seven states, and had doubled in size by 2015, falsely represented that it was worth less in 2015 than in 2010. It is also alleged that because at the time the Plan was terminated, all plaintiffs were fully vested and the SPD stated that any plan termination could not adversely affect a participant's vested rights under the Plan, the termination of the Plan adversely affected plaintiffs' rights under the Plan.

The amended complaint asserts that the company and the individual defendants represented to plaintiffs, in writing, that a payment event would occur when more than 50% of the company's stock or assets were acquired, that these statements were made to induce plaintiffs' reliance upon them so that they would continue to be employed by defendants, while never intending to pay plaintiffs upon the foregoing occurrence. In addition, it is alleged that plaintiffs did not learn that the Plan had been terminated until more than five years after the Plan had been terminated, such that defendants fraudulently and intentionally induced plaintiffs into believing that they would receive a payment under the Plan when the company was acquired, which prompted plaintiffs' reliance thereon and their continued employment with the company. Based on the foregoing representation, and reliance upon the same, plaintiffs continued to work for the company, and were injured when they were denied payment under the Plan. It is further alleged that in order to avoid misleading plaintiffs, defendants had a duty, based on their superior knowledge, to disclose the materials, which were kept secret and which defined a change in control in a way, which was at variance with the SPD. The foregoing is true with regard to the disclosure that the Plan had been terminated.

Because plaintiffs were never provided with the Plan until after they were denied payment thereunder, and were initially only provided with the SPD, whose terms upon which plaintiffs relied, it is alleged that the Plan's and terms therein are in dispute, such that the SPD is controlling. The SPD was accompanied by a cover letter from TF, which stated that the SPD and the Notice constituted the details of the Plan, that the participants in the Plan would be granted an interest in the company, such that plaintiffs relied on the same and believed that they were being given ownership in the company. Based on the foregoing and because the SPD never provided contact information for the person bearing the title Director of Communications, from whom the Plan could be obtained, it is alleged that there was never the requisite assent binding plaintiffs to the terms of the Plan, such that only the SPD is...