CMH Liquidating Trust v. Anderson (In re Cmty. Mem'l Hosp.)
| Decision Date | 02 August 2018 |
| Docket Number | Case No. 12-20666,Adversary Proceeding No. 14-02020 |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
| Parties | In re: COMMUNITY MEMORIAL HOSPITAL, d/b/a Cheboygan Memorial Hospital, Debtor. CMH LIQUIDATING TRUST, Plaintiff, v. TED ANDERSON; WILLIAM BORGERDING; TIMOTHY BURANDT; BRIAN BURNS; HOLLY CAMPA; BARBARA CLIFF; EUGENE COOLEY; DAVID COURTNEY; MARVIN COY; LEIF DAHLEEN; NANCY DEXTROM; BRIAN DIETZ; PAUL ELLINGER; SUSAN ENO; JOHN EVERETT; CARL FRANZON; MICHAEL KONICKI; JAMES LAUGHLIN; GARY LEWINS; KATHLEEN LIEDER; JAMES MCCLURG; DANIEL NIELAND; DAVID ORAM; JOHN PARIGI II; KENNETH PLETCHER; CAROLYN RILEY; SHARI SCHULT; FRED VITELLO; JOHN WARD; DONALD WATSON; MICHAEL WEEKS, and HAL YOST, Defendants. |
This matter is before the Court on Defendants' Motions to Dismiss Plaintiff Community Memorial Hospital Liquidating Trust's Amended Complaints pursuant to Federal Rule of Civil Procedure 12(b)(6) in ECF Nos. 219, 240, 241, 242, and 243, and pursuant to Federal Rule of Civil Procedure (12)(c) in ECF No. 244. For the reasons stated in the following opinion, this Court grants in part and denies in part the motions.
Community Memorial Hospital, d/b/a/ Cheboygan Memorial Hospital ("CMH") was a Michigan non-profit hospital that began operations in 1942. CMH filed for Chapter 11 Bankruptcy on March 1, 2012. This Court confirmed a Plan of Liquidation for CMH on August 7, 2013. According to the terms of the plan, Plaintiff CMH Liquidating Trust ("Trust") is vested with all causes of action that CMH held against former directors or officers of the hospital. Acting on this authority, the Trust filed this adversary proceeding on February 27, 2014 against former officers and directors of CMH alleging that their breach of fiduciary duties and/or negligence resulted in operating losses for CMH in fiscal years 2008 through 2011 totaling $16.4 million dollars.
Defendants filed motions to dismiss or, in the alternative, for a more definite statement on Plaintiff's Original Adversary Complaint.1 On September 29, 2017, after consideration of those motions, this Court ordered Plaintiff to amend its Complaint to include a more definite statementregarding the basis for Defendants' alleged liability.2 (See ECF Nos. 170, 173,176,178 and 182.) This Court found that Plaintiff's Original Complaint made no distinction between the various Defendants, their different roles, and the time periods that each Defendant was associated with CMH. Further, with few exceptions, the Original Complaint did not make any allegations against any of Defendants individually, but merely directed every allegation against every Defendant. As a result, Defendants did not know which acts or omissions formed the basis for Plaintiff's claim of liability against them. This Court stated that:
Plaintiff's group pleading may be appropriate if Plaintiff breaks the Defendants into more identifiable groups of similarly-situated individuals-for example, groups that include individuals who served on the same board term or participated as a group in particular discreet acts or omissions. But directing every allegation at every Defendant, regardless of the nature and period of their involvement, is not sufficient.
The Court did not address the substance of Defendants' argument that liability could not be imposed upon them under the business judgment rule or that certain Defendants were immune from liability as volunteer directors under the Michigan NonProfit Corporation Act ("NCA"), Mich. Comp. Laws §§ 450.2101-450.3192 (1983), but stated that (ECF No. 176, p. 8.)
In response to this Court's order, Plaintiff filed Amended Complaints, each pertaining to an individual Defendant.3 The Amended Complaints, like the Original Complaint, allege several instances where Defendants breached their fiduciary duties and/or were negligent with regard to acts or omissions which Plaintiff claims resulted in the financial collapse of CMH. Specifically, it is alleged that:
Although the Amended Complaints reference events dating back to at least 2003, Plaintiff counsel acknowledged at the hearing on the motions to dismiss the Amended Complaints thatPlaintiff is only seeking damages for alleged breaches of fiduciary duties and/or negligence occurring from March 1, 2009 to March 1, 2012.5
Unlike the Original Complaint, the Amended Complaints include information regarding the position each Defendant allegedly held in relation to CMH (whether an officer, director or volunteer director) and the time period during which each Defendant was involved. Otherwise, the Amended Complaints contain substantially the same factual allegations as were made in the Original Complaint.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, 157(a) and E.D. Mich. LR 83.50. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) ().
Federal Rule of Civil Procedure Rule 12(b)(6) authorizes the Court to dismiss a complaint if it "fail[s] to state a claim upon which relief can be granted[.]"6 In considering a motion to dismiss on this ground, a court must construe the complaint in a light most favorable to the plaintiff and accept as true all well-pleaded allegations. Thompson v. Bank of Am. N.A.,773 F.3d 741, 750 (6th Cir. 2014) (citation omitted). However, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Likewise, the court need not accept as true "unwarranted factual inferences" or "conclusory allegations or legal conclusions masquerading as factual allegations." Phila. Indem. Ins. Co. v. Youth Alive, Inc., 732 F.3d 645, 649 (6th Cir. 2013) (citation omitted).
In order to survive a motion to dismiss, a complaint must present sufficient facts "to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). Facial plausibility is established where the factual content of a complaint "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The factual allegations in a complaint "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. A court, ruling on a motion to dismiss, "considers the complaint in its entirety, as well as . . . documents incorporated into the complaint by reference and matters of which a court may take judicial notice." Ohio Pub. Emps. Ret. Sys. v. Fed. Home Loan Mortg. Corp., 830 F.3d 376, 383 (6th Cir. 2016) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
A motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) is analyzed under the same standard as that for a motion to dismiss under Rule 12(b)(6). Hindel v. Husted, 875 F.3d 344, 346 (6th Cir. 2017); Roger Miller Music, Inc. v. Sony/ATV Publ'g, LLC., 477 F.3d 383, 389 (6th Cir. 2007). "All well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment as a matter of law." Hindel, 875 F.3d at 346. (citations omitted). A complaint will only survive a Rule12(c) motion if it contains"direct or inferential allegations respecting all the material elements under some viable legal theory." Id. at 346-347 (citation omitted).
negligence against defendant officers and defendant directors?
Plaintiff alleges in the Amended Complaints that Defendant directors and officers breached fiduciary duties and were negligent in the performance of their responsibilities to CMH. In order to consider whether Plaintiff has stated a claim against Defendants on these grounds, it is necessary to consider the positions held by Defendants at CMH and their corresponding responsibilities. Pursuant to the NCA, "the business and affairs of a corporation shall be managed by or under the direction of its board." Mich. Comp. Laws. § 450.2501. Unless otherwise provided in the articles of incorporation or bylaws, it is the...
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