The opinion of the court was delivered by: SPATT
This lawsuit arises as the result of an agreement entered into between the parties. According to the plaintiffs, HCFA Associates Corporation d/b/a Healthcare Associates ("Healthcare"), B.T.N.H., Inc. ("BTNH"), Patrick Donnellon ("Donnellon"), Harry Satin ("Satin"), Anthony Salerno ("Salerno") and Jeffrey Sunshine ("Sunshine," collectively the "plaintiffs"), they were fraudulently induced to execute an agreement (the "Terms Sheet" or the "Agreement") with the defendant, Kurt Grosman ("Grosman" or the "defendant"), under which the parties would purchase a leasehold interest in certain real property at a bankruptcy auction sale for the purpose of operating a nursing home.
Presently before the Court are: (1) the defendant's motions to dismiss for failure to state a claim and for judgment on the pleadings pursuant to Fed. R. Civ. 9(b), 12(b)(6) and 12(c) with respect to counts one and two of the amended complaint; and for judgment in his favor with respect to the first counterclaim; and (2) the cross motion of the plaintiffs for leave to file a second amended complaint.
At the outset the Court makes two comments. First, the Court recognizes that the defendant has seen fit to use 15 footnotes in his moving papers and another 4 in his reply papers all in minuscule type. One footnote is half a page in length. From this point forward, the parties are prohibited from using footnotes. The next time a party violates this rule, the papers will be returned. In addition, the parties are directed to submit papers with one inch margins or be subject to the same penalty. Second, the plaintiffs, as part of their motion have submitted a document entitled "amended and supplemental complaint." The Court finds this label to be confusing. Accordingly, the Court will refer to this document as the second amended complaint.
Unless otherwise indicated, the following facts are taken from the amended complaint.
The plaintiff Healthcare is a New York corporation with its principal office in Great Neck, New York. BTNH is a New York corporation with its principal office in Buffalo, New York. BTNH is the court appointed Receiver of a 200 bed nursing home (the "Nursing Home") located at 1014 Delaware Avenue in Buffalo (the "Premises"), and licensed by the New York State Department of Health. Prior to the appointment of BTNH as Receiver, the Nursing Home was operated by Hamlin Terrace Healthcare Center ("Hamlin"). The Receiver was appointed as the result of Hamlin's provision of inadequate medical care to the home's residents in violation of state and federal law.
The individual plaintiffs Donnellon, Satin, Salerno and Sunshine, are residents of Southern New York and Long Island, and are shareholders of BTNH. Donnellon, Satin and Salerno also serve as BTNH officers and sit on the Board of Directors. The defendant Grosman is a resident of Orlando, Florida.
B. The parties' agreement
On May 23, 1995, Healthcare and Grosman executed an agreement referred to by the plaintiffs as the "Terms Sheet." According to the Terms Sheet, the parties would acquire the lease for the property at 1014 Delaware Avenue in order to operate the Nursing Home. BTNH would then be formed to act as a Receiver. Subsequently a new company, "Newco," would be created to replace BTNH as Receiver and become the permanent licensed operator of the Nursing Home in compliance with New York state and federal law. Grosman would be a 49 percent shareholder of Newco.
As stated above, pursuant to the Terms Sheet the parties agreed to bid at a bankruptcy auction to purchase the lease for the 1014 Delaware Avenue premises. The underlying sale of the lease arose from the bankruptcy of, and eviction for failure to pay rent by, the former tenant Hamlin Terrace Health Care Center and the related bankruptcy of the fee owner of the property, Cathedral Park Services ("CPP"). Both bankruptcies are pending in the Middle District of Florida.
According to the plaintiffs, Hamlin forfeited its right to operate the Nursing Home as a result of its rendering substandard health care to its residents in violation of federal and state law. Consequently, a Receiver was appointed to oversee the operation. In addition to forfeiting their right to operate the Nursing Home, the Hamlin partners were further prohibited from participating in the operation of any health care facility in New York State.
Hamlin consists of two partners, Lawrence White ("White"), who was the managing general partner, and his mother Fran Hoechst. The general partner of CPP was an entity known as Cathedral Park Manager ("CPM"). The "beneficial owner" of CPM was Joseph Dimino ("Dimino"), a long time friend and business associate of White. The plaintiffs allege, upon information and belief, that the mortgage loan issued to CPP was insured by the federal Department of Housing and Urban Development ("HUD"). As a result of the default on the mortgage, and other "extraordinary improper activities involved in the default, White and Dimino were barred from participating in the HUD program."
In order to avoid any future entanglement with the New York Department of Health, Healthcare informed Grosman while negotiating the Terms Sheet that as a future operator of the Nursing Home it "would not enter any business relationship with [him], if [he] directly or indirectly was involved in the business of Hamlin, CPP, CPM or had any business relationship with White or Dimino." The existence of such a relationship "would severely threaten Newco's ability to obtain the permanent license required to operate the Nursing Home." The plaintiffs further claim that prior to execution of the Terms Sheet, Grosman represented to Healthcare that he was not involved in a business relationship with any of these individuals or entities. The defendant further stated that he "had never been an officer, director or employee of Hamlin or any other entity owned directly or indirectly by the partners of Hamlin or CCP."
However, according to the Amended Complaint, contrary to these representations "Grosman has a close business relationship with White and/or Domino, with respect to the Premises, the Nursing Home, and other matters. . . ." In support of this allegation, the plaintiffs claim that during the Hamlin bankruptcy proceedings, an entity known as the American Venture Group, Inc. ("AVGI"), a Florida corporation with its principal office in Orlando, professes to be a secured creditor asserting a claim in excess of $ 1 million. Grosman is the sole officer, manager and stockholder of AVGI. Further, the plaintiffs claim, upon information and belief, that "CPP, Hamlin or their partners" are the "beneficial owners" of AVGI. Moreover, the plaintiffs contend that Grosman is the trustee of an alleged creditor of CPP in the related bankruptcy proceedings. This unspecified creditor was allegedly "found to be an insider of White."
Based on these alleged relationships, the plaintiffs assert that the defendant has "created material conflicts of interest with his obligations to Healthcare, BTNH and Newco, which [he] failed to disclose." As a result, the plaintiff contends that Grosman breached his attendant fiduciary duty and duty of good faith and fair dealing.
In addition, the amended complaint alleges that Grosman engaged in certain transactions adverse to Healthcare, BTNH and Newco in favor of White, Dimino, Hamlin, CPP and CPM. For example, the defendant arranged for Newco to purchase certain equipment from Hamlin at purportedly favorable terms. However, according to the plaintiffs, Hamlin does not own the equipment, and even if it did, its prior default on the lease would prevent the removal of the equipment. Grosman then caused AVGI to assert a secured claim against the equipment adverse to BTNH's interest.
On a second occasion, the City of Buffalo attempted to foreclose on the a portion of the Premises due to a failure to pay real estate taxes. The plaintiffs allege that although Grosman was aware of the pending foreclosure, he never advised the plaintiffs, instead opting to have AVGI's counsel bid at the foreclosure sale and ...