Opinion
11750/2000.
Decided March 13, 2008.
On or about May 24, 2000, the plaintiff Staten Island University Hospital (hereinafter "SIUH") commenced this action to recover damages from defendants Comprehensive Habilitation Services Inc., (hereinafter "CHS") and Peter Magaro, on the grounds of unjust enrichment, breach of contract and negligent misrepresentation. It is undisputed that, the plaintiff, SIUH, is a not-for-profit hospital that maintains its principal offices at 475 Seaview Avenue, Staten Island, New York 10359. From 1994 through 1998, SIUH operated several part-time clinics outside of their principal offices that provided habilitative services to patients including, speech, language and physical therapy. Defendant CHS is a Delaware corporation, and is no longer doing business. Defendant Magaro is the president, shareholder, director of CHS.
On or around July 1, 1994, SIUH entered into a contract with CHS, whereby CHS agreed to provide "marketing, management and operation" of the Comprehensive Habilitation Center (hereinafter "CHC") that was established pursuant to the contract as the coordinating entity for outreach services of the part-time clinics owned by SIUH throughout New York City, Westchester, and Long Island. Pursuant to the contract, CHS was to
[A]ssign Peter Magaro, Ph.D. to function as the Program Director of the CHC. As a representative of the CHC, a hospital based Article 28 clinic organization, the Program Director will comply with all applicable federal and state laws regarding Article 28 license and Medicare approved healthcare providers as advised in writing by the Hospital [and] CHS will market, implement and manage part-time comprehensive clinics on an exclusive basis for the Hospital.
Throughout 1994 and up to 1998, the clinics and agreement between the parties functioned efficiently. Throughout that time period, the hospital, in an effort to receive compensation, submitted numerous claims for reimbursement of the social work services provided at the part-time clinics to the New York State Medicaid Program (hereinafter "Medicaid").
In early 1997, the New York State Attorney General's Medicaid Fraud Control Unit (hereinafter "Attorney General"), began an investigation into the billing practices of SIUH with respect to the reimbursement sought for social work services provided at the part-time clinics. In 1998, the plaintiff, SIUH, commenced a lawsuit against CHS and Magaro for their refusal to cooperate with the Attorney General's investigation. That lawsuit was settled in accordance with the terms set forth in a Memorandum of Understanding (hereinafter "MOU"). The MOU dissolved the contract between the parties and released CHS from providing services to numerous part-time clinics. CHS, however, did continue to provide management services to a large number of part-time clinics, which were eventually closed by the Attorney General. Furthermore, the MOU dismissed the lawsuit, with prejudice, except to any claims that SIUH has or may have, now or in the future, against CHS or Magaro, if any that SIUH owes money arising from, or relating to, services provided by or through CHS pursuant to the Contract, and is without prejudice to CHS's and Magaro's defenses, affirmative defenses and set-offs regarding any such claims.
In or around September 21, 1999, SIUH and the Attorney General entered into a Settlement Agreement whereby the Attorney General's investigation was resolved and SIUH agreed to reimburse the NYS Medicaid Program $41.2 million dollars over a twenty (20) year period for overpayments they received for services rendered at the part-time clinics. The settlement provided that "SIUH received payments during [January 1, 1994, through August 31, 1998] in excess of the amount due and owing it as a result of its submission of claims for services provided at part-time clinic locations at the PAC rate, to which it was not entitled, and for, inter alia, social work services or physician encounters that were not reimbursable".
The instant lawsuit was commenced in or around May 24, 2000, alleging that CHS misrepresented to SIUH that the services provided at the part-time clinics were reimbursable at a certain rate through NYS Medicaid. The crux of this litigation centers around whether or not CHS's services included recommending/advising reimbursement eligibility and/or rates which the services they were providing were reimbursable through Medicaid, to SIUH. The plaintiff contends that defendants CHS and Magaro, orally and in writing, represented that the services CHS provided were reimbursable through Medicaid, and the rates at which such reimbursement should be sought. In opposition, the defendants state that the contract for services did not include rendering any advise/recommendations regarding billing, nor did anyone from CHS make any oral representations regarding reimbursement and as a result, they are currently moving for summary judgment to dismiss the complaint.
Further, on June 16, 2005, judgment was entered in a related Federal Court action where SIUH and CHS were codefendants. In that action CHS brought cross claims against SIUH alleging that they breached the contract and MOU. After a jury trial on the cross claims, the jury found, that by a preponderance of the evidence SIUH was liable to CHS for breach of contract, and for a total amount of $799,141.21 in damages to CHS.
Commerce Funding Corporation v. Comprehensive Habilitation Services Inc., et. al., Index No. 01-CV-3976 [S.D.NY]
Clearly, summary judgment is a drastic remedy that should not be granted where there is any doubt as to the existence of triable issues of fact ( see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Herrin v Airborne Freight Corp., 301 AD2d 500, 500-501 [2nd Dept 2003]). The party moving for summary judgment bears the initial burden of establishing its right to judgment as a matter of law ( see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 ), and in this regard "the evidence is to be viewed in a light most favorable to the party opposing the motion, giving [it] the benefit of every favorable inference" ( Cortale v Educational Testing Serv., 251 AD2d 528, 531 [2nd Dept 1998]). Nevertheless, upon a prima facie showing by the moving party, it is incumbent upon the party opposing the motion to produce "evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" ( Alvarez v Prospect Hosp., 68 NY2d at 324; see Zuckerman v City of New York, 49 NY2d 557, 562).
Staten Island University Hospital's First Cause of Action: Breach of Contract
It is axiomatic that once a valid contract is properly terminated neither party can maintain a cause of action for breach thereof ( Eames Vacuum Brake Co. v. Prosser, 157 NY 289 [finding that "[i]n the absence of circumstances pointing to a different intention, neither party can maintain an action on a rescinded contract for a previous breach thereof"]). However, if the parties expressly or impliedly reserve the right to make further claims under the terms of the rescission, those claims are permitted ( Milan Music, Inc. v. Emmel Communications , 37 AD3d 206 , 206 [1st Dept., 2007]). Here, neither party disputes that the original contract between SIUH and CHS, entered into on July 1, 1994, was terminated after the MOU was entered into and resolved the prior lawsuit in 1998. As a result, the original contract between SIUH and CHS was terminated and thus SIUHs' first cause of action for breach of contract on the original contract is inappropriate and dismissed.
In addition, SIUH's claim based upon breach of contract regarding the MOU entered into between the parties is also inappropriate and dismissed. As previously indicated, SIUH has been found, by a jury, to have breached the MOU in failing to make appropriate payments to defendants in accordance with the terms thereunder. As a result, SIUH is not entitled to enforce any provision under the breached agreement ( see Elite Promotional Marketing, Inc. v. Stumacher , 8 AD3d 525 , 527 [2nd Dept., 2004] [holding that a party who breached a contract cannot benefit from the contract in seeking to enforce a restrictive covenant]; DeCapua v. Dine-A-Mate, 292 AD2d 489, 491 [2nd Dept., 2002] [finding an independent contractor could not enforce a restrictive covenant of a non-compete clause after it breached the payment provisions of the agreement]; Steven Strong Development Corp. v. Washington Med. Assocs., 303 AD2d 878 [3rd Dept., 2003]).
Commerce Funding Corporation v. Comprehensive Habilitation Services Inc., et. al., Index No. 01-CV-3976 [S.D.NY]
Additionally, it is well settled that the doctrine of res judicata, or claim preclusion, bars the re-litigation of a claims as duplicative and an unwarranted burden on the courts ( Baltimore Steamship Co. v. Phillips, 274 US 316, 319-320; Siegel, David D., New York Practice, § 442 [2007]). "As general rule, once a claim is brought to its final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different legal theories or seeking a different remedy")( Vigilotti v. North Shore Univ. Hosp., 24 AD2d 752, 753-754 [2nd Dept., 2005]). Further, res judicata precludes the re-litigation of any matters "that could or should have been raised in a prior proceeding between the parties arising from the same factual grouping, transaction, or series of transactions" ( id.; Sosa v. JP Morgan Chase Bank , 33 AD3d 609, 611 [2nd Dept., 2006]).
Here, the parties in this matter are exactly the same as the federal court matter, along with the factual grouping and transaction/series of transactions. Both SIUH and Comprehensive (as co-defendants in the federal court litigation) went to trial regarding a breach of the MOU claim. During that jury trial both parties had the opportunity to present their arguments, defenses and completely litigate the matter. As a result, the claims for breach of contract/MOU here were available to be argued in federal court and are clearly duplicative and barred pursuant to res judicata ( Baltimore Steamship Co. v. Phillips, 274 US 316, 319-320; Sosa v. JP Morgan Chase Bank , 33 AD3d 609 , 611 [2nd Dept., 2006]; Vigilotti v. North Shore Univ. Hosp., 24 AD2d 752, 753-754 [2nd Dept., 2005]).
Staten Island University Hospital's Second Cause of Action: UnjustEnrichment/Mutual Mistake
"To prevail on a claim of unjust enrichment, a plaintiff must establish that the defendant benefitted at the plaintiff's expense and that equity and good conscience require restitution" ( Whitman Realty Group Inc. v. Galano , 41 AD3d 590, 591 [2nd Dept. 2007]). Therefore, in order for the plaintiff to make out a prima facie case SIUH would have to aver that CHS was enriched at it's expense and that to retain such enrichment would be against "equity and good conscience" ( id,; Swits v. New York Systems Exchange, Inc., 281 AD2d 833, 835 [3rd Dept., 2001]).
Here, the defendant has established his entitlement to summary judgment as a matter of law with regard to plaintiff's claims under the guise of unjust enrichment ( see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Herrin v Airborne Freight Corp., 301 AD2d 500, 500-501 [2nd Dept 2003]). In opposition the plaintiff has failed to raise a triable issue of fact that it conferred a benefit on defendants for which they were not adequately compensated ( Silberstein v. Carson, 304 AD2d 817, 818 [2nd Dept., 2003]). In other words, here, SIUH did not suffer any harm/detriment by contracting and compensating, albeit insufficiently, defendant to manage the part-time habilitation clinics ( id.; Whitman Realty Group Inc. v. Galano, 41 AD3d at 591 [2nd Dept. 2007].
Commerce Funding Corporation v. Comprehensive Habilitation Services Inc., et. al., Index No. 01-CV-3976 [S.D.NY]
Under a similar theory of mutual mistake; the party seeking to invoke this equitable doctrine "to reform a written agreement based upon a purported mistake bears the burden of showing a mutual mistake by clear and convincing evidence" ( Migliore v. Manzo , 28 AD3d 620 , 621-622 [2nd Dept. 2006]). Further, in alleging a unilateral mistake the party seeking to reform the document must establish fraud ( see M.S.B. Dev. Co., Inc. v. Lopes , 38 AD3d 723 , 725 [2nd Dept. 2007]), or in the case of a mutual mistake, "the mistake shown must be one made by both parties to the agreement, so that the intentions of neither are expressed in it. Thus, in the context of a reformation action, the court must look to the four corners of the document and any evidence establishing the parties' intention." ( Migliore v. Manzo , 28 AD3d 620 , 621-622 [2nd Dept. 2006]).
Here, the defendant has met its burden establishing entitlement to summary judgment on SIUH's second cause of action based upon unjust enrichment/mutual mistake ( see Alvarez v Prospect Hosp., 68 NY2d 320). CHS has presented evidence that plaintiff and defendant were the only two signatories to the contract, and both entities employed very highly skilled and sophisticated attorneys to advise on entering into the MOU ( Migliore v. Manzo , 28 AD3d 620 , 621-622 [2nd Dept. 2006] [holding that "where a written agreement between sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat summary judgment by a conclusory assertion that, owing to mutual mistake or fraud, the writing did not express his own understanding of the oral agreement reached during negotiations"]). In opposition, the plaintiff has failed to establish any elements of fraud or mistake on the part of both parties evincing that the parties intentions were not expressed by the agreement. As a result, summary judgment on SIUH's second cause of action based upon unjust enrichment/mutual mistake is inappropriate.
Staten Island University Hospital's Third Cause of Action: Negligent Misrepresentation
"A cause of action based on negligent misrepresentation requires proof that [the] defendant had a duty to use reasonable care to impart correct information due to a special relationship existing between the parties, that the information was false, and that a plaintiff reasonably relied on the information" ( Fresh Direct, LLC v. Blue Martini Software, Inc., 7 AD3d 489 [2nd Dept., 2004]; Goldman v. Strough Real Estate, Inc., 2 AD3d 677, 678 (2nd Dept. 2003]; Pappas v. Harrow Stores, Inc., 140 AD2d 501, 504 [2nd Dept., 1988] [holding that
"[i]n order to recover on a theory of negligent misrepresentation, a plaintiff must establish that, because of some special relationship with the defendant which generally implies a closer degree of trust than the ordinary buyer-seller relationship, the law imposes on that defendant a duty to use reasonable care to impart correct information, that the information is false or incorrect, and that the plaintiff reasonably relied upon the information given"]).
Here, defendants have established a prima facie showing that they possessed no duty, as per the contract or their alleged special relationship, to impart any recommendations or guidance regarding the plaintiff's billing practices for the social work services ( see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Herrin v Airborne Freight Corp., 301 AD2d 500, 500-501 [2nd Dept 2003]). In opposition, the plaintiff's have failed to raise a triable issue of fact ( id.). The plaintiff has failed to provide any evidence whatsoever that defendant was to advise or provide recommendations regarding the reimbursement of the social work services. The contract between the parties is devoid of any mention or indication that defendant was to provide these specific billing services, albeit detailing other responsibilities that defendants were to provide. While plaintiff also asserts that the alleged representations were made orally in addition to the contract, it has failed to establish any evidence of the aforementioned oral representations ( McMorrow v. Dime Sav. Bank of Williamsburgh, ___ AD3d ___, 2008 NY Slip Op 1512, *1 [2nd Dept., 2008]).
The Court further notes that SIUH is not an institution naive or unintelligent regarding health care reimbursement or medical billing. In fact, SIUH is a sophisticated health care facility that possesses a keen familiarity with the Medicaid reimbursement program through the vast services provided at the hospital itself, and its numerous subsidiaries. As a result, while the question of whether reliance on a party's representation is usually for the jury, here the alleged negligent representations were also in the purview of the very Medicaid-billing-savvy hospital and thus were unreasonable as a matter of law ( id.; Orlando v. Kukielka , 40 AD3d 829 , 832 [2nd Dept., 2007] ["finding that a sophisticated businessperson must be charged with knowledge of a 10% commission and thus the claims for negligent misrepresentation are unreasonable as a matter of law"]; Friedler v. Palyompis , 44 AD3d 611 , 612 [2Dept., 2007] [stating that parties must "exercise . . . ordinary intelligence, [to obtain] the truth or the real quality of the representation" when they possess the means to do so]). As a result, plaintiff's claims based upon negligence misrepresentation are dismissed.
Comprehensive Habilitation Services, Inc.'s Counter-Claim for Damage to Reputation and/or Ability to Conduct Business
Defendant's first and second causes of action, insomuch as they are "cast in terms of fraud and negligence, and not defamation" are insufficient. The defendant CHS, in its counterclaim, has failed to plead the elements required to prove a cause of action for fraud or negligence and as such the claims are inappropriate ( Tal v. Notaris, 20 AD3d 520, 521 [2nd Dept., 2005]; Hartford Casualty Ins. Co. v. Williams, et. al., 306 AD2d 435, 436 [2nd Dept., 2003] [finding that defendant's failure to plead their counterclaim of fraud with particularity properly resulted in dismissal of the counterclaim]; Commodari v. Long Island Univer., 295 AD2d 302, 303 [2nd Dept., 2002]).
Defendant in its Affirmation in Opposition concedes that the claim of damage to reputation couched in defamation is inactionable in the instant case ( see Defendant's Affirmation in Opposition, pgs 2-4). However, if brought under the guise of defamation defendant's claim are improper. To establish a claim for defamation "a [party] must allege and prove both actual malice and actual or special damages in order to make out a prima facie case" ( Gateway Theatrical v. Associated Musicians, Local 802, 240 AD2d 538, 539 [2nd Dept., 1997] [plaintiff's claims of damage to business and personal reputation is insufficient where they failed to prove malice and damage]).
Here, plaintiff has established a prima facie entitlement to summary judgment as a matter of law with regard to defendant's causes of action under the guise of defamation ( Alvarez v. Prospect Hosp., 68 NY2d at 324; Zuckerman v. City of New York, 49 NY2d 557, 562 [1980]). The defendant has failed to pled any actual malice or actual or special damage on the part of plaintiff and as such the causes of action for damage to reputation couched in defamation are improper ( Gateway Theatrical v. Associated Musician, Local 802, 204 AD2d at 539).
Further, defendant's request to amend the pleading to include causes of action for "plaintiff's destruction of CHS's business" is denied. While the Court acknowledges that leave to amend pleadings is freely given (CPLR § 3025[b]), where the proposed cause of action clearly lacks merit denial is appropriate ( Lucido v. Mancuso, ___ AD3d ___, NY Slip Op. 952 *5 [2nd Dept., 2008] [holding that where a party seeks to amend pleading to include a cause of action that would not withstand a motion to dismiss pursuant to CPLR § 3211, the amendment should not be given]).
Accordingly, it is
ORDERED that the defendant Comprehensive Habilitation Services and Peter Magaro's motion for summary judgment is granted, and the complaint is dismissed, and it is further
ORDERED that the plaintiff Staten Island University Hospital's motion for summary judgment on the defendant's counterclaims is hereby granted and the counterclaims are dismissed, and it is further
ORDERED that the Clerk enter Judgment accordingly.