Opinion
Index No. 910530-21
11-01-2022
Women's Cancer Care Associates, LLC, Plaintiff, v. Heidi Godoy, D.O. and NEW YORK ONCOLOGY HEMATOLOGY, P.C., Defendants. HEIDI GODOY, D.O., Third-Party Plaintiff, v. PATRICK TIMMINS III, M.D. and JOYCE N. BARLIN, M.D., Third-Party Defendants.
Gleason Dunn Walsh & O'Shea Attorneys for Plaintiff (John P. Calareso, Jr. and Nancy S. Williamson, of counsel) Robert N. Gregor, Esq. Attorney for Heidi Godoy, D.O. Faegre Drinker Biddle & Reath LLP Attorneys for New York Oncology Hematology, P.C. (Justin O. Kay, of counsel) and (Sophie J. Chau, of counsel) and (Martin Chester, of counsel)
Unpublished Opinion
Gleason Dunn Walsh & O'Shea
Attorneys for Plaintiff
(John P. Calareso, Jr. and Nancy S. Williamson, of counsel)
Robert N. Gregor, Esq.
Attorney for Heidi Godoy, D.O.
Faegre Drinker Biddle & Reath LLP
Attorneys for New York Oncology Hematology, P.C.
(Justin O. Kay, of counsel)
and
(Sophie J. Chau, of counsel)
and
(Martin Chester, of counsel)
Richard M. Platkin, J.
Plaintiff Women's Cancer Care Associates, LLC ("WCCA" or "the Practice") brings this commercial action to recover damages from defendant Heidi Godoy, D.O. "arising from her breach of fiduciary duty, breach of contract, conduct as a faithless servant, theft of business opportunity, and misappropriation of trade secrets" (NYSCEF Doc No. 2 ["Complaint"], ¶ 1). WCCA also seeks damages from defendant New York Oncology Hematology P.C. ("NYOH") for its "complicit conduct" in "aiding" Dr. Godoy's wrongdoing (id.).
NYOH moves, pre-answer, under CPLR 3211 (a) (1) and (7), CPLR 3013 and CPLR 3016 (b), for dismissal of the claims alleged against it (see NYSCEF Doc No. 10). In a separate motion filed post-answer, Dr. Godoy joins in the arguments for dismissal advanced by NYOH (see NYSCEF Doc Nos. 5, 27). WCCA opposes the motions.
BACKGROUND
WCCA is a provider of specialized gynecologic-oncology medical services in Upstate New York (see Complaint, ¶¶ 11-12). The physician-members of the Practice are Patrick F. Timmins III, M.D., Timothy J. McElrath, M.D. and Joyce N. Barlin, M.D. (see id., ¶ 13).
Dr. Godoy is a board-certified physician in gynecologic oncology (see id., ¶ 16). She became an employee of WCCA on August 1, 2012 and was admitted to the Practice on August 1, 2014 (see id., ¶ 17).
NYOH provides cancer care and treatment in Upstate New York (see id., ¶ 18). Prior to December 1, 2021, however, NYOH did not employ any physicians who are board-certified in gynecologic oncology or who could surgically treat patients with gynecologic cancer (see id., ¶¶ 20-21). "For this reason, among others, NYOH has repeatedly sought opportunities to establish a surgical gynecologic oncology practice in Upstate New York" (id., ¶ 22).
To that end, NYOH's president, Ira Zackon, M.D., approached Dr. Timmins in May 2018 to discuss the prospect of a merger (see id., ¶ 23). In furtherance of this effort, NYOH and WCCA executed a non-disclosure agreement in July 2018 (see id., ¶ 24; see also NYSCEF Doc No. 30 ["NDA"]), thereby allowing WCCA to disclose highly sensitive information to NYOH, including balance sheets, pharmaceutical purchase history, and detailed information concerning WCCA employees (see Complaint, ¶ 27).
Active merger negotiations continued through the summer of 2019 (see id., ¶ 25), and Dr. Timmins "routinely conferred" with Dr. Godoy and the other members of the Practice "regarding the status, scope and progress" of the merger talks (id., ¶ 26).
Talks were ongoing in early 2020 when the COVID-19 pandemic emerged, which necessitated "a pause in the negotiations but, critically, not a termination" (id., ¶ 28). Negotiations resumed in November 2020 and continued through April 2021, including a discussion of cooperative efforts to establish an ambulatory surgical center in the Capital Region (see id., ¶ 29).
At several points, NYOH proposed to WCCA a merger or joint business relationship (see id., ¶ 32). Although WCCA could not agree to the specific financial terms advanced by NYOH, negotiations continued, and WCCA believed that the parties shared a mutual intention to resolve the financial issues and reach agreement to merge or partner (see id., ¶ 33).
Following WCCA's rejection of NYOH's April 2021 proposal, NYOH assured WCCA that it was developing a revised proposal to address WCCA's remaining financial concerns (see id., ¶ 34). Negotiations continued until October 2021, at which time WCCA believed that NYOH would be advancing the revised proposal (see id., ¶ 35).
Meanwhile, Dr. Godoy initiated her own discussions with NYOH in July 2021 without informing other members of the Practice (see id., ¶ 37). These discussions concerned "the possibility of Godoy leaving WCCA and joining NYOH" (id.).
Dr. Godoy's "surreptitious[]" negotiations with NYOH continued from July 2021 until October 2021, "all the while [NYOH and Dr. Godoy] allow[ed] WCCA to continue to believe that NYOH was negotiating the merger of the two practices in good faith... and that Godoy was abiding by WCCA's nondisclosure agreement with NYOH and her fiduciary duty to WCCA" (id., ¶ 41).
Despite having announced in August 2021 that she would be leaving the Practice and relocating to Washington, D.C. (see id., ¶ 42), Dr. Godoy accepted a position with NYOH on October 13, 2021, "thereby usurping WCCA's economic opportunity to build a strong multi-specialty medical and surgical practice, diminishing WCCA's capacity to provide care and treatment for cancer patients... and choosing instead to act solely for her own benefit and in violation of her duty of loyalty and her fiduciary duty to WCCA" (id., ¶ 43).
Having secured the services of a board-certified gynecologic oncologist qualified to perform surgery, NYOH formally discontinued merger negotiations with WCCA (see id., ¶ 45).
WCCA also alleges that Dr. Godoy copied protected health-care information, including patient records, before leaving the Practice (see id., ¶¶ 48-55), and she used this confidential information to solicit patients to her new practice at NYOH (see id., ¶ 57).
Finally, WCCA alleges that Dr. Godoy solicited WCCA employees prior to notifying the Practice that she was leaving (see id., ¶ 46), and three of its staff members joined Dr. Godoy at NYOH (see id., ¶ 47).
WCCA commenced this action on December 23, 2021 through the electronic filing of the summons and Complaint. The Complaint alleges seven causes of action: (1) breach of fiduciary duty (Dr. Godoy only); (2) aiding and abetting breach of fiduciary duty (NYOH only); (3) breach of contract (Dr. Godoy only); (4) faithless servant (Dr. Godoy only); (5) constructive trust; (6) theft of business opportunities (Dr. Godoy only); and (7) misappropriation of trade secrets.
Dr. Godoy joined issue by serving an answer with counterclaims on January 12, 2022 (see NYSCEF Doc No. 5). Dr. Godoy also commenced a third-party action against Drs. Timmins and Barlin for defamation (see id., pp. 4-5; see also NYSCEF Doc No. 9).
In lieu of answering, NYOH moved on February 28, 2022 for dismissal of WCCA's claims under CPLR 3211 (a) (1) and (7), CPLR 3013 and CPLR 3016 (b) (see NYSCEF Doc No. 10). In a separate post-answer dismissal motion, Dr. Godoy largely joins in the arguments raised by NYOH (see NYSCEF Doc No. 27).
Following several adjournments, oral argument was held on October 6, 2022, a copy of the argument transcript was filed on October 17, 2022 (see NYSCEF Doc No. 47 ["Transcript"]), and this Decision & Order follows.
LEGAL FRAMEWORK
On a motion to dismiss for failure to state a cause of action under CPLR 3211 (a) (7), a court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994]). "Dismissal of the complaint is warranted if the plaintiff fails to assert facts in support of an element of the claim, or if the factual allegations and inferences to be drawn from them do not allow for an enforceable right of recovery" (Connaughton v Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 142 [2017] [citations omitted]).
"[A] motion pursuant to CPLR 3211 (a) (1) must be granted where the documentary evidence 'conclusively refutes plaintiff's factual allegations' and establishes a defense as a matter of law" (Doller v Prescott, 167 A.D.3d 1298, 1299 [3d Dept 2018], quoting Kolchins v Evolution Mkts., Inc., 31 N.Y.3d 100, 106 [2018]).
ANALYSIS
A. Breach of Fiduciary Duty / Aiding and Abetting
NYOH contends that the second cause of action, alleging that it aided and abetted Dr. Godoy's breaches of fiduciary duty, must be dismissed because the Complaint does not state a claim for breach of fiduciary duty against Dr. Godoy or an aiding-and-abetting claim against NYOH. Dr. Godoy relies on the former argument in seeking dismissal of the first cause of action, alleging breach of fiduciary duty by Dr. Godoy.
1. Sufficiency of the Breach of Fiduciary Duty Claim
"The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct" (Litvinoff v Wright, 150 A.D.3d 714, 715 [2d Dept 2017] [internal quotation marks and citations omitted]; see Delibasic v Manojlovic, 174 A.D.3d 1096, 1096-1097 [3d Dept 2019]).
"A cause of action sounding in breach of fiduciary duty must be pleaded with the particularity required by CPLR 3016 (b)" (Palmetto Partners, L.P. v AJW Qualified Partners, LLC, 83 A.D.3d 804, 808 [2d Dept 2011] [citations omitted]). This requirement is met when the complaint puts the defendants on notice of the particular incidents complained of, and the material facts alleged in the complaint are sufficient to give rise to a reasonable inference of the alleged misconduct (see New York State Workers' Compensation Bd. v SGRisk, LLC, 116 A.D.3d 1148, 1154 [3d Dept 2014]; Goel v Ramachandran, 111 A.D.3d 783, 792-793 [2d Dept 2013]).
a. Negotiating and Accepting Employment with NYOH
NYOH argues that the Complaint does not state a claim that Dr. Godoy breached fiduciary duties owed to WCCA by negotiating and contracting for employment with NYOH or by failing to inform WCCA of her dealings with NYOH. According to NYOH: (1) WCCA has not alleged "that the merger was likely to be finalized but for Dr. Godoy's taking a position with NYOH" (NYSCEF Doc No. 13 ["NYOH MOL"], pp. 5-6); (2) the contemplated merger was not a corporate opportunity of WCCA (see id., pp. 6-8); and (3) Dr. Godoy did not, and could not, usurp WCCA's merger opportunity with NYOH (see id., p. 8).
i. Corporate Opportunity
NYOH's arguments implicate the "corporate opportunity" doctrine, which "provides that corporate fiduciaries and employees cannot, without consent, divert and exploit for their own benefit any opportunity that should be deemed an asset of the corporation" (Alexander & Alexander of NY v Fritzen, 147 A.D.2d 241, 246 [1st Dept 1989]; see Adirondack Capital Mgt., Inc. v Ruberti, Girvin & Ferlazzo, P.C., 43 A.D.3d 1211, 1215 [3d Dept 2007], lv denied 9 N.Y.3d 817 [2008]).
"Various tests have been utilized to determine whether a venture should be considered a 'corporate opportunity.' One such method, and the one frequently employed in [New York], is whether the corporation has an 'interest' or 'tangible expectancy' in the opportunity" (Alexander, 147 A.D.2d at 247 [internal quotation marks and citations omitted]). "An 'interest' or tangible expectancy' has been explained as something much less tenable than ownership, but, on the other hand, more certain than a desire or a hope" (id. at 247-248 [internal quotation marks and citations omitted]). "The degree of likelihood of realization from the opportunity is... the key to whether an expectancy is tangible" (Abbott Redmont Thinlite Corp. v Redmont, 475 F.2d 85, 89 [2d Cir 1973]).
A "corporate opportunity" also may be found where the opportunity "is 'necessary' for, or 'essential' to, the line of business of the corporation," and "the consequences of deprivation are so severe as to threaten the viability of the enterprise" (Alexander, 147 A.D.2d at 248; see Moser v Devine Real Estate, Inc. [Florida], 42 A.D.3d 731, 734-735 [3d Dept 2007]). Although WCCA refers to this alternative test in its opposition papers (see NYSCEF Doc No. 34, p. 9), it neither alleges nor argues that the NYOH merger was essential to WCCA's continued viability (see Moser, 42 A.D.3d at 735).
WCCA alleges that Dr. Godoy engaged in surreptitious employment negotiations with NYOH "between July and October of 2021" (Complaint, ¶ 41), and she accepted employment with NYOH on October 13, 2021 (see id., ¶¶ 43-44). Thus, her alleged breaches of duty occurred after WCCA rejected NYOH's latest merger proposal in April 2021 and NYOH had assured WCCA "that a subsequent proposal was being developed to address [its] remaining [financial] concerns" (id., ¶ 34). And when Dr. Godoy accepted employment with NYOH in October 2021, the merger negotiations remained ongoing, and NYOH had "led" WCCA to believe "that another offer would be forthcoming" (id., ¶ 35).
However, NYOH did not advance another offer to WCCA. "Upon securing the services of [Dr.] Godoy, a board-certified gynecologic oncologist qualified to perform surgery on its patients, NYOH formally ceased merger negotiations with WCCA" (id., ¶ 45).
By engaging in the foregoing conduct, Dr. Godoy is said to have usurped "WCCA's opportunity to partner with NYOH" (id., ¶ 126; see also id., ¶¶ 43, 65), and WCCA seeks to recover monetary damages from Dr. Godoy that reflect the value of the business opportunities lost to the Practice by reason of her usurpation (see id., ¶ 74).
Accepting the allegations of the Complaint as true and according WCCA the benefit of every favorable inference (see Matter of Tammy TT. v Charles TT., 204 A.D.3d 1336, 1337 [3d Dept 2022]), the Court concludes that the Complaint sufficiently alleges that WCCA had a tangible expectancy in merging or partnering with NYOH (see Alexander, 147 A.D.2d at 247-248).
Although NYOH observes that merger talks had moved in "fits and starts for over three years" (NYOH MOL, p. 7) and WCCA "rejected offers repeatedly" from NYOH (Transcript, p. 6; see also id., pp. 7, 12-14), the facts alleged in the Complaint, viewed in a light most favorable to WCCA, show that NYOH remained highly motivated to reach a merger agreement and that WCCA was in a strong position to realize that opportunity.
As to motivation, the Complaint alleges that NYOH had long sought to provide surgical treatment to patients suffering from gynecologic cancer (see Complaint, ¶¶ 21-22), and there are only a "few" board-certified gynecological cancer doctors in Upstate New York (see id., ¶ 12). And it was NYOH that approached WCCA - an Upstate New York medical practice comprised of board-certified gynecological cancer doctors (see id., ¶¶ 11, 13, 17) - in pursuit "of a merger or other form of professional collaboration" (id., ¶ 23).
The Complaint further alleges that WCCA was in an extremely strong bargaining position to successfully realize the NYOH opportunity prior to Dr. Godoy's alleged disloyalty (see id., ¶ 32). As NYOH observes, WCCA had rebuffed several offers "[b]ased on the financial... terms proposed by NYOH" (id., ¶ 33). But even after the most recent rejection of an NYOH proposal in April 2021, NYOH assured WCCA that it was developing a revised proposal to address WCCA's remaining financial concerns (see id., ¶ 34). "NYOH and WCCA continued to negotiate up to and including October of 2021, at which point WCCA was led to believe that another offer would be forthcoming to it from NYOH" (id., ¶ 35).
On these (alleged) facts, WCCA's interest in merging or partnering with NYOH, while less tangible than a merger agreement, was far more than a mere desire or hope (see Alexander, 147 A.D.2d at 247-248). WCCA's allegations show tangible efforts directed at a merger, including lengthy negotiations, the exchange of multiple proposals, and execution of a mutual non-disclosure agreement (see id., ¶ 24; see also NDA), together with a substantial "degree of likelihood of realization" (Abbott, 475 F.2d at 89).
And while the long duration of the negotiations is a relevant factor and one that often counsels against a finding of a tangible expectancy (see Dian Kui Su v Sing Ming Chao, 150 A.D.3d 424, 425 [1st Dept 2017], affg as mod on other grounds 2016 NY Slip Op 31734[U], *4 [Sup Ct, NY County 2016] ["The Sale Property would constitute a corporate opportunity if (the corporation) was actively seeking to buy it, but if it made no overtures or offers for over two years, it would be difficult to determine, as a matter of law, that there was a tangible expectancy in the property."]), WCCA's alleged ability to stand firm on its financial demands and elicit stronger proposals from NYOH serves to distinguish this case, as does the fact that negotiations were active and ongoing at the time of the alleged breaches of duty.
Additionally, NYOH's parent corporation, U.S. Oncology, had "assured members of WCCA not to worry if negotiations moved slowly" (Complaint, ¶ 36).
Of course, there is no guarantee that WCCA would have found the financial terms of NYOH's revised proposal to be acceptable, but the corporate opportunity doctrine protects more than absolute certainties from fiduciary misconduct. The test is whether Dr. Godoy usurped a tangible opportunity that WCCA had a "high degree of likelihood" of realizing (Abbott, 475 F.2d at 89; see Kraus USA, Inc. v Magarik, 2020 WL 2415670, *9, 2020 U.S. Dist LEXIS 83481, *23-24 [SD NY, May 12, 2020, No. 17-CV-6541 (ER)] ["opportunity" that plaintiff "was considering and had at least a tangible expectancy of obtaining"]; see also Adirondack Capital, 43 A.D.3d at 1215).
Finally, the Court is unpersuaded by NYOH's reliance on In re Marine Risks, Inc. (441 BR 181, 207 [Bankr ED NY 2010], affd sub nom. Ackerman v Pilipiak, 457 BR 191 [ED NY 2011]), in which the Bankruptcy Court determined that the debtor corporation did not have a tangible expectation of realizing a certain proposed transaction with a third party, NHM. Although the debtor and NHM had signed a letter of intent, the Bankruptcy Court reasoned that "the transaction was subject to NHM's due diligence, and the closing was contingent upon successful completion of this due diligence" (id.). As NYOH observes, there was not even a conceptual agreement with WCCA here, much less a signed letter of intent.
While the portion of the Marine Risks decision relied upon by NYOH does support its argument that WCCA lacked a tangible expectation of realizing the merger opportunity with NYOH, the Court does not find Marine Risks to be controlling or persuasive for several reasons.
First, Marine Risks is a decision on the merits rendered after a trial. Here, the Court's role is limited to deciding whether the facts alleged in the Complaint state a "corporate opportunity" claim, assuming the truth of WCCA's factual allegations and giving WCCA the benefit of all favorable inferences (see American Fed. Grp., Ltd. v Rothenberg, 136 F.3d 897, 911 [2d Cir 1998] [in rejecting "(defendant's) contention that (his) 'usurpation' of the THB relationship could not, as a matter of law, constitute a breach of fiduciary duty," the Second Circuit did "not, however, hold to the contrary that as a matter of law it did"]).
Second, the discussion of tangible expectancy in Marine Risks was dicta. In the language that immediately follows, the Bankruptcy Court explained that the NHM transaction was not an opportunity of the debtor corporation, but rather a scheme by the debtor's shareholders to loot the corporation (see 441 BR at 207; see also 457 BR at 198 ["Like the Bankruptcy Court, the (District) Court thinks that the Trustee's attempt to blame Defendant for the demise of (the debtor) - a company whose president had been indicted for stealing from its clients and whose board was plotting to sell its assets to a competitor for no consideration - is disingenuous."]).
Finally, given the atypical nature of the "corporate opportunity" claim presented herein, the unusual facts of Marine Risks and the paucity of other relevant precedent, the Court finds it more appropriate "to rely upon the particular circumstances of [this] case" in determining whether a corporate opportunity claim has been stated, rather than rely on "abstract principles or general language used in [other] decisions" (Turner v American Metal Co., 36 N.Y.S.2d 356, 370 [Sup Ct, NY County 1942], revd on other grounds 268 A.D. 239 [1st Dept 1944], appeal dismissed 295 NY 822 [1946]).
"In short, while the relationship with [NYOH] was not a contractual right of [WCCA], clearly it was more certain than a desire or hope" (American Fed. Grp., Ltd. v Rothenberg, 2003 WL 22349673, *12, 2003 U.S. Dist LEXIS 18353, *40 [SD NY, Oct. 14, 2003, No. 91 Civ 7860 (THK)]).
ii. Usurpation
Defendants further argue that, even if merging or partnering with NYOH was a corporate opportunity of WCCA, Dr. Godoy did not usurp it.
"'Usurpation requires that the [d]efendant take the opportunity for himself. The fiduciary must divert that expectancy to his [or her] own profit'" (NYOH MOL, p. 8, quoting Marine Risks, 441 BR at 208; see Le Metier Beauty Inv. Partners LLC v Metier Tribeca, LLC, 2015 WL 7078641, *4, 2015 U.S. Dist LEXIS 153909, *11 [SD NY, Nov. 12, 2015, No. 13 Civ 4650 (JFK)] [plaintiff must "show that the defendant took that opportunity for himself" or herself]).
"Like the defendant in [ Marine Risks ], Dr. Godoy did not divert the proceeds from the sale of WCCA's assets to herself, but instead only obtained employment for herself - which presumably also would have occurred if the acquisition had been consummated" (NYOH MOL, p. 8).
The Court does not find this to be a persuasive argument for dismissal at this early stage of the case. WCCA has pleaded a tangible expectancy of merging or partnering with NYOH to render gynecologic oncology services on a broader, "multi-specialty" platform (Complaint, ¶ 43), and the Complaint sufficiently alleges that Dr. Godoy usurped that opportunity - an opportunity that she allegedly became aware in her capacity as a member of WCCA (see id., ¶¶ 30-31) - by negotiating and accepting employment with NYOH to provide those services (see id., ¶ 43). And discovery may shed light on the degree to which Dr. Godoy diverted WCCA's expectancy to her own personal benefit (see id., ¶ 126), as well as the extent to which Dr. Godoy's relationship with NYOH "was... comparable to the potential merger [NYOH] had offered [WCCA]" (NYSCEF Doc No. 40, p. 9).
NYOH asserts that the standard is "stepping into the shoes" (Transcript, p. 23). But that leaves the question whether there is any meaningful distinction between Dr. Godoy accepting employment with NYOH versus forming a professional corporation and "partnering" with NYOH through the new entity.
b. Copying and Misuse of Patient Records
"Between September 15, 2021, and September 23, 2021, while still a member and employed by WCCA, [Dr.] Godoy accessed and copied no less than [68] confidential patient records" (Complaint, ¶ 49). Almost all these records were accessed during a two-hour period on September 23, 2021 (see id., ¶ 50). WCCA insists that Dr. Goody "did not have the authority or any legal or professional justification" for copying the patient records (id., ¶ 51). Further, "while still a member of and employed by WCCA, [Dr.] Godoy distributed medical record release forms to patients she had worked with while a member of WCCA and solicited them to leave WCCA's practice and become patients of NYOH" (id., ¶ 52). As a result of the foregoing, "patients of WCCA have left WCCA's practice and transferred to NYOH" (id., ¶ 53).
NYOH contends that Dr. Godoy was entitled to distribute release forms to her own patients, copy the medical records of her patients, and communicate with her patients using such records. According to NYOH, a corporate entity, such as WCCA, has no patients or patient records of its own; as such, the corporate entity my not maintain a claim alleging, in essence, the wrongful diversion of patients (see NYOH MOL, pp. 8-9).
NYOH bases its arguments on authorities holding that medical records generally belong to the medical practice, subject to the right of the treating physician to copy the records of his or her own patients and use such records to communicate with patients (see Matter of Autz v Fagan, 16 Misc.3d 1140[A], 2007 NY Slip Op 51763[U], *4-5 [Sup Ct, Nassau County 2007]; Lewis v Clement, 1 Misc.3d 464, 465 [Sup Ct, Monroe County 2003]; see also Albany Med. Coll. v McShane, 66 N.Y.2d 982, 984 [1985]; Pullman v Gormley, 13 Misc.3d 1234 [A], 2006 NY Slip Op 52109[U], *4 [Sup Ct, Kings County 2006] [medical practice may own original patient records, but treating physician had "unfettered right to copies of the records of (his or) her own patients"]).
However, the authorities relied upon by NYOH involve situations in which there was no entity left to treat the patients after their physician departed, either because the entity itself was being dissolved or because the entity was not capable of practicing medicine.
Thus, one line of cases cited by defendants recognizes that a "better practice" upon dissolution of a professional partnership is to "allow all physicians to contact any of patients whom they treated" (Matter of Autz, 2007 NY Slip Op 51763[U], *5; accord Lewis, 1 Misc.3d at 465-466).
Another line of authorities concerns entities that are not authorized to have patients or practice medicine (see ProHealth Care Assoc., LLP. v April, 4 Misc.3d 1017[A], 2004 NY Slip Op 50919[U], *4 [Sup Ct, Nassau County 2004] ["A partnership does not practice medicine and does not have patients. The physicians, who are partners in a medical practice... practice medicine and have patients."]). "Manifestly, the patients... have a patient-physician relationship with the physicians who treat or have treated them..., not with the plaintiff entity which is not authorized to practice medicine" (United Calendar Mfg. Corp. v Huang, 94 A.D.2d 176, 179 [2d Dept 1983] [business corporation]; see also McShane, 66 N.Y.2d at 983 [faculty practice plan of medical college]; Damsker v Haque, 93 A.D.2d 729, 730 [1st Dept 1983] [shared health facilities under Public Health Law article 47]).
This significant distinction was recognized in Parsley v Associates in Internal Medicine (126 Misc.2d 996 [Sup Ct, Broome County 1985] [Crew, III, J.]), in which the Court explained that "a professional service corporation practices medicine and has patients. Consequently, it is the corporation which has the property right in the patient records, rather than the employee physician who, as an agent of the corporation, treats the patient and makes the records" (id. at 997).
The same distinction was reaffirmed more recently in Baldeo v Majeed (33 Misc.3d 1233 [A], 2011 NY Slip Op 52229[U] [Sup Ct, Queens County, 2011]), a case involving a professional limited liability company ("PLLC"), which is the same corporate form used by WCCA (see Complaint, ¶ 3). "A PLLC, like a professional corporation, renders professional services. As such, a PLLC provides medical services and has a property interest in patient records and patient lists generated or maintained by the PLLC" (Baldeo, 2011 NY Slip Op 52229[U], *3 [citations omitted]).
Although this ruling was not appealed, the defendant-physicians in Baldeo later appealed the denial of their motion for summary judgment (see Baldeo v Majeed, 150 A.D.3d 942 [2d Dept 2017]), and the Appellate Division's decision lends further support to the distinction recognized by Justice Crew in Parsley and in the 2011 Baldeo decision.
In concluding that the misappropriation claim against Dr. Majeed should have been dismissed on summary judgment, the Second Department reasoned: "[A]ny of the patients who 'followed' [Dr. Majeed] to his new office were patients that he had previously treated..., and any records of those patients were obtained from the patients themselves" (id. at 944-945 [emphasis added]). Thus, the fact that Dr. Majeed's solicitation was limited to his own former patients did not, in and of itself, warrant dismissal; the Second Department also found it essential that "any records of those [following] patients were obtained from the patients themselves" (id.).
In contrast, the patient records here were obtained from the Practice, an entity authorized to practice medicine and have patients, and Dr. Godoy does not contend that her wholesale copying of medical records was done at the request, or with the express consent, of all of the patients (see Rao v Verde, 222 A.D.2d 569, 570 [2d Dept 1995]; Allan Dampf, P.C. v Bloom, 127 A.D.2d 719, 720 [2d Dept 1987]).
WCCA's position that Dr. Godoy had no right to copy patient records also finds support in the company's operating agreement (see NYSCEF Doc No. 36 ["Operating Agreement" or "OA"]). The Operating Agreement recites that WCCA was formed as a PLLC (see id., first recital) for the "purpose of... engag[ing] in the practice of medicine" (id., § 1.3), to which members of WCCA "shall devote [their] full time [attention]" (id. § 3.1). Thus, the Operating Agreement declares WCCA's patients to be patients of the Practice, who are treated by the physician-members as agents thereof.
And with specific regard to patient records, the Operating Agreement declares that "[a]ll patient records shall be held and retained by the Company" (id., § 10.15), but will be transmitted or disclosed "[i]f any patient directs" (id.; see Baldeo, 150 A.D.3d at 944-945). Thus, the Operating Agreement to which Dr. Godoy assented establishes a patient-driven process for the copying and release of medical records and does not authorize a departing physician to make his or her own personal copies before leaving the Practice (see id.; see also OA, § 10.16 [restricting use of confidential information]).
Defendants offer no persuasive basis for concluding that Dr. Godoy's alleged right to copy patient records preempts the express contractual promises concerning the same subject matter made in the Operating Agreement. The alleged right is said to follow from McShane, in which the Court of Appeals held that patient records "are clearly the property of [the medical college], subject to [the treating physician's] right to obtain copies" (66 N.Y.2d at 984). However, the primary authority cited by the Court of Appeals for that proposition was Public Health Law § 17, a statute requiring a physician or hospital to release patient records to another physician or hospital upon the patient's written request and the payment of a reasonable charge (accord OA, § 10.15 [patient records to be transmitted or disclosed "(i)f any patient directs"]; see also Paterna v Zandieh, 130 A.D.2d 471, 472 [2d Dept 1987]; Matter of Casillo v St. John's Episcopal Hosp., Smithtown, 151 Misc.2d 420, 423 [Sup Ct, Suffolk County 1992]).
McShane also cited two Appellate Division cases, one interpreting the "reasonable charge" requirement of Public Health Law § 17 (see Matter of Hernandez v Lutheran Med. Ctr., 104 A.D.2d 368, 368 [2d Dept 1984]), and another involving the refusal of a shared health facility under Public Health Law article 47 to turn over copies of patient records to the physician who actually treated the patients (see Damsker, 93 A.D.2d at 730). It also bears emphasis that in the 37 years since McShane was decided, the case has been cited only 14 times by the New York courts, mainly for its construction of the fee-splitting prohibition of Education Law § 6509-a (see e.g. Matter of Odrich v Trustees of Columbia Univ. in City of NY, 308 A.D.2d 405, 406 [1st Dept 2003]; Sheldon Rabin, M.D., P.C. v Hirshfield, 223 A.D.2d 535, 536 [2d Dept 1996]). Only three decisions cite McShane for the proposition relied upon by defendants herein.
Under the circumstances, defendants have failed to show that WCCA has no claim for breach of fiduciary duty based on Dr. Godoy's alleged copying and misuse of patient medical records.
c. Solicitation of Employees
Finally, NYOH argues that WCCA has not stated a claim through allegations that Dr. Godoy breached her fiduciary duties by soliciting WCCA employees to join her competing practice at NYOH (see Complaint, ¶ 46). Specifically, NYOH asserts that "'[t]he mere inducement of an at will employee to join a competitor [is not] actionable, unless dishonest means are employed, or the solicitation is part of a scheme designed solely to produce damage,'" neither of which is implicated here (NYOH MOL, p. 10, quoting Headquarters Buick-Nissan, Inc. v Michael Oldsmobile, 149 A.D.2d 302, 304 [1st Dept 1989]).
Inasmuch as WCCA has not responded with any contrary authority or otherwise contested NYOH's position, the Court concludes that the employee solicitation prong of the breach of fiduciary duty claim fails to state a cause of action.
d. Conclusion
WCCA has stated a claim for breach of fiduciary duty as to allegations that (1) Dr. Godoy usurped a corporate opportunity of WCCA to merge or partner with NYOH ("Usurpation Allegations"), and (2) Dr. Godoy copied patient records and solicited WCCA patients using such records ("Copying/Solicitation Allegations"). However, the allegations concerning the solicitation of employees lack merit and are therefore dismissed (see Complaint, ¶ 71).
2. Sufficiency of the Aiding-and-Abetting Claim (2nd Cause of Action)
NYOH argues that the aiding-and-abetting claim must be dismissed because the Complaint fails to allege the required elements with the requisite particularity.
"A claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach" (Kaufman v Cohen, 307 A.D.2d 113, 119, 125 [1st Dept 2003] [citations omitted]). "A person knowingly participates in a breach of fiduciary duty only when he or she provides 'substantial assistance' to the primary violator. Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur" (id. at 126 [citations omitted]). A claim alleging the aiding and abetting of a breach of fiduciary duty must be pleaded with particularity (see CPLR 3016 [b]).
As is pertinent here, the Complaint alleges that NYOH had actual knowledge of Dr. Godoy's employment and membership status with WCCA, and NYOH knowingly induced and/or participated in Dr. Godoy's breaches of fiduciary duty by: (1) negotiating and contracting with Dr. Godoy while simultaneously negotiating with WCCA; and (2) assisting Dr. Godoy in the copying of patient records and "the solicitation of WCCA... patients[] and employees" (Complaint, ¶¶ 81-84).
a. Usurpation Allegations
The Court concludes that the aiding and abetting claim is sufficiently pleaded as to the Usurpation Allegations. The Complaint sufficiently alleges NYOH's actual knowledge of Dr. Godoy's role at WCCA and her actions in relation to negotiating and accepting employment with NYOH during the pendency of the WCCA/NYOH talks. Further, Dr. Godoy's alleged usurpation could not have occurred absent NYOH's affirmative assistance.
Indeed, NYOH's challenge to the second cause of action does not appear to be directed at the Usurpation Allegations, just the "conclusory allegations that NYOH had substantially assisted Dr. Godoy's other purported breaches of fiduciary duty" (NYOH MOL, p. 11).
b. Copying/Solicitation Allegations
WCCA's claim that NYOH aided and abetted Dr. Godoy in regard to the Copying/Solicitation Allegations has not been pleaded with the particularity required by CPLR 3016 (b). WCCA's allegations are entirely conclusory (see Complaint, ¶ 84), and even assuming that the element of actual knowledge may be inferred from WCCA's other allegations, the Complaint does not accord NYOH fair notice of the conduct on its part alleged to constitute affirmative assistance or actionable concealment of Dr. Godoy's alleged breaches (see State of NY Workers' Compensation Bd. v Wang, 147 A.D.3d 104, 119 [3d Dept 2017]).
B. Trade Secrets
WCCA's seventh cause of action alleges the misappropriation of trade secrets by defendants. The elements of a trade-secret misappropriation claim are: "(1) possession of a trade secret; and (2) use of that trade secret by the defendant 'in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means'" (Tri-Star Light. Corp. v Goldstein, 151 A.D.3d 1102, 1106 [2d Dept 2017], quoting Schroeder v Pinterest Inc., 133 A.D.3d 12, 27 [1st Dept 2015]).
Courts in New York generally follow Section 757 of the Restatement of Torts in determining whether business information qualifies for protection as a trade secret (see Ashland Mgt. v Janien, 82 N.Y.2d 395, 407 [1993]). Under this definition, a trade secret is "'any formula, pattern, device or compilation of information which is used in one's business, and which gives [the business] an opportunity to obtain an advantage over competitors who do not know or use it'" (id., quoting Restatement of Torts § 757, Comment b). Some of the factors to be considered in evaluating a claim of trade secret status include:
(1) the extent to which the information is known outside of [the] business; (2) the extent to which it is known by employees and others involved in [the] business; (3) the extent of measures taken by [the business] to guard the secrecy of the information; (4) the value of the information to [the business] and [its] competitors; (5) the amount of effort or money expended by [the business] in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others (id.).
NYOH contends that the claim for misappropriation of trade secrets must be dismissed because: (1) the allegations of the Complaint identifying the alleged trade secrets are vague and conclusory; (2) WCCA has failed to allege facts sufficient to show that the information it seeks to protect constitutes trade secrets; and (3) the Complaint fails to allege that NYOH improperly discovered or used any trade secrets in bad faith.
The Court concludes that WCCA has alleged a viable misappropriation claim as to the patient files allegedly copied and misused by Dr. Godoy. The Complaint is sufficiently particularized as to the 68 patient files (see Complaint, ¶ 131; see also id., ¶¶ 49-51), and there is ample case law recognizing that patient lists and medical records may be protectible as trade secrets (see e.g., Rao, 222 A.D.2d at 570; Allan Dampf, 127 A.D.2d at 719; see also Part A [1] [b], supra).
As to NYOH's contention that the Complaint fails to sufficiently allege the improper discovery and/or use of the records, the Court disagrees. Liberally construing the Complaint and giving WCCA the benefit of all favorable inferences, the Complaint adequately alleges that Dr. Godoy, as an employee of NYOH, made use of the misappropriated patient files in soliciting patients to NYOH's practice (see Complaint, ¶¶ 56-58, 93-94).
However, the Court agrees with defendants that WCCA has failed to state a claim for misappropriation as to the other alleged trade secrets generically referred to in the Complaint (see id., ¶¶ 131-136). In its memorandum in opposition, WCCA argues that the Complaint is referring to the documents provided to NYOH under the NDA (see NYSCEF Doc No. 34 ["Opp Mem"], pp. 14-15). But even if such documents represent trade secrets - and WCCA has not provided the Court with any factual basis for concluding that they do - WCCA's remedy is to pursue a contractual claim for breach of the NDA (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 N.Y.2d 382, 388 [1987]).
Nothing in the Complaint indicates that the aforementioned 68 patient files were provided to NYOH as part of the due diligence process. And even if they were, Dr. Godoy's alleged independent misappropriation and misuse of the same records may also be relevant.
The Court therefore concludes that WCCA has stated a claim for trade secret misappropriation against defendants as to the 68 patient files allegedly copied and misused by Dr. Godoy.
C. Constructive Trust
By its fifth cause of action, WCCA sues for the imposition of a constructive trust. Courts of equity will impose a constructive trust where there is "(1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4) unjust enrichment" (Sharp v Kosmalski, 40 N.Y.2d 119, 121 [1976]). WCCA's claim is founded upon allegations that Dr. Godoy breached her fiduciary duties to WCCA, NYOH ratified and accepted the benefits of those breaches, and defendants therefore hold any "business opportunities, fees, disbursements, and profits" in constructive trust for the benefit of WCCA (Complaint, ¶¶ 106-114).
1. NYOH
NYOH seeks dismissal of the constructive trust claim on three grounds: (1) there is no allegation of a confidential relationship between WCCA and NYOH; (2) there is no allegation of any promise or transfer of property between NYOH and WCCA that could lead to the establishment of a constructive trust; and (3) the Complaint does not allege that NYOH engaged in fraud or breach of duty.
WCCA's opposition does not attempt to defend against NYOH's arguments for dismissal; instead, WCCA proffers a different, unpleaded theory of liability. According to WCCA, the merger negotiations were "a non-arm's length transaction"; "NYOH owed a separate duty to... keep [WCCA's] proprietary information confidential pursuant to the NDA"; "the NDA included a promise to maintain the confidentiality of the information shared with NYOH"; "WCCA provided confidential and proprietary information to NYOH in reliance on the NDA"; and "NYOH was unjustly enriched when WCCA lost the business opportunity" (Opp Mem, pp. 18-19).
As stated above, WCCA has not attempted to refute NYOH's arguments for dismissal of the constructive trust claim pleaded in the Complaint, which is predicated on NYOH's receipt of confidential information through Dr. Godoy. And WCCA's new theory - one based on the contractual promises made by NYOH in the NDA - also fails to state a viable claim for relief. The equitable remedy of constructive trust does not lie where there is an adequate remedy at law (see Bertoni v Catucci, 117 A.D.2d 892, 895 [3d Dept 1986]), and "where a valid agreement controls the rights and obligations of the parties, an adequate remedy at law typically exists" (In re First Cent. Fin. Corp., 377 F.3d 209, 215 [2d Cir 2004]). WCCA offers no basis to conclude that this is one of the atypical cases in which the contractual remedy would be inadequate.
2. Dr. Godoy
The branch of Dr. Godoy's motion seeking dismissal of the constructive trust claim is granted for essentially the same reason. Even assuming that the Complaint adequately alleges the elements of a constructive trust against Dr. Godoy, there has been no showing that WCCA's legal remedies are inadequate. Moreover, it remains unclear what property or assets in the possession of Dr. Godoy would be subject to the constructive trust (see Transcript, pp. 46-47).
D. Faithless Servant
The fourth cause of action alleges that Dr. Godoy was an employee of WCCA until her termination on October 31, 2021, and during "her membership in and employment by WCCA," Dr. Godoy "breached her duty of fidelity by engaging in repeated disloyal acts over a span of many months, including but not limited to: usurping WCCA's partnership opportunity with NYOH as her own by personally contracting with NYOH at WCCA's expense; removing patient records and information from WCCA's office without authorization; and soliciting members of WCCA's staff away from the practice" (Complaint, ¶¶ 97-99).
Dr. Godoy raises two principal arguments for dismissal. First, she contends that the Complaint "fails to allege that [she] was an employee or agent of WCCA during the relevant time period. On the contrary, the Complaint alleges that Dr. Godoy was a member of WCCA" (NYSCEF Doc No. 28 ["Gregor Aff."], ¶ 10).
Dr. Godoy further argues that "the absence of a breach of fiduciary duty or some sort of criminal culpability precludes [liability] for breach of the faithless servant doctrine" (NYSCEF Doc No. 41, ¶ 9).
The Court concludes that the arguments raised by Dr. Godoy do not provide a sufficient basis for dismissal at this juncture. Contrary to Dr. Godoy's contention, the Complaint pleads that she was an employee in the context of the faithless servant claim (see Complaint, ¶ 97).
Further, Dr. Godoy has not conclusively demonstrated that she was neither an employee nor agent of WCCA at pertinent times (cf. Two Rivs. Entities, LLC v Sandoval, 192 A.D.3d 528, 529-530 [1st Dept 2021] ["Defendant, a nonmanaging member of plaintiff, was not an employee and is not alleged to have acted on plaintiff's behalf as its agent, and there are no allegations that he funneled business away to a competitor or engaged in theft."]).
Finally, for the reasons stated in Part A (1), supra, the Complaint adequately alleges multiple breaches of fiduciary duty on Dr. Godoy's part (see City of Binghamton v Whalen, 141 A.D.3d 145, 147 [3d Dept 2016]).
E. Theft of Business Opportunity
For essentially the reasons stated in Part A (1) (a), supra, the Court concludes that the sixth cause of action sufficiently alleges a claim for theft of business opportunity against Dr. Godoy.
F. Breach of Contract
Finally, WCCA's third cause of action alleges that Dr. Godoy breached the Operating Agreement by copying 68 patient files, removing them from WCCA's offices and sharing the patient records with NYOH (see Complaint, ¶¶ 90, 92-93). In this regard, the Complaint cites Section 10.16 of the Operating Agreement, which provides that no member or terminated member of WCCA "shall disclose to any person or entity not lawfully entitled thereto... any confidential information relating to the business, affairs or financial condition of the Company."
Contrary to Dr. Godoy's contentions, patient records relate to the "business" and "affairs" of the Practice, and the Court rejects Dr. Godoy's argument that she did not breach the Operating Agreement by disclosing patient information because she was "free" to do so under an alleged common-law right that trumped her contractual obligations (Gregor Aff., ¶ 6; see Part A [1] [b], supra). Accordingly, this branch of Dr. Godoy's motion is denied.
CONCLUSION
To the extent not expressly addressed herein, the parties' remaining contentions have been considered and found to be without merit.
ORDERED that WCCA's first cause of action, alleging breach of fiduciary duty, is dismissed to the limited extent indicated in Part A (1) (c), supra; and it is further
ORDERED that WCCA's second cause of action, alleging aiding and abetting breach of fiduciary duty, is dismissed to the extent indicated in Part A (2) (b), supra; and it is further
ORDERED that WCCA's fifth cause of action, alleging constructive trust, is dismissed in all respects; and it is further
ORDERED that defendants' motions are granted to the extent indicated in the preceding three decretal paragraphs and are otherwise denied; and it is further
ORDERED that NYOH shall serve an answer to the Complaint within twenty (20) days from the date of this disposition; and finally it is
ORDERED that a remote preliminary conference shall be scheduled, and the parties shall confer in advance of the conference regarding (1) their willingness to proceed to mediation or other form of alternative dispute resolution and (2) a schedule for the completion of all necessary disclosure.
This constitutes the Decision & Order of the Court, the original of which is being uploaded to NYSCEF for electronic entry by the Albany County Clerk. Upon such entry, counsel for WCCA shall promptly serve notice of entry on all parties entitled thereto.