United States District Court, D. New Jersey
ADAM LEVINE JOHN S. SUMMERS THOMAS N. BROWN HANGLEY ARONCHICK
SEGAL PUDLIN & SCHILLER On behalf of Plaintiff Paul
ANN GARBER GARBER LAW LLC On behalf of Defendants Glenn
Articolo, Joseph Broudy, Joseph Della-Peruta, Kathleen
Greatrex, Eugene Klifto, and James Montouri.
JAMES KRAVITZ STEVEN JAMES LINK FOX ROTHSCHILD LLP PRINCETON
PIKE CORPORATE CENTER On behalf of Defendant Lourdes Imaging
L. HILLMAN, U.S.D.J.
case concerns a shareholder suit by a minority shareholder in
a closely held business. Currently before the Court are
Defendants' Motions to Dismiss and Plaintiff's Motion
for Leave to File a Second Amended Complaint. For the reasons
discussed below, Defendants' Motions to Dismiss will be
denied and Plaintiff's Motion for Leave to File a Second
Amended Complaint will be granted.
recitation of the facts is taken from Plaintiff's First
Amended Complaint (the “FAC”). Plaintiff is Paul
Svigals, M.D., a vascular and interventional radiologist. In
2007, via a Shareholder Physician Agreement (the
“Employment Agreement”), Dr. Svigals joined as a
director, shareholder, and employee of Defendant Lourdes
Imaging Associates, P.A. (“LIA”). LIA is a
radiology group practice comprised of board-certified
radiologists. Dr. Svigals is also a part-owner of SJVI, LLC
(“SJVI”),  which is a freestanding outpatient center
providing numerous interventional radiology procedures. LIA
contracted with SJVI in 2008, via SJVI's Exclusive
Interventional Radiologist Services Agreement (the
“SJVI-LIA Agreement”), to be the exclusive
provider of radiology services at SJVI in exchange for
Drs. Glenn Articolo, Joseph Broudy, Joseph Della-Peruta,
Kathleen Greatrex, Eugene Klifto, and James Montouri
(collectively, “Shareholder Defendants”) are also
all shareholders and employees of LIA. Dr. Broudy is the
President of LIA. In 2017, Plaintiff learned that multiple
LIA shareholders were allegedly improperly enriching
themselves in violation of their employment agreements.
Plaintiff alleges that their employment agreements limited
them to eight weeks of vacation per year. But, Plaintiff
asserts, all Shareholder Defendants - except Dr. Broudy -
breached their agreements by taking excessive
vacations. Plaintiff did not take excessive vacation.
addition, Plaintiff learned that various shareholders were
overpaid for coverage work. Plaintiff alleges that coverage
work had been set at $2, 000 per day by policy and practice
at LIA. Plaintiff learned, however, that all Shareholder
Defendants - except Drs. Broudy and Greatrex - were paid at a
higher per diem rate. Plaintiff alleges while a number of
shareholders were receiving higher coverage work rates, he
was receiving the standard $2, 000 per diem rate and was
forced by LIA to “take an unfair and unreasonable
amount of call [assignments] in violation of” the
discovering these alleged violations,  Plaintiff
requested that the LIA Board of Directors retain a consultant
to investigate his claims. Plaintiff alleges the consultant
reported “multiple improprieties” in May 2017. As
a result, Plaintiff (or his counsel) requested documents and
information from LIA throughout November and December of that
year, and early January 2018. Plaintiff was allegedly only
given financial statements - one out of eleven items
also allegedly informed the LIA Board of Directors about his
findings concerning allegedly improper vacation and coverage
work rates. At the December 2017 meeting of the LIA Board of
Directors, the shareholders (except Plaintiff) voted to send
Plaintiff a notice of intention to terminate Plaintiff's
employment at LIA. On December 19, 2017 LIA mailed Plaintiff
a letter (the “Notice Letter”) stating it
constituted “formal notice . . . of LIA's intention
to terminate [his] employment for breach” of the
Employment Agreement (alterations in the FAC). The Notice
Letter stated the reason for termination was Plaintiff's
conflict of interest created by ownership and management of
SJVI and employment with LIA, which violated the Employment
Agreement's provision requiring “undivided
loyalty.” The Notice Letter directed Plaintiff to cure
the purported conflict by “divesting [his] interest in
SJVI” (alterations in the FAC).
refused to do so. In January 2018, the shareholders (again,
except Plaintiff) voted to terminate Plaintiff's
employment at LIA. Thereafter, LIA sent a letter (the
“Termination Letter”) to Plaintiff stating he was
fired pursuant to the Notice Letter. Plaintiff was terminated
from LIA on January 19, 2018. He brought this action on
February 7, 2018.
alleges five counts. Against Defendant LIA, Plaintiff alleges
a breach of contract claim (Count One) and a breach of the
implied covenant of good faith and fair dealing (Count Two).
Against the Shareholder Defendants, Plaintiff alleges a
minority shareholder oppression claim (Count Three), a
so-called direct claim for breach of fiduciary duty (Count
Four), and a civil conspiracy claim (Count Five).
LIA and Shareholder Defendants filed motions to dismiss on
March 19, 2018. Plaintiff filed the FAC on April 2, 2018.
Defendant LIA and Shareholder Defendants filed motions to
dismiss the FAC on April 16, 2018. These have been fully
briefed by all parties.
thereafter, on July 6, 2018, filed a Motion for Leave to File
a Second Amended Complaint. Besides minor changes to the
existing complaint, the Proposed Second Amended Complaint
(the “SAC”) adds two more claims - with
supporting facts -against LIA. First, Plaintiff seeks to add
another breach of contract claim, this time for a breach of
the Deferred Compensation Agreement (the “DCA”).
Second, Plaintiff wishes to add a declaratory judgment claim
concerning whether the DCA still contains a restrictive
covenant. The gist of these new claims is that LIA improperly
breached the DCA by claiming Plaintiff breached a restrictive
covenant that was no longer part of the agreement. This
motion has also been fully briefed by all parties. Thus,
these three motions are ripe for adjudication.
Subject Matter Jurisdiction
Court has jurisdiction over this action pursuant to 28 U.S.C.
§ 1332, as there is complete diversity between Plaintiff
and Defendants and the amount in controversy is alleged to
exceed $75, 000. Plaintiff is a citizen of Pennsylvania.
Defendant LIA is alleged to be a professional services
corporation organized under New Jersey law and having its
principal place of business in this state. The remaining
defendants are alleged to be individual citizens of New
Standard for Motion to Dismiss
considering a motion to dismiss a complaint for failure to
state a claim upon which relief can be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), a court must accept
all well-pleaded allegations in the complaint as true and
view them in the light most favorable to the plaintiff.
Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).
It is well settled that a pleading is sufficient if it
contains “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
a complaint attacked by a Rule 12(b)(6) motion to dismiss
does not need detailed factual allegations, a plaintiff's
obligation to provide the ‘grounds' of his
‘entitle[ment] to relief' requires more than labels
and conclusions, and a formulaic recitation of the elements
of a cause of action will not do . . . .” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration
in original) (citations omitted) (first citing Conley v.
Gibson, 355 U.S. 41, 47 (1957); Sanjuan v. Am. Bd.
of Psychiatry & Neurology, Inc., 40 F.3d 247, 251
(7th Cir. 1994); and then citing Papasan v. Allain,
478 U.S. 265, 286 (1986)).
To determine the sufficiency of a complaint, a court must
take three steps. First, the court must “tak[e] note of
the elements a plaintiff must plead to state a claim.”
Second, the court should identify allegations that,
“because they are no more than conclusions, are not
entitled to the assumption of truth.” Third,
“whe[n] there are well-pleaded factual allegations, a
court should assume their veracity and then determine whether
they plausibly give rise to an entitlement for relief.”
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011)
(alterations in original) (citations omitted) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 664, 675, 679
(2009)). A court may “generally consider only the
allegations contained in the complaint, exhibits attached to
the complaint and matters of public record.”
Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)
(citing Pension Benefit Guar. Corp. v. White Consol.
Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
district court, in weighing a motion to dismiss, asks
“not whether a plaintiff will ultimately prevail but
whether the claimant is entitled to offer evidence to support
the claim.” Twombly, 550 U.S. at 563 n.8
(quoting Scheuer v. Rhoades, 416 U.S. 232, 236
(1974)); see also Iqbal, 556 U.S. at 684 (“Our
decision in Twombly expounded the pleading standard
for ‘all civil actions' . . . .”); Fowler
v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)
(“Iqbal . . . provides the final nail in the
coffin for the ‘no set of facts' standard that
applied to federal complaints before
Twombly.”). “A motion to dismiss should
be granted if the plaintiff is unable to plead ‘enough
facts to state a claim to relief that is plausible on its
face.'” Malleus, 641 F.3d at 563 (quoting
Twombly, 550 U.S. at 570).
Shareholder Defendants' Motion to Dismiss
Defendants move to dismiss the three counts brought against
them by Plaintiff: shareholder oppression, breach of
fiduciary duty, and civil conspiracy. Before addressing the
count-specific arguments made by Shareholder Defendants, this
Court must first address whether the shareholder oppression
and breach of fiduciary duty claims against Shareholder
Defendants must be dismissed under New Jersey's
“economic loss doctrine.” Generally stated, this
doctrine “prohibits plaintiffs from recovering in tort
economic losses to which their entitlement only flows from
contract.” Bracco Diagnostics, Inc. v. Bergen
Brunswig Drug Co., 226 F.Supp.2d 557, 562 (D.N.J. 2002)
(quoting Duquesne Light Co. v. Westinghouse Elec.
Co., 66 F.3d 604, 618 (3d Cir. 1995)).
Defendants assert Plaintiff's “entitlement to
economic losses flows directly from obligations set forth in
a contract between the parties, ” thus prohibiting
Plaintiff from bringing a tort claim to recover for these
alleged wrongs. State Capital Title & Abstract Co. v.
Pappas Bus. Servs., LLC, 646 F.Supp.2d 668, 678 (D.N.J.
2009). If this Court agrees, Shareholder Defendants argue,
then it must dismiss the civil conspiracy claim against them
as well, as that claim may only lie when there is a live,
underlying tort claim.
opposes Shareholder Defendants' argument, countering -
among other things - that the economic loss doctrine does not
apply if there is no contractual privity between the parties.
Succinctly put, “the absence of a contract between a
plaintiff and defendant . . . precludes the application of
the economic loss doctrine.” SRC Constr. Corp. v.
Atl. City Hous. Auth., 935 F.Supp.2d 796, 799 (D.N.J.
2013). Here, Plaintiff argues, the Shareholder Defendants are
not parties to the Employment Agreement. This agreement was
solely between Plaintiff and LIA.
is correct. The purpose of the economic loss doctrine,
in part, is to prohibit plaintiffs from using tort law to
alter contractual remedies or to replace a breach of contract
action. SRC Constr. Corp., 935 F.Supp.2d at 799-800.
That purpose is not implicated where parties are not in
contractual privity. Thus, this Court need not reach whether
the claims stem solely from the contract. Accordingly, this
Court will not dismiss any claims against Shareholder
Defendants based on the economic loss doctrine. This Court
will address Shareholder Defendants' remaining arguments
in turn, infra.
Whether Count Three, the Shareholder Oppression Claim,
Should be Dismissed
Defendants present three separate arguments concerning
Plaintiff's shareholder oppression claim. This Court will
address each of the Shareholder Defendants' arguments in
Whether Plaintiff has Standing to Sue
Defendants argue that Plaintiff lacks standing to assert a
claim of shareholder oppression. Shareholder Defendants
contend that a shareholder oppression claim may only be
brought “by one or more directors or by one or more
shareholders.” N.J. Stat. Ann. 14A:12-7(2). In support,
Shareholder Defendants cite the Shareholders' Agreement,
which contains provisions providing automatic return of all
shares when a shareholder's employment is
terminated. Shareholder Defendants assert this was
effective the day of Plaintiff's termination, January 19,
2018, which was a few weeks before he brought suit, on
February 7, 2018.
counters with three general arguments. First, Plaintiff
argues LIA must satisfy the court “that the full
purchase price of the shares, plus whatever additional costs,
expenses and fees as may be awarded, will be paid when due
and payable” before a shareholder loses his rights.
In re Alpha Centauri Co., Inc., No. 05-32850(DHS),
2006 Bankr. LEXIS 4098, at *7 (Bankr. D.N.J. Jan. 25, 2006)
(quoting N.J. Stat. Ann. 14A:12-7(8)(f)) (internal quotations
omitted). Second, Plaintiff argues Shareholder Defendants do
not cite any case law holding a shareholder does not have
standing if he is technically no longer a shareholder.
Finally, Plaintiff argues the purpose animating the statute
should not allow the oppressive conduct of a shareholder to
rob another shareholder of standing to sue.
Defendants rely exclusively on the Shareholders'
Agreement in support of their argument. We will assume, for
purposes of this argument, that this Court may properly
consider this document without converting Shareholder
Defendants' motion into one for summary judgment. Even
considering the Shareholders' Agreement, Shareholder
Defendants have not shown, as a matter of law, that Plaintiff
is no longer a shareholder.
section cited to in the Shareholders' Agreement, §
5, states that the “Withdrawal of a Shareholder”
only occurs in the following situations:
(i) Shareholder voluntarily terminates his or her employment
with the Corporation for any reason whatsoever; (ii) the
Corporation terminates Shareholder's employment with the
Corporation pursuant to the terms of the Shareholder's
Physician Employment Agreement; (iii) the Corporation does
not renew Shareholder's Physician Employment Agreement;
or (iv) Shareholder becomes disqualified to render
professional services under the laws of New Jersey . . . .
Defendants only assert Plaintiff was terminated for cause
under the Employment Agreement.
this point is hotly disputed. As explained immediately
infra, this Court cannot decide at this early stage
that Plaintiff was correctly terminated for cause. As a
result, Plaintiff may still be a shareholder under the
Shareholders' Agreement because he could have been
wrongfully terminated. As a result, this Court finds
Plaintiff has preliminarily shown standing and will not
dismiss this claim.
Whether Plaintiff was Terminated for Cause
Shareholder Defendants argue Plaintiff was terminated for
cause. Shareholder Defendants assert “a minority
shareholder's termination for good cause does not violate
any reasonable expectation of continued employment, nor does
it constitute oppression.” Hammer v. Hair Sys.
Inc., No. A-1475-14T1, 2017 N.J.Super. Unpub. LEXIS
1411, at *4 ( N.J.Super.Ct.App.Div. June 9, 2017) (citing
Exadaktilos v. Cinnaminson Realty Co., Inc., 400
A.2d 554 ( N.J.Super. Ct. Law Div. 1979)). The cause for
Plaintiffs termination, Shareholder Defendants state, was
Plaintiff's conflict of interest because he served as
both a shareholder and director of LIA and had an ownership
interest and management role with SJVI. As explained
supra, these two entities were contractually bound
and, allegedly, Plaintiff directed SJVI to stop payments to
LIA. This allegedly evidenced a conflict of interest which
required Shareholder Defendants to terminate Plaintiff.
counters, arguing the FAC has plausibly stated a claim for
relief. Moreover, Plaintiff argues, even if this Court were
to reject Plaintiff's wrongful termination theory of
shareholder oppression, Plaintiff still cites three other
actions taken by Shareholder Defendants that constitute
shareholder oppression. These were not challenged by
Shareholder Defendants and should therefore lift the
shareholder oppression claim past Shareholder Defendants'
Motion to Dismiss.
has plausibly claimed wrongful termination. Plaintiff states
in the FAC, under ¶ 97(d), that Shareholder Defendants
“voted to terminate Dr. Svigals' employment without
cause in retaliation for raising . . . concerns about the
management and operation of LIA.” On a motion to
dismiss, this Court must make all reasonable inferences in
favor of Plaintiff. Doing so here requires the Court to find
Plaintiff's termination may have been wrongful.
it is unclear at this early stage in the litigation whether
Plaintiff's actions concerning SJVI actually violated the
Employment Agreement. The relevant part of the Employment
Agreement, ¶ 2, states:
The Physician agrees to report to the Board of Directors and
to devote the Physician's full time, energy, skill and
efforts, with undivided loyalty, to the performance of the
Physician's duties and obligations in connection with ...