Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Svigals v. Lourdes Imaging Associates, P.A.

United States District Court, D. New Jersey

November 27, 2018

PAUL SVIGALS, Plaintiff,
v.
LOURDES IMAGING ASSOCIATES, P.A., GLENN ARTICOLO, JOSEPH BROUDY, JOSEPH DELLA-PERUTA, KATHLEEN GREATREX, EUGENE KLIFTO, and JAMES MONTOURI Defendants.

          JASON ADAM LEVINE JOHN S. SUMMERS THOMAS N. BROWN HANGLEY ARONCHICK SEGAL PUDLIN & SCHILLER On behalf of Plaintiff Paul Svigals.

          CHERYL ANN GARBER GARBER LAW LLC On behalf of Defendants Glenn Articolo, Joseph Broudy, Joseph Della-Peruta, Kathleen Greatrex, Eugene Klifto, and James Montouri.

          R. JAMES KRAVITZ STEVEN JAMES LINK FOX ROTHSCHILD LLP PRINCETON PIKE CORPORATE CENTER On behalf of Defendant Lourdes Imaging Associates, P.A.

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         This 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.

         BACKGROUND

         Our 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”), [1] 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 payment.

         Defendants 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.[2] 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.[3] Plaintiff did not take excessive vacation.

         In addition, Plaintiff learned that various shareholders were overpaid for coverage work.[4] 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.[5] 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 Employment Agreement.

         After discovering these alleged violations, [6] 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 requested.

         Plaintiff 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).

         Plaintiff 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.

         Plaintiff 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).

         Defendant 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.

         Plaintiff 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.

         ANALYSIS

         A. Subject Matter Jurisdiction

         This 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 Jersey.[7]

         B. Standard for Motion to Dismiss

         When 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.” Fed.R.Civ.P. 8(a)(2).

         “While 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. 1993)).

         A 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).

         C. Shareholder Defendants' Motion to Dismiss

         Shareholder 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)).

         Shareholder 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.

         Plaintiff 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.

         Plaintiff is correct.[8] 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.

         a. Whether Count Three, the Shareholder Oppression Claim, Should be Dismissed

         Shareholder Defendants present three separate arguments concerning Plaintiff's shareholder oppression claim. This Court will address each of the Shareholder Defendants' arguments in turn, infra.

         i. Whether Plaintiff has Standing to Sue

         Shareholder 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.[9] 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.

         Plaintiff 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.

         Shareholder 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.

         The 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 . . . .

         Shareholder Defendants only assert Plaintiff was terminated for cause under the Employment Agreement.

         But, 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.[10] As a result, this Court finds Plaintiff has preliminarily shown standing and will not dismiss this claim.

         ii. Whether Plaintiff was Terminated for Cause

         Next, 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.

         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.

         Plaintiff 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.

         Moreover, it is unclear at this early stage in the litigation whether Plaintiff's actions concerning SJVI actually violated the Employment Agreement.[11] 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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.