Statement Pursuant to CPLR 2219

Upon reading and considering the Notice of Motion; Affirmation of Matthew J. Aaronson dated, September 30, 2024; Exhibits annexed thereto (NY St Cts Filing [NYSCEF] Doc Nos. 18-28); Plaintiff's Opposition (NY St Cts Filing [NYSCEF] Doc Nos. 43-47); and Defendants' Reply (NY St Cts Filing [NYSCEF] Doc No. 48), the Court renders the following Decision and Order.

Defendants CC Capital Management LLC ("CC Capital"), Chinh Chu ("Chu"), and Douglas Newton ("Newton") (collectively, "Defendants") move pursuant to CPLR §§ 3211 [a] [*2][1], [5], and [7] to dismiss the Verified Complaint in its entirety. Plaintiff Elizabeth Kelly ("Plaintiff") opposes the motion in full.

Plaintiff, a pioneering entrepreneur who built and managed a profitable consortium of independent physician associations known as New York Network Management, LLC ("NYNM"), brings this action to recover damages allegedly arising from an elaborate and multifaceted fraud orchestrated by Defendants in connection with the March 2017 sale of NYNM to Constellation Healthcare Technologies, Inc. ("CHT").

Plaintiff alleges that Defendants—accomplished financiers with prestigious affiliations and experience—actively solicited her participation in a complex roll-up transaction. Defendants represented that they were acquiring control of CHT, would inject capital into its operations, and would position NYNM as the centerpiece of a rapidly expanding healthcare conglomerate to be taken public in short order.

Plaintiff asserts that she was induced to sell NYNM based upon these representations, including the assurance that CC Capital had undertaken rigorous due diligence—engaging firms such as KPMG, McKinsey, and Winston Strawn—and had verified the legitimacy and solvency of CHT's business model and financial disclosures.

Unbeknownst to her, Plaintiff alleges, CHT was largely a fabrication—a house of cards comprised of shell companies, phony customers, and fictional revenues. Plaintiff contends that Defendants were fully aware of this reality based on the results of their own due diligence and that they concealed critical warnings issued by the U.S. Department of Justice to Bank of America just days before the closing. It is further alleged that Defendants submitted falsified documentation—including a forged Membership Interests Purchase Agreement—to lenders in order to inflate the loan amount and siphon excess funds for their own benefit, including an unexplained $8 million transfer to Newton.

Plaintiff claims she has been deprived of over $40 million in post-closing earn-out compensation, as well as a separate $1.87 million working capital adjustment, as a result of this orchestrated scheme.

A motion to dismiss under CPLR § 3211 [a] [1] will be granted only where the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law. The evidence must be of undisputed authenticity, clear on its face, and dispositive of the plaintiff's factual allegations. (see Patel v Edmund, 2025 NYAppDiv. LEXIS 2204 [2d Dept 2025] quoting Fontanetta v John Doe 1, 73 AD3d 78 [2d Dept 2010]; citing Sims v Prom Realty Co., LLC, 160 AD3d 1006 [2d Dept 2018]).

Here, the core of the dispute centers upon two competing versions of the Membership Interests Purchase Agreement ("MIPA")—one allegedly signed by Plaintiff and her daughters, and another that was, according to the Complaint, materially altered and surreptitiously submitted to Bank of America to secure an increased loan facility. The purportedly falsified [*3]version reflected a higher "closing payment" and a reduced "earn-out," thus both inflating the loan proceeds and minimizing the amount owed to Plaintiff.

These facts, if established, would not only undermine any reliance on the documentary evidence as dispositive but would indeed corroborate the very fraud Plaintiff alleges. Furthermore, Section 1.3(f) of the genuine MIPA, as pled, enshrines Plaintiff's entitlement to an earn-out conditioned on NYNM's post-closing performance and includes affirmative obligations on the part of the buyer not to take steps to frustrate its realization.

Accordingly, this documentary record raises issues of material fact and fails to refute, much less "utterly refute," Plaintiff's allegations. Dismissal under CPLR § 3211 [a] [1] is therefore unwarranted.

Defendants next assert that Plaintiff's claims are barred by a release executed in the context of a bankruptcy settlement involving CHT and its affiliates. The burden rests upon Defendants to demonstrate that the release was clear, unambiguous, and encompassed the claims asserted herein. (see Cames v Craig, 181 AD3d 851 [2d Dept 2020] quoting Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269 [2011] quoting Fleming v Ponziani, 24 NY2d 105 [1969]; citing Davis v Rochdale Vil., Inc., 109 AD3d 867 [2d Dept 2013]).

Yet the Complaint plausibly avers that this release did not and could not contemplate the presently asserted claims. Plaintiff alleges that she was unaware of the Defendants' role in the underlying fraud at the time the release was executed, and that critical facts—such as falsified contractual instruments, diverted bank proceeds, and DOJ warnings—were not uncovered until well after the settlement was consummated.

Under New York law, a release may not shield a defendant from liability for fraud where the plaintiff can demonstrate that the fraud was neither known nor discoverable at the time the release was executed. Nor will the Court interpret a general release to apply to unknown torts against non-parties absent specific and unequivocal language to that effect.

At a minimum, the scope of the release and the question of Plaintiff's knowledge at the time of execution are not amenable to resolution on a pre-answer motion. Accordingly, the motion is denied under CPLR § 3211 [a] [5].

To withstand a motion to dismiss under CPLR § 3211 [a] [7], a complaint must be liberally construed, the facts presumed true, and the plaintiff accorded every favorable inference. (see Raiola v Roman Catholic Diocese of Brooklyn, 2025 NYAppDiv LEXIS 3009 [2d Dept 2025] quoting J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324 [2013]; citing TV Tech Mgrs., Inc. v Cohen, 227 AD3d 838 [2d Dept 2024]). So viewed, the Complaint in this matter easily satisfies the pleading threshold.

Plaintiff articulates a robust claim of fraudulent inducement, alleging that Defendants knowingly misrepresented the financial health of CHT and suppressed material information from both Plaintiff and third-party lenders. She identifies specific individuals, dates, representations, and omissions with a level of particularity consistent with CPLR § 3016 [b]. The alleged [*4]misrepresentations—concerning due diligence, future business prospects, and the legitimacy of CHT's operations—go to the heart of her decision to consummate the transaction.

Plaintiff further asserts a claim for negligent misrepresentation, resting on the superior knowledge and duty to disclose owed by Defendants as sophisticated investors and fiduciaries who had undertaken to speak on matters within their unique purview. Plaintiff reasonably relied on these representations in foregoing alternative transactions.

Plaintiff also pleads a breach of contract, pointing to provisions of the MIPA obligating Defendants to use commercially reasonable efforts to maximize the earn-out and refrain from impairing the business. The diversion of revenue, pledging of NYNM's assets, and dismantling of its operations are alleged with precision and plausibly constitute breaches. The parallel claim for breach of the implied covenant of good faith and fair dealing is properly maintained in the alternative.

Lastly, the Complaint pleads unjust enrichment and seeks the imposition of a constructive trust upon ill-gotten gains, including the $8 million allegedly paid to Newton. These equitable claims are well-supported by allegations that Defendants retained the benefit of Plaintiff's company while evading their own financial obligations under fraudulent pretenses.

Taken together, Plaintiff's allegations present a coherent and well-supported narrative of fraud, breach, and unjust enrichment. They are not merely conclusory but are rooted in specific conduct and contemporaneous documentation.

The Court is not tasked at this stage with adjudicating the ultimate truth of the allegations. Rather, its obligation is to assess whether the Complaint, when liberally construed, articulates legally sufficient claims that warrant further proceedings. It does.

Accordingly, it is hereby:

ORDERED that the motion of Defendants CC Capital Management LLC, Chinh Chu, and Douglas Newton to dismiss the Complaint pursuant to CPLR §§ 3211 [a] [1], [5], and [7] is DENIED in its entirety; and it is further,

ORDERED that Defendants shall serve and file their Answer within twenty (20) days of service of this Decision and Order with notice of entry.