Schottenstein v. Capla

Background

Douglas Schottenstein and Schottenstein Pain and Neuro, PLLC, doing business as NY Spine, sued Edward Capla and Yolanda Capla under New York law. The claims concerned the cancellation of Schottenstein’s license to administer Regenokine, a blood-treatment program licensed by Orthogen International GmbH, and the Caplas’ departure from NY Spine and subsequent business arrangement with Bradley Wasserman.

The complaint alleged that Orthogen canceled plaintiffs’ Regenokine license in March 2020 and that the Caplas had engaged in wrongdoing before and after leaving NY Spine. It focused on a text message from Yolanda Capla praising Schottenstein and stating that the Caplas had decided to move forward on a different path. Plaintiffs alleged that the message fraudulently induced Schottenstein not to take further action concerning the license and gave Yolanda a pretext to enter NY Spine and retrieve patient and financial records.

The Caplas moved to dismiss under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Rule 9(b) requires fraud allegations to be stated with particularity. Rule 12(b)(6) permits dismissal when a complaint does not plausibly allege a legally actionable claim.

Fraud

The court granted the motion as to fraud. It concluded that the text message contained compliments, superlatives, and vague references to the Caplas’ future plans, but no material factual representation about the Regenokine license, its status, or the Caplas’ business plans. The court also concluded that the complaint did not explain how Schottenstein reasonably relied on the message by taking or refraining from action related to the license.

Conversion

The court denied the motion as to conversion. Conversion is the wrongful exercise of control over property that interferes with another person’s possessory rights. The complaint plausibly alleged that plaintiffs had rights in patient lists, patient records, and Regenokine-related financial records and that the Caplas took or retained those materials without authorization.

The court limited the surviving conversion theory to the patient and financial records. It found that the complaint did not plausibly explain how the Caplas converted the broader “Regenokine Practice.”

Civil conspiracy

The court denied the motion as to the alleged civil conspiracy to convert the patient and financial records. A civil-conspiracy claim requires an underlying tort, an agreement, an act furthering the agreement, intentional participation, and resulting injury. The court concluded that the complaint plausibly alleged that Orthogen and the Caplas agreed that the Caplas would obtain control over NY Spine’s patient and financial records unlawfully.

The court granted the motion as to any civil-conspiracy theory based on fraud because the complaint did not adequately allege an underlying fraud claim. The final order therefore denied the motion as to civil conspiracy to convert the records but otherwise granted it.

Unjust enrichment, quantum meruit, accounting, and constructive trust

The court granted the motion as to unjust enrichment and quantum meruit. It found that the complaint did not plausibly identify services Schottenstein performed for the Caplas, explain what compensation was owed, or describe a refusal by the Caplas to pay for services. The court also concluded that the allegations appeared to recast the conversion claim as a quasi-contract claim.

Because the quasi-contract claim was not plausibly alleged, the court also granted the motion as to the related request for an accounting and a constructive trust.

Breach of contract

The opinion addressed plaintiffs’ argument that they had asserted a breach-of-contract claim against the Caplas. The court concluded that the Third Amended Complaint did not assert such a claim against them in compliance with the notice requirements of Rule 8(a). The complaint referred to a “Schottenstein-Capla agreement,” but did not identify which provisions were breached and did not clearly list a breach-of-contract cause of action against the Caplas. The court did not include a separate breach-of-contract disposition in the conclusion.

Disposition

Judge P. Castel granted the motion to dismiss as to the claims for fraud, unjust enrichment or quantum meruit, and an accounting and constructive trust. He denied the motion as to conversion and civil conspiracy to convert NY Spine’s patient and financial records, but otherwise granted it. The court directed the Clerk to terminate the motion. It also directed termination of a separate motion concerning defendants against whom plaintiffs had voluntarily dismissed their claims.