Red Mountain Medical Holdings, Inc. v. Brill, M.D.

Background

Red Mountain Medical Holdings, Inc., formerly known as CDx Diagnostics, Inc., sued Joel V. Brill, M.D., and Predictive Health, LLC. Red Mountain alleged that Brill sabotaged a potential financing with Kohlberg Kravis Roberts & Co., L.P. (KKR). The court’s earlier ruling dismissed all claims except an actual-fraud claim based on Brill’s alleged misrepresentation that he had no conflict of interest concerning the KKR transaction.

Red Mountain alleged that Brill was conflicted because he had worked with NinePoint Medical, Inc., and Mauna Kea Technologies, companies developing technologies that Red Mountain viewed as competing with its technology. Red Mountain relied on two alleged statements: Brill’s signing of an engagement letter with KKR containing conflict provisions, and statements Brill made to KKR banker Ali Satvat in August 2015 that he could be objective and was not conflicted.

Summary-judgment standard

Summary judgment is entered when the evidence shows no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. Because Red Mountain would have had to prove the fraud claim at trial, it needed evidence from which a reasonable jury could find each element by clear and convincing evidence.

Under New York law, fraud requires a material false statement or omission, knowledge that it was false, an intent to deceive, reasonable reliance, and resulting damages. When the alleged false statement is made to someone other than the plaintiff, the plaintiff must also show that the statement was intended to be communicated to the plaintiff, that the plaintiff relied on it, and that the third party acted as a conduit for the statement.

Engagement-letter statement

The court held that Red Mountain could not establish the required elements based on the conflict provisions in Brill’s engagement letter with KKR. The agreement was between KKR and Brill, did not identify Red Mountain by name, and had previously been found to benefit KKR rather than Red Mountain.

The court reasoned that the agreement prohibited Brill from performing similar services for another party concerning an investment in a KKR target and required him to notify KKR of certain conflicts or risks involving KKR’s services and confidential information. It was undisputed that Brill did not work for a KKR competitor or release KKR trade secrets. Thus, the court found no basis to treat the engagement letter as containing a false statement about the type of conflict alleged by Red Mountain.

Even assuming the provision could cover conflicts involving Red Mountain’s competitors, the court held that Red Mountain had not produced evidence that Brill signed the agreement intending to communicate to Red Mountain that he was not conflicted. Red Mountain relied on assertions about what Brill supposedly understood about the due-diligence process, but the court found those assertions conclusory and insufficient to create a genuine factual dispute. The court therefore granted summary judgment as to this part of the fraud claim.

Statements to Ali Satvat

The court also granted summary judgment concerning Brill’s statements to Satvat. The record did not establish that Satvat acted as a mere conduit who passed Brill’s statements to Red Mountain without filtering them. Satvat could not recall the precise statements made by Brill. He testified at a general level that Brill believed he could be objective and that Satvat later had a dialogue with Red Mountain’s chairman, Mark Rutenberg.

The court found that Satvat’s testimony showed he filtered the information and decided what was worth communicating to Rutenberg. Red Mountain offered no contrary evidence. The court therefore held that Red Mountain had not shown by clear and convincing evidence that Satvat acted as the required conduit.

The court separately held that Red Mountain could not establish reliance. Brill had provided his opinions to KKR in June and July 2015, before the August conversation about his objectivity. The record indicated that KKR did not consult Brill about the Red Mountain transaction after that conversation. Because Brill was no longer participating in the diligence process, Red Mountain could not have relied on the August statements to exclude him from that process. The court rejected as speculative the argument that Red Mountain might generally have delayed the diligence process if it had known about the alleged conflict.

Disposition

Judge Naomi Reice Buchwald granted defendants’ motion for summary judgment. The court directed the Clerk to terminate the motion at ECF No. 56, enter judgment for defendants, and close the case. The opinion does not add a separate “with prejudice” or “without prejudice” designation.