Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

Commercial Division Decision

Provides Example of a Pre-Answer
Motion to Dismiss Based on
Documentary Evidence
January 12, 2023

On October 11, 2022, the Commercial Division Justice for Bronx County,
Justice Gomez, issued a decision on a motion to dismiss in Chen v Fox
Rehab. Servs., P.C., 175 N.Y.S.3d 713, 2022 NY Slip Op 50986(U) (Sup. Ct.
Bronx Cnty. Oct. 11, 2022).  Justice Gomez dismissed nine of ten claims
brought by the plaintiffs—for failures to state causes of action—and
separately dismissed most of the claims brought by an out-of-state plaintiff
—for lack of personal jurisdiction.  However, the Court did not dismiss the
plaintiffs’ breach of contract claim, despite the defendants’ introducing of
documentary evidence aimed at defeating that claim.[i]  The decision
provides a unique example of a pre-answer motion to dismiss based on
documentary evidence.

Background

In Chen, a group of five physical and occupational therapists brought suit

against their former/current employer (Fox Rehabilitation Services, P.C. or
“Fox” in the decision), its founder, CEO, chief of staff, and a related company
(Fox Rehabilitation Physical, Occupational and Speech Therapy Services,
L.L.C. or “FTS” in the decision).  All but one of the plaintiffs are residents of
New York, with the odd plaintiff out as a resident of New Jersey.  The
plaintiffs alleged that all of the individual defendants are residents of New
Jersey.  Plaintiffs also alleged that Fox is both incorporated and
https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 1 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

headquartered in New Jersey and that FTS is headquartered in New Jersey

but incorporated in New York.

In their amended complaint, the plaintiffs alleged that the defendants

represented to them “explicitly and in writing – that they would be paid out of
a deferred compensation plan upon a 50% change in control of the company
(i.e. an acquisition) . . . .”[ii]  When the acquisition occurred and the plaintiffs
requested their deferred compensation, they claimed that the defendants
improperly denied their compensation on the grounds that the definition for
change of control was actually 75% and that the compensation plan was
actually abolished five years earlier.[iii]  Critically, the plaintiffs pled that they
were never shown copies of what the defendants claimed to have been the
actual compensation plan or copies of the notice that the plan was
abolished, just copies of a Summary Plan Description (or “SPD” in the
decision).[iv]

The plaintiffs asserted ten claims: (1) fraud; (2) fraud by omission; (3)
fraudulent inducement; (4) fraudulent concealment; (5) negligent
misrepresentation; (6) breach of contract; (7) violation of the covenant of
good faith and fair dealing; (8) failure to pay compensation due under New
Yok labor law; (9) failure to pay compensation due under New Jersey labor
law; and (10) unjust enrichment.[v]

The defendants moved to dismiss all of the claims on the basis of

documentary evidence under CPLR § 3211(a)(1) and for failure to state a
cause of action under CPLR § 3211(a)(7).[vi] The defendants also moved to
dismiss all claims, under CPLR § 3211(a)(7), by the New Jersey plaintiff on
personal jurisdictions grounds as to all of the defendants except for FTS.[vii]

Personal Jurisdiction

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 2 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

After going through the relevant standards of review, the Court tackled the
defendants’ personal jurisdiction arguments against the New Jersey
plaintiff.  Starting with general jurisdiction,  Justice Gomez observed that
none of the defendants, except for FTS as a New York incorporated LLC,
were residents of the state.  Further, the Court stated that “beyond pleading
that Fox provides physical therapy services in the tri-state area, the
complaint is bereft of facts indicating that the defendants’ contacts with
New York were or are extensive, so as to confer general jurisdiction over
them” otherwise.[viii]  Therefore, there was no general jurisdiction over any
of the defendants for the New Jersey plaintiff’s claims, except FTS.

Moving to specific jurisdiction, the Court held that the facts alleged in the
amended complaint were insufficient to demonstrate specific jurisdiction
through a business transaction under CPLR § 302.  The assertions that Fox
provides services in the tri-state area and that one of the defendants
“simultaneously terminated the Plan in both New York and New Jersey”
failed to demonstrate “that the claims in the amended complaint arose from
defendants' business in New York”; in fact, the Court viewed the two-state
termination as a “vague and confusing assertion” that would “be insufficient
to establish the nexus between the claims in the amended complaint and
New York.”[ix]  The Court further held that there was no specific jurisdiction
through a tortious action under CPLR § 302.  There were no allegations that
the defendants committed the acts while they were in New York for
jurisdiction under § 302(a)(2), and the plaintiffs failed to allege the elements
required for specific jurisdiction stemming from out-of-state tortious
conduct under § 302(a)(3).  Finally, the Court rejected the alternative of
discovery on personal jurisdiction, observing that “here the wholesale
absence of any allegations sufficient to confer personal jurisdiction over [the
New Jersey plaintiff]'s claims against defendants precludes any discovery
on the issue.”[x]

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 3 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

Therefore, the Court dismissed all of the claims brought by the New Jersey
plaintiff, except for those against FTS, on personal jurisdiction grounds.

Documentary Evidence and the Breach of Contact Claim

After resolving the personal jurisdiction arguments, Justice Gomez moved

on to the plaintiffs’ breach of contract claim.  The plaintiffs alleged that the
SPD, created on January 1, 2007, stated that employees vested in the plan
would receive a cash payout after a change in control.  Under the terms of
the SPD, an employee becomes vested in the plan after working for two
years and receives a notice of participation that includes the base value of
the company on that date; vested employees—that are still employed one
year after a 50% change of control—are eligible for a cash payout under the
SPD.  The plaintiffs alleged that they were all vested employees before the
acquisition that met the 50% threshold, with one plaintiff receiving a notice
of participation in 2009 when the company was worth $10 million.  At time of
acquisition, the plaintiffs claimed that the company was worth between $120
million and $300 million.[xi]

As noted above, when the plaintiffs requested the payout under the terms of
the SPD, the defendants denied their request on the basis that the actual
compensation plan (or the “Plan” in the decision) set the payout at an unmet
75% change of control and that, any event, the plan was actually terminated
in 2015. 

At motion to dismiss, the defendants introduced four sets of documents to

support their position.  First, the defendants introduced the Plan itself, which
did set the payout at 75% change of control.  The Plan also stated that Fox
had “the right at any time to amend or terminate, in whole or in part, the
Plan, provided, however, that no amendment shall adversely affect the
vested rights of any Participant or Beneficiary based on the Company Value

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 4 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

as of that Determination Date.”[xii]  Second, the defendants introduced a

copy of the SPD, which stated that “[t]his Summary Plan Description is only
a summary of the Plan. The Plan is formally governed by a ‘Plan Document,’
which sets out the terms of the Plan in detail. Any question regarding the
terms of the Plan will be determined based on the Plan Document, which will
prevail over the terms of this Summary Plan Description.”[xiii]  Third, the
defendants introduced a document from December 23, 2015 terminating the
Plan.  Under the Plan, payments would be calculated based on the difference
between Fox’s value and the base value of the participants; the termination
document claimed “that in all cases, ‘Company Value’ as of the date hereof
is less than ‘Base Value’ and therefore as of the date hereof, none of the
participants in the Plans has an interest in the Plans that is greater than
zero.”[xiv]  Finally, the defendants introduced a series of documents from an
individual defendant denying the plaintiffs requests for compensation under
claims procedure provisions in the Plan.[xv] 

The introduction of these documents placed the case into a unique

procedural posture.  As the Court noted, “on a motion to dismiss a complaint
pursuant to CPLR § 3211(a)(7), on grounds that the complaint fails to state a
cause of action, all allegations in the complaint are deemed to be true . . .
and all reasonable inferences which can be drawn from the complaint and
the allegations therein stated shall be resolved in favor of the plaintiff . . .
.”[xvi]  However, the Court observed that the Court of Appeals previously
stated that “‘when evidentiary material [in support of dismissal] is
considered the criterion is whether the proponent of the pleading has a
cause of action not whether he has stated one’ (Guggenheimer at 275
[emphasis added]).” [xvii]  The Court then extrapolated from this to mean,
“that if the evidence submitted controverts the allegations in the complaint,
they are not deemed true and dismissal for failure to state a cause of action
is warranted.”[xviii]  At the motion to dismiss stage, documentary evidence

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 5 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

can be considered, but only  “judicial records, judgments, orders, contracts,

deeds, wills, mortgages and ‘a paper whose content is essentially
undeniable and which, assuming the verity of its contents and the validity of
its execution, will itself support the ground upon which the motion is
based’. . . .”[xix]

With those principles in mind, the Court determined that the documents
submitted by the defendants constituted documentary evidence under CPLR
§ 3211(a)(1) and stated that it “must view the allegations in the complaint
against the backdrop of these documents and resolve any conflict in favor of
the documents. This is no less true despite plaintiffs' assertion that they
question the authenticity and validity of the Plan and termination
document.”[xx]  The Court held that the SPD was not the agreement
between the parties; instead, the Plan governed between the parties.  Then,
pursuant to New Jersey choice-of-law provision in the Plan, the Court
moved from New York procedural law to New Jersey substantive law to
interpret the contract.  The Court interpreted the termination provision
quoted above to “proscribe[] cancellation of the Plan if any participant had
earned equity appreciation under the terms of the Plan on the date of
cancellation.”[xxi]  In their amended complaint, the Plaintiffs pled that the
defendants “knew that the company's value at the time the Plan was
terminated was higher than the value when plaintiffs and other employees
became participants in the Plan,” with the company doubling in size between
2010 and 2015.[xxii]

While the defendants submitted documents claiming that there was no value
at termination, the Court noted that “they submitted documents which only
conclusorily alleged that when the Plan was terminated, as relevant here,
that the company’s value was less than plaintiffs’ base value in the Plan”; the
“[d]efendants could and should have submitted documents detailing the
[specific values] . . . when the Plan was terminated thereby establishing that

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 6 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

the Plan was terminated in accordance with its terms.”[xxiii]  The Court
stated “the record is bereft of specific and detailed information establishing
that Fox terminated the Plan in accordance with section 8.2 of the same.  As
such, dismissal of the breach of contract claim against the company for
failure to state a cause of action is denied.”[xxiv]

Dismissal of Other Claims

After sustaining the plaintiffs’ contract claim, the Court addressed the
arguments against the plaintiffs’ other claims.  The Court observed that
claims for fraud, unjust enrichment, negligent misrepresentation, and the
implied covenant of good faith and fair dealing are duplicative if they arise
from the same facts as the breach of contract claim.  The Court then stated
that “[h]ere, all of plaintiffs’ causes of action incorporate the entire complaint
by reference, which makes it clear that this entire action is solely premised
on the alleged unlawful termination of the Plan in 2015 and the failure to pay
sums due under the Plan in 2019 when the company was acquired . . . .”[xxv]
 Therefore, the Court dismissed the following claims as duplicative: (1) fraud;
(2) fraud by omission; (3) fraudulent inducement; (4) fraudulent
concealment; (5) negligent misrepresentation; (7) violation of the covenant
of good faith and fair dealing; (10) and unjust enrichment.

The Court then addressed the plaintiffs’ remaining claims for (8) failure to
pay compensation due under New York labor law, (9) failure to pay
compensation due under New Jersey labor law.  The Court quickly
determined that the plaintiffs’ claims under New York Labor Law § 190 failed,
because the incentive compensation in the Plan did not constitute wages
under New York labor law and were therefore outside of the ambit of § 190. 
The Court also held that the results were the same under New Jersey Labor
and Workmen’s Compensation § 34:11-4.1 and the definition of wages under
that statute.  Therefore, the Court dismissed these claims as well, leaving the

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 7 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

plaintiffs with just their breach of contract claim.[xxvi]

Conclusion

The Commercial Division decision in Chen provides a unique example of a

defendant introducing documentary evidence at a pre-answer motion to
dismiss.

[i] Chen, 2022 NY Slip Op 50986(U) at 15.

[ii] Chen, Index No. 800365/2022, Doc. No. 12 at 1 (Amended Complaint).

[vi] Chen, Index No. 800365/2022, Doc. No. 17 at 18 (Memorandum in

Support of Defendants’ Motion to Dismiss).

[viii] Chen, 2022 NY Slip Op 50986(U) at 6

[xi] Chen, Index No. 800365/2022, Doc. No. 12 at 4–5.

[xii] Chen, Index No. 800365/2022, Doc. No. 19 at 13 (Plan).

[xiii] Chen, Index No. 800365/2022, Doc. No. 22 at 4 (SPD).

[xiv] Chen, Index No. 800365/2022, Doc. No. 20 at 2 (Termination

Document).

[xv] Chen, Index No. 800365/2022, Doc. No. 21 (Decisions of Plan

Administrator).

[xvi] Chen, 2022 NY Slip Op 50986(U) at 10 (internal citations omitted).

[xvii] Chen, 2022 NY Slip Op 50986(U) at 10 (quoting Guggenheimer v.

Ginzburg, 372 N.E.2d 17, 20–21 (N.Y. 1977)).

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 8 of 9
Commercial Division Decision Provides Example of a Pre-Answer Mot…smiss Based on Documentary Evidence | NY Commercial Division Blog 5/10/23, 4:48 PM

[xviii] Chen, 2022 NY Slip Op 50986(U) at 10.

[xix] Chen, 2022 NY Slip Op 50986(U) at 10 (quoting Webster v. State, 2003

NY Slip Op 50590(U) (N.Y. Ct. Cl. Jan. 30, 2003)).

[xx] Chen, 2022 NY Slip Op 50986(U) at 10.

[xxiv] Id. at 12.  At the end of the decision, the Court also denied the
defendants’ motion to dismiss the breach of contract claim under CPLR §
3211(a)(1) on the same grounds.  Id. at 15.  Furthermore, as noted earlier in
footnote 2 of the opinion, “Plaintiffs within their memorandum of law limit
their breach of contract claim solely to Fox and FTS, acknowledging that
they have no breach of contract claim against the individual defendants.”  Id.
at 10 n.2.

https://www.pbwt.com/ny-commercial-division-blog/commercial-divisio…le-of-a-pre-answer-motion-to-dismiss-based-on-documentary-evidence Page 9 of 9