542 B.R. 13
Bankr. M.D. Fla.2015Background
- GCEC and Anesthesia Associates (two physician-owned LLCs) contracted with Surgical Synergies, Inc. (SSI) and its billing subsidiary SSS for development, management, and billing services beginning in 2000–2002; the practices later engaged independent audits of SSS.
- Kerkering Barberio audits (May 2003, Mar. 2004, June 2004) identified deficiencies; SSI/SSS presented to the board that collections were favorable (Feb. 5, 2004 presentation claimed an outside audit was "favorable").
- Dr. Michael DeMasi, a managing member and co-medical director of the plaintiffs, had communications and later involvement with a new manager, Surgical Synergies Endoscopy, LLC (SSE); the extent and timing of his financial interest was disputed.
- Plaintiffs allege DeMasi concealed the unfavorable audit(s) and his financial interest to prevent termination of SSI/SSS so SSE could market itself; they asserted fraud, breach of fiduciary duty, breach of contract, breach of implied covenant, and nondischargeability under § 523(a)(2)(A).
- After related state-court and arbitration proceedings (mixed outcomes), this Court consolidated removed state claims and an adversary nondischargeability proceeding, tried liability, and found for DeMasi on all claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DeMasi made actionable misrepresentations or omitted material facts (audits / SSE interest) | DeMasi concealed March 4, 2004 unfavorable audit, stayed silent at Feb. 5, 2004 presentation, and mischaracterized SSS as "doing a good job"; also hid financial interest in SSI/SSE | DeMasi disclosed relevant audits (May 2003, June 2004), did not know Feb. 5 audit was incomplete, and disclosed his SSE involvement at an Oct. 4, 2005 meeting; no proof of active concealment | Court: Plaintiffs failed to prove actionable misrepresentation or concealment; DeMasi credible that he did not know the audit was incomplete and had disclosed SSE involvement |
| Causation for fraud/damages (did alleged misrepresentations cause injury) | Had they known audit results or DeMasi's interest, they would have removed him and terminated SSI/SSS earlier | Board members were indifferent, received and reviewed audits, and took no action for years; some members knew DeMasi pursued deals; plaintiffs did not terminate for cause and later sought renewal discussions | Court: Plaintiffs failed to prove that any alleged misrepresentations caused their injury; no causation proved |
| Nondischargeability under § 523(a)(2)(A) (fraud in connection with obtaining money) | Same facts as state fraud claim support nondischargeability; reliance by plaintiffs justified | Because fraud elements fail, and § 523 requires justifiable reliance, dischargeability claim fails | Court: Because fraud/causation not proved, § 523(a)(2)(A) claim fails; judgment for DeMasi |
| Breach of fiduciary duty / contract / implied covenant | DeMasi breached loyalty, care, and good faith by pursuing SSE and hiding conflicts; his conduct caused harm | Operating agreements permitted competing ventures and limited fiduciary scope; DeMasi's actions did not constitute gross negligence, intentional misconduct, or statutory breaches; disclosures were adequate | Court: Plaintiffs failed to prove breach of fiduciary duty or contract claims; operating agreement and statute limit duties; judgment for DeMasi |
Key Cases Cited
- Butler v. Yusem, 44 So.3d 102 (Fla. 2010) (standards for preclusion and assessment of prior adjudications under Florida law)
- Field v. Mans, 516 U.S. 59 (1995) (requirement of justifiable reliance in fraud claims under federal law)
- In re Johannessen, 76 F.3d 347 (11th Cir. 1996) (nondischargeability and reliance principles in bankruptcy fraud claims)
- In re Bilzerian, 153 F.3d 1278 (11th Cir. 1998) (standards for proving fraud and reliance in dischargeability actions)
- Ins. Concepts & Design, Inc. v. Healthplan Servs., Inc., 785 So.2d 1232 (Fla. 4th DCA 2001) (contract interpretation and remedies principles relevant to business disputes)