MEDICAL EDUCATIONAL AND HEALTH SERVICES INC et al v. MUNICIPALITY OF MAYAGUEZ et al

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
MEDICAL EDUCATIONAL AND HEALTH
SERVICES, INC.
CASE NO. 10-04905 BKT
DEBTOR
Chapter 11
MEDICAL EDUCATIONAL AND HEALTH
SERVICES, INC.
PLAINTIFF
VS.
INDEPENDENT MUNICIPALITY OF MAYAGUEZ,
ET ALS.
DEFENDANTS
ADV. NO.: 10-148
XXX-XX2077
FILED & ENTERED ON 06/07/2011
Debtor(s)
OPINION & ORDER
On February 3, 2011, Defendants and Third-Party Plaintiffs Mayagüez Medical
Center- Dr. Ramón Emeterio Betances, Inc. (“MMC”) and Sistemas Integrados de
Salud del Sur Oeste, Inc. (“SISSO”), filed a third-party Complaint [Dkt. No. 54]
against 	Dr. 	Orestes 	Castellanos 	(“Castellanos”) 	and 	Mr. 	Pedro 	Montes 	García
(“Montes”) pursuant to Fed. R. Civ. P. 14. 1 	In this motion, MMC and SISSO argue
that 	if 	they 	are 	found 	liable 	to 	Plaintiff, 	Medical 	and 	Educational 	Health
Services, Inc. (“MEDHS”), then their liability is derived from Castellanos’ and
Montes’ breach of fiduciary duty. 	On April 11, 2011, in response to this motion,
1 As of May 7, 2011, when Third-Party Plaintiffs filed their opposition to Castellanos’ Motion to Dismiss, Montes
had not yet been served, despite several attempts.
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Castellanos filed a Motion to Dismiss the Third-Party Complaint [Dkt. No. 84] on
the grounds that the Third-Party Plaintiffs failed to state a claim and failed to
follow requisite procedure. 	The Third-Party Plaintiffs filed an Opposition to
the Motion to Dismiss on May 7, 2011 [Dkt. No. 88]. 	For the reasons set forth
below, the Motion to Dismiss filed by Third-Party Defendant Castellanos is hereby
DENIED.
The court has jurisdiction over this action based on 28 U.S.C. §§ 1334,
1367.
I. 	Factual Background
On August 27, 2009, MEDHS entered into an Operation and Administration
agreement (the “Lease”) with the Municipality of Mayagüez (the “Municipality”).
On September 1, 2009, MEDHS entered into a sublease with SISSO (the “Sublease”),
under which SISSO became the administrator and operator of the Ramón Emeterio
Betances Medical Center (the “Hospital”). 	SISSO entered into rental agreements
with 	all 	of 	the 	tenants 	in 	the 	medical 	center 	except 	for 	Mayagüez 	Advance
Radiotherapy Center (“MARC”), who entered into a sublease directly with MEDHS on
October 29, 2009 (“MEDHS-MARC sublease”).
MEDHS 	failed 	to 	notify 	the 	Municipality 	and 	SISSO 	of 	the 	MEDHS-MARC
sublease, violating the provision in their lease with the Municipality requiring
such notification. 	MEDHS also allowed patient access and employee parking not
permitted by the Hospital’s policy. 	Furthermore, MEDHS failed to have the MEDHS-
MARC sublease notarized and to collect any rental payments from MARC. 	Because
there 	were 	no 	payments 	made 	to 	MEDHS 	from 	MARC, 	MEDHS 	did 	not 	pay 	the
Municipality and that lease terminated.
Castellanos was serving in an official capacity for MEDHS, MARC, and SISSO
during the relevant time. 	Third-Party Plaintiffs allege that he breached his
fiduciary duties to MEDHS and SISSO by creating a scam lease in which MARC never
paid rent to MEDHS. 	They further argue that the scam lease is a direct cause of
MEDHS not being able to pay the Municipality, which led to the broken lease
agreement 	between 	MEDHS 	and 	Municipality 	for 	which 	MEDHS 	is 	seeking 	relief.
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Thus, they seek to implead Castellanos in the event that they are found liable to
MEDHS for damages resulting from the terminated lease with the Municipality.
II. 	Impleader Under Rule 14
Rule 14(a)(1) states that “a defending party may, as third-party plaintiff,
serve a summons and complaint on a non-party who is or may be liable to it for
all or part of the plaintiff’s claim against it.” 	Fed. R. Civ. P. 14(a)(1). 	The
rule is designed to promote judicial efficiency by allowing a defendant to bring
claims relating to the same “aggregate or core of facts which is determinative of
the plaintiff’s claim” against a non-party, without having to initiate a separate
suit. 	Gross v. Hanover Ins. Co., 138 F.R.D. 53, 55 (S.D.N.Y. 1991) (internal
citations omitted). 	Rule 14 is applicable to adversary proceedings in Bankruptcy
pursuant to Fed. R. Bankr. P. 7014.
As to the present case, this Court concluded that impleader is proper.
According to the facts alleged in the Complaint, Castellanos served as President
of MEDHS, as well as CEO and Treasurer of MARC, for the duration of the MEDHS-
MARC sublease. 	Simultaneously, he was an officer and shareholder of SISSO from
the time of the aforementioned sublease until at least November 1, 2010. 	Third-
Party Plaintiffs are convincing in their argument that these personal interests
create a duty in Castellanos to act fairly and responsibly in relation to the
matters of the corporations, and that a breach of such a duty may make him liable
for 	damages. 	P.R. 	Laws 	Ann. 	Tit. 	14 	§ 	3563-64 	(2010). 	They 	allege 	that
Castellanos’ 	positions 	of 	authority 	render 	him 	responsible 	for 	the 	acts 	and
omissions of the corporations he represents, and that he used his concurrent
positions in the corporations to coordinate a sham lease between MEDHS and MARC,
during which he violated the Hospital’s policies in various ways, including never
collecting any rent. 	Allegedly, the scam financially benefitted Castellanos and
MARC and led to the termination of the lease between MEDHS and the Municipality.
Thus, the allegation that Castellanos breached his fiduciary duty arises
from events relating to the termination of the MEDHS-Municipality lease for which
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the MEDHS is seeking to obtain relief from Third-Party Plaintiffs. 	Therefore, it
promotes judicial efficiency to allow impleader in this case, because the alleged
breach of duty shares core facts of MEDHS’s claim against Third-Party Plaintiffs
for 	breach 	of 	contract. 	Because 	a 	breach 	of 	this 	fiduciary 	duty 	may 	make
Castellanos 	derivatively 	liable, 	the 	Court 	concluded 	that 	impleader 	of
Castellanos under Rule 14(a) was proper. 	[Dkt. No. 57].
III. 	Sufficiency of Allegations
Rule 8 requires: 1) a short, plain statement of the claim, 2) a showing of
entitlement to relief, and 3) a prayer for relief. 	Fed. R. Civ. P. 8. 	Rule 8
was expanded by Bell Atlantic Corp. v. Twombly to mean that the claim must not
only be possible, but plausible on its face in order to survive early dismissal
under a 12(b)(6) motion to dismiss. 	550 U.S. 544, 547 (2007). 	“A claim has
facial plausibility when the pleaded factual content allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”
Id. at 556. 	If the plaintiffs “have not nudged their claims across the line from
conceivable to plausible, their complaint must be dismissed.” 	Id. at 570. 	“The
issue is not whether a plaintiff will ultimately prevail but whether the claimant
is entitled to offer evidence to support the claims.” 	Scheuer v. Rhodes, 416
U.S. 232, 236 (1974). 	Because no evidence has been presented at the time of a
motion to dismiss, the court accepts as true the facts as they are asserted in
the complaint and views all inferences in favor of the non-moving party. 	Ezra
Charitable Trust v. Tyco Int'l, Ltd., 466 F.3d 1, 6 (1st Cir. 2006). 	Thus, this
Court must accept as true the facts stated by MMC and SISSO, and construe them in
their favor.
Castellanos argues that Third-Party Plaintiffs’ complaint does not include
facts to support a claim under any law, and so is subject to dismissal under
Rule12(b)(6). 	He offers several bases for why Third-Party Plaintiffs do not have
a claim entitling them to relief, but he fails to prove any of them. 	First, he
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argues that if MEDHS wins, then their lease with the Municipality is valid, and
so 	there 	is 	no 	need 	for 	relief. 	However, 	it 	is 	possible 	that 	the 	MEDHS-
Municipality 	lease 	be 	upheld 	despite 	the 	fact 	that 	the 	subsequent 	sublease
between MEDHS and MARC was a sham that caused damages.
Secondly, 	Castellanos 	argues 	that 	Third-Party 	Plaintiffs 	fail 	to 	show
entitlement to relief because if MEDHS prevails, then “the necessary conclusion
would be that all of MEDHS’s problems stem from MCC and SISSO’s misdeeds and
failures.” 	Mot. to Dismiss 3. 	The Court finds this reasoning unconvincing
because it leads to the conclusion that if a plaintiff wins, the defendant is
always 	the 	only 	possible 	liable 	party. 	This 	contradicts 	Rule 	14, 	which
acknowledges that a defendant may derive liability from a third party. 	Case law
also supports the ability of a defendant to implead an employee of the plaintiff.
See Gross v. Hanover Ins. Co., 138 F.R.D. 53 (S.D.N.Y. 1991) (where defendant
successfully 	impleaded 	an 	employee 	of 	the 	plaintiff 	company). 	As 	discussed
above, the Court already found that impleader was proper in this action.
Castellanos also asserts that because he filed the Adversary Complaint
against MMC and SISSO on MEDHS’s behalf, he upheld his duties. 	Only if he had
failed to bring such a claim, he argues, would he be liable to MEDHS for damages
resulting from the termination of their lease with the Municipality. 	Thus,
Third-Party 	Plaintiffs’ 	claim 	that 	he 	breached 	his 	fiduciary 	duty 	is 	not
plausible and so should be dismissed. 	However, filing an adversary complaint on
behalf 	of 	MEDHS 	does 	not 	render 	it 	implausible 	that 	Castellanos 	could 	have
breached a duty elsewhere. 	We must treat the facts stated as true, and it
appears from the factual allegations by SISSO and MMC that it is plausible that
Castellanos 	breached 	a 	fiduciary 	duty 	to 	MEDHS 	and 	SISSO 	when 	he 	failed 	to
collect rent from MARC.
IV. 	Procedural Compliance
Castellanos also alleges two procedural flaws which he believes should
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preclude 	Third-Party 	Plaintiffs 	from 	impleading 	him: 	1) 	failure 	to 	file 	a
complaint with the corporation before filing a formal complaint; and 2) a lack of
standing to bring a claim. 	However, Castellanos misses the point of Third-Party
Plaintiffs’ 	motion, 	and 	bolsters 	his 	argument 	with 	case 	law 	pertaining 	to
avoidance actions, not impleader motions. 	The Third-Party Plaintiffs are not the
creditors of MEDHS, and this is not an avoidance action. 	Therefore, Third-Party
Plaintiffs were not required to file a complaint with the corporations prior to
bringing suit, and so did not violate procedure.
Secondly, Castellanos argues that in order to have standing to sue, a
third-party plaintiff must be a debtor in possession, a Chapter 11 Trustee, the
U.S. Trustee, a creditors’ committee, or a creditor of the estate. 	The Court
finds 	this 	argument 	unconvincing 	because 	it 	is 	not 	supported 	by 	any 	legal
authority.
V. 	Conclusion
It is plausible that the facts as alleged in Third-Party Plaintiffs’ motion
give rise to a valid claim against Third-Party Defendant Castellanos. 	Third-
Party Plaintiffs have also complied with all procedural requirements. 	Because of
the 	foregoing 	reasons, 	Third-Party 	Defendant’s 	Motion 	to 	Dismiss 	is 	hereby
DENIED.
IT IS SO ORDERED.
San Juan, Puerto Rico this 07 day of June, 2011.
Brian K. Tester
U.S. Bankruptcy Judge
CC: 	ALL CREDITORS
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