| State of N.Y. Workers' Compensation Bd. v Madden |
| 2014 NY Slip Op 05000 [119 AD3d 1022] |
| July 3, 2014 |
| Appellate Division, Third Department |
[*1]
| 1 State of New York Workers' Compensation Board, asAdministrator of the Workers' Compensation Law and Attendant Regulations, and asSuccessor in Interest to the Healthcare Facilities Workers' Compensation Trust,Appellant-Respondent, v Cathy Madden et al., Respondents-Appellants, et al.,Defendants. |
Rupp, Baase, Pfalzgraf, Cunningham & Coppola, LLC, Buffalo (DanielSarzynski of counsel), for New York State Workers' Compensation Board,appellant-respondent.
Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Albany (Peter A.Lauricella of counsel), for Cathy Madden and others, respondents-appellants.
Bennett, Schechter, Arcuri & Will, LLP, Buffalo (Marissa Sweet of counsel),for Daniel Muskin, respondent-appellant.
Jaeckle, Fleishmann & Mugel, Buffalo (Bradley A. Hoppe of counsel), forBerenson & Company, LLP, respondent-appellant.
Hiscock & Barclay, LLP, Albany (David B. Cabaniss of counsel), for StevenGlaser, respondent-appellant.
Landman, Corsi, Ballaine & Ford, PC, New York City (Louis G. Corsi ofcounsel), for [*2]Lorette Belgraier,respondent-appellant.
Garry, J. Cross appeals from an order of the Supreme Court (Platkin, J.), enteredMarch 13, 2013 in Albany County, which partially granted certain defendants' motions todismiss the complaint against them.
The New York Healthcare Facilities Workers' Compensation Trust, a groupself-insured trust, was formed in 1996 to provide mandated workers' compensationcoverage to employees of trust members (see Workers' Compensation Law§ 50 [3-a]; 12 NYCRR 317.2 [i]; 317.3). Hamilton Wharton Group(hereinafter HWG), the trust's group administrator, contracted with defendant Berenson& Company, LLP for auditing services, defendant Lorette Belgraier for accountingservices, and defendant Steven Glaser to serve as the trust's counsel. In 2006, plaintiffdetermined that the trust was insolvent and assumed its administration (see 12NYCRR 317.20). Thereafter, plaintiff obtained a forensic audit and a deficitreconstruction revealing that the trust had an accumulated deficit of over $30million.
In May 2011, plaintiff commenced this action against, among others, Berenson,Belgraier, Glaser (hereinafter collectively referred to as the professional defendants) and12 former trustees, seeking to recover damages for, among other things, breach offiduciary duty, breach of contract, and common-law indemnification. The complaintasserts that, because of defendants' failures, plaintiff was required by the Workers'Compensation Law to assume administration of the trust, pay administrative expensesand workers' compensation claims, and indemnify the trust for losses in the amount ofthe deficit allegedly resulting from defendants' acts and omissions. Some of the formertrustees (hereinafter collectively referred to as the trustee defendants) and theprofessional defendants each moved pre-answer to dismiss the complaint. Supreme Courtpartially granted the motions by, among other things, dismissing plaintiff's common-lawindemnification claims. Plaintiff appeals, and the professional defendants and trusteedefendants cross-appeal.
Plaintiff first challenges the dismissal of its common-law indemnification claims. Asrelevant here, common-law indemnification is an equitable remedy that avoids unfairnessby shifting losses arising from an obligor's discharge of a joint duty when failure to do sowould result in unjust enrichment (see McCarthy v Turner Constr., Inc., 17 NY3d 369,374-375 [2011]). A contract to reimburse or indemnify is implied where a plaintiff hasdischarged a duty which is duly owed, but which, as between the plaintiff and another, infairness should have been discharged by the other (see McDermott v City of NewYork, 50 NY2d 211, 217 [1980]; Murray Bresky Consultants, Ltd v New York CompensationManager's Inc., 106 AD3d 1255, 1258 [2013]; Germantown Cent. SchoolDist. v Clark, Clark, Millis & Gilson, 294 AD2d 93, 98 n 2 [2002], affd100 NY2d 202 [2003]). Such an implied obligation "may arise from contractual relationsor from the status of the parties as a matter of law, or it may be imposed by statute"(Sea Ins. Co. v U.S. Fire Ins. Co., 71 AD2d 51, 53-54 [1979], lv denied49 NY2d 702 [1980] [internal quotation marks and citation omitted]). Here, plaintiffcontends that it is entitled to indemnification based upon its status as successor in interestto the trust and, alternatively, as the governmental entity statutorily charged withenforcement of the Workers' Compensation Law.
We agree with Supreme Court that plaintiff is not entitled to indemnification basedupon its role as successor in interest to the trust. As the successor, plaintiff stands in theshoes of the trust, but, like an assignee, does not obtain any greater rights than thoseoriginally possessed; accordingly, plaintiff is only entitled to indemnification on thisbasis if the trust would have had such a claim (compare Matter of Quail AeroServ., 300 AD2d 800, 802 n [2002]). Here, the complaint does not allege that thetrust and defendants had common duties to third parties that were discharged by the trust,but should have been discharged by defendants (compare State of New York vStewart's Ice Cream Co., 64 NY2d 83, 88 [1984]; Murray Bresky Consultants,Ltd v New York Compensation Manager's Inc., 106 AD3d at 1258-1259). Instead,the gravamen of the claim is that defendants breached contractual and fiduciary dutiesthat were owed, not to third parties, but to the trust—and, by extension, to plaintiff(see Germantown Cent. School Dist. v Clark, Clark, Millis & Gilson, 294AD2d at 99; see also Bunker v Bunker, 80 AD2d 817, 817-818 [1981]). Thus,plaintiff's claims against defendants arising from its role as successor in interest aredirect, and do not sound in common-law indemnification.
We likewise agree, in part, with Supreme Court's dismissal of plaintiff's alternativeclaim for indemnification arising from its role as the governmental agency charged withadministration of the Workers' Compensation Law. Relative to the professionaldefendants, plaintiff does not claim that they had any duty in common with plaintiff'sstatutory obligation to maintain the trust's solvency; instead, the complaint alleges thatthe professional defendants owed duties to the trust to provide professional auditing,accounting and legal services. Accordingly, plaintiff failed to state a cause of action incommon-law indemnification against these defendants (see HANYS Servs. v EmpireBlue Cross & Blue Shield, 292 AD2d 61, 66 [2002], lv denied 98 NY2d612 [2002]; see also Lovino,Inc. v Lavallee Law Offs., 96 AD3d 909, 910 [2012]).
We reach a different result as to the trustee defendants. Plaintiff, by virtue of theWorkers' Compensation Law and its enabling regulations (see Workers'Compensation Law § 50-a; 12 NYCRR 317.9, 317.20), and the trusteedefendants, by virtue of the trust agreement, amendments and bylaws, owed a commonduty to the covered employees to ensure that the trust maintained adequate reserves suchthat its assets would cover its liabilities (see Murray Bresky Consultants, Ltd v NewYork Compensation Manager's Inc., 106 AD3d at 1258-1259). Plaintiff's statutoryand regulatory role requires it to assume the administration of insolvent groupself-insured trusts and to continue to pay benefits to covered employees (see 12NYCRR 317.20). Plaintiff claims that, as breaches by the trustee defendants allegedlycontributed to the trust's insolvency, they should, in fairness, cover the costs that plaintiffincurred in carrying out these obligations. Viewing the complaint liberally and acceptingits allegations as true (seeMandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 178 [2011]), plaintiff'sclaim for common-law indemnification as against the trustee defendants and based uponplaintiff's governmental role should not have been dismissed (compare State of NewYork v Stewart's Ice Cream Co., 64 NY2d at 88; HANYS Servs. v Empire BlueCross & Blue Shield, 292 AD2d at 66).
Turning to the cross appeals, the trustee defendants challenge Supreme Court'sfailure to dismiss the breach of contract claim against them in its entirety. The courtdismissed this claim as time-barred insofar as it addressed alleged breaches that occurredbefore May 2, 2005, but permitted claims arising thereafter to continue. The trusteedefendants argue that, as the complaint does not allege any specific breaches of contractoccurring on or after May 2, 2005, no [*3]such claimsexist. However, the complaint does allege that, on unspecified dates, the trusteedefendants breached obligations, among other things, to perform duties under the trustagreement, oversee trust operations, hold regular meetings, and inform board members ofthe trust's financial status, that they failed to take prompt, adequate actions to address thedeficit, and that these and other acts and omissions contributed to the underfunding of thetrust. Liberally construed, these allegations assert that the breaches continued from thetime the trust was formed until July 31, 2006, when plaintiff assumed its administration,and were ongoing throughout each trustee defendant's term of service. Accordingly, thebreach of contract cause of action is timely to the extent that it addresses breachesoccurring after May 2, 2005, i.e., within the six-year statutory limitations period(see CPLR 213 [2]).
Defendant Daniel Muskin,[FN1] one of the trustee defendants, allegesthat the breach of contract claim against him should have been dismissed as time-barredbased upon documentary evidence (see CPLR 3211 [a] [1]). This contention isbased upon records that Muskin obtained from plaintiff pursuant to a Freedom ofInformation Law (hereinafter FOIL) request, indicating that he was a trustee from May2002 until either February 2003 or July 2003, and that he wrote a resignation letter toHWG in February 2003. However, in opposition, plaintiff submitted a March 2006 letterin which HWG notified plaintiff of the appointment of a new trustee named DanielMuskin. Thus, the documentary evidence fails to "conclusively establish[ ]" that Muskinwas no longer a trustee as of May 5, 2005 (Goshen v Mutual Life Ins. Co. ofN.Y., 98 NY2d 314, 326 [2002]; see State Farm Fire & Cas. Co. v Main Bros. Oil Co., 101AD3d 1575, 1576-1577 [2012]).
Next, trustee defendants Cathy Madden and Linda Villano contend that the breach ofcontract claim against them is time-barred in that the complaint allegedly concedes thattheir tenure as trustees ended in 1998. The complaint alleges that Madden acted assecretary/treasurer of the board of trustees from May 1997 through June 1998, and thatVillano acted as chairperson of the board from May 1997 through 1998. However, thisestablishes only the dates during which these defendants acted as officers; it does notreveal that they did not continue to serve as trustees after 1998. Notably, the FOILdocuments submitted by Muskin indicate that they served from July 1997 to an"unknown" date. Accordingly, Supreme Court properly refused to dismiss the breach ofcontract claim against Madden and Villano as untimely at this juncture (see generally Delaware County vLeatherstocking Healthcare, LLC, 110 AD3d 1211, 1212-1213[2013]).[FN2]
Next, Glaser—the trust's former counsel—contends that the unjustenrichment claim against him should have been dismissed in its entirety. The challengedcause of action seeks the return of legal fees paid to Glaser by the trust, alleging, amongother things, that Glaser had an [*4]attorney-clientrelationship with HWG and its principal before he was retained to represent the trust, thatGlaser did not disclose this prior representation to the trust, that Glaser thereaftercontinued to perform legal services for HWG and the principal, and that he was paidfrom trust funds for these services. Supreme Court found that, to the extent that thisclaim relied upon alleged conflicts of interest arising from the multiple representation, itsounded in legal malpractice and was time-barred. However, to the extent that the claimsought to recover fees paid by the trust for legal services that had allegedly been renderedto HWG and/or its principal, the court found that plaintiff had stated a claim for breachof an express contract. Thus, the court converted that portion of the unjust enrichmentclaim to one for breach of contract and permitted the claim to survive with respect to theperiod on and after May 2, 2005. We reject Glaser's assertion that the surviving portionof the cause of action is a disguised professional malpractice claim subject to a three-yearstatute of limitations, as it does not allege that Glaser's professional services werenegligently performed, but instead alleges a breach of the contract between the trust andGlaser in that the trust paid for services that Glaser did not render to it. Accordingly, thataspect of the claim is timely (seeNew York State Workers' Compensation Bd. v SGRisk, LLC, 116 AD3d 1148,1151-1152 [2014]; see alsoNatural Organics Inc. v Anderson Kill & Olick, P.C., 67 AD3d 541, 542[2009], lv dismissed 14 NY3d 881 [2010]; Henry v Brenner, 271 AD2d647, 648 [2000]).
Supreme Court did not err in partially denying Berenson's motion to dismiss thefraud claim against it. In addition to the fraud claim and the previously-discussedcommon-law indemnification claim, plaintiff asserted claims against Berenson for breachof contract, breach of fiduciary duty, and aiding and abetting breaches of fiduciary dutyby the trustees. Supreme Court found that these claims were subject to the three-yearstatute of limitations applicable to malpractice claims (see CPLR 214 [6]) anddismissed them as time-barred, and partially dismissed the fraud claim on this basis, tothe extent that it challenged Berenson's actions under applicable professional standardsor asserted that it was influenced by conflicts of interest. However, insofar as the fraudclaim alleged that Berenson had knowingly participated in an intentional scheme todefraud the trust and its members by misrepresenting its financial condition, the courtfound it timely under the statute of limitations applicable to fraud (see CPLR 213[8]). Berenson claims that the court erred in this respect, contending that this cause ofaction accrued more than six years before the action was filed, when Berenson allegedlyfailed to issue a "qualified or going-concern letter" in 2000. We disagree. In addition toreferencing this alleged failure, the complaint further asserts that, from 1997 to 2005,Berenson "continually" misrepresented the trust's true financial condition to plaintiff and,throughout its dealings with the trust, made "continuous and ongoing" misrepresentationsof the trust's financial condition. As augmented by plaintiff's affidavits submitted inopposition to the motion to dismiss (see Lazic v Currier, 69 AD3d 1213, 1214 [2010]),Berenson allegedly prepared annual audited financial statements for the trust from 1997to 2005, and submitted the last of these statements to plaintiff in April 2006. Treating theclaim of misrepresentation as true for the purposes of this motion, the cause of action istimely in that it alleges actions occurring less than six years before the action was filed(see Dowlings, Inc. vHomestead Dairies, Inc., 88 AD3d 1226, 1228 [2011]; compare DelawareCounty v Leatherstocking Healthcare, LLC, 110 AD3d at 1214).
Next, Belgraier contends that Supreme Court erred in failing to dismiss the portion ofthe breach of contract claim against her that sought to recover fees paid for herprofessional accounting services. As with the other professional defendants, the courtdismissed plaintiff's claims against Belgraier as time-barred to the extent that, by allegingthat she had failed to render competent accounting services, they essentially constitutedmalpractice claims. However, the [*5]court permitted thebreach of contract claim to proceed insofar as it alleged that she had failed to performaccounting duties for which she was paid, and was paid with trust funds for services thatwere not performed or were rendered to others. We agree with the court that this aspectof the complaint sufficiently states a claim for breach of contract by alleging that the trustwas an intended third-party beneficiary of a contract between Belgraier and HWG, bywhich Belgraier was to provide services for the benefit of the trust and its members, andthat—knowing that her services were intended for the trust'sbenefit—Belgraier breached the contract (see Saratoga Schenectady Gastroenterology Assoc., P.C. v Bette& Cring, LLC, 83 AD3d 1256, 1257-1258 [2011]; compare IMS Engrs.-Architects,P.C. v State of New York, 51 AD3d 1355, 1357 [2008], lv denied 11NY3d 706 [2008]). This aspect of the cause of action is not, as Belgraier contends, adisguised professional malpractice claim and, as it alleges that Belgraier was paid for herservices through 2006, is not time-barred (see CPLR 213 [2]; DelawareCounty v Leatherstocking Healthcare, LLC, 110 AD3d at 1213).
Finally, we reject Belgraier's contention that the breach of contract claim against hershould have been dismissed based on documentary evidence (see CPLR 3211 [a][1]). In this regard, Belgraier submitted her own affidavit refuting plaintiff's allegations;however, such an affidavit does not constitute documentary evidence upon which aproponent of dismissal pursuant to CPLR 3211 (a) (1) may rely (see State Farm Fire & Cas.Co. v Main Bros. Oil Co., 101 AD3d 1575, 1577 n 3 [2012]; Crepin v Fogarty, 59 AD3d837, 838 [2009]). Even assuming that the invoices and other business recordssubmitted with Belgraier's affidavit could be considered documentary evidence withinthe meaning of the statute, they do not utterly refute plaintiff's claim that she was paid forservices that she did not perform or that she performed for others (see Mason v First Cent. Natl. LifeIns. Co. of N.Y., 86 AD3d 854, 855 [2011]; Lopes v Bain, 82 AD3d 1553, 1554-1555 [2011]).Accordingly, the motion to dismiss on this basis was properly denied.
Lahtinen, J.P., McCarthy, Lynch and Clark, JJ., concur. Ordered that the order ismodified, on the law, without costs, by reversing so much thereof as granted (1) themotion of defendants Linda Villano, Cathy Madden, Phyllis Ettinger, Patricia Huber,Elizabeth Rosenberg, Sam Harte, Timothy Ferguson and Lynn Edmonds to dismiss thecommon-law indemnification claim asserted against them and (2) the motion ofdefendant Daniel Muskin to dismiss the common-law indemnification claim against him;said motions denied to the extent asserted by plaintiff in its governmental capacity as theentity charged with the administration of the Workers' Compensation Law, and matterremitted to the Supreme Court to permit defendants to serve an answer within 20 days ofthe date of this Court's decision; and, as so modified, affirmed.
Footnote 1:Muskin's nameerroneously appears in the complaint as "Mushkin."
Footnote 2:The trustee defendantsraise this argument on appeal on Villano's behalf, although she is not named in theirnotice of cross appeal. Given our determination, we need not decide whether affirmativerelief for Villano is necessary "to accord full relief to a party who has appealed"(Hecht v City of New York, 60 NY2d 57, 60 [1983]).