| Murray Bresky Consultants, Ltd v New York CompensationManager's Inc. |
| 2013 NY Slip Op 03376 [106 AD3d 1255] |
| May 9, 2013 |
| Appellate Division, Third Department |
| Murray Bresky Consultants, Ltd, Respondent, v New YorkCompensation Manager's Inc., Defendants, and James E. Ransom et al.,Appellants. |
—[*1] Sugarman Law Firm, LLP, Syracuse (Jenna W. Klucsik of counsel), for James F.Trombino, appellant. Bond, Schoeneck & King, PLLC, Syracuse (Suzanne O. Galbato of counsel), for D.Scott Jaquith, appellant. Fix, Spindelman, Brovitz & Goldman, PC (Reuben Ortenberg of counsel), forrespondent.
Spain, J. Appeals (1) from an order and amended order of the Supreme Court (Cahill,J.), entered December 19, 2011 in Sullivan County, which, among other things, partiallydenied defendant James F. Trombino's motion to dismiss the complaint against him andpartially denied motions by defendants D. Scott Jaquith and James E. Ransom forsummary judgment dismissing the complaint against them, and (2) from an amendedorder of said court, entered June 18, 2012 in Sullivan County, which, among otherthings, denied defendant James F. Trombino's motion to reargue.[*2]
Plaintiff was an employer member of theManufacturing Self-Insurance Trust (hereinafter the trust), a workers' compensationgroup self-insured trust formed to provide required workers' compensation coverage toemployees of trust members (see Workers' Compensation Law § 50 [3-a];12 NYCRR part 317); plaintiff was a member from 2001 until the trust was dissolved forinsolvency in 2006 and, in 2007, the Workers' Compensation Board assumedresponsibility for the administration of the trust's dissolution (see State of N.Y. Workers'Compensation Bd. v 26-28 Maple Ave., Inc., 80 AD3d 1135, 1135 [2011][same trust]). The trust was established by a 1997 Agreement and Declaration of Trust(hereinafter the trust agreement), and continued by successive trust agreements dated in1997 (marked revised in 2000) and 2001, all signed by various trustees of the Board ofTrustees (hereinafter the Board) on which the trust agreements conferred allresponsibility for the trust's management, operation and administration (see 12NYCRR 317.2 [b]). In 1997 (and again in 2001 and 2006), the Board entered intoservice agreements with defendant New York Compensation Manager's Inc. (hereinafterNYCM) to be the fund administrator and to supervise and manage the day-to-dayoperations of the trust.
When plaintiff joined the trust in 2001, it signed a participation agreement bindingitself to the terms of the trust agreement, and agreeing that it would be jointly andseverally liable for all workers' compensation obligations of the trust during the time thatit remained a member, and that it might be required to pay additional contributions orassessments for trust deficiencies. In 2004, trust members were notified that a Workers'Compensation Board audit disclosed that the trust was underfunded. Thereafter, anaction plan put in place to restore the trust's financial stability was unsuccessful, specialassessments were levied on members to remedy funding inadequacies and, in 2006, theBoard and the Workers' Compensation Board agreed to dissolve the trust effectiveAugust 31, 2006. In 2008, the Workers' Compensation Board commenced an actionagainst former members of the trust, including plaintiff, seeking damages and expensesrelated to the underfunding deficits of the trust (State of N.Y. Workers'Compensation Bd. v 26-28 Maple Ave., Inc., 80 AD3d at 1135). Plaintiff settled thatsuit, agreeing to pay $1.2 million as its pro rata share of the deficits.
Plaintiff thereafter commenced this action in 2011 against, as relevant herein,NYCM and certain alleged former trustees, defendants James F. Trombino, D. ScottJaquith and James E. Ransom (hereinafter collectively referred to as the trusteedefendants), asserting causes of action for, among others, breach of contract, breach offiduciary duties and common-law indemnification. Trombino moved to dismiss thecomplaint based upon statutes of limitations and failure to state a cause of action(see CPLR 3211 [a] [5], [7]). Jaquith and Ransom, after joinder of issue, movedfor summary judgment on the same grounds.
Supreme Court partially granted the trustee defendants' motions, by dismissing thebreach of contract and breach of fiduciary duty claims as time-barred, with the breach ofcontract claim against Ransom held to be time-barred only to the extent that it allegesactions occurring more than six years before this action was commenced. The trusteedefendants' motions for dismissal with regard to plaintiff's common-law indemnificationclaims were denied, and their subsequent motions to reargue were also denied in awritten amended decision and order making certain factual corrections. The trusteedefendants now appeal the partial denial of their respective motions, and Trombinoappeals from the denial of his motion to reargue.
The trustee defendants argue that plaintiff fails to state a claim for common-lawindemnification and, thus, Supreme Court erred in denying their motions seekingdismissal for [*3]failure to state a cause ofaction.[FN*]Plaintiff's complaint alleges that the trustee defendants failed, among other shortcomings,to fulfill their contractual, statutory and fiduciary duties by failing to oversee the trust andNYCM, the fund administrator, so as to ensure that employer contribution rates and trustreserves were adequate to pay trust expenses and obligations; failed to ensure that newmembers met underwriting guidelines; allowed NYCM to mismanage the trust and usurptrustee responsibilities; allowed conflicts of interest; and generally failed to perform theduties entrusted to them. Further, plaintiff alleged that the trustee defendants'mismanagement allowed or caused the trust to become insolvent, compelling plaintiff asan employer member to fulfill its contractual and statutory obligation to pay the Workers'Compensation Board its share of the trust's fund reserve deficit, amounts for which thetrustee defendants were responsible.
In considering a motion to dismiss based upon failure to state a cause of action, thecomplaint is liberally construed, the facts as alleged are accepted as true and the plaintiffis accorded the benefit of every favorable inference (see CPLR 3211 [a] [7]; ABN AMRO Bank, N.V. v MBIAInc., 17 NY3d 208, 227 [2011]; EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19[2005]). We "determine only whether the facts as alleged fit within any cognizable legaltheory," to ascertain whether the plaintiff has a cause of action, not whether it has statedone (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Common-lawindemnification, as alleged here, is a quasi-contract claim in which a contract is impliedin law in order to avoid unjust enrichment, accomplished by shifting a loss by "placingthe obligation where in equity it belongs" (McDermott v City of New York, 50NY2d 211, 217 [1980]; seeMcCarthy v Turner Constr., Inc., 17 NY3d 369, 374-375 [2011]). Common-lawindemnification avoids unfairness and unjust enrichment by "recogniz[ing] that [a]person who, in whole or in part, has discharged a duty which is owed by him but whichas between himself and another should have been discharged by the other, is entitled toindemnity" (McDermott v City of New York, 50 NY2d at 217 [internal quotationmarks and citation omitted]; seeWestbank Contr., Inc. v Rondout Val. Cent. School Dist., 46 AD3d 1187, 1189[2007]; Restatement of Restitution § 76). It "requires a showing that [the] plaintiffand [the] defendant[ ] owed a duty to third parties, and that [the] plaintiff discharged theduty which, as between [the] plaintiff and [the] defendant[ ], should have beendischarged by [the] defendant[ ]" (Germantown Cent. School Dist. v Clark, Clark,Millis & Gilson, 294 AD2d 93, 98 n 2 [2002], affd 100 NY2d 202 [2003];see Rosado v Proctor & Schwartz, 66 NY2d 21, 24 [1985]; McDermott vCity of New York, 50 NY2d at 216-217, 218 n 5; HANYS Servs. v Empire BlueCross & Blue Shield, 292 AD2d 61, 66 [2002], lv denied 98 NY2d 612[2002]).
Supreme Court correctly determined that plaintiff has a cause of action against thetrustee defendants, given their common duty to plaintiff's covered employees and to theWorkers' Compensation Board to maintain adequate reserves in the trust so that it wasadequately funded and its assets would cover its liabilities (see 12 NYCRR317.9; Workers' Compensation Law former § 50 [3-a]). Plaintiff alleged that itperformed all of its statutory and contractual duties relative to the participationagreement and the trust, and paid the settlement to cover its share of the underfundingthat it had a duty to pay, given its joint and several liability for the obligations and debtsof the trust incurred during its membership. Further, plaintiff asserts that while this [*4]settlement payment was owed by plaintiff, as a matter offairness, the trust deficiency should have been paid by the trustee defendants who werethe parties actually responsible for it (see McDermott v City of New York, 50NY2d at 217). As such, plaintiff has a viable cause of action against the trusteedefendants.
Notably, contrary to the trustee defendants' claim, the fact that plaintiff was by statute(see Workers' Compensation Law former § 50 [3-a] [2]) and per the trustagreement jointly and severally responsible for all of the liabilities and deficiencies of thetrust during its period of membership and compelled to pay its share of the deficit did notpreclude plaintiff from stating and pursuing a common-law indemnification claim againstthe trustee defendants; such a claim is premised upon the principle that, in fairness, thedeficiency "should have been discharged by the[m]" (McDermott v City of NewYork, 50 NY2d at 217). Further, plaintiff's indemnification "claim is a separatesubstantive cause of action, independent of the underlying wrong[s]," and not dependentupon the existence of any other claims (id. at 218). Thus, the dismissal of otherclaims does not affect the viability of this claim.
Further, plaintiff's claim for indemnification implied by law does not require that itspecify the amount of damages attributable to each trustee defendant's time as trustee,only that it specify that it paid a common obligation that the trustee defendants ought tohave paid. Plaintiff indicated the amount of the settlement ($1.2 million) it paid to satisfyits obligation for the deficiency, and indicated in its complaint that the precise amountattributable to each trustee defendant is "not immediately ascertainable" but expected tobe indemnified in an amount "no less than the sum of $2 [million]." The complaintcannot, in our view, be interpreted as seeking indemnification from the trusteedefendants for periods before or after their respective tenures as trustees, as Trombinosuggests. Supreme Court properly determined that plaintiff stated a cause of action forcommon-law indemnification as against the trustee defendants and correctly denied theirrespective motions on this ground.
Turning to Jaquith's argument that he was entitled to summary judgment on thecommon-law indemnification claim because plaintiff failed to offer evidence that he wasever formally appointed a trustee or ever acted in that capacity, we find that SupremeCourt properly denied his motion given the presence of material questions of fact thereon(see Smalls v AJI Indus.,Inc., 10 NY3d 733, 735 [2008]). In support of his motion, Jaquith submitted anaffidavit admitting that while he signed certain documents that state he did so as atrustee, he had no recollection of being so appointed and did not understand the positionof trustee. Jaquith also submitted a letter dated November 27, 2002 in which he resignedfrom the "Board of Directors" of NYCM, which he claims reflects his misunderstandingof his role. The foregoing was insufficient to meet his initial burden, as movant, ofdemonstrating entitlement to judgment as a matter of law with evidence establishing theabsence of any material issues of fact regarding whether, and for what period, he wasappointed or was a de facto trustee (see Smalls v AJI Indus., Inc., 10 NY3d at735). Similarly, plaintiff's complaint and bill of particulars allege actionable conduct byJaquith related to his responsibilities as a trustee prior to his purported 2002 letter ofresignation; while plaintiff was unsure when the deficit began, the Workers'Compensation Board determination regarding the cumulative deficit left open thepossibility that the deficiency was incurred partially during Jaquith's tenure, whichfurther discovery would disclose. Jaquith offered no evidence other than a blanket denialto eliminate the factual questions regarding whether his conduct when he was allegedlyat least acting as a trustee contributed to the deficiency. Thus, his motion for summaryjudgment was properly denied (see Hickey v Arnot-Ogden Med. Ctr., 79 AD3d 1400,1401-1402 [2010]).[*5]
Next, Jaquith and Ransom contend that thecomplaint should have been dismissed as to them on the ground that the exculpatoryclause in the trust agreements exempted them from all liability. Having not raised thisissue in their motions, it was not addressed by Supreme Court and is unpreserved for ourreview (see CPLR 5501 [a] [3]; O'Connor v Demarest, 74 AD3d 1522, 1524 [2010]). Inany event, the provision in the 1997 trust agreements protecting trustees against personalliability for trust liabilities, debts and obligations is qualified by the provision that"nothing herein shall exempt any Trustee from liability arising out of his own willfulmisconduct, bad faith or gross negligence"; the 2003 trust agreement provides that "noTrustee shall be liable for any mistake of judgment or other action taken or omitted bysuch Trustee in good faith" and that trustees are to be indemnified by the trust if they"acted in good faith and in a manner believed to be in or not opposed to the best interestof the Trust and the Participants." Plaintiff's allegations raised material questions of factas to whether the trustee defendants' conduct was exempted under these contractualprovisions.
Finally, Ransom contends that plaintiff failed to state a cause of action against himfor breach of contract because there was no contract between them. At this proceduraljuncture, we accept the facts as alleged in the complaint as true (see CPLR 3211[a] [7]; Leon v Martinez, 84 NY2d at 87-88). Plaintiff alleged in its complaintthat Ransom was a trustee beginning with the formation of the trust in 1997 through its2007 dissolution, and signed all of the trust agreements. The 1997 trust agreementsprovide that they are between the trustees and participant employers, with participantemployers defined as those who "are accepted as participants in this Trust by theTrustees" and "agree in writing to be bound by the terms" of the trust. In 2001, plaintiffsigned a participation agreement with the trust doing exactly that, becoming a member ofthe trust and agreeing to be bound by the trust agreements. In 2003, Ransom signedanother trust agreement that indicated it was between the trustees and participantemployers and outlined the trustees' duties and obligations to manage and operate thetrust for the benefit of the participant employers. As such, plaintiff sufficiently allegedthat a contract was formed between itself and Ransom as trustee, that it fully performedwhile Ransom failed in numerous respects to fulfill his contractual obligations, and that itsuffered damages as a consequence of Ransom's breach, so as to state a claim for breachof contract (see Clearmont Prop., LLC v Eisner, 58 AD3d 1052, 1055 [2009]). Inthe alternative, plaintiff also has a claim (see Leon v Martinez, 84 NY2d at 88)for recovery as a third-party beneficiary of the foregoing agreements given that "the factsas alleged fit within [that] cognizable legal theory" (Leon v Martinez, 84 NY2dat 87-88; see Mandarin TradingLtd. v Wildenstein, 16 NY3d 173, 182 [2011]; Saratoga SchenectadyGastroenterology Assoc., P.C. v Bette & Cring, LLC, 83 AD3d 1256, 1257[2011]). Thus, Supreme Court correctly denied Ransom's motion for summary judgmentdismissing the breach of contract claim.
Finally, Trombino's appeal from the order denying his motion to reargue must bedismissed, as no appeal lies from the denial of such motion (see People ex rel. Timothy I. v Mr.Campbell, 95 AD3d 1497, 1497 [2012]; Putney v People, 94 AD3d 1193, 1195 [2012], appealdismissed 19 NY3d 1020 [2012]). The trustee defendants' remaining claims havebeen examined and determined to lack merit.
Lahtinen, J.P., Stein and Garry, JJ., concur. Ordered that order and amended orderentered December 19, 2011 are affirmed, with costs. Ordered that the appeal from theamended order entered June 18, 2012 is dismissed.
Footnote *: As Ransom and Jaquithserved answers, they properly framed their motions for dismissal as ones for summaryjudgment (see CPLR 3212) and premised them upon CPLR 3211 (a) groundsthat were asserted in their answers (see Mann v Malasky, 41 AD3d 1136, 1137 [2007]).