13-466-cv JMM Properties, LLC v. Erie Insurance Co. 

### UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL. At a stated term of the United States Court of Appeals for the Second Circuit, held at the 1 Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 2 12 thday of December, two thousand thirteen. 3 4 5 PRESENT: D EBRA A NN L IVINGSTON , 6 R AYMOND J. L OHIER , J R ., 7 Circuit Judges, 8 S IDNEY H. S TEIN , * 9 District Judge. 10 11 12 13 JMM P ROPERTIES , LLC, 14 15 Plaintiff-Appellant , 16 17 -v- No. 13-466-cv 18 19 E RIE I NSURANCE C OMPANY , 20 21 Defendant-Appellee

. 22 23 24 H ARRY A. C UMMINS (Donald R. Gerace, Law Offices 25 of Donald R. Gerace, Utica, NY, on the brief ), 26 Wilkofsky, Friedman, Karel & Cummins, New York, 27 NY, for Plaintiff-Appellant

. 28

* The Honorable Sidney H. Stein, of the United St ates District Court for the Southern District of New York, sitting by designation.1 M ARCO C ERCONE , Rupp, Baase, Pfalzgraf, 2 Cunningham & Coppola LLC, Buffalo, NY, for 3 Defendant-Appellee

. 4 5

6 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND 7 DECREED that the judgment of the district court is AFFIRMED

. 8 Plaintiff-Appellant JMM Properties, LLC (“JMM” ) appeals from a judgment of the United 9 States District Court for the Northern District of New York (Suddaby, J. ), entered January 14, 2013. 10 The district court granted summary judgment on the motion of Defendant-Appellee Erie Insurance 11 Company (“Erie”), based on the criminal conduct of one of JMM’s managing members, Jeffrey E. 12 Truman, Sr. (“Truman”). The facts and procedural history of Truman’s criminal case are set out in 13 a previous opinion of this Court, which reinstated a federal jury’s guilty verdict against Truman for 14 arson, mail fraud, and use of firein the commission of a felony. See United States v. Truman , 688 15 F.3d 129, 134-38 (2d Cir. 2012). This action arises from JMM’s claim for insurance indemnification 16 on the building whose arson was the genesis of the criminal case. We assume the parties’ familiarity 17 with the underlying facts, the procedural history of the case, and the issues on appeal. 18 I. Binding Authority 19 First, the district court correctly held that Truman’s submission of a fraudulent insurance 20 claim was binding on JMM. Under both the limited liability company (“LLC”) operating agreement 21 adopted by JMM (the “Operating Agreement”) and the New York Limited Liability Company Law 22 (“LLC Law”), Truman had the power to bind JMM. Under the Operating Agreement, Truman is 23 named a managing member and thereby “given the authority to bind the Company” in matters that 24

2squarely include the submission of a claim on fire insurance for the main asset managed by the 1
LLC. 1 2 The LLC Law confirms that Truman’s acti ons in submitting the insurance claim were 3 binding on JMM. Pertinently, the law states: 4 [T]he act of every manager, including the execution in the name of the limited liability 5 company of any instrument, for apparently carrying on in the usual way the business of the 6 limited liability company binds the limited liability company, unless (A) the manager acting 7 has in fact no authority to act for the limited liability company in the particular matter and 8 (B) the person with whom he or she is dealing has knowledge of the fact that the manager 9 has no such authority. 10 11 N.Y. Ltd. Liab. Co. Law § 412(b)(2). Even if Truman lacked actual authority to commit fraud, the 12 LLC Law makes clear that his ac tions were binding on JMM as long as he had apparent authority: 13
i.e. , that he acted “apparently carrying on in the usual way the business of the limited liability 14 company.” Id. ; see also Merrell-Benco Agency, LLC v. HSBC Bank USA , 799 N.Y.S.2d 590, 592 15 (App. Div. 3d Dep’t 2005) (“[A] party lender may assume that a member of a member-managed 16 LLC has the authority to bind the LLC.”); cf. Goldston v. Bandwidth Tech. Corp. , 859 N.Y.S.2d 651, 17 655 (App. Div. 1st Dep’t 2008) (stating, in the context of a corporation, that “an agreement entered 18 into within the exercise of a corporate officer’s apparent authority is binding on the corporation 19 without regard to the officer’s lack of actual au thority”). Because Truman was one of the managing 20 members of the LLC and had the apparent authorityto submit the insurance claim in question, that 21 action was binding on JMM. 22

1 The Operating Agreement grants Truman the power to do “all things necessary or convenient to carry out the business and affair s of the Company,” including “conduct[ing] the Company’s business . . . and exercis[ing] the pow ers of the Company”; “purchas[ing] liability and other insurance to protect the Company’s business and Property”; and “execut[ing], acknowledg[ing] and deliver[ing] any and all instrume nts to effectuate the foregoing.” The business of the company in question is defined, inter alia , as “own[ing] . . . manag[ing], financ[ing],” and “otherwise operat[ing] the Asset” – i.e. , the property in question.
3Under the terms of JMM’s insurance policy with Erie (the “policy”), the submission of a 1 fraudulent insurance claim negates coverage. The “New York Changes – Fraud” policy 2 endorsement states that no coverage will be provide d “for any insured . . . who has made fraudulent 3 statements or engaged in fraudulent conduct in c onnection with any loss . . . or damage for which 4 coverage is sought under this policy.” J.A. 105. The “Commercial Property Conditions” section 5 of the policy states that the policy “is void in any case of fraud by you as it relates to this Coverage 6 Part at any time.” Id. at 99. The language of the policy clearly encompasses JMM’s claim on the 7 policy, signed by Truman, for the damage cause d by the arson, and accordingly precludes JMM’s 8
recovery. 9 Our determination comports with general princi ples of agency law, which establish that “a 10 principal is liable to third partie s for the acts of an ag ent operating within the scope of his real or 11 apparent authority.” Citibank, N.A. v. Nyland (CF8) Ltd. , 878 F.2d 620, 624 (2d Cir. 1989); see 12 also Adler v. Helman , 564 N.Y.S.2d 828, 830 (App Div. 3d Dep’t 1991) (“A principal is liable for 13 the fraudulent acts of his agent committed within the scope of his authority . . . .”). The rationale 14 for this rule is well established: 15 [T]he principal, by virtue of its ability to select its agents and to exercise control over them, 16 is in a better position than third parties to prevent the perpetration of fraud by such agents 17 through the misuse of their positions. Thus, th e principal should not escape liability when an 18 innocent third person suffers a loss as the result of an agent’s abuse, for his own fraudulent 19 purposes, of the third person’s reasonable relian ce on the apparent authority with which the 20 principal has invested the agent. Stated otherwise, “as between two innocent parties the one 21 who has allowed the fraud to be perpetrated should bear the loss.” 22 23 Parlato v. Equitable Life Assurance Soc’y , 749 N.Y.S.2d 216, 221 (App. Div. 1st Dep’t 2002) 24 (citations omitted). Accordingly, JMM’s insurance claim is barred, and summary judgment was 25 properly granted to Erie. 2 26

2Because this ground is sufficient to affirm th e judgment of the district court, we need not reach the question of whether Truman’s criminal conduct can be imputed to JMM.
4II. Issues of Material Fact 1 JMM also argues that the district court made determinations on issues of material fact in its 2 decision granting Erie’s motion for summary judgmen t. We disagree. The only facts on which the 3 district court needed to rely were (1) the crimin al judgment, which conclusively proves that Truman 4 committed the arson and resulting insurance fraud; 3 (2) Truman’s undisputed status as a managing 5 member of JMM and his apparent authority to conduct business related to JMM’s insurance policy 6 with Erie; and (3) Truman’s submission of a claim on the policy after committing arson on the 7 building in question. No disputed facts needed to be decided to support the resolution of this case. 4 8 We have considered all of Plaintiff-Appellant’s remaining arguments and find them to be 9 without merit. For the foregoing reasons, th e judgment of the district court is hereby AFFIRMED

. 10
FOR THE COURT: 11 Catherine O’Hagan Wolfe, Clerk 12 13

3 See Singleton v. City of New York , 632 F.2d 185, 205 (2d Cir. 1980) (noting that under New York law, a criminal conviction is “conclusive pr oof” of a fact for purposes of a later civil suit (citing S.T. Grand, Inc. v. City of New York , 298 N.E.2d 105 (N.Y. 1973))). 4JMM also requests that we certify the questions of state law discussed above to the New York Court of Appeals. We decline to do so, as our decision follows from established New York statutory and decisional law. 5