Court Opinion

ID: 2784254
Source: CourtListenerOpinion
Date Created: 2015-03-05 16:08:03.498654+00
Date Added: 2024-06-11T11:02:56.595267
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: March 5, 2015                     518898
________________________________

NEW YORK STATE WORKERS'
   COMPENSATION BOARD, as
   Administrator of the
   Workers' Compensation Law
   and Attendant Regulations,
   and as Successor in                      MEMORANDUM AND ORDER
   Interest to THE BUILDERS'
   SELF-INSURANCE TRUST,
                    Appellant,
      v

MARSH U.S.A., INC., et al.,
                    Respondents,
                    et al.,
                    Defendants.
________________________________

Calendar Date:   January 8, 2015

Before:   Peters, P.J., Lahtinen, McCarthy and Lynch, JJ.

                             __________

      Annette M. Hollis, New York State Workers' Compensation
Board, Schenectady (Michael Papa of counsel), for appellant.

      Dentons U.S., LLP, New York City (Sandra D. Hauser of
counsel), for Marsh U.S.A., Inc., respondent.

      Damon Morey LLP, Buffalo (Vincent G. Saccomando of
counsel), for Joseph McIvor, respondent.

     John J. Fromen Jr., Buffalo, for Howard Zubin, respondent.

                             __________
                              -2-                518898

Peters, P.J.

      Appeal from an order of the Supreme Court (Platkin, J.),
entered October 18, 2013 in Albany County, which partially
granted certain defendants' motions to dismiss the complaint
against them.

      By a 1998 agreement and declaration of trust (hereinafter
the Trust agreement), The Builders' Self-Insurance Trust
(hereinafter the Trust) was formed by defendants Joseph McIvor,
Richard Bergman and Howard Zubin, as trustees, to act as a group
self-insurance trust, providing mandated workers' compensation
insurance to its members, who are employers in the construction
industry within New York (see Workers' Compensation Law § 50
[3-a]; 12 NYCRR 317.2 [i]; 317.3). Defendants Joseph Guida,
Barrett Greene and Philip LaRocque also served as trustees of the
Trust at various times. Defendant Marsh U.S.A., Inc. became
administrator for the Trust in 2001 and the record contains two
subsequent written administration agreements between the parties,
one effective from January 1, 2006 to September 30, 2006 and the
other effective from October 1, 2007 to September 30, 2008
(hereinafter the October 2007 agreement).

      In October 2006, after the Trust had been operating at a
deficit for several years, plaintiff and the trustees entered
into a consent agreement, the purpose of which was to create a
financial structure through which the Trust would operate at a
break-even point or better for the 2007 fiscal year and beyond.
Despite the agreement, it was subsequently determined that the
Trust would not reach break-even rates and the parties agreed
that the Trust would cease offering coverage as of September 30,
2007. Plaintiff assumed administration of the Trust effective
May 1, 2009 pursuant to 12 NYCRR 317.20.1

    1
        At that time, the Trust was still underfunded and had
less than six months worth of assets available to pay claims and
expenses. A subsequent independent deficit reconstruction and
assessment reflects that the Trust's gross deficit was
approximately $20.4 million as of 2010.
                               -3-                518898

      On November 30, 2012, plaintiff commenced this action in
its capacity as the governmental entity charged with the
administration of the Workers' Compensation Law and attendant
regulations, and as successor in interest to the Trust, alleging
claims for breach of contract and fraud against the trustees, and
claims for breach of contract and unjust enrichment against
Marsh.2 Thereafter, Supreme Court dismissed the complaint
against Greene on statute of limitations grounds, and dismissed
the complaint against LaRocque on jurisdictional grounds.3
Supreme Court also granted the motions of Zubin and McIvor to
dismiss plaintiff's fraud cause of action in its entirety as
against them, but denied their motions to dismiss the breach of
contract cause of action.

      As to Marsh, Supreme Court partially granted its motion to
dismiss, by dismissing the portions of the breach of contract and
unjust enrichment claims that alleged damages prior to November
30, 2006 as time-barred by the applicable statute of
limitations.4 The court further dismissed plaintiff's breach of
contract claims related to the time period of November 2006 to
September 30, 2007, finding no evidence of an agreement between
the parties during that time period. The court, however, denied
Marsh's motion to dismiss plaintiff's claim related to
allegations that Marsh improperly set annual member premiums
during the period of time covered by the October 2007 agreement.
As to plaintiff's cause of action for unjust enrichment, the

     2
        Plaintiff seeks damages in the amount of $20,378,349 from
the trustees, and in the amount of $20,085,973 from Marsh as to
its breach of contract claim and $2,171,624 as to its claim for
unjust enrichment.
     3
        Plaintiff does not appeal the dismissal of the complaint
against Greene and LaRocque.
     4
        Plaintiff does not take issue with the partial dismissal
of the claims on statute of limitation grounds and, thus, has
abandoned any argument related to claims accrued prior to
November 2006 (see HSBC Bank USA, N.A. v Ashley, 104 AD3d 975,
975 n [2013], lv dismissed 21 NY3d 956 [2013]).
                              -4-                518898

court dismissed the portions of the complaint that alleged unjust
enrichment during the time period of the October 2007 agreement,
but denied the motion to dismiss as it pertained to the time
period between November 2006 and September 2007, as well as the
period after the October 2007 agreement expired until May 2009,
when plaintiff took over administration of the Trust. Plaintiff
now appeals.

      We reject plaintiff's contention that Supreme Court erred
in dismissing the fraud cause of action as it relates to claims
brought against Zubin and McIvor on behalf of the Trust members.
As the Trust's successor, "plaintiff stands in the shoes of the
Trust, but, like an assignee, does not obtain any greater rights
than those originally possessed" (State of N.Y. Workers'
Compensation Bd. v Madden, 119 AD3d 1022, 1024 [2014]).
Plaintiff cites to no authority in the Trust agreement, Trust
rules and regulations or the indemnity agreement under which, as
the Trust's successor, it could bring an action on behalf of the
Trust's members. Nor does it have such authority in its capacity
as the governmental entity charged with the administration of the
Workers' Compensation Law.5 Accordingly, Supreme Court properly
dismissed plaintiff's claims brought on behalf of the Trust
members.

    5
        Members of the Trust and plaintiff may each bring a cause
of action against the trustees for the funding deficits under
these circumstances, given the trustees' common-law duty to the
members and plaintiff to maintain adequate reserves in the Trust
(see 12 NYCRR 317.9; State of N.Y. Workers' Compensation Bd. v
Madden, 119 AD3d at 1025; Murray Bresky Consultants, Ltd v New
York Compensation Manager's Inc., 106 AD3d 1255, 1258-1259
[2013]). Notably, both by statute and the terms of the Trust
agreement, members are jointly and severally liable for all
liabilities of the Trust, including funding deficits, and
plaintiff may levy assessments against the members in order to
make up the deficiency (see Workers' Compensation Law § 50 [3-a]
[3]; State of N.Y., Workers' Compensation Bd. v A & T Healthcare,
LLC, 85 AD3d 1436, 1437 [2011]).
                              -5-                518898

      As to plaintiff's remaining fraud claims brought on behalf
of the Trust itself, the elements of a fraud claim are "a
misrepresentation or a material omission of fact which was false
and known to be false by [the] defendant, made for the purpose of
inducing the other party to rely upon it, justifiable reliance of
the other party on the misrepresentation or material omission,
and injury" (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421
[1996]; accord Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173,
178 [2011]; see Eurycleia Partners, LP v Seward & Kissel, LLP, 12
NY3d 553, 559 [2009]; DerOhannesian v City of Albany, 110 AD3d
1288, 1292 [2013], lv denied 22 NY3d 862 [2014]). In the
complaint, plaintiff alleged that the trustees falsely
represented that they were capable of managing the Trust funds
and overseeing the administration of the Trust and that Zubin and
McIvor, as officers of the third-party Niagara Frontier Builders'
Association (hereinafter NFBA), received compensation for
performing their duties as trustees in the form of commissions
paid to the NFBA for every member of NFBA who joined the Trust,
despite the specific representation in the Trust agreement that
the trustees were not to be compensated. Significantly,
plaintiff likewise contends in its breach of contract claim that
the trustees failed to perform their duties, or negligently and
improperly performed their duties, under the Trust agreement and
failed to prevent inherent conflicts of interest. Inasmuch as a
cause of action for fraud does not arise where the "alleged fraud
relates directly to plaintiff's cause of action for breach of
contract" (Brumbach v Rensselaer Polytechnic Inst., 126 AD2d 841,
843 [1987]; see Kosowsky v Willard Mtn., Inc., 90 AD3d 1127, 1129
[2011]; Salvador v Uncle Sam's Auctions & Realty, 307 AD2d 609,
611 [2003], lv dismissed 1 NY3d 566 [2003]), Supreme Court
properly dismissed this portion of the fraud claim as being
directly related to plaintiff's breach of contract claim.
Finally, plaintiff's allegation that McIvor committed fraud by
directing the Trust's bank to release NFBA property being held as
collateral against a $750,000 line of credit, which was acting as
a security deposit made by the Trust pursuant to Workers'
Compensation Law § 50 (3-a) (2) (b), does not allege any false
misrepresentation or material omission of fact made to the Trust
(see Mariano v Fiorvante, 118 AD3d 961, 962 [2014]). Therefore,
dismissal of this part of the fraud claim was also proper.
                              -6-                518898

      Turning to plaintiff's breach of contract cause of action,
the issues on appeal are limited to the dismissal of the
complaint as it relates to allegations that Marsh improperly
calculated member premiums by failing to adjust each member's
experience modification rate and by providing improper discounts,
and was derelict in its duty to evaluate new membership
applications. Inasmuch as the record reflects that member
discounts were discontinued in October 2006, Supreme Court
properly dismissed this claim. Further, plaintiff's claim that
Marsh breached its contractual duty to evaluate new membership
applications under the October 2007 agreement was also properly
dismissed, inasmuch as the terms of that agreement did not
require Marsh to make such evaluations.

      Supreme Court also dismissed plaintiff's claim that Marsh
breached a contractual duty to evaluate new membership
applications and to adjust member experience modification rates
and calculate premiums accordingly during the time period of
November 2006 to October 2007, citing the lack of an agreement
between the parties for that time. Notably, although Marsh
argued before Supreme Court and this Court that there was no
agreement concerning that time period, Marsh has subsequently
informed this Court that such a written agreement has been
discovered.6 In light of this information, dismissal of these
claims for lack of an agreement is improper (see CPLR 3211 [a]
[1], [7]). Finally, Supreme Court properly dismissed plaintiff's
cause of action for unjust enrichment based upon damages
allegedly occurring during the time period covered by the October
2007 agreement (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co.,
70 NY2d 382, 388 [1987]; M/A-Com, Inc. v State of New York, 78
AD3d 1293, 1293-1294 [2010]).

    6
        To the extent that a gap of one month – September 2007 –
may exist between the end of this newly-discovered agreement and
the October 2007 agreement, we cannot conclude, as a matter of
law, that no implied contract existed for that brief time period
(see Matter of Pache v Aviation Volunteer Fire Co., 20 AD3d 731,
732-733 [2005], lv denied 6 NY3d 705 [2006]; Matter of Boice, 226
AD2d 908, 910 [1996]).
                              -7-                  518898

     Lahtinen, McCarthy and Lynch, JJ., concur.

      ORDERED that the order is modified, on the law, without
costs, by reversing so much thereof as granted that part of the
motion by defendant Marsh U.S.A., Inc. to dismiss the breach of
contract claim that alleged a failure to properly adjust
experience modification rates and calculate member premiums from
November 30, 2006 to October 1, 2007; motion denied to that
extent; and, as so modified, affirmed.

                             ENTER:

                             Robert D. Mayberger
                             Clerk of the Court