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KEENEY v. KEMPER NAT'L INS. COS.

April 23, 1997

ROBERT KEENEY and THE WILLIAM J. HOFMANN AGENCY, INC., Plaintiff, against KEMPER NATIONAL INSURANCE COMPANIES, LUMBERMENS MUTUAL CASUALTY COMPANY, AMERICAN MOTORISTS INSURANCE COMPANY, AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY and AMERICAN PROTECTION INSURANCE COMPANY, Defendants.


The opinion of the court was delivered by: SPATT

 SPATT, District Judge.

 This case was commenced by the plaintiffs Robert F. Keeney ("Keeney") and The William J. Hofmann Agency, Inc. ("Hofmann') or (collectively the "plaintiffs") against the defendants Kemper National Insurance Companies, Lumbermens Mutual Casualty Company, American Motorists Insurance Company, American Manufacturers Mutual Insurance Company and American Protection Insurance Company ("Kemper" or the "defendants") based on the alleged illegal termination of the Agency Agreement (the "Agreement") by the defendants. The letter terminating the agreement was received by the plaintiffs on or about June 1, 1995 with an effective date of December 1, 1995.

 In their Complaint, the plaintiffs allege fifteen causes of action as follows: Count 1 - Violation of the Fair Housing Act, 42 U.S.C. § 3604; Count 2 - Fraudulent Misrepresentation (Fraud in the Inducement); Count 3 - Fraudulent Misrepresentation; Count 4 - N.Y. Gen. Bus. Law §§ 349 & 350 Unfair and Deceptive Trade Practices; Count 5 - Insurance Law §§ 3425 & 3429 Unfair Trade Practices; Count 6 - Breach of Contract (Wrongful Termination); Count 7 - Breach of Contract of Good Faith and Fair Dealing; Count 8 - New York Franchise Act Violation (Fraud); Count 9 - New York Franchise Act Violation (Wrongful Termination); Count 10 - Discrimination Under N.Y.S. Executive Law Article 15; Count 11 - Tortious Inference with Contract; Count 12 - Tortious Inference with Prospective Business Advantage; Count 13 - Defamation; Count 14 - Defamation (Compelled Self-Publication); Count 15 - Discrimination Under N.Y.S. Civil Rights Law §§ 40-c & 40-d.

 A review of the Complaint reveal that it is the classic illustration of the so-called "SHOTGUN" method of pleadings. The defendants now move to dismiss the Complaint for failure to state a claim upon which the Court can grant relief pursuant to Fed.R.Civ.P. 12(b)(6).

 I. BACKGROUND

 The plaintiff William J. Hofmann Agency is a corporation organized and existing under the laws of the State of New York, with its place of business in Massapequa, New York. Hofmann has been in the business of selling property and casualty insurance since 1926. In or about 1966, Francis C. Keeney joined the agency as a producer of property and casualty insurance. Approximately one year later, he purchased the Agency. In 1969, Francis C. Keeney incorporated the business as William J. Hofmann Agency, Inc. In 1978, Francis Keeney's son, the plaintiff, Robert F. Keeney, joined the firm.

 On or about October 1, 1981, Hofmann entered into an Agency Agreement with Kemper. Pursuant to the Agreement, Hofmann was authorized to solicit several types of insurance. Under the terms of the agreement, Hofmann was authorized to bind the defendants only to the extent specific authority was granted by the defendants. In the agreement, the defendants retained exclusive and absolute control over the underwriting and acceptance of all policies generated under the agreement. During the fourteen years between 1981 and 1995, Hofmann apparently generated a large volume of business for the defendants and experienced substantial growth and success.

 On or about June 1, 1995, the plaintiffs received a letter from Joseph L. Kondratowicz, the Northeast Region Personal Lines Manager for Kemper, advising them that, effective December 1, 1995, Kemper was exercising its termination rights under the Agreement due to an "unacceptable loss ratio." On June 6, 1996, the plaintiffs commenced this lawsuit to recover damages as a result of the defendants alleged illegal termination of the Agreement. The defendants now move to dismiss all of these causes of action for failure to state a claim upon which the Court can grant relief pursuant to Fed.R.Civ.P. 12(b)(6).

 II. DISCUSSION

 As to the standard guiding the Court's determination of the defendants' motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears 'beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief'". Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985)(quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)); see also Intern. Audiotext Network, Inc. v. AT&T, 62 F.3d 69, 71 (2d Cir. 1995). The Second Circuit stated that in deciding a Rule 12(b)(6) motion a Court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken". Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993); see also Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 503 U.S. 960, 112 S. Ct. 1561, 118 L. Ed. 2d 208 (1992).

 It is not the Court's function to weigh the evidence that might be presented at a trial, the Court must merely determine whether the complaint itself is legally sufficient, see Goldman, 754 F.2d at 1067, and in doing so, it is well settled that the court must accept the allegations of the complaint as true, see LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991); Procter & Gamble Co. v. Big Apple Indus. Bldgs, Inc., 879 F.2d 10, 14 (2d Cir. 1989), cert. denied, 493 U.S. 1022, 107 L. Ed. 2d 743, 110 S. Ct. 723 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Doe v. City of New York, 15 F.3d 264, 266 (2d Cir. 1994). "'The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995)(quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974).

 The Court is mindful that under the modern rules of pleading, a plaintiff need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief", Fed. R. Civ. P. 8(a)(2), and that "all pleadings shall be so construed as to do substantial justice". Fed. R. Civ. P. 8(f).

 It is within this framework that the Court addresses the present motion to dismiss the complaint as to all causes of action.

 1. The plaintiffs' causes of action

 A. Count I - Fair Housing Act 42 U.S.C. § 3604

 Section 3604 of the Fair Housing Act ("FHA") provides in pertinent part as follows:

 
it shall be unlawful-
 
(b) To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.

 To establish a prima facie case of discrimination in violation of the FHA, the plaintiffs need to prove (1) that they are members of a protected class, (2) the plaintiffs sought and were qualified to rent or purchase an apartment or dwelling, (3) the plaintiff were denied the opportunity to rent or purchase the apartment or dwelling, and (4) the apartment or dwelling remained available thereafter. See Cabrera v. Jakabovitz, 24 F.3d 372, 381 (2d Cir. 1994).

 In this case, the plaintiffs allege that the "Agreement was terminated because of Plaintiff's age, Keeney's age, forty-three (43) [years old]." The plaintiffs also allege that the "Agreement was wrongfully terminated because of the geographical discrimination against the Long Island insurance market." Pl. Compl. at p. 7. Moreover, the plaintiffs claim that "Defendants' wrongful termination of the Agreement resulted in disparate impact discrimination in violation of the FHA on the basis of race, national origin, familial status, age and/or gender."

 The defendants contend that the plaintiffs' allegations based upon age and geography do not state a claim under the FHA, as the statute does not prohibit discrimination on these grounds. In addition, the defendants assert that the plaintiffs have not alleged that any person belonging to a protected class has been discriminated against in the sale or rental of a dwelling. According to the defendants, the Complaint only discusses these issues in a "vague and conclusory laundry list" of alleged discrimination against unnamed "others". The defendants maintain that conclusory allegations cannot survive a motion to dismiss because any complaint asserting a civil rights violation must make specific factual allegations indicating a deprivation of rights protected by the statute. The defendants claim that a complaint consisting of nothing more than naked assertions, and setting forth no facts upon which a Court could find a violation of the Civil Rights Act, fails to state a claim under 12(b)(6).

 In the Court's view, the issue of whether the FHA is applicable to the insurance industry in this manner need not be decided by this Court at this time. The more relevant issue is whether the claim under the FHA can be sustained in any event. The Court finds that the FHA is not applicable to this matter. This cause of action fails because age and geographical discrimination are not within the scope of the FHA, and therefore, such a claim is not actionable. Also this Court does not believe this cause of action can be sustained because no sale or rental of a dwelling is involved.

 
TERMINATION OF AGREEMENT
 
7. This Agreement may be terminated by Company giving not less than 180 days notice to Agent or by Agent giving notice to Company at any time, provided nevertheless,
 
(a) the Agreement shall terminate immediately:
 
(i) without notice in the event the Agent's license or authorization to engage in the insurance business is terminated or suspended by public authority;
 
(ii) Upon either party giving written notice to the other in the event of abandonment, fraud, insolvency, or gross and willful misconduct on the part of such other party.

 In the Court's view, this clause permits the defendants to terminate the Agreement on not less than 180 days notice or immediately without notice, in the contingencies set forth in subparagraphs (i) or (ii). That the defendants gave a reason, namely, "unacceptable loss ratios", does not transform the termination into a for cause separation. It is undisputed that the defendants gave notice of their intent to terminate the Agreement to the plaintiffs on June 1, 1995 with an effective date of December 1, 1995 thereby providing more than the requisite 180 days notice. The Court finds the defendants acted in compliance with clause seven in the Agreement and the Agreement was effectively terminated. Therefore, the defendants were within their right to terminate the Agreement and, in any event, this cause of action based on the Fair Housing Act is dismissed.

 Within the context of a Fed.R.Civ.P. 12(b)(6) motion, the Court notes that it is constrained to only address the pleadings, namely, the Complaint in this matter. However, in this matter, the Complaint is premised almost entirely on the Agency Agreement and therefore the Court considers it integral to the Complaint and it will be considered part of the pleadings for purposes of this motion to dismiss. See International Audiotext Network, Inc v. AT & T Co., 62 F.3d 69, 72 (2d Cir. 1995)("when a plaintiff chooses not to attach to the complaint or incorporate by reference a [document] upon which it solely relies and which is integral, to the complaint." the court may nevertheless take the document into consideration in deciding the defendant's motion to dismiss, without converting the proceeding to one for summary judgment).

 B. Count II - Fraud in the Inducement

 As to the second cause of action based on fraud in the inducement, in order to state a claim for fraud, there must be (1) a representation of fact, (2) which is either untrue and known to be untrue or recklessly made, (3) which is offered to deceive the other party and (4) to induce them to act upon it, (5) causing injury. See Jo Ann Homes v. Dworetz, 25 N.Y.2d 112, 119, 302 N.Y.S.2d 799, 803, 250 N.E.2d 214 (1969).

 The plaintiffs' claim that they relied upon the representations regarding the bases and procedures for termination of the Agreement and the responsibilities and obligations of the respective parties, as specified in clause seven of the Agreement. Pl.'s Compl. at PP 27-28. The plaintiffs allege that they were induced to enter into, and perform in reliance of the terms of the Agreement and that at the time these material representations were made, the defendants knew that they were false and intended to induce the plaintiffs to rely and act upon them resulting in injuries. In particular, the plaintiffs claim that clause seven identified the reasons for which the Agreement could be terminated for cause by an Act or omission of the plaintiff namely, public authority termination or suspension of the plaintiffs' license, plaintiff's abandonment, fraud insolvency, or gross and willful misconduct, and the plaintiff's failure to pay money owed to the defendants.

 According to the plaintiff, the parties specifically excluded "loss ratios" from the enumerated list in the Agreement for which they could be terminated for cause, and instead the defendants accepted and reserved full responsibility for "loss ratios" in clause 12 of the Agreement, by reserving exclusive underwriting responsibilities and the "absolute right to decline to accept any insurance application or to cancel any and all insurance that may be written hereunder."

 In addition, the defendants maintain that the plaintiffs have not alleged facts that give rise to an inference of fraudulent intent. According to the defendants, conclusory speculative allegations of fraud is not a basis for a cause of action. Kemper alleges that the plaintiffs rely on their standard conclusory allegation failing to comply with the pleading requirements of the Federal Rules of Civil Procedure.

 As discussed above, the Court finds that the defendants had the absolute contractual right to terminate the Agreement by giving not less than 180 days notice to the plaintiff, and therefore, were in compliance with the Agreement. Further, there are insufficient allegations of fraud in the inducement, as a matter of law. The motion to dismiss Count II is granted.

 C. Count III - Fraudulent Misrepresentation

 With regard to Count III, the plaintiffs claim that on or about June 1, 1995 and again on or about October 1, 1995, the defendants improperly and wrongfully attempted to terminate the Agreement by identifying loss ratios, exclusively resulting from the defendants' underwriting and acceptance practice, as the reason for terminating the Agreement.

 In response, the defendants claim that the plaintiffs do not allege any facts to support the allegation that they were induced to act on the basis of this supposed misrepresentation. According to the defendants, the plaintiffs also do not explain how they relied "to their detriment" on the alleged misrepresentation concerning the reason for terminating the Agreement. The defendants contend that this count fails because the plaintiffs do not allege that they have taken a single action in reliance upon Kemper's stated reasons for terminating the Agreement. The plaintiffs vaguely assert that Kemper induced them to act on its reasons for terminating the Agreement, and do not identity what acts were taken in reliance upon this "misrepresentation," or what injury they suffered.

 In the Court view, as discussed above, the defendants had the absolute unconditional right to terminate the Agreement by giving not less than 180 days notice to the plaintiff, and therefore, were in compliance with the Agreement. Again, the plaintiffs failed to allege a cause of action for fraudulent misrepresentation. This is essentially a breach of contract action, in which the fraud, if there be any, is subsumed. The defendants' motion to dismiss Count III is granted.

 D. Count IV - New York General Business Law §§ 349 & 350 Unfair and Deceptive Trade Practice

 Count IV of the Complaint alleges that the defendants violated New York General Business Law section 349-350. Section 349(a) provides:

 
Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this State are hereby declared unlawful.

 As this Court noted in Tinlee Enters v. Aetna Casualty & Surety Co., 834 F. Supp. 605 (E.D.N.Y. 1993), "'the typical violation contemplated by the statute involves an individual consumer who falls victim to misrepresentations made by a seller of consumer goods ...


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