alleged that the public relied on the insurers' alleged
misrepresentations, or that their misrepresentations were intended to
induce the public to rely on them.
Plaintiffs in Gaidon alleged that their insurers "lured them into
purchasing policies" by making misleading promises. 94 N Y2d at 344. The
court held that this activity constituted a deceptive act or practice and
upheld plaintiffs' section 349 claim. See id. at 345-48. The critical
difference here is that Sichel has not alleged that the insurers made
false promises intended to "lure [consumers] into purchasing policies."
Id. at 344. Rather, he alleges that the insurers created false reports
which they then used to cancel existing policies. The "scheme" alleged in
the Complaint involved only contractual breaches made in bad faith.
Sichel has failed to state a claim for relief under section 349 of the
GBL. Accordingly, defendants' motion to dismiss Sichel's fourth claim is
C. Plaintiff's Request to Amend His Complaint
Sichel requests the opportunity to file an amended complaint "to make
out a claim in accordance with Acquista."*fn4 Memorandum of Law in
Opposition to Defendant's Motion for Partial Dismissal Pursuant to Rule 12
(c) ("Pl. Opp.") at 8. A complaint may be amended after an answer has
been filed "only by leave of the court;" this leave shall be "freely
granted when justice so requires." Fed. R. Civ. P. 15(a).
As previously discussed, Acquista does not allow a plaintiff to allege
an independent cause of action based on bad faith denial of coverage; it
simply allows a plaintiff to seek consequential damages in addition to
compensatory damages in a breach of contract claim. See 730 N.Y.S.2d at
278-79. Nor does any other New York case hold that Sichel may maintain an
independent cause of action for bad faith breach of contract. Dismissal
of a claim without leave to amend is appropriate "if the amendment would
be futile." O'Hara v. Weeks Marine, Inc., No. 00-7872, 2002 WL 483539, at
*10 (2d Cir. Apr. 1, 2002). "An amendment to a pleading will be futile if
a proposed claim could not withstand a motion to dismiss pursuant to Rule
12(b)(6)." Dougherty v. Town of N. Hempstead Bd. of Zoning
282 F.3d 83, 88 (2d Cir. 2002). Amending Sichel's complaint to state a
bad faith denial of coverage claim would be futile because there is no
such claim under New York law. Therefore, permission to amend this count
is denied and the second claim is dismissed with prejudice.
As for the fourth claim, Acquista itself adds nothing new to the law
governing section 349. In that case, the court simply found that
plaintiff had properly stated a cause of action under section 349. See
Acquista, 730 N.Y.S.2d at 279. Sichel has not. This failure of pleading
does not mean, however, that he will never be able to allege a violation
of section 349. He may be able to allege conduct that is consumer
oriented and then describe a scheme centered on deceptive acts or
practices. See Gaidon, 94 N.Y.2d at 344. To do so, however, he must set
forth "specific" and "detailed" allegations supported by the requisite
facts. Friedl, 210 F.3d at 86. Mere conclusory allegations of a broad,
consumer-oriented scheme will not be enough. Id. While Sichel's request
to amend his complaint as to his fourth claim is granted, he must comply
with the strictures of Rule 11 in framing that complaint.
D. Defendants' Request for Rule 11 Sanctions
Defendants additionally request that this court impose sanctions for
attorneys' fees and expenses pursuant to Rule 11(b)(3) for the costs of
this motion. Rule 11(b)(3) is violated where a party falsely represents
to the court that "the allegations and other factual contentions [he has
made] have evidentiary support or, if specifically so identified, are
likely to have evidentiary support after a reasonable opportunity for
further investigation or discovery." Fed. R. Civ. P. 11(b)(3). Rule 11
(b)(3) sanctions are not imposed "`unless a particular allegation is
utterly lacking in support.'" In re Highgate Equities, Ltd., 279 F.3d 148,
154 (2d Cir. 2002) (quoting O'Brien v. Alexander, 101 F.3d 1479 (2d Cir.
1996)). Courts generally look for "direct falsehood" in "a filing. Chum
Ltd. v. Lisowski, No. 98 Civ. 5060, 2001 WL 243541, at *14 (S.D.N.Y.
Mar. 12, 2001).
Sichel comes very close to this line with his second claim. He has
misread Acquista and cites it as support for a cause of action that it
clearly rejects. See 730 N.Y.S.2d at 278 ("[P]laintiff's cause of action
alleging bad faith conduct on the part of the insurer cannot stand as a
distinct tort cause of action."). His legal theory, however, is not
frivolous. The Acquista court recognized the "inadequacy of contract
remedies where an insurer purposefully declines or avoids a claim without
a reasonable basis for doing so," and noted that "a majority of states
have responded to this need . . . by adopting a tort cause of action . . .
where an insurer has used bad faith in handling a policyholder's
claim." Id. at 276. Moreover, "[o]ther states, troubled by imposing upon
insurance companies a tort duty in such circumstances, have instead
expanded the scope of contract remedies to encompass more than just the
policy limits." Id. at 277. In all, Acquista identifies thirty-one states
that have recognized some form of additional relief for plaintiffs
subjected to bad faith denials of coverage. See id. at 276-78. Acquista
also declared "the need for [an additional imposition] of damages to be
apparent. The problem . . . has apparently become widespread enough to
prompt most states to respond with some sort of remedy for aggrieved
policyholders." See id. at 278. Sichel's claim therefore is not "`utterly
lacking'" in support. In re Highgate Equities, 279 F.3d at 154.
Nor are sanctions appropriate for failure to state a cause of action in
Sichel's fourth claim. Sichel failed to properly allege a violation of
section 349 of the GBL
and offered no evidentiary support for such a
violation. This does not mean, however, that he will never be able to
properly state such a claim or offer support for it. Rule 11 sanctions
should be imposed with caution, "even where the violation is clear."
Chauvet v. Local 1199, Drug, Hosp., & Health Care Employees Union, No. 96
Civ. 2934, 1996 WL 665610, at *17 (S.D.N.Y. Nov. 18, 1996). Sichel is
permitted to file an Amended Complaint on this count; sanctions at this
time would be premature.
Unum and Paul Revere's motion to dismiss Sichel's second and fourth
claims is granted. Sichel's request to amend his complaint is denied in
part and granted in part. Defendants' request for sanctions is denied. A
status conference is set for May 21, 2002, at 4:30 p.m.