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MEADOWBROOK-RICHMAN, INC. v. ASSOCIATED FINANCIAL CORP.

March 27, 2003

MEADOWBROOK-RICHMAN, INC., PLAINTIFF, AGAINST ASSOCIATED FINANCIAL CORP., WILSHIRE INVESTMENT CORP., UNITED HOUSING PRESERVATION CORPORATION, WESTPORT HOUSING CORPORATION, A. BRUCE ROZET AND DEANE EARL ROSS. DEFENDANTS/THIRD-PARTY PLAINTIFFS AGAINST BENJAMIN RICHMAN AND POLAR INTERNATIONAL BROKERAGE CORP. THIRD PARTY DEFENDANTS


The opinion of the court was delivered by: John G. Koeltl, United States District Judge

OPINION AND ORDER

This is a breach of contract action arising under New York law brought by the plaintiff Meadowbrook-Richman, Inc. ("MRI") against various entities including Associated Financial Corp. ("AFC"), Wilshire Investment Corp. ("Wilshire"), United Housing Preservation Corporation ("United Housing"), Westport Housing Corporation ("Westport Housing"), and against two individual defendants, A. Bruce Rozet ("Rozet") and Deane Earl Ross ("Ross"), (collectively "the defendants") to recover damages for the failure to pay for various insurance related services provided by MRI. Jurisdiction is based on diversity of citizenship, pursuant to 28 U.S.C. § 1332 (a)(1). MRI's allegations arise out of the defendants' failure to pay for services provided pursuant to a retainer agreement (the "1995-96 Retainer Agreement") for the year 1995-96 and a second agreement dated July 21, 1991 (the "Claims Adjustment Agreement").

The plaintiff alleges five causes of action in its Second Amended Complaint: (1) a claim for breach of contract based on the 1995-96 Retainer Agreement (Count 1); (2) a claim for breach of contract arising out the Claims Adjustment Agreement (Count 2); (3) a claim for indemnification for the legal fees incurred by MRI in defending against lawsuits resulting from the services MRI provided pursuant to the Claims Adjustment Agreement (Count 3); (4) a claim for account stated (Count 4); and (5) a claim for quantum meruit (Count 5). The defendants have now moved for summary judgment arguing, among other things, that the two contracts are unenforceable because they do not appropriately designate the parties to be charged under the contracts, and do not provide any specifics with respect to the compensation that is to be provided to the plaintiff. In addition, they allege that the contracts are unenforceable because of the criminal conduct of the plaintiff in connection with the provision of the insurance adjustment services at issue in this case. The two individual defendants, Rozet and Ross, have moved for summary judgment on the basis of personal jurisdiction, arguing that they have insufficient contacts with New York.*fn1

The defendants, AFC, Wilshire, United Housing, Westport Housing, Rozet, and Ross (alternatively "third-party plaintiffs"), brought a third-party complaint against Benjamin Richman ("Richman") and Polar International Brokerage Corporation ("Polar") for damages arising out of services provided by Richman, who is now president of MRI and former chairman of Polar, and Polar. The third party complaint alleges fifteen causes of action: (1) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (b), by MRI; (2) violations of RICO, 18 U.S.C. § 1962 (c), by MRI; (3) violations of RICO, 18 U.S.C. § 1962 (a), by MRI; (4) violations of RICO, 18 U.S.C. § 1962 (c) by Richman; (5) RICO violations by Richman and MRI in violation of 18 U.S.C. § 1962 (a), (b), (d); (6) unfair trade practices by MRI, Richman, and Polar; (7) conversion or theft of insurance claim funds; (8) fraud, misrepresentation, and deceit; (9) breach of contract; (10) negligence and professional malpractice; (11) breach of fiduciary duty; (12) misrepresentation;*fn2 (13) spoilation and tampering with evidence; (14) indemnity and contribution; (15) negligence.*fn3 Polar has moved for summary judgment on all of the claims raised by the third-party plaintiffs, arguing, among other things, that Polar cannot be held liable for damages for services provided by Richman, because when those services were being provided by Richman, he was acting on behalf of MRI, not Polar, and any services provided were part of a fraudulent and illegal kickback scheme engaged in between the third-party plaintiffs and Richman, and were not legitimate insurance-related services. In addition, Polar argues that it cannot be held liable for actions of Richman, because any actions taken by Richman were adverse to Polar's interest. For purposes of convenience, the disposition of Polar's motion for summary judgment with respect to the claims by the third-party plaintiffs is discussed after the defendants' motion for summary judgment which seeks dismissal of MRI's complaint.

I.

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). "The trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts that are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998) (collecting cases)

III.

Unless otherwise noted, there is no dispute as to the following facts.

Benjamin S. Richman ("Richman") is the president of MRI. (Aff. of Benjamin S. Richman ("Richman Aff.") sworn to March 13, 2002 at ¶ 1; Dep. of Benjamin Richman dated June 28, 2001 ("Richman Dep.") attached as Exh. 2 to Decl. of Mitchell Rotbert ("Rotbert Decl.") dated April 3, 2002 at 44.) Richman also served as the sole shareholder and director of MRI. (Defs.' Rule 56.1 Stmt. ¶ 2; Richman Dep. attached as Exh. 2 to Rotbert Decl. at 44.) Prior to his affiliation with MRI, Richman was the Chairman of the Board of Polar International Brokerage Corp. ("Polar") (Richinan Aff ¶ 1.) MRI was a licensed insurance broker in New York. (Defs.' Rule 56.1 Stmt. ¶ 3.) Polar and MRI, through a April 28, 1989 agreement, commenced a joint venture through which the two companies agreed to share profits and losses associated with the administration of insurance programs, including programs of partial self-insurance for the insureds that were successfully solicited by either of them. (Defs.' Rule 56.1 Stmt. ¶ 8; Letter dated April 28, 1989 attached as Exh. 8 to Rotbert Decl.)

AFC, along with Wilshire, Wesport Housing, and United Housing were entities under the control of Ross and Rozet. (Richman Aff. ¶ 11.) AFC, Wilshire, Wesport Housing, United Housing, and Ross and Rozet, controlled hundreds of partnership properties that were established under the auspices of the United States Department of Housing and Urban Development ("HUD"). (Richman Aff. ¶ 10-11.) Ross and Rozet entered into an agreement in approximately June 1990 with Lawrence Penn ("Penn") of PL Acquisition, Inc. ("PLA") whereby Penn and PLA were given the right to create and administer the insurance programs for these various HUD partnership properties, which had a combined insured value in excess of $1 Billion. (Id.; Dep. of Stanley Kleckner dated July 27, 2001 attached as Exh. 9 to Rotbert Decl. at 37.) Thus, PLA became designated agent for AFC and the other defendants. (Defs.' Rule 56.1 Stmt. ¶ 14; Richinan Aff. ¶ 2.)

Thereafter, PLA and Richman entered into an agreement whereby Richman was asked to arrange an insurance program to insure the AFC properties. (Id.) Pursuant to a March 5, 1991 Agreement (the "Retainer Agreement") entered into by Richman and PLA, Richman agreed to retain Polar to provide the insurance for the AFC properties and to retain MRI to provide the claims services that would arise from the existence of that coverage. (Richman Aff. ¶ 3; Letter dated March 5, 1991 attached as Exh. A to Richman Aff.) Pursuant to the Retainer Agreement, Richman was to be paid a retainer from which commissions earned by Richman or Polar for providing adjustment services or negotiating insurance contracts would be paid. (Richman Aff. ¶ 21, 24.) Should the actual commissions earned exceed the retainer amount, the excess commissions would be credited against the subsequent year's retainer amount. (Richman Aff. ¶ 24.) Should, however, the actual commissions be less than retainer amount, AFC would still be liable to Richman for the difference. (Id.; Richman Dep. attached as Exh. 13 to Rotbert Decl. at 54.)

This retainer agreement was extended and adjusted every year to account for the costs and fees associated with a particular policy period. (Richman Aff. ¶ 3, 23.) There were agreements drafted for the 1992-93, 1993-94, 1994-95, and 1995-96 policy years. MRI's claim in Count 1 of the Complaint arises out the alleged failure of AFC to pay amounts remaining due pursuant to the 1995-96 extension of the Retainer Agreement. (Am. Compl. ¶ 28-29; Letter dated June 25, 1995 ("1995-96 Retainer Agreement") attached as Exh. B. to Richman Aff.) The June 1995 Retainer Agreement covered the 1995 to 1996 policy year and the retainer to be paid to MRI and Polar was $500,000. (Id.; Richman Aff. ¶ 26; Richman Dep. attached as Exh. 13A to Rotbert Decl. at 53.)

During the 1995-96 policy year, the relationship between Polar and MRI ended. (Richman Aff. ¶ 25; Letter dated October 10, 1995 attached as Exh. 10 to Rotbert Decl.) Polar received $217,000 in brokerage commissions for the year 1995-96, although it had not executed the 1995-96 extension of the original Retainer Agreement. (Richman Aff. ¶ 26; Am. Compl. ¶ 18; Richman Dep. attached as Exh. 13A to Rotbert Decl. at 52-53.) AFC subsequently asked Richman and MRI to fulfill the obligations previously undertaken by Polar, and pursuant to an oral agreement, MRI agreed to do so, in return for being paid the remaining amount due under the 1995-96 Retainer Agreement. (Richman Aff. ¶ 26, 27; Richman Dep. attached as Exh. 13A to Rotbert Decl. at 55-56.) MRI alleges in Count 1 of the Complaint that pursuant to the 1995-96 Retainer Agreement, AFC owes MRI $283,000, which is the difference between the $500,000 retainer amount and the $217,000 in commissions actually earned and paid to Polar. (Id.; Am. Compl. ¶ 18.)

MRI and PLA also negotiated an agreement in July 1991 (the "Claims Adjustment Agreement") whereby MRI agreed to provide a variety of insurance services for the AFC-owned HUD partnerships relating to the handling of their insurance claims. (Richman Aff. ¶ 31; Letter dated July 21, 1991 ("Claims Adjustment Agreement") attached as Exh. C to Richman Aff.) The services to be performed by MRI included reporting claims to relevant claims adjustors, maintaining files and reporting progress on claims to PLA, negotiating claims settlements, and performing various other roles that included, but were not limited to, those performed by a traditional "public claims adjuster." (Richman Aff. ¶ 34, 36.) In Count 2 of its Complaint, MRI seeks to recover $851,381.50 arising out of services provided pursuant to the Claims Adjustment Agreement. (Compl. ¶ 20, 22.) This amount includes work on insurance claims filed for property owned by AFC that was damaged by Hurricane Andrew. (Richman Aff. ¶ 54.)

The plaintiff, the defendants and PLA were involved in illegal contractor kickback schemes that involved, among other things, the filing of excessive damage claims. (See Plea Agreement of Benjamin Richman attached as Exh. 21 to Rotbert Decl; Plea Agreement of Management Assistance Group attached as Exh. 10 to Decl. of Charles Stewart dated May 13, 2002 ("Stewart Decl."); Plea Agreement of PLA attached as Exh. 11 to Stewart Decl.) Richman alleges that he became aware, after entering into the agreement with PLA, that Ross, Rozet, Penn and PLA were generating excessive charges on the portfolio of HUD properties that AFC owned. (Richman Aff. ¶ 60.) After Hurricane Andrew damaged four properties owned by AFC, and controlled by Ross and Rozet, Penn and Richman created the National Development and Consulting Corporation to negotiate the amounts due under their insurance policies. (Richman Aff. ¶ 61-62.) Through this corporation, Richman and MRI engaged in a contractor kick-back scheme to charge excessive fees for the Hurricane Andrew damaged properties that were owned by AFC. (Richman Aff. ¶ 69.) Richman alleges that a portion of these illegal proceeds went to Ross, Rozet and Penn. (Richman Aff. ¶ 63-64, 67.) Richman pleaded guilty to criminal activity regarding the Hurricane Andrew claims. (Richman Aff. ¶ 69.) The Government also charged the defendants with illegal conduct in connection with this and other schemes, and for improperly taking kickbacks and inflating costs for repair of properties damaged by Hurricane Andrew. (Richman Aff. ¶ 69.) Richman alleges that the defendants, along with Penn, were found guilty of committing civil or criminal violations and ultimately agreed to pay over $10 million in penalties and fines for their unlawful conduct. (Richman Aff. ¶ 71.)

IV.

The defendants first seek summary judgment on the plaintiff's claims for breach of contract of the 1995-96 Retainer Agreement and of the Claims Adjustment Agreement. The defendants argue that these contracts do not satisfy New York Ins. Law § 2119(c)(1) because they are not in writing, because they do not specify the party to be charged, and because they do not specify the compensation due to the plaintiff. None of these arguments has merit.

Section 2119(c)(1) provides:

No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.
With respect to the 1995-96 Retainer Agreement, the defendants first argue that AFC and PLA only became liable for the remaining balance due under the 1995-96 Retainer Agreement pursuant to an oral modification of the 1995-96 Retainer Agreement, and contend that such oral contracts are unenforceable because ยง 2119(c)(1) requires that such contracts be in writing. This argument is unavailing because the plaintiff is not seeking to enforce the oral modification of the 1995-96 Retainer Agreement, but ...

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