United States District Court, S.D. New York
January 5, 2004.
HIGHLANDS INSURANCE CO., Plaintiff and Counterclaim Defendant, -against- PRG BROKERAGE, INC., PROMPT CLAIMS SERVICE, INC. and LAWRENCE W. BLESSINGER, Defendants, Counterclaim Plaintiffs and Third Party Plaintiffs, -against- HIGHLANDS INSURANCE COMPANY, Counterclaim Defendant, -and- WILLIS T. KING, Third Party Defendant
The opinion of the court was delivered by: GEORGE DANIELS, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, an insurance company, brought this twelve count action
against defendants alleging violations of RICO, fraud, and pendent state
law claims in connection with plaintiffs agreement to provide commercial
automobile insurance to certain livery drivers in New York City.*fn1
Defendants joined Willis T. King as a third party defendant, and
counterclaimed against both plaintiff and King, alleging RICO violations,
as well as breach of contract, and other pendent state law claims. The
parties then filed cross-motions to dismiss.*fn2 For the following
reasons, defendants' motion to dismiss the complaint is granted and
the complaint is hereby dismissed in its entirety. Highlands' motion to
transfer venue as to the claims against King is denied. Highlands'
partial motion to dismiss the counterclaims is granted.*fn3
Plaintiff Highlands Insurance Co. ("Highlands") is in the business of
providing commercial property and casualty insurance to regional small
business markets. Third party defendant Willis T. King is the CEO of
Highlands. Defendant PRG Brokerage Inc. ("PRG") is an insurance broker in
New York, and defendant Lawrence Blessinger is the CEO of PRG. Aramarine
Brokerage, Inc. ("Aramarine") is also an insurance broker in New York.
Silver Car Purchasing Group, Inc. ("Silver Car") is a risk purchasing
group for livery car drivers in New York City. Silver Car is organized by
Aramarine. Defendant Prompt Claims Services ("PCS") is a claims handler
that, inter alia, conducts investigations relating to auto accident
In or about 1999, Highlands agreed to provide insurance to livery car
drivers in New York City through Silver Car. Around January 26, 2000,
Highlands executed 13 different binders of insurance for 13 group
policies to Silver Car. PRG and Aramarine, as brokers, underwrote the
policies, and received certain commissions for their work. The policies
were effective as of March 1, 2000. The terms of the policies provided,
inter alia, that: 1) the policy period was three years, from March 1,
2000 through March 1, 2003; and 2) the policies were
"non-cancellable" by Highlands, except for either non-payment of
premiums or other specific reasons set out in the New York Insurance Law.
Around December 19, 2000, Highlands sent PRG and each of Silver Car's
insured members, copies of a "Notice of Nonrenewal," stating that
Highlands was not going to renew the policies, effective March 1, 2001,
two years short of the termination date. Further, around December 21,
2000, Highlands sent PRG and Aramarine a letter purporting to revoke
their authority to bind coverage or issue certificates of insurance to
Silver Car members on behalf of Highlands. Highlands then filed the
instant action against Silver Car, Aramarine, PCS, PRG, and Blessinger on
March 16, 2001 alleging RICO violations, as well as fraud, breach of
contract, and other pendent state law claims. One month later, Highlands
settled with Silver Car and Aramarine, who were then dismissed from the
suit. PRG, Blessinger, and PCS, however, remained as defendants. The
remaining defendants then joined King as a third party defendant, and
filed counterclaims against Highlands and King asserting their own RICO
claims, as well as breach of contract, and other pendent state law
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to
dismiss a complaint
where the complaint "fail[s] . . . to state a claim upon which relief can
be granted[.]" FED. R. Civ. P. 12(b)(6). In reviewing a motion to
dismiss, this Court accepts the allegations in the complaint as true and
draws all reasonable inferences in favor of the non-moving party. See
Patel v. Searles, 305 F.3d 130, 134-35 (2d Cir. 2002). However, bald
contentions, unsupported characterizations, and legal conclusions are not
well-pleaded allegations, and will not suffice to defeat a motion to
dismiss. See Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996). Here, a
motion to dismiss will only be granted if the claimant can prove no set
of facts in support of its claim that would entitle it to relief. See
Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1494 (2d Cir. 1992).
A. Defendants' Motion to Dismiss the
1. Fraud and Conspiracy to Commit Fraud
Highlands alleges that it was fraudulently induced by defendants to
insure the Silver Car policies. Defendants argue that Highlands' fraud
claims fail as a matter of law because they are not pled with
particularity. Specifically, defendants argue that plaintiff has only set
forth conclusory allegations in the complaint, which fail to identify the
time, place, speaker, and content of the alleged misrepresentations.
A fraud claim consists of five elements: 1) a representation of
material fact; 2) that was false; 3) scienter; 4) reliance by the
plaintiff; and 5) injury. See Vermeer Owners, Inc. v. Guterman,
585 N.E.2d 377, 378-79 (N.Y. 1991); Giffune v. Kavanagh, 753 N.Y.S.2d 784,
784 (N.Y. App. Div. 2003). There are heightened pleading standards where
fraud is concerned, as Rule 9(b) of the Federal Rules of Civil Procedure
requires that "the circumstances constituting fraud or mistake shall be
stated with particularity." FED. R. Civ. P. 9(b). However, "[m]alice,
intent, knowledge, and other condition of mind of a person may be averred
generally" See id.
Fraud allegations in a complaint therefore must: "(1) specify the
statements that the plaintiff contends were fraudulent, (2) identify the
speaker, (3) state where and when the statements were made, and (4)
explain why the statements were fraudulent." Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). Although the scienter
requirement need not be plead with particularity, "[i]n order to avoid
abuse . . . plaintiffs are required to allege facts that give rise to a
strong inference of fraudulent intent." Campaniello Imports, Ltd. v.
Saporiti Italia S.P.A., 117 F.3d 655, 663 (2d Cir. 1997). Mere "puffery"
or opinions as to future events are not sufficient to form the basis of a
fraud claim. See Baker v. Dorfman, 239 F.3d 415, 423 (2d Cir. 2000);
Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994).
In this case, Highlands alleges in its complaint that defendants
fraudulently induced Highlands to execute the Silver Car policies by
making material misrepresentations and/or omissions of fact. However,
Highlands' allegations consist only of broad and general accusations that
do not satisfy Rule 9(b)'s pleading requirements. For example, Highlands
contends that PCS was controlled by PRG, and that PRG therefore was able
to delay PCS's submission and processing of claims so that PRG could
falsely understate loss ratios. See Complaint at ¶ 14d. Highlands
also argues that defendants never intended to pay all the claims
submitted to it by insurers or provide promised ancillary services, such
as claims investigation and risk management. See id. at ¶¶ 14e, 25d.
Highlands, however, presents no specific information in the complaint
regarding which particular loss ratio figures were falsely understated,
which specific claims were delayed, or for that matter, the source of
Highlands' information that PRG was delaying the processing of claims so
as to falsely understate loss ratios. Further, Highlands provides no
specific factual support for its bald statement that
defendants never intended to pay all the claims or provide promised
Highlands also contends that defendants made fraudulent
misrepresentations with respect to the amount of premium rates that the
New York Insurance Department would approve for the policies. Highlands
contends that PRO represented that Highlands' proposed rates were too
high for approval by the Insurance Department. Highlands argues that, in
reliance on this representation, it consented to charging a lower rate
for the policies. Highlands contends that PRO induced it to accept filing
the lower rates so that PRG could charge certain ancillary fees to the
insureds for PRG's own collection and still keep the total price of
insurance competitive. See id. at ¶¶ 14h, 37-46. Other than bald
contentions, however, Highlands presents no factual assertions to support
its allegations that the Insurance Department would have approved the
higher proposed rates, and that PRG knew this at the time it made the
Further, Highlands alleges in the complaint that defendants
misrepresented the nature, size, and scope of the Silver Car policies.
Highlands contends that the drivers and cars in the insurance policies
were substantially more risky than PRG represented they would be. In
particular, Highlands contends that defendants misrepresented the nature
of the last two policies that Highlands agreed to insure, in that those
policies included a number of older cars and "gypsy cabs," presenting a
greater insurance risk than newer cars or radio cars. See id. at ¶¶
25f, 27-32, 57-58. As with the allegations above, these too are not pled
with particularity as they are nothing more than bald contentions, with
no factual support. Highlands has not identified a particular document or
speaker as the source of these alleged misrepresentations.
Highlands also contends that defendants misrepresented the
profitability of the Silver Car insurance program. Highlands argues that
defendants represented that the insurance program had
been profitable in the past, and would be profitable for Highlands.
Highlands also alleges that defendants provided Highlands with loss
information from a prior insurance program that they knew was false, and
that defendants concealed adverse loss ratios that other insurance
companies had experienced through Silver Car. See id. at ¶¶ 25a,
26a-c. To the extent the allegations address defendants' promises about
the future profitability of the Silver Car policies, the allegations are
not actionable, as they are nothing more than puffery. With respect to
the allegations that defendants provided Highlands with inaccurate loss
information, plaintiff again has failed to plead with particularity. The
complaint is devoid of any specificity regarding the figures that were
provided to plaintiff, how those figures differ from the actual correct
figures, or at least, the means by which plaintiff discovered that the
numbers provided were inaccurate.
Highlands also contends that defendants represented that they knew of
no pervasive problems with fraud in the livery car insurance business,
but in fact knew that the business was rife with fraud. See id. at ¶
26c. The complaint further alleges that defendants represented that they
had extensive expertise in preventing fraudulent claims, but in fact
lacked expertise and knew they could not prevent pervasive fraud under
the policies. See id. at ¶¶ 25b-c. Highlands' mere generalized
allegations that defendants "knew" that there was fraud in the industry,
however, are not sufficient to allege an inference of scienter. Further,
to the extent that defendants made statements that they had expertise in
the field of livery car insurance, this again is nothing more than
puffery, and is not actionable.
Lastly, Highlands contends that Lawrence Blessinger, the CEO of PRG,
concealed the fact that he was convicted of a felony on August 7, 1984
and that he intended to use a sham brokerage known as the Kaitlyn Agency
as a means of obtaining additional compensation
Highlands contends that Blessinger held himself out as a licensed
insurance broker, but due to his felony conviction, he was not able to
obtain a license. See Complaint at ¶¶ 26d-e. Highlands' statements
regarding the Kaitlyn Agency are wholly irrelevant as Highlands does not
contend that the Kaitlyn Agency or Blessinger's relationship with the
Kaitlyn Agency contributed in any manner to Highlands' decision to insure
the Silver Car policies. Further, Highlands' contention that Blessinger
is a convicted felon who falsely held himself out as a licensed insurance
broker, by itself, is not enough to state a claim for fraud. Highlands
has not contended that the alleged felony conviction relates to insurance
fraud, or anything similarly relevant. At the time Highlands signed the
contracts, Blessinger's alleged felony conviction was 15 years old. Even
assuming the truth of the allegations regarding the felony conviction and
broker license, Highlands does not contend that this alleged omission
induced them to enter into the contracts or otherwise led to Highlands'
injury. The injury Highlands complains of is, essentially, that it lost
money on the Silver Car policies. However, Blessinger's alleged felony
conviction and lack of a broker license are not misstatements or
omissions with respect to the nature of the Silver Car policies, or
Highlands' potential risk exposure under the policies. Even assuming the
truth of these allegations, they are not material to the injury about
which Highlands complains.
Therefore, Highlands has failed to state a claim for fraud as it has
not pled fraud with particularity. Consequently, defendants' motion to
dismiss Counts III (Fraud) and IV (Conspiracy to Commit Fraud) is
2. RICO and RICO Conspiracy
Highlands alleges that the defendants constitute an enterprise engaged
in a pattern of racketeering activity, in violation of the Racketeer
Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1962(c) and (d). The racketeering activity that
Highlands alleges is fraud in the livery driver insurance market,
including fraud on Highlands by inducing Highlands to offer automobile
insurance to Silver Car. Since this Court has dismissed Highlands' fraud
claims, the RICO claims, too, necessarily fail as a matter of law.
Consequently, defendants' motion to dismiss Counts I (RICO) and n (RICO
Conspiracy) of the complaint is granted.
3. Negligence and Breach of Fiduciary Duty
Highlands contends that PRG was Highlands' agent, by virtue of the fact
that it was Highlands' broker. Highlands contends that under common law
agency principles, PRG owed Highlands both a duty of care and fiduciary
duty which PRG breached. PRG contends, however, that it had only a
limited agency relationship with Highlands, and that Highlands is
attempting to hold PRG accountable for a duty of care beyond the limited
one established by their broker-insurer relationship.
To state a claim for negligence, a plaintiff must allege: 1) the
existence of a duty; 2) a breach of the duty; 3) causation; and 4)
resulting damages. See McCarthy v. Olin Corp., 119 F.3d 148, 156 (2d
Cir. 1997); see also Fleet Bank v. Pine Knoll Corp., 736 N.Y.S.2d 737,
741 (N.Y. App. Div. 2002) (claimant must show that a duty of care existed
to state a cause of action for negligent misrepresentation).
Under New York law, an insurance broker is in an agency relationship
with the insured, and not the insurance carrier. In Am. Motorists Ins.
Co. v. Salvatore, 476 N.Y.S.2d 897 (N.Y. App. Div. 1984), the Appellate
Division addressed the difference between an insurance agent and a
broker. Salvatore found that: "It has been long recognized in this state
[New York] that there is a distinction between insurance agents and
brokers. The former acts as agent of an insurance
carrier and the latter appears as representative of the insured."
Salvatore, 476 N.Y.S.2d at 900 (internal citations omitted). The issue
was again revisited in Evvtex Co., Inc. v. Hartley Cooper Assoc. Ltd.,
911 F. Supp. 732 (S.D.N.Y. 1996), where the district court reiterated
that: "[t]he courts in New York have long held that insurance brokers act
as agents on behalf of an insured and not the insurer." Evvtex, 911 F.
Supp. at 738. The Evvtex court noted that the status of an insurance
broker, as agent of the insured, is codified at § 2101 of the New
York Insurance Law. That statute defines "insurance broker:"
An "insurance broker" means any person, firm,
association or corporation who or which for any
compensation, commission or other thing of value acts
or aids in any manner in soliciting, negotiating or
procuring the making of an insurance or annuity
contract or in placing risks or taking out of
insurance, on behalf of an insured . . .
Evvtex, 911 F. Supp. at 738, quoting N.Y. INS. LAW § 2102(c).
In this case, Highlands is the insurer, and Silver Car is the insured.
PRG was the insurance broker. Therefore, PRG, as the insurance broker,
was in an agency relationship with Silver Car (the insured) and not
Highlands (the insurer).
There is a limited exception to the general rule that an agency
relationship does not exist between a broker and insurer. A broker does
owe an insurer a limited fiduciary obligation with respect to the
handling of funds received from the insured. The New York Insurance Law
provides that both an insurance broker and agent owe their principles a
fiduciary duty with respect to the handling of funds received or
Every insurance agent and every broker acting as such
in this state shall be responsible in a fiduciary
capacity for all funds received or collected as
insurance agent or insurance broker, and shall not,
without the express consent of his or its principal,
mingle any such
funds with his or its own funds or with funds
held by him or it in any other capacity.
N.Y. INS. LAW § 2120(a). "In the broker's fiduciary capacity, it
holds premiums collected by its insured to be forwarded to the insurance
company as an agent of the insurer." Evvtex, 911 F. Supp. at 739. Since
the funds collected by a broker from the insured are intended for the
insurer, § 2120 has been interpreted to extend a broker's fiduciary
duties with regard to the collection of funds to insurers, in addition to
insureds. See Evvtex, 911 F. Supp. at 739.
This exception, however, relates only to the receipt and collection of
funds imposed by § 2120. The narrowness of this exception is evident
from the fact that both insurance brokers and agents owe a duty of care
to their respective principles only to matters specifically entrusted to
the broker or agent. They do not owe an affirmative duty to provide
general advice or direction. In Murphy v. Kuhn, 682 N.E.2d 972 (N.Y.
1997), an insured obtained automobile coverage that met his
specifications from his insurance agent, with whom he had a long-standing
relationship. After an accident, the insured then sued his agent for
professional negligence on the theory that the agent had an affirmative
obligation to advise him to obtain additional coverage beyond that which
he had requested. The New York Court of Appeals found that the insured
could not state a cause of action for professional negligence against his
agent as the parties had only a consumer-agent insurance placement
relationship. The court found that in spite of the parties' longstanding
relationship, no "special relationship" existed between the parties that
could impose a duty of care on the agent beyond that of following the
insured's instructions of placing the requested insurance. See Murphy, 90
N.Y.2d at 271; see also St. Paul Fire and Marine Ins. Co. v. Heath
Fielding Ins. Broking Ltd., 976 F. Supp. 198, 204 (S.D.N.Y. 1996) ("An
relationship of broker to insurer does not by itself, give rise to
a `special relationship'" that creates a duty of care).
Relying upon the holding in Murphy, the Court of Appeals four years
later found that an insured may not state a claim against an insurance
agent for professional malpractice. In Chase Scientific Research Inc. v.
NIA Group, Inc., 749 N.E.2d 161 (N.Y. 2001), the Court of Appeals found
that since neither a broker nor agent are required to engage in extensive
specialized education or training, nor bound by a standard of conduct for
which they might be disciplined, they are not considered "professionals,"
in that they generally cannot be sued for professional malpractice. See
Chase Scientific Research, 96 N.Y.2d at 30. The court relied upon its
earlier holding in Murphy, and reaffirmed that "an insurance agent has a
common-law duty to obtain requested coverage, but generally not a
continuing duty to advise, guide or direct a client based on a special
relationship of trust and confidence." Id., citing Murphy, 90 N.Y.2d at
In this case, Highlands attempts to place a duty of care on PRG beyond
that of merely handling funds held in trust from Silver Car. Highlands'
alleges, inter alia, that PRG breached its duty to Highlands when: (1)
PRG failed to "exercise reasonable care in hiring and supervising
employees, whom they knew or should have known were dishonest;" (2) PRG
failed to "have reasonable safeguards to protect against dishonest acts
of employees;" and (3) PRG failed to "reasonably or adequately take steps
to prevent or discover fraudulent claims and claims practices." Complaint
at ¶¶ 126c-d, f. Notably absent from Highlands' complaint is any
allegation that PRG failed to obtain the requested insurance policies or
mishandled proceeds held in trust from the insured. Highlands'
generalized allegations that PRG did not exercise reasonable care are an
attempt to stretch PRG's duty of care to Highlands beyond that allowed
under New York law. As a matter of law, Highlands cannot maintain
either a negligence or breach of fiduciary duty cause of action against
PRG because it cannot show that the broker-insurer relationship gave rise
to a duty of care broad enough to cover the allegations in the complaint.
Therefore, PRG's motion to dismiss Counts VII (Negligence) and IX (Breach
of Fiduciary Duty) of the complaint is hereby granted.
4. Unauthorized Agency
Highlands contends that by letter dated December 21, 2000, it revoked
and terminated the authority of PRG to act on behalf of Highlands with
respect to the policies. Highlands contends that despite this
notification, PRG continued to purport to act on behalf of Highlands by
holding itself out as Highlands' broker and continuing to issue
certificates of insurance to Silver Car drivers under the policies.
As noted earlier, PRG's agency relationship with Highlands is limited
in scope, and relates only to the procurement of requested policies and
the handling of funds received from Silver Car. The basis by which
Highlands alleges that PRG unlawfully held itself out as Highlands' agent
after December 21, 2000, is PRG's actions of issuing certificates of
insurance to drivers under the Silver Car policies after that date. See
Complaint at ¶¶ 66, 132b. However, when PRG issued the certificates of
insurance, it was doing so as the agent of Silver Car (the insured), to
whom it owed a duty of care. See Salvatore, 476 N.Y.S.2d at 900 (broker
owes a duty of care to the insured, not the insurer); See also Evvtex,
911 F. Supp. at 738. Highlands does not allege that the certificates of
insurance were for new policies outside of the original 13 that Highlands
had agreed to insure. Rather, the certificates of insurance were issued
for existing policy holders under the original Silver Car policies, and
issued in accordance with PRG's
obligations to the Silver Car. Therefore, as a matter of law, PRG's
actions do not constitute unauthorized agency as to Highlands.
Consequently, PRG's motion to dismiss Count VIII (Unauthorized Agency) is
5. Breach of Contract
Highlands alleges that PRG breached the contract. PRG, on the other
hand, contends that Highlands has not sufficiently stated a cause of
action for breach of contract because Highlands: has only alleged a
breach in conclusory language, without identifying the purported
contract, or identifying the terms of the contract that Highlands claims
Federal Rule of Civil Procedure 8(a) generally governs the pleading
standards of a complaint. Rule 8(a) requires only that a party assert "a
short and plain statement of the claim showing that the pleader is
entitled to relief, and . . . a demand for judgment[.]" Fed.R. Civ. P.
8(a). In a cause of action for breach of contract, a plaintiff must
allege: 1) the existence of a contract; 2) plaintiffs performance of the
contract; 3) a breach by the defendant; 4) and resulting damages. See
Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994). A
breach of contract claim will be dismissed, however, as being "too vague
and indefinite," where the plaintiff fails to allege, in nonconclusory
fashion, "the essential terms of the parties' purported contract,
including the specific provisions of the contract upon which liability is
predicated[.]" Sud v. Sud, 621 N.Y.S.2d 37, 38 (N.Y. App. Div. 1995).
Here, the complaint alleges that PRG breached "the obligations and
duties . . . under the contract of insurance[.]" Complaint at ¶
120. However, Highlands does not allege in the complaint that PRG was a
signatory, or in any other way, a party to the Silver Car policies.
Rather, according to the complaint, PRG was responsible for underwriting
the policies between
Highlands and Silver Car. See Complaint at ¶¶ 21-22. Highlands may not
hold PRG liable for breaching a contract to which it was not a party. See
e.g. Cruikshank & Co. v. Sorros, 765 F.2d 20, 26 (2d Cir. 1985)
("[appellant], not a party to the contract at issue, cannot be found
liable for damages resulting from its breach, notwithstanding his status
as an agent of one of the parties in breach.")
Further, Highlands' efforts to turn the September 15, 2000 letter it
sent to defendants into an enforceable contract is equally unavailing.
Highlands contends that on September 15, 2000, it sent a letter to
defendants informing them that Highlands would insure no additional
Silver Car members under the last two policies, and that PRG in turn
agreed that it would issue no new certificates of insurance under these
policies. See Complaint at ¶¶ 61, 120f.
An agreement that lacks consideration is not enforceable. See Roth v.
Isomed, Inc., 746 F. Supp. 316, 319 (S.D.N.Y. 1990) ("[consideration] is
a necessary ingredient for an enforceable contract.") Consideration
requires either a benefit to the promisor or a detriment to the
promisee. See Ball v. SFX Broadcasting Inc., 665 N.Y.S.2d 444, 446 (N.Y.
App. Div. 1997). Even assuming Highlands' allegations as true, which this
court must on a motion to dismiss, this letter does not create a separate
enforceable contract between Highlands and PRG. Essentially, Highlands
and PRG both promised not to act. However, neither received a benefit or
detriment for Highlands' promise not to insure additional Silver Car
members, nor for PRG's promise not to issue new certificates under the
policies. The September 15 letter agreement is therefore unenforceable as
it is not supported by consideration. Consequently, PRG's motion to
dismiss Count VI (Breach of Contract) is granted.
Highlands contends that PRG and Blessinger have in their custody a data
tape that contains information about the drivers covered by the Silver
Car policies. Highlands argues that it has an ownership right to the data
tape, and that defendants refuse to return it. PRG contends that
Highlands cannot state a claim for conversion because Highlands is
claiming a property interest in intangible property.
A plaintiff stating a claim for conversion must establish "legal
ownership of a specific identifiable piece of property and defendants'
exercise of dominion over or interference with the property in defiance
of plaintiffs' rights." Gilman v. Abagnale, 653 N.Y.S.2d 176, 177 (N.Y.
App. Div. 1997), quoting Ahles v. Aztec Enters., Inc., 502 N.Y.S.2d 821,
822 (N.Y. App. Div. 1986). However, under New York law, a claim for
conversion must be for tangible properly, as a claim for intangible
property is not actionable. See Rao v. Verde, 635 N.Y.S.2d 660, 661 (N.Y.
App. Div. 1995); MBF Clearing Corp. v. Shine, 623 N.Y.S.2d 204, 206 (N.Y.
App. Div. 1995).
Here, the data tape was never Highlands' property. Rather, Highlands
contends that PRG compiled information on Highlands' behalf, and then put
that information on a tape that PRG already owned. It is the information
that PRG compiled over which Highlands asserts a property interest, not
the physical data tape on which the information is stored. See Rao, 635
N.Y.S.2d at 661. However, this information is intangible property, and
Highlands cannot state a claim under New York law for conversion of
intangible property. Consequently, defendants' motion to dismiss Count X
(Conversion) is granted.
7. New York General Business Law § 349(a)
Highlands argues that defendants violated the New York General Business
Law § 349(a)
("GBL") by engaging in deceptive acts. Section 349 of the GBL makes
unlawful "[deceptive] acts or practices in the conduct of any business,
trade or commerce or in the furnishing of any service in this state[.]"
N.Y. GEN. Bus. LAW § 349(a). Fundamentally, § 349 is a consumer
protection device. A plaintiff must not only allege that the defendants
engaged in deceptive acts or practices, but also that the conduct was
consumer oriented. See New York Univ. v. Continental Ins. Co.,
662 N.E.2d 763, 770 (N.Y. 1995). Consequently, the New York Court of
Appeals held that "[p]rivate contract disputes, unique to the parties . . .
would not fall within the ambit of the statute." Id.; Oswego Laborers'
Local 214 Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744
(N.Y. 1995). "[T]he gravamen of the complaint must be consumer injury or
harm to the public interest." Azby Brokerage, Inc. v. Allstate Ins. Co.,
681 F. Supp. 1084, 1089 n.6 (S.D.N.Y. 1988).
In this case, Highlands alleges only a private injury, namely that
defendants conspired to fraudulently induce Highlands into insuring
Silver Car's members. Nothing about the complaint alleges a consumer
injury or harm to the public interest. Rather, the complaint is for
damages based upon the Silver Car policies Highlands claims it was
fraudulently induced to issue. The damages are purely private in nature
and relate only to monetary losses that Highlands allegedly suffered.
Consequently, defendants' motion to dismiss Count XI (GBL § 349(a))
of the complaint is hereby granted.
8. Breach of Claims Handling Duty
Lastly, Highlands alleges that PCS breached what Highlands calls a
"claims handling duty." Highlands bases this claim on the theory that PCS
owed Highlands both contractual and fiduciary obligations, and that PCS
breached those obligations. PCS argues that, as a matter of
law, claims handlers do not owe insurers a "claims handling duty."
The New York courts, or federal courts applying New York law, have not
specifically addressed the issue of whether a claims handler owes an
insurer a fiduciary duty. However, New York courts have examined whether
a fiduciary relationship exists between an insured and an insurer. In
Rabouin v. Metr. Live Ins. Co., 699 N.Y.S.2d 655 (N.Y.Sup.Ct. 1999), the
New York Supreme Court found that the plaintiff policyholder of an
insurance contract could not state a claim against his insurer for breach
of fiduciary duty because no such duty existed between the insured and
the insurer. See Rabouin, 699 N.Y.S. at 657. The court acknowledged
that, under certain circumstances, an insured's relationship with an
insurer might transform into a fiduciary relationship. However, the court
found that where the plaintiff has only alleged an "ordinary arm's length
relationship created by the payment of premiums to [the insurer] in
return for a policy of insurance[,]" there was no fiduciary obligation on
the part of the insurer. Id.
Further, in Batas v. Prudential Ins. Co. of Am., 724 N.Y.S.2d 3 (N.Y.
App. Div. 2001), the Appellate Division, as well, found no fiduciary
relationship between the plaintiff insureds and their insurer. There, the
insureds were each hospitalized for serious emergency medical
conditions. Their insurance carrier, however, only authorized limited
time for hospitalization pursuant to its review of the "Milliman &
Robertson Guidelines." The insurance earner made this determination
despite the fact that the guidelines were contrary to the recommendations
provided by the insureds' primary care physicians calling for lengthier
hospitalization. The insureds brought an action against their insurance
earner, alleging, inter alia, a breach of fiduciary duty for failing to
disclose to the insureds that the insurer would make determinations based
on a review of the Milliman & Robertson Guidelines, even if the
guidelines conflict with
the medical opinion of the insureds' primary care physicians. See Batas,
724 N.Y.S.2d at 9-10.
The Batas court found, however, that no fiduciary relationship existed
between the insureds and the insurer. The court found no evidence of
"overreaching" or "special circumstances" between the parties that might
lead to the conclusion that anything other than an arm's length
association existed between the insureds and the insurer. See Batas, 724
N.Y.S.2d at 7. The court noted that generally parties to a contract of
insurance do not owe each other a fiduciary obligation:
Plaintiffs make no showing that their relationship
with defendants is unique or differs from that of a
reasonable consumer and offer no reason to depart from
the general rule that the relationship between the
parties to a contract of insurance is strictly
contractual in nature. No special relationship of
trust or confidence arises out of an insurance
contract between the insured and the insurer; the
relationship is legal rather than equitable.
Batas, 724 N.Y.S.2d at 7. Consequently, the court found no fiduciary
relationship between the insureds and their insurer.
In this case, PCS is a claims handler, and Highlands is the insurer.
Highlands has not sufficiently alleged facts to support a claim that its
relationship with PCS was one of such trust and confidence that a
fiduciary' duty existed. The parties merely had an arm's length
association, and without more, no fiduciary obligation is created.
Nothing about the nature of the relationship between a claims handler and
insurer involves a level of trust or confidence that would inherently
lead to a fiduciary duty on behalf of the claims handler. If a fiduciary
relationship does not generally flow between an insurer and an insured,
then certainly it does not generally flow between a claims handler and an
Further, Highlands' allegation that PCS breached their contract cannot
support a breach
of fiduciary duty.*fn5 A breach of contract, by itself, does not create
a fiduciary duty. "Rather, the focus is on whether a noncontractual duty
was violated. . . . Thus, unless the contract creates a relation, out of
which relation springs a duty, independent of the mere contract
obligation, though there may be breach of the contract, there is no
tort, since there is no duty to be violated." Apple Records, Inc. v.
Capitol Records, Inc., 529 N.Y.S.2d 279, 282 (N.Y. App. Div. 1988). As
discussed above, Highlands and PCS had an arm's length association, to
which no fiduciary duty arose. Therefore, PCS's motion to dismiss Count
XII (Claims Handling Duty) is granted.
B. Highlands' Motion to Dismiss the Counterclaims
1. Venue as to Third Party Defendant King
Highlands and King assert that venue is improper as to the
counterclaims against King in this district, as King lives in New
Jersey, works in New Jersey, and works for a company whose principal
place of business is in New Jersey (Highlands). This argument has no
merit. Highlands chose to file its complaint in this district. In its
complaint, Highlands asserted that venue is proper pursuant to
28 U.S.C. § 1391 (a) because "a substantial part of the events giving
rise to the claims in this action occurred in this judicial district."
Complaint at ¶ 11; see also 28 U.S.C. § 1391(a). Defendants
admitted this allegation in their Answer. See PRG's Answer at ¶ 11.
Defendants then filed counterclaims against Highlands and third party
defendant King. Defendants' counterclaims as to Highlands are compulsory
as they "aris[e] out of the transaction or occurrence that is the subject
matter of the opposing party's [Highlands'] claim[.]" Fed.R.Civ.P. 13(a).
The counterclaims against King are identical to those asserted against
and involve the same transaction or occurrence. Therefore, venue is also
proper in this district as to King pursuant to 28 U.S.C. § 1391 (a),
since a substantial part of the events giving rise to the counterclaims
against him occurred in this district.*fn6 Consequently, Highlands'
motion to transfer venue as to the counterclaims against King is hereby
2. RICO and RICO Conspiracy
Similar to plaintiff Highlands' complaint, defendants as well allege
violations of the federal RICO statute in their counterclaims.
Specifically, defendants contend that Highlands and King devised a scheme
to defraud defendants by inducing PRG to market Highlands' insurance so
that Highlands and King could gain a dominant market share in the livery
insurance market. Highlands and King, on the other hand, contend that
defendants have failed to sufficiently allege that any statements they
made were false.
As noted earlier, a fraud claim consists of five elements: 1) a
representation of material fact; 2) that was false; 3) scienter; 4)
reliance by the plaintiff; and 5) injury. See Vermeer Owners, Inc. v.
Guterman, 585 N.E.2d 377, 378-79 (N.Y. 1991); Giffune v. Kavanagh,
753 N.Y.S.2d 784, 784 (N.Y. App. Div. 2003). Likewise, as discussed
earlier, fraud must be pled with particularity. See FED. R. Civ. P.
Defendants allege that around December 19, 2000, Highlands wrongfully
sent notices of nonrenewal to all of Silver Car's members under the
insurance policies, and that defendants did so to disrupt PRG's
business. See Countercl. at ¶¶ 35-36. Defendants further contend that
around December 21, 2000, Highlands sent a letter to PRG and Aramarine
purporting to revoke
their authority to bind coverage and to issue certificates of insurance
to Silver Car members. Defendants contend that this purported revocation
of authority is in direct violation of a June 1999 Letter Agreement
between Highlands and Aramarine, as well as the terms of the policies
themselves. See id. at ¶ 39.
Defendants additionally contend that on February 28, 2001, Highlands
notified the New York State Department of Motor Vehicles ("DMV") that
PRG's authority to act on behalf of Highlands was revoked, that this
action was also in breach of the June 1999 agreement, as well as in
breach of the terms of the policies. See id. at ¶ 47. Consequently,
defendants contend that the DMV refused to accept evidence of insurance
of Silver Car members submitted by PRG, and that certain vehicles of
Silver Car's members were subject to being impounded for operating
without valid insurance. See id. at ¶ 48. Defendants further contend
that Highlands fired PRG as its servicing agent to the DMV's electronic
database system of reporting insurance. Defendants contend that this was
done without notice and, in any event, in violation of a TRO issued by
the New York Supreme Court. As a result of this revocation, defendants
argue that the vehicles of certain Silver Car insured drivers were
consequently towed for lack of evidence of insurance. See id. at ¶
Defendants further argue that on February 28, 2001, Highlands advised
Premium Payment Plan ("PPP"), the company that provided financing of
premiums to Silver Car's members, that PRG no longer had a business
relationship with Highlands, and that as a result, PPP declined to
continue to provide financing of premiums. See id. at ¶ 55-57.
Defendants contend that Highlands' statement to PPP in this regard was
false. See id. at ¶ 112. Defendants argue that Highlands then filed
the instant civil action against defendants alleging that defendants
engaged in RICO violations, and that the allegations in the complaint are
false, misleading, and intended to harm defendants in their business. See
id. at ¶¶ 60-61, 118.
Defendants also contend that around the time Highlands' complaint was
filed, Highlands appointed NPA Associates, Ltd. ("NPA") as its exclusive
managing agent for its New York livery business. See id. at ¶ 58.
Defendants argue that NPA held a meeting in which several of Highlands'
sub-brokers were invited. At that meeting, defendants contend that a
representative from NPA made disparaging comments about defendants. For
example, defendants contend that the NPA representative told the
sub-brokers that Highlands would file a "RICO case to choke a horse" and
that there would be "news media like you have never seen." Defendants
contend that these statements were made for the purpose of causing harm
to defendants' business and reputation. See id. at ¶¶ 63-66, 117,
Defendants contend that by cancelling the Silver Car policies,
Highlands planned to destroy PRG's market and subsequently recapture
PRG's customers and then charge higher premium rates. See id. at ¶
110. Defendants further contend that as a result of Highlands' actions,
sub-brokers have refused to do business with PRG. See id. at ¶ 131.
Defendants further contend that Silver Car and Aramarine entered into a
"secret" settlement agreement with Highlands around April 29, 2001 which
provides for early termination of the policies. See id. at ¶ 68.
These allegations are woefully inadequate to support a claim of
racketeering activity based upon fraud. Specifically, defendants have
presented no factual support for their theory that Highlands, at the time
it executed the Silver Car policies, did not intend to follow through
with its obligations under the agreement. Highlands' notices of
nonrenewal and all other subsequent
actions it took to extract itself from its obligations on the policies,
at most, state a claim for breach of contract, not for fraud. However,
nothing about the statements made by the NPA representative indicate that
Highlands, at the time it contracted, intended to breach the contract.
Nor does the mere fact that Highlands filed a civil action in this
Court, or the fact that Highlands eventually settled with two of the
defendants, leads to the conclusion that Highlands and King intended to
destroy, and subsequently recapture for its own benefit PRG's business.
Nothing about the circumstances or statements that defendants have
alleged give rise to an inference of fraudulent intent. Defendants'
allegations that Highlands and King intended to destroy defendants'
business are nothing more than conclusory statements and bald assertions,
which are inadequate to satisfy Rule 9(b)'s heightened pleading standard.
As defendants' allegations do not state a claim for fraud, and since the
criminal racketeering activity alleged is fraud, defendants fail to state
a claim for a RICO violation. Consequently, Highlands' motion to dismiss
Counterclaims I (RICO) and II (RICO Conspiracy) is hereby granted.*fn7
3. Declaratory Judgment and Injunctive Relief
Defendants seek a declaratory judgment that, inter alia, Highlands'
notices of nonrenewal were invalid, Highlands is bound to provide
coverage on the policies through March 1, 2003, and that Highlands'
revocation of PRG's authority to issue certificates of insurance was in
breach of the policies. Similarly, defendants also seek a preliminary and
permanent injunction restraining Highlands from, inter alia, canceling or
terminating the policies prior to March 1, 2003, and
refusing to recognize as valid the certificates of insurance issued
by PRG pursuant to the Silver Car policies. Further, defendants allege
that Highlands breached the contracts in bad faith.
To have standing to bring suit, a party must allege an injury in fact
to a preexisting, legally protected interest. The injury must be: "(a)
concrete and particularized . . . and (b) actual or imminent, not
conjectural or hypothetical." Altman v. Bedford Cent. School Dist.,
245 F.3d 49, 69-70 (2d Cir. 2001), quoting Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992). Therefore, a claimant "generally must
assert his own legal rights and interests, and cannot rest his claim to
relief on the legal rights or interests of third parties." Altman, 245
F.3d at 70, quoting Valley Forge Christian College v. Am. United for
Separation of Church & State, Inc., 454 U.S. 464, 474 (1982).
Here, defendants readily admit that they were not a party to either the
Silver Car policies or any agreement discussing the terms of Highlands'
obligations under the policies See Countercl. at ¶ 24. Defendants
nevertheless contend that they have standing to enforce the contract as
third-party beneficiaries to the agreement.
"A person who is not a party to the contract may bring an action for
breach of contract if she or he is an intended beneficiary, and not
merely an incidental beneficiary of the contract." Cauff, Lippman &
Co. v. Apogee Finance Group, Inc., 807 F. Supp. 1007, 1020 (S.D.N.Y.
1992). "Although a third party need not be specifically mentioned in the
contact [sic.] before third-party beneficiary status is found, New York
law requires that the parties' intent to benefit a third party must be
shown on the face of the agreement." In re Gulf Oil/Cities Serv. Tender
Offer Litig., 725 F. Supp. 712, 733 (S.D.N.Y. 1989): see also Port
Chester Electrical Constr. Corp. v. Atlas, 357 N.E.2d 983, 986 (N.Y.
1976). "Absent such intent, the third party is merely
an incidental beneficiary with no right to enforce the contract." In re
Gulf Oil/Cities Service Tender Offer Litig., 725 F. Supp. at 733.
Defendants do not allege that the Silver Car policies expressly
included a provision to pay broker fees to PRG. Rather, defendants
contend that the June 1999 Letter agreement, the Silver Car policies, and
various correspondence signed by Highlands, when read in combination,
confer a third-party beneficiary right upon PRG. However, as indicated
above, the face of the agreement itself must show the intent to benefit
PRG. Defendants have not alleged that the agreement itself indicates such
an intent. Therefore, PRG is not an intended third-party beneficiary to
the agreement and it has no standing to raise a claim or seek declaratory
or injunctive relief based upon Highlands' obligations to Silver Car that
were detailed in that agreement. Consequently, Highlands' motion to
dismiss Counterclaims III (Declaratory Judgment) and IV (Injunctive
Relief) is granted.
4. New York General Business Law § 349(a)
Defendants allege that Highlands and King violated GBL § 349(a) by
making misrepresentations and omissions of material fact for the purpose
of inducing PRG to assist Highlands in achieving a dominant position in
the livery insurance market in New York. As discussed earlier, GBL §
349 does not cover private disputes that are unique to the parties. See
Oswego Laborers' Local 214, 647 N.E.2d at 741. Rather, a party must
allege consumer injury or harm to the public. See Azby Brokerage, 681 F.
Supp at 1089 n.6. Here, defendants have not alleged in their
counterclaims consumer injury or harm to the public. Consequently,
Highlands' motion to dismiss Counterclaim VIII (GBL § 349(a)) is
Defendants' motion to dismiss is GRANTED in its entirety. Plaintiffs
complaint is therefore dismissed in its entirety.*fn8 Highlands' motion
to transfer venue as to the counterclaims against third party defendant
King is DENIED. Highlands' motion to dismiss the counterclaims is GRANTED
with respect to Counterclaims I-V, and VIII.*fn9 Third party defendant
King is dismissed from the case.