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New York State Workers' Compensation Board v. Program Risk Management, Inc.

Supreme Court of New York, Third Department

May 25, 2017

NEW YORK STATE WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and Attendant Regulations and as Successor in Interest to the Community Residence Insurance Savings Plan, Appellant-Respondent,
v.
PROGRAM RISK MANAGEMENT, INC., et al., Respondents-Appellants, and BOARD OF TRUSTEES OF THE COMMUNITY RESIDENCE INSURANCE SAVINGS PLAN et al., Respondents, et al., Defendants.

          Calendar Date: February 22, 2017

          Rupp Baase Pfalzgraf Cunningham, LLC, Buffalo (Daniel E. Sarzynski of counsel), for appellant-respondent.

          Miranda Sambursky Slone Sklarin Verveniotis, LLP, Mineola (Maurizi Savoiardo of counsel), for Program Risk Management, Inc. and others, respondents-appellants.

          Bond, Schoeneck & King, PLLC, Albany (Stuart Klein of counsel), for Thomas Gosdeck, respondent-appellant.

          Nixon Peabody, LLP, Albany (Kimberly K. Harding of counsel), for Board of Trustees of the Community Residence Insurance Savings Plan and others, respondents.

          Before: Egan Jr., J.P., Lynch, Rose, Clark and Mulvey, JJ.

          MEMORANDUM AND ORDER

          Lynch, J.

         Cross appeal from an order of the Supreme Court (Platkin, J.), entered October 5, 2015 in Albany County, which, among other things, partially granted certain defendants' motions to dismiss the complaint.

         The Community Residence Insurance Savings Plan, a group self-insured trust, was formed in 1995 to provide workers' compensation to the employees of the members of the trust (see Workers' Compensation Law § 50 [3-a]; 12 NYCRR 317.2 [i]; 317.3). Defendants Janice Johnson, Antonia Lasicki, Thomas McKeown, John Lessard, Ann Hardiman, Vincent Sirangelo, Phillip Saperia, Steven Greenfield, Peter Pierri, Fred Apers, Peter Campanelli and Diana Antos-Arens (hereinafter collectively referred to as the trustee defendants), among others, each served as individual trustees. Shortly after the trust was formed, it contracted with defendant Program Risk Management, Inc. (hereinafter PRM) to administer the trust (see 12 NYCRR 317.2 [g]) and, in 2001, the trust contracted with defendant PRM Claims Services, Inc. (hereinafter PRMCS) to administer its claims (see 12 NYCRR 317.2 [d]). Defendants Thomas Arney, John M. Conroy, Edward A. Sorensen and Mark J. Crawford (hereinafter collectively referred to as the PRM individual defendants) are former or current officers of PRM and PRMCS and/or served in various corporate capacities. Defendant Thomas Gosdeck served as counsel to the trust and as qualifying officer to PRMCS.

         In 2004, plaintiff began advising the trust that it was underfunded and required the execution of a number of consent agreements intended to preserve it. In 2010, plaintiff deemed the trust to be underfunded with a regulatory deficit of more than $7, 900, 000, and, when efforts to reduce this deficit failed, the trustees voted to stop providing workers' compensation. After advising the trustees that the trust had "demonstrated an inability to properly administer its liabilities, " plaintiff assumed the administration of the trust, effective August 2011. A subsequent forensic audit determinated that, as of December 31, 2010, the trust was underfunded by more than $60, 715, 450.

         In June 2013, plaintiff commenced this action in both its capacity as the governmental agency charged with administering the state's workers' compensation program and as the trust's successor in interest. As relevant on this appeal, plaintiff seeks to recover damages for breach of contract against PRM, PRMCS and the PRM individual defendants (hereinafter collectively referred to as the PRM defendants) and the trustee defendants (first cause of action); breach of the duty of good faith and fair dealing against the PRM defendants and the trustee defendants (second cause of action); breach of fiduciary duty against PRM and the PRM individual defendants, the trustee defendants and Gosdeck (fourth, fifth and sixth causes of action); fraud against the PRM defendants (seventh cause of action); unjust enrichment against Gosdeck (ninth cause of action); negligent misrepresentation against the PRM defendants and Gosdeck (tenth cause of action); legal malpractice against Gosdeck (eleventh cause of action); contractual indemnification against the PRM defendants (sixteenth cause of action); and common-law indemnification against all defendants (eighteenth cause of action). Plaintiff also seeks a judgment declaring the PRM defendants to be alter egos (thirteenth cause of action) and an accounting from PRM and PRMCS (fifteenth cause of action). As relevant herein, the PRM defendants, the trustee defendants and Gosdeck each moved to dismiss the complaint against them.

         Supreme Court dismissed plaintiff's causes of action for breach of fiduciary duty against PRM, the PRM individual defendants and the trustee defendants as duplicative of the breach of contract causes of action. The court also dismissed plaintiff's cause of action for a declaratory judgment regarding the alter ego liability of PRM and PRMCS, but allowed the claim as against the PRM individual defendants. The court denied the motions to dismiss the first cause of action alleging breach of contract against the PRM defendants and the trustee defendants and the ninth cause of action alleging unjust enrichment against Gosdeck, but subjected both causes of action to a six-year statute of limitations. Similarly, the court denied Gosdeck's motion to dismiss the cause of action for legal malpractice. Finally, the court dismissed plaintiff's claim for common-law indemnification against PRMCS and Gosdeck, but denied the motions by the trustee defendants and PRM to dismiss this claim against them. Plaintiff appeals and the PRM defendants, the trustee defendants and Gosdeck cross-appeal.

         During the pendency of this appeal, this Court decided State of N.Y. Workers' Compensation Bd. v Wang (147 A.D.3d 104 [2017]). We find, and the parties confirmed at oral argument, that certain rulings in Wang are applicable to a number of issues presented on this appeal. Accordingly, we hold that Supreme Court properly determined that the doctrine of equitable estoppel did not toll the statute of limitations governing plaintiff's first cause of action for breach of contract (see State of N.Y. Workers' Compensation Bd. v Wang, 147 A.D.3d at 112-113). Further, we find that the court should not have dismissed plaintiff's fourth cause of action for breach of fiduciary duty against PRM and the PRM individual defendants and the fifth cause of action for breach of fiduciary duty against the trustee defendants as redundant of the breach of contract cause of action (see State of N.Y. Workers' Compensation Bd. v Wang, 147 A.D.3d at 115) [1]. Supreme Court properly denied the motion to dismiss plaintiff's thirteenth cause of action against Conroy and Arney, both of whom served as officers to PRM and PRMCS, but should have dismissed the claim as against Sorensen and Crawford (see State of N.Y. Workers' Compensation Bd. v Wang, 147 A.D.3d at 116). Also pursuant to Wang, we find that Supreme Court properly permitted the common-law indemnification cause of action, as alleged in its governmental capacity, to continue against PRM, but should not have dismissed this cause of action against PRMCS (see State of N.Y. Workers' Compensation Bd. v Wang, 147 A.D.3d at 118; compare New York State Workers' Compensation Bd. v Fuller & LaFiura, CPAs, P.C., 146 A.D.3d 1110, 1112-1113 [2017]). Contrary to the argument raised by the PRM defendants, plaintiff's authority to assert claims in its governmental capacity may be inferred from its statutory and regulatory authority to administer insolvent group self-insured trusts (see State of N.Y. Workers' Compensation Bd. v Wang, 147 A.D.3d at 118; Accredited Aides Plus, Inc. v Program Risk Mgt., Inc., 147 A.D.3d 122, 136-137 [2017]; State of N.Y. Workers' Compensation Bd. v Madden, 119 A.D.3d 1022, 1024 [2014]).

         Turning to the remaining issues on appeal, the PRM defendants contend that plaintiff's breach of contract claims must be dismissed because the alleged breaches were controlled by the consent agreements, which, among other things, established and mandated certain premium and discount formulas. On this motion, we "afford the complaint a liberal construction, accept the facts alleged in the pleading as true, confer on the nonmoving party the benefit of every possible inference and determine whether the facts as alleged fit within any cognizable legal theory" (NYAHSA Servs., Inc., Self-Ins. Trust v Recco Home Care Servs., Inc., 141 A.D.3d 792, 794 [2016] [internal quotation marks, brackets and citation omitted]). This standard, though liberal, "will not save allegations that consist of bare legal conclusions or factual claims that are flatly contradicted by documentary evidence or are inherently incredible" (Jenkins v Jenkins, 145 A.D.3d 1231, 1234 [2016] [internal quotation marks and citation omitted]). Accordingly, a cause of action ...


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