State of New York Workers' Compensation Board v. Wang , 46 N.Y.S.3d 230 ( 2017 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: January 5, 2017 522224
________________________________
STATE OF NEW YORK WORKERS'
COMPENSATION BOARD, as
Administrator of the
Workers' Compensation Law
and attendant regulations,
and as Successor in Interest
to THE HEALTH CARE PROVIDERS
SELF-INSURANCE TRUST,
Respondent-
Appellant,
v OPINION AND ORDER
PHYLLIS WANG et al.,
Respondents,
and
PROGRAM RISK MANAGEMENT, INC.,
et al.,
Appellants-
Respondents,
et al.,
Defendants.
________________________________
Calendar Date: October 13, 2016
Before: Garry, J.P., Egan Jr., Rose, Devine and Mulvey, JJ.
__________
Miranda Sambursky Slone Sklarin Verveniotis LLP, Mineola
(Maurizio Savoiardo of counsel), for Program Risk Management,
Inc. and others, appellants-respondents.
Denlea & Carton LLP, White Plains (Peter N. Freiberg of
counsel), for Albert Johansmeyer and another, appellants-
respondents.
-2- 522224
Phillips Lytle LLP, Buffalo (Craig R. Bucki of counsel),
for Todd Brason and others, appellants-respondents.
Corrigan, McCoy & Bush, PLLC, Rensselaer (Scott W. Bush of
counsel), for Joel Hodes, appellant-respondent.
Hinman Straub PC, Albany (Joseph M. Dougherty of counsel),
for respondent-appellant.
Dreyer Boyajian LLP, Albany (John J. Dowd of counsel), for
Phyllis Wang, respondent.
David R. Sheridan, Delmar, for Robert Callaghan and others,
respondents.
Cooper Erving & Savage LLP, Albany (Michael A. Kornstein of
counsel), for Nelson Carpentar and another, respondents.
Couch White, Albany (Joel M. Howard III of counsel), for
Thomas Gosdeck, respondent.
__________
Egan Jr., J.
Cross appeals from an order and an amended order of the
Supreme Court (McNamara, J.), entered March 3, 2015 and May 12,
2015 in Albany County, which, among other things, partially
granted certain defendants' motions to dismiss the complaint.
The Health Care Providers Self-Insurance Trust, a group
self-insured trust, was formed in 1992 to provide mandated
workers' compensation coverage to employees of the trust's
members (see Workers' Compensation Law § 50 [3-a]; 12 NYCRR 317.2
[i]; 317.3). The trust contracted with defendant Program Risk
Management, Inc. (hereinafter PRM) to serve as its program
administrator, which, in turn, employed defendants Thomas Arney,
Colleen Bardascini, John M. Conroy, Gail Farrell and Edward
Sorenson (hereinafter collectively referred to as the PRM
individual defendants). Additionally, the trust contracted with
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defendant PRM Claims Services, Inc. (hereinafter PRMCS) to serve
as its claims administrator (see 12 NYCRR 317.2 [d]). Arney and
defendants Judy Balaban-Krause, Robert Callaghan, Nelson
Carpentar, Laura Donaldson, Ronald Field, Thomas Gosdeck, Joel
Hodes, Albert Johansmeyer1 and Michael Reda (hereinafter
collectively referred to as the trustee defendants), among
others, served as trustees.2
In 2009, plaintiff determined that the trust was insolvent
and assumed the administration thereof (see 12 NYCRR 317.20).
Thereafter, plaintiff obtained a forensic audit, which allegedly
revealed that the trust had an accumulated deficit of over $188
million. On July 8, 2011, plaintiff commenced this action, later
amended in January 2012, in its capacity as the governmental
entity charged with the administration of the Workers'
Compensation Law and attendant regulations, and as successor in
interest to the trust. Plaintiff alleged 32 causes of action
against certain defendants sounding in, among other things,
breach of contract, breach of good faith and fair dealing, breach
of fiduciary duty, fraud, fraud in the inducement, negligent
misrepresentation, gross negligence, alter ego liability and
indemnification.3 The complaint asserts that, as a result of
defendants' failures and wrongdoings, plaintiff has incurred
liability for, among other things, "certain [t]rust [m]embers'
assessments," "significant additional administrative expenses of
the [t]rust" and "the amount of the total deficit of the
1
Johansmeyer's name erroneously appears in the complaint
as "Bert Johansmeyer."
2
As plaintiff alleges claims against Hodes both in his
capacity as a trustee and as counsel to the trust, his capacity
is indicated when necessary. A similar distinction is made with
respect to Arney, who was sued both individually and in his
capacity as a trustee.
3
It is noted that the underlying facts and causes of
action set forth herein mirror those raised by employer members
of the trust in Accredited Aides Plus, Inc. v Program Risk Mgt.,
Inc. (___ AD3d ___ [decided herewith]).
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[t]rust."
Balaban-Krause, Callaghan, Donaldson and Field,
collectively, and Arney, Carpentar, Gosdeck,4 Hodes, Johansmeyer
and Reda, individually, moved to dismiss the complaint pursuant
to, among other provisions, CPLR 3211 (a) (5) (statute of
limitations) and CPLR 3211 (a) (7) (failure to state a cause of
action). PRM, PRMCS and the PRM individual defendants
(hereinafter collectively referred to as the PRM defendants)
moved to dismiss the complaint pursuant to, among other
provisions, CPLR 3211 (a) (1) (documentary evidence), CPLR 3211
(a) (3) (capacity to sue) and CPLR 3211 (a) (7). Plaintiff
opposed defendants' motions to dismiss and cross-moved for leave
to amend the complaint to include aiding and abetting breach of
fiduciary duty and fraud claims against certain defendants.
Supreme Court partially granted certain defendants' motions
by dismissing the breach of contract and breach of good faith and
fair dealing claims against Arney (as trustee), Balaban-Krause,
Callaghan, Hodes (as trustee), Johansmeyer and Reda, and limiting
the temporal scope of such claims as to the PRM defendants,
Donaldson and Field. The court also limited the temporal scope
of plaintiff's breach of fiduciary duty cause of action against
PRM, the PRM individual defendants and Carpentar, and dismissed
the same claims against Hodes (as counsel) and the remaining
trustee defendants. Similarly, the court limited the temporal
scope of plaintiff's claims for fraud and fraud in the inducement
and dismissed its negligent misrepresentation claim against the
PRM defendants. Although the court also limited the temporal
scope of the claims for negligence and gross negligence against
Carpentar, it dismissed such claims as to the remaining trustee
defendants, as well as the claim for gross negligence against
4
As a result of plaintiff's subsequent stipulation that
discontinued its causes of action for breach of contract, breach
of good faith and fair dealing, negligence and gross negligence
against Gosdeck, and in light of his failure to appeal with
respect to the surviving claims, the only claim at issue on
appeal in regard to this defendant is plaintiff's fourth cause of
action for breach of fiduciary duty.
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Hodes (as counsel).
As to plaintiff's cause of action for alter ego liability,
Supreme Court dismissed that portion of the complaint against
Arney and Conroy, but denied the motion as it pertained to PRM,
PRMCS, Bardascini, Farrell and Sorenson. Additionally, the court
dismissed the common-law indemnification claim against PRMCS, but
permitted such claim as alleged against PRM, the PRM individual
defendants, Johansmeyer and Reda. Finally, the court, among
other things, granted plaintiff leave to amend the complaint to
add causes of action for aiding and abetting breach of fiduciary
duty and fraud against certain defendants, including defendants
Todd Brason, Thomas Buckley, Kenrick Cort, Gwen Eichorn, Carmen
Flitt, John Fraher, Sanford Katz, Robert Kolb, Timothy McGorry,
Phyllis Raymond, Robin Richards, Gregory Schaefer, Jordan Shames,
David Slifkin, Suzanne Smith and Richard Swanson (hereinafter
collectively referred to as the Phillips Lytle trustee
defendants). Johansmeyer and Reda, collectively, the PRM
defendants and the Phillips Lytle trustee defendants appeal, and
plaintiff cross-appeals.5
5
Preliminarily, insofar as the PRM defendants failed to
address in their brief the denial of their motion to dismiss
plaintiff's twenty-ninth cause of action for an accounting and
thirtieth and thirty-first causes of action for contractual
indemnification, their appeal related thereto is deemed abandoned
(see Matter of Siennikov v Professional Grade Constr., Inc., 137
AD3d 1440, 1441 n 1 [2016]; Goodnow Flow Assn. Inc. v Graves, 135
AD3d 1228, 1229 n 1 [2016]). Similarly, although plaintiff
cross-appealed from the judgment dismissing its claims against
the PRM defendants, it has abandoned any contentions related to
its thirteenth cause of action for conversion by failing to
address it in its brief (see Towne v Kingsley, 121 AD3d 1381,
1382 n [2014]; Mills v Chauvin, 103 AD3d 1041, 1044 n 2 [2013]).
Moreover, plaintiff withdrew its seventeenth and eighteenth
causes of action alleging that PRM and the PRM individual
defendants engaged in deceptive business practices in
contravention of General Business Law §§ 349 and 350.
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As an initial matter, contrary to the claims of certain
defendants, we find that plaintiff has standing to maintain this
action as a successor in interest to the trust. Specifically,
plaintiff "stands in the shoes of the [t]rust" (New York State
Workers' Compensation Bd. v Marsh U.S.A., Inc., 126 AD3d 1085,
1087 [2015] [internal quotation marks and citation omitted]) and,
therefore, has standing to bring any claims that the trust may
bring against defendants (see State of N.Y. Workers' Compensation
Bd. v Madden, 119 AD3d 1022, 1024 [2014]; see also New York State
Workers' Compensation Bd. v Marsh U.S.A., Inc., 126 AD3d at 1087
n 5; New York State Workers' Compensation Bd. v SGRisk, LLC, 116
AD3d 1148, 1149-1150 [2014]).
Dismissal may be warranted under CPLR 3211 (a) (5) where a
defendant establishes, prima facie, that a cause of action is
time-barred by the expiration of the applicable statute of
limitations (see Stewart v GDC Tower at Greystone, 138 AD3d 729,
729 [2016]; State of Narrow Fabric, Inc. v UNIFI, Inc., 126 AD3d
881, 882 [2015]; J.A. Lee Elec., Inc. v City of New York, 119
AD3d 652, 653 [2014]). "The burden then shifts to the plaintiff
to raise a question of fact as to whether the statute of
limitations has been tolled or was otherwise inapplicable, or
whether the action was actually commenced within the period
propounded by the defendant" (State of Narrow Fabric, Inc. v
UNIFI, Inc., 126 AD3d at 882 [internal quotation marks and
citation omitted]; see Picard v Fish, 139 AD3d 1331, 1332-1334
[2016]; Geotech Enters., Inc. v 181 Edgewater, LLC, 137 AD3d
1213, 1214 [2016]).
Beginning with plaintiff's first cause of action for breach
of contract, as well as its second and third causes of action for
breach of good faith and fair dealing, we agree with Supreme
Court that such claims are time-barred by the applicable six-year
statute of limitations to the extent that the alleged breaches
occurred before July 8, 2005 (see CPLR 203 [a]; 213 [2]; see also
Town of Oyster Bay v Lizza Indus., Inc., 22 NY3d 1024, 1030
[2013]; Kosowsky v Willard Mtn., Inc., 90 AD3d 1127, 1131 [2011];
Liberman v Worden, 268 AD2d 337, 339 [2000]). Turning to
plaintiff's fourth and fifth causes of action for breach of
fiduciary duty, each is subject to a three-year statute of
limitations as "the remedy sought is purely monetary in nature
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and it cannot be said that an allegation of fraud is essential to
[these] claim[s]" (Weight v Day, 134 AD3d 806, 808 [2015]; see
CPLR 214 [4]; see generally IDT Corp. v Morgan Stanley Dean
Witter & Co., 12 NY3d 132, 139 [2009]; compare New York State
Workers' Compensation Bd. v Consolidated Risk Servs., Inc., 125
AD3d 1250, 1253-1254 [2015]). Furthermore, the statute of
limitations for breach of fiduciary duty claims begins to run on
the date that the fiduciary's relationship with or administration
of a trust ceases (see Tydings v Greenfield, Stein & Senior, LLP,
11 NY3d 195, 201 [2008]; Matter of Therm, Inc., 132 AD3d 1137,
1138 [2015]; New York State Workers' Compensation Bd. v
Consolidated Risk Servs., Inc., 125 AD3d at 1253).
Here, in support of their motion to dismiss, PRM and the
PRM individual defendants submitted written correspondence in
which plaintiff states that it assumed administration of the
trust effective October 13, 2009. Accordingly, Supreme Court
should have determined that plaintiff's fourth cause of action
was timely as the fiduciary relationship between PRM and the PRM
individual defendants and the trust, of which plaintiff is the
successor in interest, terminated – and, hence, the three-year
statute of limitations period commenced – on October 13, 2009
(see New York State Workers' Compensation Bd. v Consolidated Risk
Servs., Inc., 125 AD3d at 1253; Matter of De Sanchez, 107 AD3d
409, 410 [2013]; compare Matter of Barabash, 31 NY2d 76, 80-81
[1972]; Matter of Ruth Bronner & Zwi Levy Family Sprinkling
Trust, 112 AD3d 429, 429 [2013]).
As to the trustee defendants, Arney (as trustee), Balaban-
Krause, Callaghan, Gosdeck, Johansmeyer and Reda each submitted
affidavits, and Hodes (as trustee) submitted trust meeting
minutes, in support of their respective motions to dismiss – each
of which constituted prima facie proof that these defendants
ceased serving as trustees before plaintiff's claims accrued.6
6
Plaintiff does not take issue with the dismissal of its
claims for breach of fiduciary duty or the partial dismissal of
its claims for breach of contract and good faith and fair dealing
as alleged against Donaldson and Field, and, thus, has abandoned
any argument related to such claims (see Ruotolo v Fannie Mae,
-8- 522224
Specifically, October 2004 was the latest that any of the
foregoing trustee defendants served as trustees, more than six
years prior to the commencement of this action, thus barring
plaintiff's causes of action for breach of contract, breach of
good faith and fair dealing, breach of fiduciary duty, negligence
and gross negligence as asserted against them (see CPLR 203 [a];
213 [2]; 214 [4]).7 We also find that Carpentar established
through his affidavit that his service as trustee ceased when
plaintiff assumed administration of the trust, and, as such, the
cause of action against him for breach of fiduciary duty was
properly limited to only those claims that arose within three
years of commencement of the instant action (see CPLR 213 [2]).8
Accordingly, these trustee defendants shifted the burden to
plaintiff to raise a question of fact as to whether the statutes
of limitations should be tolled (see Assad v City of New York,
238 AD2d 456, 456-457 [1997], lv dismissed 91 NY2d 848 [1997];
Doyon v Bascom, 38 AD2d 645, 645-646 [1971]).9
127 AD3d 1442, 1443 [2015], appeal dismissed 26 NY3d 983 [2015];
New York State Workers' Compensation Bd. v Marsh U.S.A., Inc.,
126 AD3d at 1087 n 4). Moreover, in regard to Gosdeck, only the
fourth cause of action for breach of fiduciary duty is at issue
on appeal as a result of plaintiff's stipulation.
7
Notably, plaintiff's complaint states that Arney resigned
from his duties as a trustee on or about July 1993.
8
Contrary to plaintiff's contention on appeal, Supreme
Court denied Carpentar's motion to dismiss its first cause of
action for breach of contract and third cause of action for
breach of good faith and fair dealing.
9
To the extent that plaintiff does not challenge Supreme
Court's sole finding that its breach of fiduciary duty claim
against Hodes (as counsel) was duplicative of its twenty-first
cause of action for professional negligence, it has abandoned any
appeal related thereto (see generally Matter of Kairis v Fischer,
138 AD3d 1360, 1360 n [2016]). Likewise, plaintiff has abandoned
any contentions regarding the court's dismissal of its sixteenth
cause of action for negligent misrepresentation and twenty-second
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To the extent that plaintiff relies upon the doctrine of
equitable estoppel to toll the statutes of limitations, we reject
such effort. Equitable estoppel may be invoked to defeat a
statute of limitations defense so long as the plaintiff
establishes that it "was induced by fraud, misrepresentations or
deception to refrain from filing a timely action" (Zumpano v
Quinn, 6 NY3d 666, 674 [2006] [internal quotation marks and
citation omitted]), and "that it was diligent in commencing the
action 'within a reasonable time after the facts giving rise to
the estoppel have ceased to be operational'" (Marincovich v Dunes
Hotels & Casinos, Inc., 41 AD3d 1006, 1010 [2007], quoting
Simcuski v Saeli, 44 NY2d 442, 450 [1978]). However, "equitable
estoppel does not apply where the misrepresentation or act of
concealment underlying the estoppel claim is the same act which
forms the basis of the plaintiff's underlying substantive causes
of action" (Torrance Constr., Inc. v Jaques, 127 AD3d 1261, 1265
[2015] [internal quotation marks, brackets and citations
omitted]; see Kosowsky v Willard Mtn., Inc., 90 AD3d at 1130-
1131; Robare v Fortune Brands, Inc., 39 AD3d 1045, 1046 [2007],
lv denied 9 NY3d 810 [2007]).
Here, plaintiff concedes that it was continuously aware of
the trust's significant underfunding since 2004, yet did not
commission a forensic analysis of the trust until 2010.
Moreover, the misrepresentations that allegedly prevented
plaintiff from filing a timely action – specifically,
representations regarding the trust's solvency – are also the
basis for its underlying substantive claims (see Corsello v
Verizon N.Y., Inc., 18 NY3d 777, 789 [2012]; Beck v Christie's
Inc., 141 AD3d 442, 443-444 [2016]). As such, we reject
plaintiff's contention that defendants should be precluded from
relying upon a statute of limitations defense through employing
the "extraordinary remedy" of the doctrine of equitable estoppel
(Marincovich v Dunes Hotels & Casinos, Inc., 41 AD3d at 1010; see
cause of action for gross negligence against Hodes (as counsel)
by failing to advance it in its brief on appeal (see Salzer v
Benderson Dev. Co., LLC, 130 AD3d 1226, 1229 [2015]).
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McCormick v Favreau, 82 AD3d 1537, 1540 [2011], lv denied 17 NY3d
712 [2011]).10
As to the cross appeals, the PRM defendants contend that,
even adopting a liberal standard, Supreme Court should have
dismissed the entirety of plaintiff's causes of action for breach
of contract, breach of fiduciary duty, fraud, fraud in the
inducement, alter ego liability and common-law indemnification.
Plaintiff alleged that the trust was an express and intended
beneficiary of the program administrator service agreements in
which PRM promised to, among other obligations, "monitor the
financial condition and activities of the [t]rust" and "manage
the activities of the third[-]party administrator" and "the loss
control consultant." Similarly, PRMCS contracted with the trust
to "[p]erform necessary and customary administrative and clerical
work in connection with each [c]laim," as well as "[p]ay [c]laims
and [a]llocated [e]xpenses." Plaintiff alleged that PRM and
PRMCS each breached their respective contractual obligations by,
among other things, "failing to provide adequate claims
administrative services, loss control and risk management
services." Based on the foregoing, and liberally construing the
facial sufficiency of the complaint (see 12 Baker Hill Rd., Inc.
v Miranti, 130 AD3d 1425, 1426 [2015]), we agree with Supreme
Court that plaintiff sufficiently pleaded a cause of action for
breach of contract against the PRM defendants as limited by a
six-year statute of limitations (see CPLR 213 [2]; Evans v
Deposit Cent. Sch. Dist., 139 AD3d 1172, 1174 [2016]; compare
Hyman v Schwartz, 127 AD3d 1281, 1283 [2015]).
We reach a similar conclusion with respect to the PRM
defendants' contention that the forensic report constituted
documentary evidence that conclusively established that PRM and
10
With respect to the eighth, eleventh, nineteenth and
twentieth causes of action, plaintiff does not address Supreme
Court's calculation of the applicable statute of limitations and,
as generously interpreted, only argues that it should have been
permitted to utilize the doctrine of equitable estoppel. For the
reasons stated supra, we similarly reject plaintiff's contention
as it relates to these causes of action.
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PRMCS "performed their contractual services." Notably, the
forensic report states that the independent review concluded that
PRM "failed to provide a satisfactory level of claims processing
service on behalf of the [trust]" and that PRMCS under-reserved
claims "thereby contributing to the member deficit." As such,
without deciding whether the forensic report constitutes
documentary evidence (see generally Eisner v Cusumano Constr.,
Inc., 132 AD3d 940, 941-942 [2015]), we find that it failed to
conclusively refute plaintiff's breach of contract claims (see
511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144,
152-153 [2002]; Raach v SLSJET Mgt. Corp., 134 AD3d 792, 794
[2015]; see also CPLR 3211 [a] [1]).
Turning to the PRM defendants' cross appeal with respect to
plaintiff's timely claims for breach of fiduciary duty, we agree
with Supreme Court that, for pleading purposes, plaintiff
adequately set forth allegations, apart from the terms of the
underlying administration agreements, that created a relationship
of higher trust than what would arise from the administration
agreements alone (see EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d
11, 19 [2005]; Matter of Lorie DeHimer Irrevocable Trust, 122
AD3d 1352, 1352-1353 [2014]; compare NYAHSA Servs., Inc., Self-
Ins. Trust v Recco Home Care Servs., Inc., 141 AD3d 792, 794-795
[2016]). Plaintiff alleged that PRM and the PRM individual
defendants "influenced and controlled the [t]rust and possessed
superior access to [t]rust information" and "creat[ed] a
relationship of trust and confidence between" itself and the
trust. Specifically, plaintiff alleged that PRM and the PRM
individual defendants went so far as to participate and control
trust board meetings, contract with third parties on behalf of
the trust, decide trust investments and appoint trustees.
Additionally, plaintiff alleged that PRM and the PRM individual
defendants "agreed to exercise good faith and undivided loyalty
to the [t]rust" to, among other things, "develop[] underwriting
criteria," and that the breach of their duty resulted in monetary
damages (see generally New York State Workers' Compensation Bd. v
SGRisk, LLC, 116 AD3d at 1152-1153; ARB Upstate Communications
LLC v R.J. Reuter, L.L.C., 93 AD3d 929, 930-931 [2012]).
Similarly, we discern no error in Supreme Court permitting
the timely portions of plaintiff's eighth and eleventh causes of
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action based in fraud to proceed against the PRM defendants (see
generally ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d
1043, 1044 [2015]; 84 Lbr. Co., L.P. v Barringer, 110 AD3d 1224,
1226 [2013]). However, we agree with plaintiff that the court
should not have dismissed its sixteenth cause of action for
negligent misrepresentation against the PRM defendants.11
Plaintiff alleged, among other things, that in order to induce
the trust to enter into and continue the program and claims
administrator services contracts, the PRM defendants
misrepresented and omitted material facts known to be false that
were related to the trust's financial solvency, compliance with
the Workers' Compensation Law and accompanying regulations and
the PRM defendants' capacity – all of which plaintiff relied upon
to its financial detriment. Accordingly, we find that
plaintiff's allegations based in fraud "are not redundant but,
rather, sufficiently allege duties that are independent from [the
PRM defendants'] alleged failure to perform the terms of the
contracts" (NYAHSA Servs., Inc., Self-Ins. Trust v Recco Home
Care Servs., Inc., 141 AD3d at 798; see TIAA Global Invs., LLC v
One Astoria Sq. LLC, 127 AD3d 75, 87 [2015]; Gizzi v Hall, 300
AD2d 879, 880 [2002]; compare Carpenter v Plattsburgh Wholesale
Homes, Inc., 83 AD3d 1175, 1176 [2011]).
Moreover, for the reasons stated supra, we find that the
PRM defendants were "in a special position of confidence and
trust with the [trust] such that reliance on the negligent
misrepresentation is justified" (Greenberg, Trager & Herbst, LLP
v HSBC Bank USA, 17 NY3d 565, 578 [2011] [internal quotation
marks and citation omitted]; compare Zelber v Lewoc, 6 AD3d 1043,
1044-1045 [2004]). Therefore, Supreme Court should not have
dismissed plaintiff's claim for negligent misrepresentation;
rather, consistent with the temporal limitation imposed upon
plaintiff's fraud claims, the sixteenth cause of action survives
11
Inasmuch as plaintiff only challenges Supreme Court's
dismissal of its sixteenth cause of action for negligent
misrepresentation against the PRM defendants, it abandons any
challenge to the court's dismissal of that portion of its claim
against Hodes (as counsel) (see Salzer v Benderson Dev. Co., LLC,
130 AD3d at 1229).
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as to those claims that accrued within six years of filing of the
instant action.
As to alter ego liability, plaintiff alleged that PRM,
PRMCS and the PRM individual defendants "are each the alter ego
of the other as they perform similar functions, share profits and
are both managed by Conroy." As Supreme Court's order and
amended order, as well as the parties' briefs, focus solely on
the liability of the PRM individual defendants, we need not reach
the issue as to whether plaintiff sufficiently requested a
declaratory judgment of alter ego liability against PRM and
PRMCS. Upon review of the pleadings, plaintiff asserts that
Conroy is the president of both PRM and PRMCS, and that Arney,
his predecessor, held the same positions. Plaintiff further
alleges that Bardascini, Farrell and Sorenson were owners of PRM
during unspecified periods of time. While plaintiff's
allegations that Arney and Conroy each served concurrently as
president of both PRM and PRMCS are sufficient (see ARB Upstate
Communications LLC v R.J. Reuter, L.L.C., 93 AD3d at 931), the
conclusory statements regarding Bardascini, Farrell and Sorenson
do not permit piercing the corporate veil and imposing individual
liability (see NYAHSA Servs., Inc., Self-Ins. Trust v People Care
Inc., 141 AD3d 785, 790 [2016]; Weis v Selected Meat Packers, 91
AD2d 1085, 1086 [1983]; see also CPLR 3013, 3016 [b]; see
generally Matter of Morris v New York State Dept. of Taxation &
Fin., 82 NY2d 135, 140-142 [1993]).
As to the thirty-second cause of action, plaintiff
challenges the dismissal of its common-law indemnification claim
against PRMCS; the PRM defendants contend that Supreme Court
should have dismissed the claims against PRM and the PRM
individual defendants because the Workers' Compensation Law does
not create a common duty for service providers to maintain the
solvency of a trust. Additionally, Johansmeyer and Reda contend
that the court should have dismissed the only surviving claim
against them because the complaint fails to identify specific
wrongdoings attributable to them. A plaintiff is entitled to
common-law indemnification upon "a showing that the plaintiff and
the defendant owed a duty to third parties, and that the
plaintiff discharged the duty which, as between the plaintiff and
the defendant, should have been discharged by the defendant"
-14- 522224
(Murray Bresky Consultants, Ltd v New York Compensation Manager's
Inc., 106 AD3d 1255, 1258 [2013] [internal quotation marks,
brackets and citation omitted]; see McDermott v City of New York,
50 NY2d 211, 216-217 [1980]). "Such an implied obligation may
arise from contractual relations or from the status of the
parties as a matter of law, or it may be imposed by statute"
(State of N.Y. Workers' Compensation Bd. v Madden, 119 AD3d at
1024 [internal quotation marks and citations omitted]).
Here, plaintiff, by virtue of the Workers' Compensation Law
and its enabling regulations (see Workers' Compensation Law § 50-
a; 12 NYCRR 317.9, 317.20), and PRM and PRMCS, by virtue of their
agreements with the trust, owed a common duty to the covered
employer members to ensure that the trust maintained adequate
reserves to cover employee claims. Similarly, plaintiff, by
virtue of its statutory and regulatory role, and Johansmeyer and
Reda, by virtue of the trust bylaws, owed a common duty to the
covered employer members to ensure that the trust maintained
adequate reserves such that its assets would cover its
liabilities (see New York State Workers' Compensation Bd. v
Consolidated Risk Servs., Inc., 125 AD3d at 1258-1259; State of
N.Y. Workers' Compensation Bd. v Madden, 119 AD3d at 1025; Murray
Bresky Consultants, Ltd v New York Compensation Manager's Inc.,
106 AD3d at 1258-1259; compare Germantown Cent. School Dist. v
Clark, Clark, Millis & Gilson, 294 AD2d 93, 98-99 [2002], affd
100 NY2d 202 [2003]). Plaintiff further alleged that "through no
fault of its own," breaches by Johansmeyer, Reda, PRM and PRMCS
contributed to the trust's insolvency and, thus, they should "in
the interests of justice" cover the costs that plaintiff incurred
in carrying out its obligations.
Contrary to Johansmeyer's and Reda's contentions, dismissal
of the other claims against them does not affect the viability of
plaintiff's common-law indemnification claim, and plaintiff is
not required to "specify the amount of damages attributable to
each trustee defendant's time as trustee, only that it specify
that it paid a common obligation that the trustee defendants
ought to have paid" (Murray Bresky Consultants, Ltd v New York
Compensation Manager's Inc., 106 AD3d at 1259). Accordingly,
viewing the complaint liberally and accepting its allegations as
true (see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 178
-15- 522224
[2011]), Supreme Court did not err in permitting plaintiff's
claim for common-law indemnification, as alleged in its
governmental capacity, against Johansmeyer, Reda and PRM to
proceed (see State of N.Y. Workers' Compensation Bd. v Madden,
119 AD3d at 1025; see generally City of New York v Lead Indus.
Assn., 222 AD2d 119, 125 [1996]). However, the court also should
have permitted plaintiff's claim for common-law indemnification,
as alleged in its governmental capacity, to proceed against PRMCS
as the agreement between PRMCS and the trust similarly
established such a duty. As to Arney and Conroy, this claim
should be allowed to proceed at this early stage in the
litigation for the reasons previously stated.
Finally, as to plaintiff's cross motion for leave to file a
second amended complaint, we cannot say that Supreme Court abused
its discretion in granting plaintiff leave to amend its complaint
against certain defendants; however, we modify those claims that
have been affected by our earlier determinations.12 Leave to
amend a pleading "should be freely granted in the absence of
prejudice or surprise resulting from the delay except in
situations where the proposed amendment is wholly devoid of
merit" (Edwards & Zuck, P.C. v Cappelli Enters., Inc., 124 AD3d
181, 183 [2014] [internal quotation marks and citations omitted];
accord Loch Sheldrake Beach & Tennis Inc. v Akulich, 141 AD3d
809, 811 [2016], lv dismissed ___ NY3d ___ [Dec. 22, 2016]; see
CPLR 3025 [b]).
To prevail on a claim for aiding and abetting a breach of
fiduciary duty, the cause of action must allege "(1) a breach by
a fiduciary of obligations to another, (2) that the defendant
12
Although plaintiff specifically stated in its notice of
appeal that it was appealing from, among other things, that
portion of the amended order partially denying its cross motion
for leave to amend, it failed to address in its brief Supreme
Court's denial of the proposed claims against Arney, Balaban-
Krause, Callaghan, Gosdeck, Hodes, Johansmeyer and Reda. As
such, any arguments with respect thereto are deemed abandoned
(see Wiggins v Kopko, 94 AD3d 1268, 1269 n 1 [2012]; Hoffman v
Cannone, 206 AD2d 740, 740 n [1994]).
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knowingly induced or participated in the breach, and (3) that the
plaintiff suffered damage as a result of the breach" (Kaufman v
Cohen, 307 AD2d 113, 125 [2003]; see Torrance Constr., Inc. v
Jaques, 127 AD3d 1261, 1264 [2015]). "A defendant knowingly
participates in the breach of fiduciary duty when he or she
provides substantial assistance to the fiduciary, which occurs
when a defendant affirmatively assists, helps conceal or fails to
act when required to do so, thereby enabling the breach to occur"
(Schroeder v Pinterest Inc., 133 AD3d 12, 25 [2015] [internal
quotation marks and citation omitted]; see Monaghan v Ford Motor
Co., 71 AD3d 848, 850 [2010]).
Plaintiff's proposed aiding and abetting a breach of
fiduciary duty claim against PRMCS states that PRMCS "knowingly
induced and participated in" breaches of fiduciary duties by
certain trustee defendants, PRM and the PRM individual
defendants, among others, as owed to the trust, which resulted in
monetary damages. Although we have already determined that a
breach of fiduciary duty has been adequately stated against PRM
and certain of the PRM individual defendants, we find that
Supreme Court properly determined that plaintiff's proposed claim
is insufficient as plaintiff only alleges conclusory statements
as to how PRMCS provided substantial assistance (see McBride v
KPMG Intl., 135 AD3d 576, 578-579 [2016]; see generally Roni LLC
v Arfa, 15 NY3d 826, 827 [2010]; compare Smallberg v Raich Ende
Malter & Co., LLP, 140 AD3d 942, 944 [2016]). That said, we
agree that plaintiff sufficiently alleged that the remaining
defendants who are trustees had a fiduciary duty to plaintiff,
that PRM and the PRM individual defendants knew of this duty and
participated with those trustees in administrative conduct
designed to breach that fiduciary duty and that plaintiff
sustained damages as a result. However, we limit this cause of
action as to only those defendants, i.e., Brason, Carpentar,
Cort, James Dwyer, Eichorn, Fraher, Karl Hagan, James Mahoney,
McGorry, Schaefer, Schwartz, Shames, Smith, Swanson, Tooker,
Robert Vein, Wang and Hazle Woodley, for whom a breach of
fiduciary duty claim is not time-barred, and as to the remaining
PRM individual defendants, Arney and Conroy.
Next, plaintiff's proposed aiding and abetting a breach of
fiduciary duty claim against the Phillips Lytle trustee
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defendants is based upon the theory that PRM and the PRM
individual defendants had a fiduciary duty to plaintiff, that
these defendants knew of this duty and nonetheless participated
with PRM and the PRM individual defendants in conduct designed to
breach that fiduciary duty and that plaintiff sustained damages
as a result. As we have previously determined that PRM and the
PRM individual defendants' breach of fiduciary duty claim is
subject to a three-year statute of limitations (compare Cusimano
v Schnurr, 137 AD3d 527, 530 [2016]), claims asserted against
Buckley, Flitt, Katz, Kolb, Raymond, Richards and Slifkin are
time-barred based upon the submission of their unchallenged
affidavits. However, as to the remaining Phillips Lytle trustee
defendants, we discern no error in Supreme Court's decision to
grant that branch of plaintiff's motion (compare Markowits v
Friedman, 144 AD3d 993, 996 [2016]).
Turning to plaintiff's proposed claims for aiding and
abetting fraud, the cause of action must state in detail "the
existence of an underlying fraud, knowledge of the fraud by the
aider and abettor, and substantial assistance by the aider and
abettor in the achievement of the fraud" (Nabatkhorian v
Nabatkhorian, 127 AD3d 1043, 1043 [2015]; see Weinberg v
Mendelow, 113 AD3d 485, 487-488 [2014]; see also CPLR 3016 [b]).
Affording the pleadings a liberal construction and accepting the
facts alleged as true (see Nabatkhorian v Nabatkhorian, 127 AD3d
at 1044), plaintiff's proposed claim adequately states a cause of
action against PRM and Arney and Conroy, in their individual
capacities, for aiding and abetting fraud. Specifically, the
proposed claim alleges that, among other things, these defendants
knew that PRMCS fraudulently and purposefully withheld
information or provided incorrect information in regards to the
financial condition of the trust and its compliance with
governing law, and that these defendants provided substantial
assistance by taking administrative actions to assist or conceal
such fraudulent activity (see Goldson v Walker, 65 AD3d 1084,
1084-1085 [2009]; Houbigant, Inc. v Deloitte & Touche, 303 AD2d
92, 100 [2003]). Similarly, plaintiff's proposed claim
adequately states a cause of action against PRMCS and Arney and
Conroy, in their capacities as owners or officers of PRMCS, for
aiding and abetting fraud as it alleges that these defendants
knew of fraudulent acts by PRM, among others, and provided
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substantial assistance by permitting "inherent conflicts of
interest" and through its "control over the claims administration
process" (compare Goel v Ramachandran, 111 AD3d 783, 792-793
[2013]).
In regard to the Phillips Lytle trustee defendants, to the
extent that the cause of action for aiding and abetting fraud is
based on allegations of fraudulent conduct by Buckley, Cort and
Katz, the six-year statute of limitations serves as a bar because
plaintiff commenced this action more than six years from when
these defendants ceased serving as trustees (see CPLR 213 [8];
NYAHSA Servs., Inc., Self-Ins. Trust v Recco Home Care Servs.,
Inc., 141 AD3d at 798). However, as to the remaining Phillips
Lytle trustee defendants, we agree that the proposed claim
adequately set forth that these defendants had actual knowledge
of the fraudulent acts of PRM, among others, and that they
provided substantial assistance to the commission of the fraud
through their actions as trustees (see Goldson v Walker, 65 AD3d
at 1085; compare Winkler v Battery Trading, Inc., 89 AD3d 1016,
1017-1018 [2011]). The parties' remaining contentions, to the
extent not specifically addressed, have been examined and found
to be lacking in merit.
Garry, J.P., Rose, Devine and Mulvey, JJ., concur.
ORDERED that the order and amended order are modified, on
the law, without costs, by reversing so much thereof as (1)
granted a motion by defendants Program Risk Management, Inc., PRM
Claims Services, Inc., Thomas Arney, Colleen Bardascini, John M.
Conroy, Gail Farrell and Edward Sorenson to dismiss (a) the
sixteenth cause of action against them, (b) the twenty-fifth
cause of action against defendants Thomas Arney and John M.
Conroy, and (c) the thirty-second cause of action against
defendants PRM Claims Services, Inc., Thomas Arney and John M.
Conroy (in their individual capacities), and (2) granted
plaintiff's motion for leave to amend its complaint to assert
proposed causes of action for aiding and abetting breach of
fiduciary duty and fraud against certain defendants; said motions
denied and plaintiff's causes of action are correspondingly
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limited to the extent set forth in this Court's decision; and, as
so modified, affirmed.
ENTER:
Robert D. Mayberger
Clerk of the Court