Accredited Aides Plus, Inc. v. Program Risk Management, Inc. , 46 N.Y.S.3d 246 ( 2017 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: January 5, 2017 522231
________________________________
ACCREDITED AIDES PLUS, INC.,
et al.,
Respondents-
Appellants,
v
PROGRAM RISK MANAGEMENT, INC., OPINION AND ORDER
et al.,
Appellants-
Respondents,
and
PHYLLIS WANG et al.,
Respondents,
et al.,
Defendants.
________________________________
Calendar Date: October 13, 2016
Before: Garry, J.P., Egan Jr., Rose 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.
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.
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Barclay Damon, LLP, Albany (David M. Cost of counsel), for
Accredited Aides Plus, Inc. and others, respondents-appellants.
Hinman Straub PC, Albany (Joseph M. Dougherty of counsel),
for New York State Workers' Compensation Board, 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.
__________
Garry, J.P.
Cross appeal from an order of the Supreme Court (McNamara,
J.), entered March 2, 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 trust 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 and
defendant PRM Claim Services, Inc. (hereinafter PRMCS) to serve
as its claims administrator (see 12 NYCRR 317.2 [d]). Defendants
Thomas B. Arney, Carolyn Arney, Colleen Bardascini, John Conroy,
Gail Farrell and Edward Sorenson (hereinafter collectively
referred to as the PRM individual defendants) served in various
capacities at PRM. Defendants Todd Brason, Thomas Buckley,
Kenrick Cort, Gwen Eichorn, Carmen Flitt, John Fraher, Sandy
Katz, Robert Kolb, Timothy McGorry, Phyllis Raymond, Robin
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Richards, Gregory Schaefer, Jordan Shames, David Slifkin, Suzanne
Smith and Richard Swanson (hereinafter collectively referred to
as the Phillips Lytle trustee defendants), as well as defendants
Robert Callaghan, Nelson Carpentar, Laura Donaldson, Ronald
Field, Albert Johansmeyer, James Mahoney, Michael Reda and Joel
Hodes,1 each served as trustees during various periods of the
trust's existence.
In 2009, plaintiff New York State Workers' Compensation
Board (hereinafter the Board) assumed the administration of the
trust after determining that it was insolvent (see 12 NYCRR
317.20). A subsequent forensic analysis allegedly revealed that
the trust had an accumulated deficit of over $188 million.
Thereafter, the Board assessed employer members for certain trust
deficiencies – including plaintiffs Accredited Aides Plus, Inc.,
Attentive Care, Inc., Caring Enterprises, Inc., Community Care of
Western New York, Inc. and Heart to Heart Home Care, LLC
(hereinafter collectively referred to as the health care provider
plaintiffs) – as well as certain other employer members of the
trust (hereinafter collectively referred to as the assignor
plaintiffs). The health care provider plaintiffs entered into a
monthly payment agreement with the Board in exchange for a
temporary standstill of demands for the full deficit amount.
In June 2011, the health care provider plaintiffs and the
assignor plaintiffs commenced this action, as amended in 2012 and
2013, alleging 35 causes of action sounding in, among other
things, breach of contract, breach of the duty of good faith and
fair dealing, breach of fiduciary duty, fraud, fraud in the
inducement, conversion, unjust enrichment, negligent
misrepresentation, violations of General Business Law §§ 349 and
350, negligence, gross negligence, alter ego liability, an
accounting and indemnification. In 2012, the health care
provider plaintiffs, the assignor plaintiffs and the Board
entered into a joint stipulation recognizing that the Board, as a
successor in interest of the trust and in its governmental
capacity, had commenced a separate action against many of the
1
Hodes was a trustee and also served as legal counsel to
the trust.
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same defendants, arising out of common questions of fact and law
and raising similar claims (State of N.Y. Workers' Compensation
Bd. v Wang, ___ AD3d ___ [decided herewith]). The parties
stipulated that discovery and trial would be conducted jointly in
the two actions. They further agreed, as pertinent here, that
the Board would have sole standing to pursue claims on behalf of
the trust in its action, while the causes of action in the
instant action would be limited to "only non-derivative or non-
associational direct or third-party beneficiary claims."
Thereafter, the health care provider plaintiffs continued to
pursue their claims in the instant action, while the assignor
plaintiffs entered into settlement agreements and transferred
their interests to the Board, which was later substituted as a
plaintiff in the instant action as a successor in interest to the
assignor plaintiffs (see CPLR 1018).
PRM, PRMCS and the PRM individual defendants (hereinafter
collectively referred to as the PRM defendants) moved to dismiss
the complaint on various grounds. Certain trustee defendants
likewise filed motions to dismiss the complaint, and Hodes moved
for dismissal both in his capacity as a trustee and as counsel.2
The health care provider plaintiffs and the assignor plaintiffs
opposed defendants' motions to dismiss and cross-moved for leave
to amend the complaint to include a breach of contract claim
against the trustee defendants.
Supreme Court partially granted the motions, dismissing
causes of action asserted against the trustee defendants for
breach of fiduciary duty, conversion, unjust enrichment,
negligence and gross negligence, but refusing to dismiss a
common-law indemnification claim against them. With respect to
2
The Philips Lytle trustee defendants moved collectively
for dismissal, as did Callaghan, Donaldson and Field.
Johansmeyer and Reda moved separately for dismissal, but filed a
joint notice of appeal and appellate brief. Claims against
Hodes, in his capacity as trustee, are treated together with
claims against the other trustee defendants, but claims against
Hodes, in his capacity as counsel to the trust, are discussed
individually.
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the causes of action for breach of contract, breach of the duty
of good faith and fair dealing, an accounting, contractual
indemnification, breach of fiduciary duty, fraud, fraud in the
inducement, conversion, unjust enrichment and gross negligence,
the court dismissed said claims against those specific defendants
named in each, i.e., PRM, PRMCS, the PRM individual defendants
and/or Hodes in his capacity as counsel. Additionally, the court
dismissed all of the remaining claims against Hodes in his
capacity as counsel. Plaintiffs' causes of action for negligent
misrepresentation, violations of General Business Law §§ 349 and
350 and negligence against various defendants were dismissed, but
the court declined to dismiss their claim of alter ego liability
against the PRM defendants. The court dismissed plaintiffs'
cause of action for common-law indemnification against PRMCS, but
permitted the claim to proceed against the trustee defendants,
PRM and the PRM individual defendants. Finally, the court
permitted plaintiffs to amend the complaint to add a breach of
contract claim against the trustee defendants to the extent that
the claims accrued within six years of the action's commencement.
Johansmeyer and Reda, collectively, the PRM defendants and the
Phillips Lytle trustee defendants now appeal, and the health care
provider plaintiffs and the Board cross-appeal.
As an initial matter, we find it necessary to distinguish
this case from the Board's companion action, State of N.Y.
Workers' Compensation Bd. v Wang (supra), which is the subject of
the stipulation described above. In Wang, the Board proceeds as
a successor in interest to the trust and, therefore, has standing
to maintain any claims that the trust could have asserted (see
id. at slip op p 6; State of N.Y. Workers' Compensation Bd. v
Madden, 119 AD3d 1022, 1024 [2014]). In the current action, by
contrast, the Board proceeds as successor in interest to the
assignor plaintiffs and may assert claims to the extent that
these plaintiffs had standing to raise them (see generally CPLR
1018). The stipulation's provision that the instant action will
be limited to direct claims and those claims arising from
employer members' status as third-party beneficiaries reflects
this distinction.
Turning first to the issue of status, Supreme Court
determined that employer members were not intended to be the
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third-party beneficiaries of the trust's agreements with PRM and
PRMCS and thus dismissed plaintiffs' claims of breach of
contract, breach of the duty of good faith and fair dealing and
contractual indemnification as derivative. Noting our obligation
at this stage of the litigation to "afford the complaint a
liberal construction, accept the facts as 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" (Torok v Moore's Flatwork &
Founds., LLC, 106 AD3d 1421, 1421 [2013] [internal quotation
marks and citation omitted]), we reach a different conclusion.
This Court recently held that an employer member of a group
self-insured trust successfully alleges third-party beneficiary
status by asserting "(1) the existence of a valid and binding
contract between [the trust and its administrators], (2) that the
contract was intended for [the employer member's] benefit, and
(3) that the benefit to [the employer member] is sufficiently
immediate to indicate the assumption by [the trust and its
administrators] of a duty to compensate it if the benefit is
lost" (NYAHSA Servs., Inc., Self-Ins. Trust v Recco Home Care
Servs., Inc., 141 AD3d 792, 797 [2016]; see NYAHSA Servs., Inc.,
Self-Ins. Trust v People Care Inc., 141 AD3d 785, 790 [2016]).
Plaintiffs' cause of action for breach of contract against PRM is
premised upon the theory that, in view of the trust's purpose to
provide employer members with affordable workers' compensation
coverage, such employer members were necessarily intended to
benefit from the trust's agreements with administrators, and that
PRM deprived plaintiffs of this benefit when it allegedly
breached its contractual duties. The cause of action for breach
of contract against PRM specifically alleges that employer
members were the express and intended beneficiaries of PRM's
agreements with the trust. Further, the agreements between PRM
and the trust expressly provide that PRM was obligated to
indemnify the trust and its members for loss sustained due to,
among other things, "any and all claims, losses [and] liabilities
. . . arising out of" acts or omissions by PRM (see NYAHSA
Servs., Inc., Self-Ins. Trust v People Care Inc., 141 AD3d at
790-791; see also Board of Educ. of Northport-E. Northport Union
Free Sch. Dist. v Long Is. Power Auth., 130 AD3d 953, 955
[2015]).
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The cause of action against PRMCS for breach of contract
makes comparable assertions, and the claims services agreements
provide that PRMCS was obligated to indemnify the trust for loss
sustained due to, among other things, "any claims . . . arising
out of the acts or omissions of [PRMCS] . . . in connection with
or relating to this [a]greement and the duties and
responsibilities of [PRMCS]." Given the liberal construction
that must be afforded to the pleadings at this juncture (see CPLR
3026), we find that these causes of action successfully allege
plaintiffs' status as intended rather than incidental third-party
beneficiaries (see NYAHSA Servs., Inc., Self-Ins. Trust v Recco
Home Care Servs., Inc., 141 AD3d at 797; NYAHSA Servs., Inc.,
Self-Ins. Trust v People Care Inc., 141 AD3d at 790; Board of
Educ. of Northport-E. Northport Union Free Sch. Dist. v Long Is.
Power Auth., 130 AD3d at 954-956). Although plaintiffs
adequately pleaded the elements necessary for breach of contract
claims as alleged against PRM and PRMCS (see Hyman v Schwartz,
127 AD3d 1281, 1283 [2015]; New York State Workers' Compensation
Bd. v SGRisk, LLC, 116 AD3d 1148, 1153 [2014]), we limit the
claims to those that accrued within the six-year limitations
period before this action was commenced (see CPLR 213 [2];
Kosowsky v Willard Mtn., Inc., 90 AD3d 1127, 1131 [2011]; see
also New York State Workers' Compensation Bd. v SGRisk, LLC, 116
AD3d at 1153).
For the same reasons, and liberally construing the facial
sufficiency of the complaint (see 12 Baker Hill Rd., Inc. v
Miranti, 130 AD3d 1425, 1426 [2015]), we find that plaintiffs
adequately alleged their standing as third-party beneficiaries to
assert a claim for breach of the duty of good faith and fair
dealing against PRM and PRMCS by asserting that they committed
various acts that had "the effect of destroying or injuring the
right of [plaintiffs, as third party beneficiaries,] to receive
the fruits of the contract[s]" (511 W. 232nd Owners Corp. v
Jennifer Realty Co., 98 NY2d 144, 153 [2002] [internal quotation
marks and citations omitted]). Accordingly, Supreme Court should
have permitted this cause of action to proceed subject to the
six-year statute of limitations (see CPLR 213 [2]; Liberman v
Worden, 268 AD2d 337, 339 [2000]). Likewise, as plaintiffs
adequately alleged that PRM and PRMCS owed direct contractual
duties to plaintiffs as third-party beneficiaries, we reverse the
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dismissal of their contractual indemnification cause of action
(see generally Duffina v County of Essex, 111 AD3d 1035, 1039-
1040 [2013]).
With regard to plaintiffs' motion to amend the complaint,
we find that they stated a breach of contract claim against the
trustee defendants as third-party beneficiaries of the trust
agreements and bylaws (see Murray Bresky Consultants, Ltd v New
York Compensation Manager's Inc., 106 AD3d 1255, 1261 [2013]).
Plaintiffs alleged in their third amended complaint that they
were the "express and intended beneficiaries" of the trust's
agreements and bylaws that required the trustee defendants to
perform certain duties for plaintiffs' benefit, and that, when
the trustee defendants breached these obligations, plaintiffs
were consequentially injured by unpaid employee claims and other
damages. The pertinent agreements outline the trustees' powers,
duties to supervise and operate the trust, and obligations to
conduct the trust's activities in accordance with the agreements
and applicable statutes and regulations. As such, Supreme Court
did not abuse its discretion in granting plaintiffs' motion to
add those timely portions of the proposed breach of contract
claim (see generally CPLR 3025 [b]; Edwards & Zuck, P.C. v
Cappelli Enters., Inc., 124 AD3d 181, 183 [2014]; Albany-
Plattsburgh United Corp. v Bell, 307 AD2d 416, 420 [2003], lv
dismissed and lv denied 1 NY3d 620 [2004]).
Turning now to plaintiffs' noncontractual claims, Supreme
Court dismissed many of these causes of action upon determining
that they belonged in the first instance to the trust rather than
to the employer members and were thus derivative rather than
direct. The distinction between derivative and direct claims is
grounded upon the principle that a stockholder does not have an
individual cause of action that derives from harm done to the
corporation, but may bring a direct claim when "the wrongdoer has
breached a duty owed directly to the shareholder which is
independent of any duty owing to the corporation" (Serino v
Lipper, 123 AD3d 34, 39 [2014]; see Lawrence Ins. Group v KPMG
Peat Marwick, 5 AD3d 918, 919 [2004]). In determining whether a
claim is direct or derivative, a court must "look to the nature
of the wrong and to whom the relief should go" and should
consider "(1) who suffered the alleged harm (the corporation or
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the suing stockholders, individually); and (2) who would receive
the benefit of any recovery or other remedy (the corporation or
the stockholders, individually)" (Yudell v Gilbert, 99 AD3d 108,
114 [2012] [internal quotation marks and citations omitted]; see
Maldonado v DiBre, 140 AD3d 1501, 1503-1504 [2016], lv denied ___
NY3d ___ [Nov. 21, 2016]).
The analysis applicable to derivative actions against
corporations has been held to apply to trusts (see Velez v
Feinstein, 87 AD2d 309, 314-315 [1982], lvs dismissed and denied
57 NY2d 605, 737 [1982]). Plaintiffs nevertheless contend that
Supreme Court erred in applying it here, as, unlike corporate
stockholders or trust beneficiaries, the employer members of a
group self-insured trust are not shielded from liabilities, but
are instead legally subject to joint and several liability for
the trust's deficits (see Workers' Compensation Law § 50 [3-a]
[3]). However, this does not require us to set aside the legal
distinction here between derivative and direct claims. First, as
discussed, plaintiffs have stipulated that – in view of the
Board's parallel action – the instant action will be confined
solely to direct claims. Notably, plaintiffs do not argue that
their prior agreement to abide by this distinction was coerced,
involuntary or otherwise invalid, or that the Board is not
abiding by its side of the agreement. Moreover, just as the
trust's deficits are eventually passed through to employer
members as assessments by the Board, any recovery by the Board
upon its claims on behalf of the trust will benefit the employer
members by reducing the trust's deficit and the employer members'
corresponding liabilities. Thus, the stipulated allocation of
direct and derivative claims between the parties does not
ultimately deprive plaintiffs of relief by claims that are deemed
to be derivative. Moreover, plaintiffs cannot satisfy the legal
requirements applicable to derivative claims as, given the
Board's action in Wang, they cannot prove – and do not allege –
the existence of demand futility, which "relieves courts of
unduly intruding into matters of corporate governance by first
allowing the directors themselves to address the alleged abuses"
(Bansbach v Zinn, 1 NY3d 1, 9 [2003]; see Yudell v Gilbert, 99
AD3d at 114-115). Accordingly, we turn to consideration of the
direct or derivative nature of the remaining causes of action.
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Beginning with the claims asserted against the trustee
defendants, we agree with Supreme Court that the causes of action
for conversion, unjust enrichment, breach of fiduciary duty,
negligence and gross negligence are derivative. These claims are
limited to allegations of harm caused to the trust by alleged
mismanagement of the trust's affairs, and do not include claims
that the trustee defendants breached any duties owed to the
employer members independently of those owed to the trust (see
Abrams v Donati, 66 NY2d 951, 953 [1985]; Maldonado v DiBre, 140
AD3d at 1504-1505; Serino v Lipper, 123 AD3d at 39-40; Jobson v
Progno, 100 AD3d 1407, 1407-1408 [2012]). We further agree with
Supreme Court's refusal to dismiss the cause of action against
the trustee defendants for common-law indemnification, which
arises "where a plaintiff has discharged a duty which is duly
owed, but which, as between the plaintiff and another, in
fairness should have been discharged by the other" (State of N.Y.
Workers' Compensation Bd. v Madden, 119 AD3d at 1023). The cause
of action alleges a direct rather than derivative injury in that
the claimed harm was suffered by plaintiffs, and they will
receive the benefit of any recovery (see Maldonado v DiBre, 140
AD3d at 1503-1504). The court correctly determined that
"plaintiff[s] ha[ve] a cause of action against the trustee
defendants, given their common duty to plaintiff[s'] covered
employees and to the [Board] to maintain adequate reserves in the
trust so that it was adequately funded and its assets would cover
its liabilities" (Murray Bresky Consultants, Ltd v New York
Compensation Manager's Inc., 106 AD3d at 1258-1259; see 12 NYCRR
317.9 [b] [7]; New York State Workers' Compensation Bd. v Marsh
U.S.A., Inc., 126 AD3d 1085, 1087 n 5 [2015]; State of N.Y.
Workers' Compensation Bd. v Madden, 119 AD3d at 1025).
As for the noncontractual claims pertaining to the PRM
defendants, we agree with Supreme Court, for the reasons
previously discussed in connection with the trustee defendants,
that the causes of action for conversion, breach of fiduciary
duty and unjust enrichment are derivative. Likewise, the cause
of action for an accounting against PRM and PRMCS is limited to
allegations related to trust assets and harm allegedly done to
the trust, and the claims of negligence and gross negligence
against the PRM defendants seek to redress harm done to the
trust. As pleaded, all of these claims were properly dismissed.
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We agree with Supreme Court that plaintiffs' claims against
the PRM defendants under General Business Law §§ 349 and 350 are
direct rather than derivative. Plaintiffs' claims that the PRM
defendants unlawfully disseminated materially misleading
information about the trust to employers seeking workers'
compensation coverage, and that plaintiffs relied upon this
information in joining the trust, are addressed to plaintiffs'
rights as individual entities and are premised on duties
independent of those owed to the trust (see Maldonado v DiBre,
140 AD3d at 1503-1504). We nevertheless disagree with the
court's dismissal of this claim, which was based upon its
determination that plaintiffs failed to allege more than a
private contractual dispute. We find that plaintiffs adequately
met the threshold requirement of alleging that the PRM
defendants' "actions and practices were directed at or had a
broader impact on consumers at large" (Argyle Farm & Props., LLC
v Watershed Agric. Council of the N.Y. City Watersheds, Inc., 135
AD3d 1262, 1266 [2016] [internal quotation marks and citation
omitted]; see Elacqua v Physicians' Reciprocal Insurers, 52 AD3d
886, 888 [2008]). Specifically, plaintiffs alleged that the PRM
defendants "made materially misleading statements" through
advertisements, marketing materials and its website that were
"released to the general public," "target[ed] employers seeking
workers' compensation coverage" and "[were] likely to mislead
reasonable employers." Plaintiffs further alleged that this
deceptive behavior harmed plaintiffs and other trust members and
that "their actions have jeopardized the workers' compensation
benefits of New York employers and their employees." The conduct
of business organizations may be found to be consumer-oriented
where it is alleged that consumers at large may potentially be
affected (see State of N.Y. Workers' Compensation Bd. v 26-28
Maple Ave., Inc., 80 AD3d 1135, 1136 [2011]). Liberally
construed, this cause of action should not have been dismissed at
this juncture, to the extent that the claims accrued within the
three-year statute of limitations (see CPLR 214 [2]; 84 Lbr. Co.,
L.P. v Barringer, 110 AD3d 1224, 1226-1227 [2013]; see also
Benetech, Inc. v Omni Fin. Group, Inc., 116 AD3d 1190, 1191
[2014], lv denied 23 NY3d 909 [2014]).
We disagree with Supreme Court as to plaintiffs' claims for
fraud and fraud in the inducement against the PRM defendants and
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for negligent misrepresentation against PRM and the PRM
individual defendants, finding that these causes of action allege
direct rather than derivative harm and that the direct claims are
not so "confused or embedded within the derivative claim[s]" as
to require dismissal (Maldonado v DiBre, 140 AD3d at 1504
[internal quotation marks and citation omitted]). The causes of
action are premised upon the theory that the PRM defendants
misrepresented material facts pertaining to, among other things,
the trust's solvency in order to induce plaintiffs to join the
trust and continue their membership. Allegations of harm caused
to the trust by the PRM defendants' alleged mismanagement are
necessarily included in order to explain the nature of the
alleged misrepresentations made to plaintiffs and the harm
allegedly caused thereby. However, the claims, read as a whole,
are directed at the harm that these misrepresentations allegedly
caused to plaintiffs, independently of the separate harm caused
to the trust, and "the thrust of [each cause of] action is to
vindicate [plaintiffs'] personal rights" rather than to obtain
redress on behalf of the trust (id.). Thus, liberally construed,
the claims are neither "wholly derivative" nor so confused or
inextricably entangled with derivative claims as to require
dismissal (Health Acquisition Corp. v Program Risk Mgt., Inc.,
105 AD3d 1001, 1005 [2013]; see Serino v Lipper, 123 AD3d at 41).
Further, for purposes of CPLR 3211 (a) (7), the fraud
causes of action sufficiently alleged duties to plaintiffs
independent from the alleged failure of the PRM defendants to
perform the terms of their contracts with the trust.
Specifically, plaintiffs alleged, among other things, that, in
order to influence their decision to join and induce their
continued participation in the trust, the PRM defendants
"misrepresented and omitted material facts known to be false that
were related to the trust's financial solvency, the risk of
membership in the trust and [the PRM defendants'] capacity – all
of which [plaintiffs] relied upon to [their] financial detriment"
(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]). Additionally, we find that, liberally construed, the
complaint adequately alleges "the required element[] of
near-privity" to support the cause of action for negligent
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misrepresentation (Health Acquisition Corp. v Program Risk Mgt.,
Inc., 105 AD3d at 1004 [internal quotation marks omitted]; see
Greenberg, Trager & Herbst, LLP v HSBC Bank USA, 17 NY3d 565, 578
[2011]). Accordingly, Supreme Court should not have dismissed
these causes of action. Consistent with our decision in State of
N.Y. Workers' Compensation Bd. v Wang (supra), we reinstate them
to the extent that they accrued within six years of the
commencement of this action (id. at slip op pp 12-13).
Based upon our other determinations herein, the cause of
action requesting a declaratory judgment of alter ego liability
against the PRM defendants should no longer be limited to the
causes of action for common-law indemnification and claims under
General Business Law §§ 349 and 350. Plaintiffs sufficiently
alleged in a nonconclusory manner that "common ownership" of PRM
and PRMCS "created a conflict of interest" and that the PRM
defendants "colluded to maximize their return at the expense of
[plaintiffs]" (see 2406-12 Amsterdam Assoc. LLC v Alianza LLC,
136 AD3d 512, 512-513 [2016]; MPEG LA, L.L.C. v GXI Intl., LLC,
126 AD3d 641, 642 [2015]). Therefore, consistent with this
Court's decision, plaintiffs' claim for alter ego liability
should be expanded to encompass the additional surviving claims
asserted against the PRM defendants.
Plaintiffs also challenge the dismissal of their cause of
action for common-law indemnification against PRMCS, and the PRM
defendants counter that Supreme Court should also have dismissed
the claims against PRM and the PRM individual defendants because
they allegedly did not have a statutory or contractual obligation
to maintain the solvency of the trust. Liberally construed and
granting plaintiffs the benefit of every favorable inference, the
complaint sufficiently alleges that plaintiffs, by virtue of the
indemnification clauses of the trust agreements and the Workers'
Compensation Law and its enabling regulations (see Workers'
Compensation Law § 50 [a]; 12 NYCRR 317.9 [b] [7]), and PRM and
PRMCS, by virtue of their agreements with the trust, owed a
common duty to ensure that the trust maintained adequate reserves
to cover employee claims (compare HANYS Servs. v Empire Blue
Cross & Blue Shield, 292 AD2d 61, 65-66 [2002], lv denied 98 NY2d
612 [2002]). Therefore, while Supreme Court properly denied the
motions for dismissal with regard to PRM, it should not have
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dismissed the same claim against PRMCS. Moreover, in light of
our finding that plaintiffs sufficiently alleged a cause of
action for alter ego liability, Supreme Court properly allowed
the claim for common-law indemnification as alleged against the
PRM individual defendants to proceed.
Turning finally to the claims asserted against Hodes in his
capacity as counsel to the trust, the claims of breach of
fiduciary duty, conversion and unjust enrichment are derivative
in that they allege no breach of any duty owed by Hodes to
plaintiffs independently of the duties he owed to the trust. For
the same reason, the causes of action against Hodes for
professional negligence and gross negligence are derivative.
Further, given our previous conclusion that the claim that the
trustee defendants breached a fiduciary duty is derivative, the
related cause of action alleging that Hodes knowingly aided and
abetted this breach by the trustee defendants is also derivative
and must fail (see generally Torrance Constr., Inc. v Jaques, 127
AD3d 1261, 1264 [2015]; Kaufman v Cohen, 307 AD2d 113, 125
[2003]).
The cause of action for common-law indemnification against
Hodes as counsel was properly dismissed because plaintiffs failed
to allege that Hodes violated a shared duty to ensure the trust's
solvency; instead, the complaint alleged that Hodes owed and
breached duties to the trust to provide various professional
legal services (see State of N.Y. Workers' Compensation Bd. v
Madden, 119 AD3d at 1024; see also Lovino, Inc. v Lavallee Law
Offs., 96 AD3d 909, 909-910 [2012]; Jakobleff v Cerrato, Sweeney
& Cohn, 97 AD2d 786, 786 [1983]). Further, the causes of action
against Hodes for fraud, fraud in the inducement and negligent
misrepresentation, unlike the similar claims against the PRM
defendants, impermissibly intermingle derivative claims that
allege harm to the trust's management and financial condition.
These claims against Hodes are almost wholly addressed to harm
caused to the trust by Hodes' alleged improper selection of
trustees, knowledge of improper use of member premiums, failure
to monitor the trust's affairs and other alleged acts and
omissions. While a direct allegation is included that Hodes
induced plaintiffs to join the trust by, among other things,
providing false and misleading information about the trust's
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resulting financial condition, this claim is "inextricably
embedded in the derivative claim[s]" against the trust (Serino v
Lipper, 123 AD3d at 41; compare Craven v Rigas, 85 AD3d 1524,
1527 [2011], appeal dismissed 17 NY3d 932 [2011]).3 Accordingly,
these claims were properly dismissed.
The parties' remaining contentions, to the extent not
specifically addressed, have been examined and found to be
lacking in merit.
Egan Jr., Rose and Mulvey, JJ., concur.
ORDERED that the order is 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 B. Arney, Carolyn Arney, Colleen Bardascini, John
Conroy, Gail Farrell and Edward Sorenson to dismiss (a) the
first, second, fifth, tenth, fifteenth, seventeenth and thirty-
fourth causes of action against them, and (b) the thirty-fifth
cause of action against defendant PRM Claims Services, Inc., and
(2) limited the twenty-eighth cause of action to claims for
common-law indemnification and General Business Law §§ 349 and
350; motion denied to said extent, reinstate the twenty-eighth
cause of action in its entirety, and plaintiffs' causes of action
3
We further note that the negligent misrepresentation
cause of action was subject to dismissal in any event. Even
liberally construed, it was not supported by the requisite
allegation of "actual privity or a relationship that otherwise
closely resembles privity" (AG Capital Funding Partners, L.P. v
State St. Bank & Trust Co., 5 NY3d 582, 595 [2005]).
-16- 522231
are correspondingly limited to the extent set forth in this
Court's decision; and, as so modified, affirmed.
ENTER:
Robert D. Mayberger
Clerk of the Court