Accredited Aides Plus, Inc. v. Program Risk Mgmt., Inc.

• Decision Date: 05 January 2017
• Citation: 147 A.D.3d 122,2017 N.Y. Slip Op. 00058,46 N.Y.S.3d 246
• Parties: ACCREDITED AIDES PLUS, INC., et al., Respondents–Appellants, v. PROGRAM RISK MANAGEMENT, INC., et al., Appellants–Respondents, and Phyllis Wang, et al., Respondents, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

147 A.D.3d 122

46 N.Y.S.3d 246

2017 N.Y. Slip Op. 00058

ACCREDITED AIDES PLUS, INC., et al., Respondents–Appellants,

v. PROGRAM RISK MANAGEMENT, INC., et al., Appellants–Respondents,andPhyllis Wang, et al., Respondents, et al., Defendants.

Supreme Court, Appellate Division, Third Department, New York.

Jan. 5, 2017.

Miranda Sambursky Slone Sklarin Verveniotis LLP, Mineola (Maurizio Savoiardoof 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.

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.

Before: GARRY, J.P., EGAN JR., ROSE and MULVEY, JJ.

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 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 same defendants, arising out of common questions of fact and law and raising similar claims (State of N.Y. Workers' Compensation Bd. v. Wang, ––– A.D.3d ––––, 46 N.Y.S.3d 230, 2017 WL 52820 [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 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 A.D.3d 1022, 1024, 989 N.Y.S.2d 156 [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 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 A.D.3d 1421, 1421, 966 N.Y.S.2d 572 [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...