Azby Brokerage, Inc. v. Allstate Ins. Co.

• Citation: 681 F. Supp. 1084
• Decision Date: 16 March 1988
• Docket Number: No. 85 Civ. 3594 (RJW).,85 Civ. 3594 (RJW).
• Parties: AZBY BROKERAGE, INC. d/b/a Shell-bank Brokerage of Brooklyn, Inc., and Har-Lem Brokerage, Inc. on behalf of themselves and all other insurance brokers similarly situated, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

681 F. Supp. 1084

AZBY BROKERAGE, INC. d/b/a Shell-bank Brokerage of Brooklyn, Inc., and Har-Lem Brokerage, Inc. on behalf of themselves and all other insurance brokers similarly situated, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

No. 85 Civ. 3594 (RJW).

United States District Court, S.D. New York.

March 16, 1988.

Weg and Myers, P.C., New York City, for plaintiffs; Frank A. Weg, Ira M. Myers, Dennis T. D'Antonio, Jonathan A. Murphy, of counsel.

Cahill Gordon & Reindel, New York City, for defendant; Charles Platto, Kevin Burke, Jacqueline McCarthy, William Jacobson, Thomas McCaffrey, Seth Goodchild, of counsel.

OPINION

ROBERT J. WARD, District Judge.

Defendant Allstate Insurance Company ("Allstate") has moved pursuant to Rule 12(b)(6), Fed.R.Civ.P., for an order dismissing the complaint. For the reasons that follow, defendant's motion is granted in part and denied in part.

BACKGROUND

The instant action was stayed by this Court on the ground of primary jurisdiction, see Azby Brokerage, Inc. v. Allstate Insurance Co., 637 F.Supp. 382 (S.D.N.Y. 1986), and placed on the Court's suspense docket pending presentation to the appropriate state administrative tribunals. Following a year and one half of state proceedings, the case has been restored to the Court's active docket. In addition to the original motion to dismiss for failure to state a claim, defendant now asserts as a ground of dismissal plaintiffs' failure to make a good faith effort to pursue their administrative remedies. Defendant further asks the Court to defer to the findings of the New York Automobile Insurance Plan ("NYAIP" or "the Plan"), arrived at after an informal hearing by the Plan's Appeals Subcommittee.

Plaintiffs Azby Brokerage, Inc. ("Azby"), Shellbank Brokerage, Inc. ("Shellbank"), and Har-lem Brokerage, Inc. ("Har-lem") are insurance brokers licensed to do business in New York.¹ In this action, they purport to represent themselves and all brokers similarly situated. Defendant is an Illinois corporation with its principal place of business in that state. This action arises out of the parties' participation in the NYAIP. Rather than recite the facts at length, the Court assumes familiarity with the facts set out in its prior opinion. Id. at 383-84.

Briefly, plaintiffs allege that defendant has "maliciously `pirated' away" high risk automobile insurance accounts and commissions and assigned them to Allstate-affiliated brokers, in some cases without the consent of the insured. Complaint at 4. Based on these allegations, plaintiffs assert against defendant claims of prima facie tort, intentional interference with contractual relations, and deceptive acts and practices in the conduct of a business under section 349(h) of the New York General Business Law (McKinney Supp.1988).

Since the action was placed on the suspense docket in April, 1986, plaintiffs have sought administrative review in three forums, beginning with the NYAIP. Although the agency conceded that it had no right of review over the matter,² it agreed to review plaintiffs' claims because they were a "subject of concern to the Plan." Letter of Martin J. Hertz, counsel for NYAIP, to Ira M. Myers, attorney for plaintiffs (May 7, 1986). The investigatory-type hearing before the Appeals Subcommittee of NYAIP was limited, with no witnesses allowed. Plaintiffs submitted factual summaries with exhibits demonstrating six instances of alleged abuse, and defendant submitted an opposing memorandum and affidavits. Counsel for both parties presented argument and answered questions. Following the hearing, the Governing Committee rendered a one-page report, based on the recommendation of the Subcommittee, stating that the evidence presented "failed to demonstrate a basis for any action against Allstate." Report of the Governing Committee of the NYAIP (Apr. 29, 1987).

Plaintiffs' request for review of the NYAIP determination by the Superintendent of Insurance was denied for lack of standing. Their Article 78 petition in Supreme Court, New York County, was denied on the same ground. According to the state court, the NYAIP took no action subject to review under Article 78 of the CPLR. The NYAIP did not fail to perform a duty or proceed in excess of its jurisdiction. "The decision of the PLAN was not reached after a judicial type hearing and the applicable statutes did not require a review of any sort." Azby Brokerage, Inc. v. Corcoran, Index No. 21024-87, at 3 (N.Y.Sup.Ct.N.Y.Co. Sept. 22, 1987) (citing CPLR § 7803 (McKinney 1981)).

DISCUSSION

This Court's role on a motion to dismiss for failure to state a claim is a limited one: it must accept plaintiffs' well-pleaded allegations at face value, Heit v. Weitzen, 402 F.2d 909, 913 (2d Cir.1968), cert. denied, 395 U.S. 903, 89 S.Ct. 1740, 23 L.Ed.2d 217 (1969), construe the allegations in the complaint in plaintiffs' favor, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), and dismiss the complaint only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

A. Administrative Tribunal Claims

As grounds for dismissal, defendant claims on the one hand that plaintiffs made a halfhearted attempt at review by state agencies, and on the other, that this Court should defer to the NYAIP's findings in favor of Allstate. Defendant does not set forth the legal theories upon which these contentions are based,³ but in any event, the record does not support either of them.

In the Court's view, plaintiffs have pursued all administrative remedies reasonably available to them. Contrary to defendant's implication, exhaustion of administrative remedies is not a prerequisite for review by the district court. As the Court stated earlier, "where the agency action being challenged is plainly beyond the agency's jurisdiction, or where the administrative remedies available are plainly inadequate," exhaustion is not required. Azby Brokerage, Inc., supra, 637 F.Supp. at 385 (citations omitted).

Plaintiffs have encountered several obstacles in the past year and one half. Although the NYAIP, as the agency charged with overseeing this area of the insurance business, gave a limited, informal hearing to plaintiffs' claims, neither the agency, nor the Superintendent of Insurance, nor the Article 78 Court had statutory jurisdiction over the matter.⁴ Given the lack of jurisdiction and the circumscribed quality of review, plaintiffs' administrative remedies have proved to be inadequate. Indeed, the only guidance provided by the administrative tribunals was the Article 78 Court's statement that plaintiffs "now have an opportunity to fully litigate this question in federal court." Azby Brokerage, Inc. v. Corcoran, supra, at 3. That plaintiffs might have pursued their administrative remedies with more vigor is not sufficient basis for dismissal. The procedural history of this case indicates that greater alacrity would only have led to the same, albeit earlier, disposition in this Court. At the very least, plaintiffs have demonstrated that this matter cannot be resolved effectively at the agency level. The Court therefore rejects defendant's contention that plaintiffs failed to pursue their administrative remedies in good faith.

As a second basis for dismissal, defendant asks the Court to give great weight to the NYAIP's findings in Allstate's favor. In fact, defendant contends that the findings are so conclusive that they require the Court to sanction plaintiffs under Rule 11, Fed.R.Civ.Pro., for pursuing "frivolous and unfounded litigation." Carto v. Buckley, 649 F.Supp. 502, 511 (S.D.N.Y.1986). Essentially, Allstate urges the Court to dismiss the complaint and to impose sanctions based solely on the NYAIP's cursory review of plaintiff's claims. Under the circumstances, it would not be fair for this Court to accord the agency's findings what amounts to res judicata effect.

The Supreme Court has stated that it is appropriate to apply res judicata to administrative decisions "when an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate." United States v. Utah Construction & Mining Co., 384 U.S. 394, 422, 86 S.Ct. 1545, 1560, 16 L.Ed.2d 642 (1966).

Clearly that standard has not been met in the instant case. "An action taken by an administrative agency ... is not an adjudicated action unless the agency has made its decision using procedures substantially similar to those employed by the courts." Delamater v. Schweiker, 721 F.2d 50, 53 (2d Cir.1983) (citing Restatement (Second) of Judgments § 83 (1982)). See also 4 K. Davis, Administrative Law, § 21.3 at 52 (1983 ed.) (res judicata applies to informal administrative determinations when procedures employed by the agency resemble those of a trial court). The NYAIP did not make an adjudicative determination; indeed, the agency conceded at the outset that it had no authority to adjudicate the matter. At the hearing, there was no testimony, no cross-examination, a minimum of evidence, and limited argument. Furthermore, the findings were not reviewable by the Superintendent or in an Article 78 proceeding. The Court finds that the procedure followed by the NYAIP falls far below the standard articulated in Utah Construction & Mining Co., supra, and declines to give res judicata effect to the agency's superficial and inconclusive findings. For the same reasons, the Court denies defendant's motion for Rule 11 sanctions. Accordingly, plaintiffs are entitled to a full adjudicatory proceeding in this Court.

B. Prima Facie Tort Claim

To state a claim for prima facie tort, plaintiffs must allege that defendant inflicted intentional harm by an act or series of acts otherwise lawful, without excuse or justification, and...