BAM Brokerage Corp. v. State of NY, 88 Civ. 5714 (RWS).
| Decision Date | 04 August 1989 |
| Docket Number | No. 88 Civ. 5714 (RWS).,88 Civ. 5714 (RWS). |
| Citation | 718 F. Supp. 1195 |
| Parties | B.A.M. BROKERAGE CORP., Amy Litsky, et al., Plaintiffs, v. The STATE OF NEW YORK, James P. Corcoran, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Weg and Myers, P.C., New York City (Dennis T. D'Antonio, David B. Karel, of counsel), for plaintiffs.
Robert Abrams, Atty. Gen. of the State of N.Y., New York City , for defendants.
Defendant State of New York (the "State") and defendants James P. Corcoran ("Corcoran"), Martin Minkowitz ("Minkowitz"), Nathan Silver ("Silver"), Salvatore Castiglione ("Castiglione"), Alan Di Piazza ("Di Piazza"), Arthur Goldfeder ("Goldfeder"), and other unnamed individuals (collectively, the "Individual Defendants") move pursuant to Rule 56, Fed.R.Civ.P., for summary judgment dismissing the complaint as to all defendants and pursuant to Rule 4(j), Fed.R.Civ.P., for an order dismissing the complaint as to the Individual Defendants for failure to serve a summons and complaint. For the reasons set forth below, summary judgment is granted, and the complaint is dismissed in its entirety.
During the period at issue, Corcoran was the Superintendent of Insurance for the State (the "Superintendent"), Minkowitz headed the Office of General Counsel ("Counsel") for the New York Insurance Department (the "Department"), Silver was Chief of the Consumer Services Bureau (the "Bureau"), Castiglione was the Bureau's Principal Insurance Examiner, and Di Piazza was a Senior Examiner with the Bureau. Minkowitz and Silver since have left the Department.
Plaintiffs B.A.M. Brokerage Corporation and some one hundred other individuals and corporations (collectively, the "Brokers") are licensed to sell insurance in New York by the Department.
American Motor Club, Inc. ("AMC") is a New York corporation that marketed automobile repair agreements (the "Repair Agreements") to the public through a network of insurance agents licensed by the Department (the "Licensees"), including the Brokers. Pursuant to those agreements, AMC promised to reimburse subscribers for the cost of repairing damaged automobiles or replacing vehicles lost to fire or theft. AMC operated as an alternative to the New York Automobile Insurance Plan — also know as the "Assigned Risk Pool" — which provided automobile insurance to higher risk drivers. AMC presently is in bankruptcy.
Along with hundreds of other Licensees, the Brokers sold Repair Agreements to the public in New York. According to the Brokers, a number of Licensees asked the Department whether they could sell the Repair Agreements, and the Department either said the Repair Agreements were not insurance or declined to say whether or not the agreements were lawful.
Following an investigation of AMC, the State Attorney General and the Superintendent sued AMC in October 1985 in the Supreme Court, State of New York, County of New York, alleging that the Repair Agreements constituted "insurance," N.Y. Ins.Law § 1101 (McKinney 1985), and that AMC was engaged in the unauthorized sale of insurance. Id. at § 1102. On January 14, 1987, the Honorable Milton H. Richardson ruled that the Repair Agreements were insurance and enjoined AMC from marketing the Repair Agreements in New York (the "AMC Suit"). See People v. American Motor Club, Inc., No. 85-43148, slip op. (N.Y.Sup.Ct. Jan. 14, 1987), aff'd, 133 A.D.2d 593, 520 N.Y.S.2d 383 (1st Dep't 1987).
After Justice Richardson issued his ruling in the AMC Suit, Nicholas Neu, AMC's President ("Neu"), began operating similar prepaid collision service companies in California. In June 1987, Corcoran and James Randolph, Deputy Superintendent of the Department, allegedly made defamatory remarks about Neu at an insurance commissioners convention in Chicago. Neu sued Corcoran and Randolph under 42 U.S.C. § 1983, alleging that the defendants' purported defamation had deprived him of a liberty interest, and under state defamation law. The defendants moved to dismiss, claiming official immunity under federal and state law, but the court denied the motion. See Neu v. Corcoran, 695 F.Supp. 1552 (S.D.N.Y.1988). The Court of Appeals reversed, holding that Corcoran and Randolph enjoyed official immunity. See Neu v. Corcoran, 869 F.2d 662 (2d Cir.1989), petition for cert. filed, June 1, 1989.
While the AMC Suit was pending, the Department also began investigating individual licensees. In response, the Brokers sued the Defendants under 42 U.S.C. § 1983 to enjoin the Department's allegedly predetermined disciplinary proceedings. See B.A.M. Brokerage Corp. v. State of New York, No. 87 Civ. 2287 (S.D. N.Y.) (RWS). Finding that the Department in fact had yet to take disciplinary action against any of the Brokers, the court dismissed the suit with leave to renew should the State commence disciplinary proceedings.
When the Department began Hearings against the Brokers, the Brokers brought this action under 42 U.S.C. § 1983 on August 15, 1988. The complaint alleges that "the defendants have decided and predetermined that the plaintiffs had violated the Insurance Law by the sale of AMC memberships," Complaint ¶ 23, in violation of the Due Process and Equal Protection clauses of the Fifth and the Fourteenth Amendments to the United States Constitution. The Brokers served the summons and complaint upon the State and Corcoran, but not upon any of the Individual Defendants.
On August 16, 1988, the Brokers moved by order to show cause for a preliminary injunction enjoining the Defendants from issuing citations and conducting Hearings against the Brokers. On September 1, 1988, the Defendants moved by order to show cause to dismiss the complaint, alleging that the court should abstain from interfering in a pending state administrative proceeding. An opinion dated November 22, 1988 denied both motions. See B.A.M. Brokerage Corp. v. State of New York, 700 F.Supp. 182 (S.D.N.Y.1988). Familiarity with that opinion is assumed.
In mid-March 1989, the Brokers moved for an order extending the time to conduct discovery and enlarging the scope of discovery. In an oral opinion issued February 10, 1989, the court granted the Brokers further discovery on the narrow issue of whether the Department was conducting the disciplinary hearings for an improper purpose that amounted to prejudgment in violation of due process. Toward this end, the court ordered depositions of Randolph, Altruda, Di Piazza, and Castiglione. In lieu of a deposition, the court required Corcoran to respond to interrogatories regarding his role in and knowledge of the Department's proceedings against the Brokers. It also directed the Department to provide the Brokers its AMC and Brokers investigative files.
On April 13, 1989, the defendants moved pursuant to Rule 56, Fed.R.Civ.P., for summary judgment dismissing the complaint as to all defendants and pursuant to Rule 4(j), Fed.R.Civ.P., for an order dismissing the complaint as to the Individual Defendants for failure to serve a summons and complaint. Oral argument was heard, and the case was considered fully submitted on May 26, 1989.
When AMC failed to honor the Repair Agreements, consumers complained to the Department and to the Attorney General's office, claiming to have lost thousands of dollars. The Bureau therefore began investigating the Licensees who had sold the Repair Agreements to the public. Under New York law, it is unlawful for any "person, firm, association or corporation" to "in any way or manner aid" an unauthorized insurer to sell insurance in New York. N.Y.Ins.Law § 2117 (McKinney 1985). Any person who violates section 2117 is subject to a $500 per month forfeiture, id. at § 2117(g), and a Licensee who violates the Insurance Law is subject to license suspension, revocation and/or civil penalty. See id. at §§ 109, 2110.
During the investigation, the Bureau sent a letter to certain Licensees requiring them to appear before a Bureau investigator to give evidence. This was an investigative appearance, not an adjudicatory hearing. According to the Brokers, the Department determined which Licensees to approach based upon several factors, including 1) whether the Licensee had written a substantial volume of business in the assigned risk pool, 2) whether consumers had filed a substantial number of complaints against the Licensee concerning the Repair Agreements, and 3) whether the Licensee was listed in the Yellow Pages.
Pursuant to standard practice and at Minkowitz's request, Paul F. Altruda, Assistant Deputy Superintendent and Counsel of the Department ("Altruda"), drafted a stipulation of settlement (the "Stipulation") for Licensees to execute in exchange for the Department ceasing further disciplinary proceedings. Altruda consulted with Minkowitz on this matter, but did not discuss the Stipulation with Corcoran.
Early in the investigation, the late Ira Myers ("Myers") of the law firm of Weg and Myers, P.C., which represented a number of Licensees, requested a meeting with the Department to discuss what action, if any, the Department might take against the Licensees. Pursuant to that request, several Department employees — including Randolph, Altruda, J. Mansfield, a Bureau investigator ("Mansfield"), J. Dickler, also a Bureau investigator ("Dickler"), Di Piazza, Castiglione, and S. Wachtel, a Counsel attorney ("Wachtel") — met with Myers on April 1, 1987 (the "April 1 Meeting").
According to Di Piazza's notes, Altruda's affidavit, Myers's affirmation, and the deposition testimony of Altruda, Castiglione, and Di Piazza, the following occurred at the April 1 Meeting:
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