Crum & Forster Ins. v. Goodmark Industries, Inc.

• Decision Date: 22 May 2007
• Docket Number: 05-cv-3633 (ADS)(ETB).
• Citation: 488 F.Supp.2d 241
• Parties: CRUM & FORSTER INSURANCE COMPANY, Plaintiff, v. GOODMARK INDUSTRIES, INC. and Nat Schlesinger, Defendants/Third-Party Plaintiffs, v. Horizon International Group Ltd., Cambridge Horizon Consultants, Inc., John Morrongiello, and Norman Benet, Third-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 241

488 F.Supp.2d 241

CRUM & FORSTER INSURANCE COMPANY, Plaintiff, v. GOODMARK INDUSTRIES, INC. and Nat Schlesinger, Defendants/Third-Party Plaintiffs, v. Horizon International Group Ltd., Cambridge Horizon Consultants, Inc., John Morrongiello, and Norman Benet, Third-Party Defendants.

05-cv-3633 (ADS)(ETB).

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

May 22, 2007.

Cozen and O'Connor, P.C. by Elaine M. Rinaldi, Esq., John Brian Galligan, Esq., Michael James Sommi, Esq., Robert W. Phelan, Esq., Philadelphia, PA, for Plaintiff.

Jeremy L. Gutman, Esq., New York City, for Defendants/Third-Party Plaintiff's.

Shearman & Sterling LLP by Daniel M. Segal, Esq., Steven F. Molo, Esq., New York City, for Third-Party Defendants.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

On August 2, 2005, Crum & Forster Insurance Company (the "Plaintiff" or "Crum & Forster") filed a complaint against Goodmark Industries, Inc. ("Goodmark") and Nat Schlesinger ("Schlesinger") (collectively the "Defendants/Third-Party Plaintiffs"). On November 10, 2005, the Defendants/Third-Party Plaintiff's filed a third-party, complaint against Horizon International Group Ltd. ("Horizon"), Cambridge Horizon Consultants, Inc. ("Cambridge"), John Morrongiello ("Morrongiello"), and Norman Benet ("Benet") (collectively the "Third-Party Defendants").

Currently pending before the Court is a motion by the Third-Party Defendants, under Federal Rule of Civil Procedure ("Fed. R. Civ.P.") 12(b)(6), to dismiss the third-party complaint.

I. BACKGROUND

A. Factual Background

The Plaintiff, a New Jersey corporation, issues insurance policies. Goodmark, a former New York corporation, manufactured women's clothing. Schlesinger, formerly a New York resident, was an owner and officer of Goodmark. The Plaintiff insured Goodmark's real and personal property.

On August 2, 2005, the Plaintiff filed a complaint against Goodmark and Schlesinger, alleging that they defrauded the Plaintiff. On August 3, 1999, a fire destroyed Goodmark's real and personal property. On August 17, 1999, the Plaintiff made a partial payment to the Defendants/Third-Party Plaintiff's of $100,000 for the preliminary insurance claim. Thereafter, on December 10, 1999, pursuant to the insurance policy, Crum & Forster paid an additional $834,319 to the Defendants/Third-Party Plaintiff's. The Plaintiff contends that it unknowingly made payments on fraudulent insurance claims submitted by Goodmark and Schlesinger.

On November 10, 2005, Goodmark and Schlesinger filed a third-party complaint against the Third-Party Defendants alleging that the Third-Party Defendants defrauded the Plaintiff; breached a contract; breached a covenant of good faith; and were negligent. At the time of the events at issue, Horizon was a New York corporation in the business of adjusting insurance claims. Cambridge is a New York corporation that is the successor to Horizon. Morrongiello was an officer and owner of Horizon and is currently an owner and officer of Cambridge. Benet was an employee of Horizon and is currently an employee of Cambridge.

The Defendants/Third-Party Plaintiff's allege that, following the fire on August 3, 1999 at Goodmark's premises, Goodmark retained Horizon as a public insurance adjuster. The Defendants/Third-Party Plaintiff's contend that, pursuant to a contract, the Third-Party Defendants assumed responsibility for inspecting the premises, assessing damage to the premises and providing an estimate of the loss. They assert that the Third-Party Defendants were responsible for preparing, presenting and negotiating the claim with the Plaintiff.

The Defendants/Third-Party Plaintiff's further contend that from August 1999 through December 1999, the Third-Party Defendants inspected, assessed damages and provided information to the Plaintiff regarding the damages caused by the August 3, 1999 fire. In the third-party complaint, the Defendants/Third-Party Plaintiff's deny that they "devised and executed a scheme to defraud Crum & Forster by submitting and causing to be submitted false, fraudulent and inflated insurance claims/documentation." They further claim "[n]otwithstanding defendants' denial ... should it be adjudged that the insurance claims and/or documentation submitted to Crum & Forster were `fraudulent and inflated,' any such fraud or inflation was caused by Third-party Defendants' intentional misconduct and/or negligence, in breach of their contractual obligations and implied covenant of good faith and fair dealing."

B. The Criminal Case

On October 1, 2003, a grand jury issued a 34 count superseding indictment against Schlesinger, Herman Niederman ("Niederman"), and Goodmark (collectively the "Defendants"), arising out of, among other events, a series of fires that occurred at Goodmark's factory in the Williamsburg section of Brooklyn dating back to 1987. The indictment alleged that the Defendants engaged in various fraudulent schemes. One scheme involved defrauding insurance companies by submitting fraudulent claims for losses resulting from a series of fires that occurred at Goodmark from 1987 to 1999.

In particular, the superseding indictment alleged that, on August 3, 1999, a fire occurred at Goodmark. Schlesinger retained the services of Horizon to negotiate Goodmark's claim with Crum & Forster, the insurance company. According to the superseding indictment, Schlesinger submitted fraudulent documentation from codefendant Niederman regarding the value of damaged fabrics, as well as other fraudulent documents in order to defraud the insurance company. The superseding indictment stated that Schlesinger and Goodmark prepared false and fraudulent documentation for submission by Horizon to Crum & Forster. After receiving the proof of loss, the insurance company paid the claim in the amount of $934,319. The funds were deposited into the Goodmark bank account.

On May 19, 2005, following a four week jury trial, the Defendants, Schlesinger and Goodmark, were convicted of, among other counts, conspiracy to commit mail and wire fraud, 18 U.S.C. § 371, substantive mail and wire fraud, id. § 1341 and 1343, conspiracy to commit money laundering and substantive money laundering. Id. § 1956(h) and 1957. At the trial the Government submitted proof of two fraudulent schemes. One scheme involved defrauding insurance companies by submitting fraudulent claims for losses sustained as a result of a series of fires that occurred at the Premises from 1987 to 1999. Specifically, according to count one of the superseding indictment, of which Schlesinger and Goodmark were found guilty, the Defendants provided Horizon with fictitious invoices relating to services and repairs in connection with the August 1999 fire.

In connection with the fraudulent claim submitted in relation to the August 3, 1999 fire, on August 4, 2006, in its Judgment, this Court ordered Schlesinger and Goodmark to pay restitution to Crum & Forster in the amount of $934,319.

C. The Present Motion

On December 26, 2006, the Third-Party Defendants moved to dismiss the third-party complaint. The Third-Party Defendants contend that the Defendants/Third-Party Plaintiff's were convicted of fraud and, as a result of that conviction, they are collaterally estopped from litigating these claims. Further, the Third-Party Defendants claim that the Defendants/Third-Party Plaintiff's failed to comply with the pleading requirements of Rule 8; failed to state a claim for breach of contract and breach of the covenant of good faith and fair dealing; and that the negligence cause of action is time-barred.

In opposition, the Defendants/Third-Party Plaintiff's contend that their claims are not barred by collateral estoppel because the jury did not decide the Third-Party Defendants' liability; all claims are adequately plead; and the negligence claim is not time-barred.

II. DISCUSSION

A. The Standard of Review for a Motion to Dismiss Under Rule 12(b)(6)

In deciding a motion to dismiss under Rule 12(b)(6), a district court must "accept all of the plaintiff's factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff." Starr v. Georgeson S'holder, Inc., 412 F.3d 103, 109 (2d Cir.2005); Desiderio v. National Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 202 (2d Cir.1999). A complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir.2005); Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir.1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." King v. Simpson, 189 F.3d 284, 287 (2d Cir.1999) (quoting Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995)).

B. As To Collateral Estoppel

"The Government bears a higher burden of proof in the criminal than in the civil context and consequently may rely on the collateral estoppel effect of a criminal conviction in a subsequent civil case." Gelb v. Royal Globe Ins. Co., 798 F.2d 38, 43 (2d Cir.1986). Moreover, "[b]ecause the mutuality of estoppel is no longer an absolute requirement under federal law ... a party other than the Government may assert collateral estoppel based on a criminal conviction." Id.See also Chi. Ins. Co. v. Fasciana, No. 04 Civ. 7934, 2006 WL 3714310, at *3, 2006 U.S. Dist. LEXIS 90399, at *10 (S.D.N.Y. Dec. 13, 2006) ("The Court of Appeals has explained that a party other than the Government may assert collateral estoppel based on a criminal conviction"). "The criminal defendant is barred from relitigating any issue determined adversely to him in the criminal proceeding, provided that he had a full and fair...