Krog Corp. v. Vanner Grp., Inc.

• Decision Date: 22 August 2016
• Docket Number: No. 1600–14.,1600–14.
• Citation: 46 N.Y.S.3d 475 (Table)
• Parties: The KROG CORPORATION, Plaintiff, v. The VANNER GROUP, INC., f/k/a Ralph J. Vanner and Associates, Inc., Defendant.
• Court: New York Supreme Court

46 N.Y.S.3d 475 (Table)

The KROG CORPORATION, Plaintiff,
v.
The VANNER GROUP, INC., f/k/a Ralph J. Vanner and Associates, Inc., Defendant.

No. 1600–14.

Supreme Court, Albany County, New York.

Aug. 22, 2016.

Barclay Damon, LLP (Linda J. Clark and David M. Cost, of counsel), Albany, attorneys for plaintiff.

Bond, Schoeneck & King (Charles C. Swanekamp and Bradley A. Hoppe, of counsel), Buffalo, attorneys for defendant.

RICHARD M. PLATKIN, J.

Defendant The Vanner Group, Inc. f/k/a Ralph J. Vanner and Associates, Inc. ("Vanner") has filed this pre-answer motion pursuant to CPLR 3211(a)(1), (5) and (7), seeking the dismissal of the amended complaint filed by plaintiff The Krog Corporation ("Krog").

BACKGROUND

As alleged in plaintiff's amended complaint ("Complaint"), the Elite Contractors Trust of New York ("Trust") is a group self-insured trust ("GSIT") formed in or about August 1999 by Compensation Risk Managers, LLC ("CRM") pursuant to the Workers' Compensation Law ("WCL"). Members of the Trust were employers within the construction and contracting industry that conducted business in New York State and were required to provide workers' compensation insurance to their employees. The Trust retained CRM to serve as its group administrator pursuant to a Service Agreement.

Vanner was an insurance broker and consultant to Krog for many years. Vanner also is alleged to have been "a founder and marketing broker for the Trust who was involved in the creation and assisted with the administration and oversight of the Trust" (Complaint ¶ 4). The Complaint further alleges that Vanner "was designated as the Trust's Managing General Agent and Trusted Marketing Partner' pursuant to a marketing agreement it entered into with CRM" (id. ¶ 17).

In or about September 1999, Krog joined the Trust, allegedly based upon the solicitation, recommendation and counseling of Vanner. Krog remained a member of the Trust through April 17, 2008, when the Trust ceased providing workers' compensation coverage (Complaint ¶ 21). The New York State Workers' Compensation Board ("WCB") assumed administration of the Trust on April 1, 2010.

Following its takeover of the Trust, the WCB commissioned a forensic audit that was completed and issued on or about December 31, 2010. The audit showed an accumulated deficit in excess of $82 million. On the basis of that analysis, the WCB issued assessment letters to all Trust members, including Krog. A second forensic accounting occurred sometime in 2013, showing a deficit of almost $58 million. Thereafter, the WCB levied assessments on Krog and other former Trust members, which Krog has challenged.

According to Krog, Vanner continually recommended that it become a member of the Trust and never recommended that Krog cease Trust membership, despite the Trust's mounting deficit—a deficit of which Vanner knew or should have known based upon its involvement in the creation, marketing, administration and oversight of the Trust. Krog alleges that it would not have joined or remained a member of the Trust if not for the recommendation of, and placement by, Vanner, its long-time insurance broker in which Krog reposed confidence. Accordingly, Krog seeks damages related to the "improper continuous placement and retention of its membership in the Trust, as well as for [Vanner's] role in facilitating the overall Trust deficit that the [WCB] now seeks to collect ... due to [Vanner's] various contractual, common law and statutory duties, as well as for fraudulent conduct as an insurance broker" (Complaint ¶ 7).

With respect to CRM, Krog alleges that the GSIT administrator entered into relationships with certain insurance brokers, including Vanner, pursuant to which CRM "paid additional, inflated, excessive and/or undisclosed fees and commissions in exchange for placing and keeping certain employers with the Trust, including [Krog]" (Complaint ¶ 39). Vanner also is alleged to have received a perpetual two-percent override on all business produced by other agents based on its status as the Trust's Managing General Agent and Trusted Marketing Partner. All of this is said by Krog to be part of a scheme by CRM and Vanner to place employers in GSITs for their own financial benefit, with Vanner assisting CRM in marketing the Trust, touting the benefits of membership, and providing "marketing intelligence" to CRM.

Krog further alleges that representatives from Vanner attended each and every trustee meeting of the Trust, and that Vanner provided recommendations and advice on the direction, administration and marketing of the Trust. Thus, Krog alleges that Vanner was significantly and intimately involved with the Trust's marketing, oversight, administration and operation. Specifically, the Complaint alleges that Vanner assisted CRM by "providing information and advice on marketing strategy, member contribution rates, discounts, policy pricing, trust assets, trust reserves, as well as responses to other inquiries from CRM on the administration of the Trust" (Complaint ¶ 49).

Finally, the Complaint alleges that CRM and its principals failed to administer the Trust in accordance with its governing laws, regulations, organizational documents and common-law obligations, thereby breaching its fiduciary duties to Krog. Based upon reports in the industry of CRM's mismanagement and the poor and failing condition of the GSITs under its management, Vanner allegedly was on notice of CRM's fraudulent conduct and mismanagement.

This action was commenced on March 24, 2014. Oral argument was held on November 17, 2015, the motion was finally submitted as of May 19, 2016, and this Decision & Order follows.

LEGAL STANDARD

Under CPLR 3211(a)(1), dismissal is warranted if documentary evidence conclusively establishes a defense as a matter of law (Haire v. Bonelli, 57 A.D.3d 1354, 1356, 870 N.Y.S.2d 591 [3d Dept 2008], citing Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324 [2007] ; see Goshen v. Mutual Life Ins. Co. of NY, 98 N.Y.2d 314, 326 [2002] ; Angelino v. Michael Freedus, D.D.S., P.C., 69 A.D.3d 1203, 893 N.Y.S.2d 668 [3d Dept 2010] ). On such a motion, "affidavits submitted by a defendant do not constitute documentary evidence upon which a proponent of dismissal can rely" (Crepin v. Fogarty, 59 A.D.3d 837, 838, 874 N.Y.S.2d 278 [3d Dept 2009] ).

On a motion pursuant to CPLR 3211(a)(7) to dismiss for failure to state a claim, "the Court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference" (EBC 1, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19 [2005] ). The Court's "sole criterion is whether the pleading states a cause of action" (Polonetsky v. Better Homes Depot, 97 N.Y.2d 46, 54 [2001] [internal quotations omitted] ). However, the Court need not "accept as true legal conclusions or factual allegations that are either inherently incredible or flatly contradicted by documentary evidence" (1455 Washington Ave. Assoc. v. Rose & Kiernan, 260 A.D.2d 770, 771, 687 N.Y.S.2d 791 [3d Dept 1999] [internal citations omitted] ). As with a motion under CPLR 3211(a)(1), the Court must "ignore the affidavits submitted by defendants" (Henbest & Morrisey v. W.H. Ins. Agency, 259 A.D.2d 829, 830, 686 N.Y.S.2d 207 [3d Dept 1990] ).

Dismissal is warranted under CPLR 3211(a)(5) where the movant establishes that a cause of action may not be maintained due to the expiration of the statute of limitations. The movant bears the initial burden of supporting the motion with "an affidavit or other competent proof sufficient, if uncontroverted, to establish the [statute of limitations] defense as a matter of law" (State of New York Higher Educ. Services Corp. v. Starr, 158 A.D.2d 771, 771, 551 N.Y.S.2d 363 [3d Dept 1990] ; accord Romanelli v. DiSilvio, 76 A.D.3d 553, 554, 907 N.Y.S.2d 258 [2d Dept 2010] ). Upon such a showing, "the burden shifts to the party opposing the motion to aver evidentiary facts" sufficient to either defeat or at least raise factual questions concerning the defense (Hoosac Val. Farmers Exch. v. AG Assets, 168 A.D.2d 822, 823, 563 N.Y.S.2d 954 [3d Dept 1990] ; see Doyon v. Bascom, 38 A.D.2d 645, 326 N.Y.S.2d 896 [3d Dept 1971] ). Thus, the Court must employ what is, in essence, a summary-judgment type analysis (State of New York Higher Educ. Services, 158 A.D.2d at 772, 551 N.Y.S.2d 363 ; Suss v. New York Media, Inc., 69 A.D.3d 411, 411, 891 N.Y.S.2d 409 [1st Dept 2010] ).

ANALYSIS

A. Breach of Contract (5th Cause of Action)

Krog alleges that Vanner breached oral and written agreements to perform insurance counseling and brokerage services. The claimed breaches of contract, which are alleged to have occurred "[t]hroughout the entire course of [Krog's] membership in the Trust", include: failing to procure suitable workers' compensation coverage; improperly placing Krog in the Trust; diverting Krog's assets for personal use; and failing to properly advise and counsel Krog on the risks of Trust membership (Complaint ¶ 130). On the basis of these allegations, Krog seeks to recover assessments claimed or levied by the WCB, any amounts due based upon unpaid claims of Krog employees, and the brokerage fees, commissions and/or compensation paid to or on...