N.Y.S. Workers' Comp. Bd. v. Program Risk Mgmt., Inc.

• Decision Date: 21 September 2015
• Docket Number: No. 3203–13.,3203–13.
• Citation: 26 N.Y.S.3d 214 (Table)
• Parties: NEW YORK STATE WORKERS' COMPENSATION BOARD, in its Capacity as the Governmental Agency Charged with Administration of the Workers' Compensation Law and Attendant Regulations, and in its Capacity as the Successor in Interest to the Community Residence Insurance Savings Plan, Plaintiff, v. PROGRAM RISK MANAGEMENT, INC.; PRM Claims Services, Inc.; Thomas Arney, Individually, as preceding CEO of Program Risk Management, Inc., as preceding CEO of PRM Claims Services, Inc., and in his capacity as insurance broker for Community Residence Insurance Savings Plan; John M. Conroy, Individually, as succeeding CEO of Program Risk Management, Inc., and as succeeding CEO of PRM Claims Services, Inc.; Edward A. Sorensen, Individually, as executive vice president of Program Risk Management, Inc., and as Program Administrator to the Community Residence Insurance Savings Plan; Mark J. Crawford, individually and as Program Manager to the Community Residence Insurance Savings Plan; PMA Management Corp.; M.P. Agency, Inc.; Total Management Corp.; Morton G. Case, Individually and as president of M.P. Agency, Inc.; Priscilla H. Hoffman, Individually, as vice president and co-principal of M.P. Agency, Inc., and as principal of Total Management Corp.; SGRISK, LLC; DeChants, Fuglein & Johnson, LLP, formerly Roth & dechants and Roth & DeChants, Fuglein & Johnson; Towers Watson & Company, formerly Towers Watson Risk Consulting, Inc. and Tillinghast–Towers Perrin, Inc.; Thomas Gosdeck, Individually, as Qualifying Officer of Program Risk Management, Inc., and as General Counsel to the Community Residence Insurance Savings Plan; The Board of Trustees of the Community Residence Insurance Savings Plan; Janice Johnson, Individually, as trustee, as financial advisor, and as attorney advisor for the Community Residence Insurance Savings Plan; Antonia Lasicki, as trustee; Thomas McKeown, as trustee; John Lessard, as trustee; Ann Hardiman, as trustee; Vincent Sirangelo, as trustee; Phillip Saperia, as trustee; Steven Greenfield, as trustee; Peter Pierri, as trustee; Fred Apers, as trustee; Peter Campanelli, as trustee; Diana Antos–Arens, as trustee; and Sidney Paul, as trustee, Defendants.
• Court: New York Supreme Court

26 N.Y.S.3d 214 (Table)

NEW YORK STATE WORKERS' COMPENSATION BOARD, in its Capacity as the Governmental Agency Charged with Administration of the Workers' Compensation Law and Attendant Regulations, and in its Capacity as the Successor in Interest to the Community Residence Insurance Savings Plan, Plaintiff,

v.PROGRAM RISK MANAGEMENT, INC.; PRM Claims Services, Inc.; Thomas Arney, Individually, as preceding CEO of Program Risk Management, Inc., as preceding CEO of PRM Claims Services, Inc., and in his capacity as insurance broker for Community Residence Insurance Savings Plan; John M. Conroy, Individually, as succeeding CEO of Program Risk Management, Inc., and as succeeding CEO of PRM Claims Services, Inc.; Edward A. Sorensen, Individually, as executive vice president of Program Risk Management, Inc., and as Program Administrator to the Community Residence Insurance Savings Plan; Mark J. Crawford, individually and as Program Manager to the Community Residence Insurance Savings Plan; PMA Management Corp.; M.P. Agency, Inc.; Total Management Corp.; Morton G. Case, Individually and as president of M.P. Agency, Inc.; Priscilla H. Hoffman, Individually, as vice president and co-principal of M.P. Agency, Inc., and as principal of Total Management Corp.; SGRISK, LLC; DeChants, Fuglein & Johnson, LLP, formerly Roth & dechants and Roth & DeChants, Fuglein & Johnson; Towers Watson & Company, formerly Towers Watson Risk Consulting, Inc. and Tillinghast–Towers Perrin, Inc.; Thomas Gosdeck, Individually, as Qualifying Officer of Program Risk Management, Inc., and as General Counsel to the Community Residence Insurance Savings Plan; The Board of Trustees of the Community Residence Insurance Savings Plan; Janice Johnson, Individually, as trustee, as financial advisor, and as attorney advisor for the Community Residence Insurance Savings Plan; Antonia Lasicki, as trustee; Thomas McKeown, as trustee; John Lessard, as trustee; Ann Hardiman, as trustee; Vincent Sirangelo, as trustee; Phillip Saperia, as trustee; Steven Greenfield, as trustee; Peter Pierri, as trustee; Fred Apers, as trustee; Peter Campanelli, as trustee; Diana Antos–Arens, as trustee; and Sidney Paul, as trustee, Defendants.

No. 3203–13.

Supreme Court, Albany County, New York.

Sept. 21, 2015.

Rupp, Baase, Pfalzgraf, Cunninghan & Coppola LLC, (Daniel E. Sarzynski and Matthew C. Lenahan, of counsel), Buffalo, Attorneys for Plaintiff.

Nixon Peabody LLP, (Vincent E. Polsinello and Christian D. Hancey, of counsel), Albany, Attorneys for Janice Johnson, Antonia Lasicki, Thomas McKeown, John Lessard, Ann Hardiman, Vincent Sirangelo, Phillip Saperia, Steven Greenfield, Peter Pierri, Fred Apers, Peter Campanelli and Diana Antos–Arens.

Hitchcock & Cummings, LLP, (Terry Cummings and John W. Hanson, of counsel), New York, Attorneys for SGRisk, LLC,

Bond, Schoeneck & King, PLLC, (Stuart F. Klein, of counsel), Albany, Attorneys for Thomas Gosdeck.

Miranda Sambursky Slone, Sklarin Verveniotis LLP, (Maurizio Savoiardo and James R. Flynn, of counsel), Mineola, Attorneys for Program Risk Management, Inc., PRM Claims Services, Inc., Mark J. Crawford, Thomas B. Arney, John M. Conroy and Edward A. Sorensen.

Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, (Benjamin F. Neidl and Marcy E. Spratt, of counsel), Albany, Attorneys for M.P. Agency, Inc., Morton G. Case and Priscilla Hoffman.

RICHARD M. PLATKIN, J.

This commercial action was commenced by the New York State Workers' Compensation Board ("WCB") in its capacities as the governmental entity charged with the administration of the Workers' Compensation Law and as successor in interest to the Community Residence Insurance Savings Plan self-insurance trust. Pending before the Court are five separate motions to dismiss plaintiff's 118–page complaint ("Complaint").

BACKGROUND

As alleged in the Complaint, the Community Residence Insurance Savings Plan is a group self-insured trust ("GSIT") formed pursuant to Workers' Compensation Law ("WCL") § 50(3–a). Members of the Community Residence Insurance Savings Plan ("Trust") were employers engaged in providing human services to children that were required to provide workers' compensation insurance to their employees.

The Trust was formed on or about October 31, 1995 through the execution of the Self–Insurance Agreement and Declaration of Trust ("Declaration of Trust"), Trust By–Laws ("By–Laws") and Trust Indemnification Agreement ("Indemnification Agreement") (collectively "Governing Documents"). The Trustees contracted with defendant Program Risk Management, Inc. ("PRM") to serve as third-party administrator of the Trust and M.P. Agency, Inc. ("MP Agency") to serve as exclusive marketing agent. The Trust was approved by the WCB as a GSIT effective December 15, 1995.

Following a number of reviews by the WCB identifying the Trust as underfunded and out of compliance with certain regulations, and the execution of several consent decrees requiring remediation of identified deficiencies, the Trust ceased providing workers' compensation coverage as of December 31, 2010.

Effective August 1, 2011, the WCB assumed the administration and final distribution of the Trust's assets and liabilities pursuant to 12 NYCRR § 317.20(c). The WCB then commissioned a forensic analysis of the Trust by the accounting firm of Bollam, Sheedy, Torani & Co., LLP ("BST"). The BST forensic audit, issued in or about February 2013, shows an accumulated deficit of approximately $60 million as of December 31, 2010. The WCB commenced this action on June 6, 2013.

LEGAL STANDARD

On a motion to dismiss made pursuant to CPLR 3211(a)(7), "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 NY3d 11, 19 [2005] ). The Court's "sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 54 [2001] [internal quotation marks 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, Inc., 260 A.D.2d 770, 771 [3d Dept 1999] [internal quotation marks and citation omitted] ).

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 "support [ing] 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 Higher Educ. Services Corp. v. Starr, 158 A.D.2d 771, 771 [3d Dept 1990] ; accord Romanelli v. DiSilvio, 76 AD3d 553, 554 [2d Dept 2010] ). Upon such a showing, "the burden shifts to the party opposing the motion to aver evidentiary facts" sufficient to defeat the statute of limitations defense, or at least raise factual questions concerning the defense (Hoosac Val. Farmers Exch., Inc. v. AG Assets, Inc., 168 A.D.2d 822, 823 [3d Dept 1990] ; see Doyon v. Bascom, 38 A.D.2d 645 [3d Dept 1971] ).

THE TRUSTEES

Janice Johnson, Antonia Lasicki, Thomas McKeown, John Lessard, Ann Hardiman, Vincent Sirangelo, Phillip Saperia, Steven Greenfield, Peter Pierri, Fred Apers, Peter Campanelli and Diana Antos–Arens are sued as former trustees of the Trust ("Trustees").¹ Four causes of action are alleged against all of the Trustees: breach of contract; breach of the duty of good faith and fair dealing; breach of fiduciary duty; and common-law indemnification. Trustee Johnson also is the subject of three additional causes of action: fraud; unjust enrichment; and negligent misrepresentation.

A.Capacity & Standing

The Trustees contend that the WCB lacks both the capacity and standing to maintain this action.

Capacity to sue is a threshold matter allied with, but conceptually distinct from, the question of standing. As a general matter, capacity concerns a litigant's power to appear and bring its grievance before the court. The issue of capacity often arises in suits brought by governmental entities. Being artificial creatures of statute, such entities have neither an inherent nor a common-law right to sue. Rather their right to sue, if it exists at all, must be derived from the relevant enabling legislation or some other concrete statutory predicate. Capacity to sue may be expressly granted in enabling legislation or it may be inferred from review of the entity's statutory functions or responsibilities.

Standing involves a determination of whether the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. The two-part standing inquiry is designed to determine whether the party who is bringing suit is a proper party to request an adjudication of the dispute, as follows: First, a plaintiff must show injury in fact, meaning that plaintiff will actually be harmed by the challenged action. As the term itself implies, the injury must be more than conjectural. Second, the injury a plaintiff asserts must fall within the zone of interests or concerns sought to be promoted or protected by the statutory provision under which the agency has acted. Without both capacity and standing, a party lacks authority to sue (Graziano v. County of Albany, 3 NY3d 475, 478–479 [2004] [internal quotation marks, citations and alternations omitted] ).

In arguing that the WCB lacks capacity to maintain this action as successor to the Trust, the Trustees observe that WCL § 142, captioned "General powers and duties of the workmen's compensation board", does not confer upon the agency an express right to sue as the...