N.Y. State Workers' Comp. Bd. v. Consol. Risk Servs., Inc.

• Decision Date: 26 February 2015
• Citation: 2015 N.Y. Slip Op. 01699,4 N.Y.S.3d 680,125 A.D.3d 1250
• Parties: NEW YORK STATE WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and Attendant Regulations and as Successor in Interest to The Manufacturing Industry Workers' Compensation Self–Insurance Trust et al., Appellant–Respondent, v. CONSOLIDATED RISK SERVICES, INC., et al., Respondents–Appellants, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

125 A.D.3d 1250

4 N.Y.S.3d 680

2015 N.Y. Slip Op. 01699

NEW YORK STATE WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and Attendant Regulations and as Successor in Interest to The Manufacturing Industry Workers' Compensation Self–Insurance Trust et al., Appellant–Respondent

v.CONSOLIDATED RISK SERVICES, INC., et al., Respondents–Appellants, et al., Defendants.

Supreme Court, Appellate Division, Third Department, New York.

Feb. 26, 2015.

Rupp Baase Pfalzgraf Cunningham & Coppola, LLC, Buffalo (Daniel E. Sarzynski of counsel), for appellant-respondent.

Stenger, Roberts, Davis & Diamond, LLP, Wappingers Falls (Ian Lindars of counsel), for Consolidated Risk Services, Inc. and others, respondents-appellants.

Woods Oviatt Gilman LLP, Rochester (Andrew J. Ryan of counsel), for Mark Bartlett, respondent-appellant.

Maguire Cardona P.C., Albany (Kathleen A. Barclay of counsel), for Hickey–Finn & Co., Inc., respondent-appellant.

Nelson Brown & Co., New York City (Marc S. Voses of counsel), for David Bramwell, respondent-appellant.

Hodgson Russ LLP, Albany (Christian J. Soller of counsel), for Melvin Hodis and others, respondents-appellants.

Wilson Elser Moskowitz Edelman & Dicker LLP, White Plains (Sheryl T. Parker of counsel), for Regnier Consulting Group, Inc., respondent-appellant.

Before: McCARTHY, J.P., EGAN JR., LYNCH and CLARK, JJ.

Opinion

LYNCH, J.

Cross appeals from an order of the Supreme Court (Platkin, J.), entered September 4, 2013 in Albany County, which, among other things, partially granted defendants' motions to dismiss the complaint.

In December 2011, plaintiff commenced this action in its capacity as the governmental agency charged with administering the state's workers' compensation system and as successor in interest to certain group self-insured trusts that were formed to provide workers' compensation coverage to employees of the trusts' members (see Workers' Compensation Law § 50[3–a] ; 12 NYCRR 317.2 [i]; 317.3). The trusts at issue herein are the New York Manufacturing Industry Workers' Compensation Self–Insurance Trust (hereinafter NYMIT), created in October 1997, the Provider Agency Trust for Human Services Workers' Compensation Trust (hereinafter PATH), created in November 1996, and the Retail & Wholesale Industry Workers' Compensation Trust of New York (hereinafter RITNY), created in June 1998. Defendants are the third-party administrator for the trust, Consolidated Risk Services, Inc. (hereinafter CRS), along with its employees and related corporate entities (hereinafter collectively referred to as the CRS defendants), insurance brokers allegedly engaged in marketing the trusts, the former trustees of RITNY, and Regnier Consulting Group, Inc., which provided actuarial reports for RITNY.

Plaintiff alleges that, as a result of defendants' misconduct and malfeasance, the trusts became insolvent, requiring it to assume administration of NYMIT in March 2006, PATH in February 2006 and RITNY in October 2008, and that a forensic audit revealed deficits ranging from approximately $7 million to $25 million (see 12 NYCRR 317.20 ). Plaintiff commenced this action seeking to recover the trusts' accumulated deficits from defendants, alleging numerous causes of action, including breach of fiduciary duty, fraud and fraud in the inducement against the CRS defendants and the insurance brokers, breach of contract against the RITNY trustees, and common-law indemnification against all defendants. Defendants separately moved to dismiss the complaint.

As relevant here, Supreme Court partially denied the motions by the CRS defendants and insurance brokers to dismiss the breach of fiduciary duty, fraud and fraudulent inducement claims as untimely, finding that the claims were timely as to allegations on or after certain dates, and that questions of fact exist regarding whether the “discovery rule” would permit review of allegations relating to conduct before those dates on certain claims. With respect to the RITNY trustees, the court dismissed as untimely the breach of contract claim against certain trustees—defendants Jennifer Bartlett and Alice Nykaza—because they demonstrated that their services as trustees terminated more than six years before the action was commenced, but denied the motions to dismiss of the remaining former trustees.¹ The court also dismissed the cause of action for implied indemnification, as asserted against all defendants.

Plaintiff now appeals and, in its brief, challenges only those portions of Supreme Court's order as limited the temporal scope of its claim for breach of fiduciary duty against the CRS defendants and insurance brokers, and dismissed its claim for common-law indemnification. The CRS defendants cross-appeal. Defendant Hickey–Finn & Co., Inc., an insurance broker, also cross-appeals, as limited by its notice of appeal, from so much of the order as partially denied its motion to dismiss the claims of breach of fiduciary duty, fraud and fraud in the inducement against it. Finally, former RITNY trustee defendant Mark Bartlett cross-appeals, as limited by his notice of appeal, from the partial denial of his motion to dismiss the claim for breach of contract against him.²

Initially, we agree with plaintiff that Supreme Court improperly limited the temporal scope of the actionable misconduct on its breach of fiduciary duty claim. Plaintiff maintains that the court misapplied the repudiation rule, which provides that “the applicable statutory period ... does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated” (Westchester Religious Inst. v. Kamerman, 262 A.D.2d 131, 131, 691 N.Y.S.2d 502 [1999] ; see Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d 195, 201–202, 868 N.Y.S.2d 563, 897 N.E.2d 1044 [2008] ; Matter of Baird, 58 A.D.3d 958, 959, 871 N.Y.S.2d 755 [2009] ). The Court of Appeals has instructed that, under the repudiation rule, “the time starts running when a successor [fiduciary] is put in place” (Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d at 202, 868 N.Y.S.2d 563, 897 N.E.2d 1044 ). After the fiduciary “has yielded ... to a successor, ... [t]he running of the statute [of limitations] then begins, and only actual or intentional fraud will be effective to suspend it” (Spallholz v. Sheldon, 216 N.Y. 205, 209, 110 N.E. 431 [1915] [citations omitted]; accord Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d at 201, 868 N.Y.S.2d 563, 897 N.E.2d 1044 ).

Here, for purposes of defendants' motion to dismiss, we accept as true the allegations in the complaint that a fiduciary relationship existed between the CRS defendants and the trusts, of which plaintiff is the successor in interest, and afford plaintiff the benefit of every favorable inference (see e.g. EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19, 799 N.Y.S.2d 170, 832 N.E.2d 26 [2005] ; Murray Bresky Consultants, Ltd. v. New York Compensation Manager's, Inc.,

106 A.D.3d 1255, 1258, 968 N.Y.S.2d 595 [2013] ). That fiduciary relationship would have terminated on the dates that CRS ceased administration of the trusts in 2006, and Supreme Court properly determined that the limitations period commenced running at that point (see Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d at 201, 868 N.Y.S.2d 563, 897 N.E.2d 1044 ; Spallholz v. Sheldon, 216 N.Y. at 209, 110 N.E. 431 ).³ The court erred, however, in failing to apply the repudiation rule as a “toll” and in sustaining the claim only with respect to misconduct that was otherwise timely. The limitations period for all breaches of fiduciary duty, regardless of when they occurred, was tolled until CRS ceased administration of the trusts and, thus, all misconduct would “fall[ ] within the permissible temporal scope of the” claims so long as any portion of the claim fell within the limitations period (Westchester Religious Inst. v. Kamerman, 262 A.D.2d at 132, 691 N.Y.S.2d 502 ; see Golden Pac. Bancorp v. Federal Deposit Ins. Corp., 273 F.3d 509, 519 [2d Cir.2001] ). That is, the repudiation rule acts as a toll of the limitations period for all misconduct committed by the fiduciary prior to repudiation of its obligation or termination of the relationship. In other words, all of the alleged misconduct prior to the severance date is included in the actionable portion of the claim.

We reject the argument of the CRS defendants on their cross appeal that the statute of limitations for the entire breach of fiduciary duty claim is three years, rather than six. The parties are in agreement that, because plaintiff does not seek equitable relief, a six-year statute of limitations period applies to the breach of fiduciary duty claim against CRS only if “an allegation of fraud is essential to” the claim (IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139, 879 N.Y.S.2d 355, 907 N.E.2d 268 [2009] ; see New York State Workers' Compensation Bd. v. SGRisk, LLC, 116 A.D.3d 1148, 1154, 983 N.Y.S.2d 642 [2014] ). To state a claim for fraud, a plaintiff must allege “that the defendant knowingly misrepresented a material fact for the purpose of inducing reliance upon it, that there was, in fact, justifiable reliance thereon, and that damages resulted” (Paolucci v. Mauro, 74 A.D.3d 1517, 1520, 903 N.Y.S.2d 584 [2010] [internal quotation marks and citation omitted] ). In addition, and particularly relevant here, “[f]raud may also result from a fiduciary's failure to disclose material facts when the fiduciary had a duty to disclose and acted with the intent to deceive” (id.;see Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178, 919 N.Y.S.2d 465, 944 N.E.2d 1104 [2011] ; Kaufman v. Cohen, 307 A.D.2d 113, 119–120, 760 N.Y.S.2d 157 [2003] ).

Here, a portion of plaintiff's breach of fiduciary duty claim is grounded in its allegations that the CRS defendants breached their fiduciary duties to the trusts by fraudulently concealing or misrepresenting the financial...