N.Y. State Workers' Comp. Bd. v. Sgrisk, LLC

• Decision Date: 03 April 2014
• Citation: N.Y. Workers' Comp. Bd. v. Sgrisk, LLC, 2014 NY Slip Op 2373, 116 A.D.3d 1148, 983 N.Y.S.2d 642 (N.Y. App. Div. 2014)
• Parties: NEW YORK STATE WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and attendant regulations, and as Successor in Interest to the Healthcare Memorandum and Order Industry Trust of New York et al., Appellant–Respondent, v. SGRISK, LLC, et al., Respondents–Appellants.
• Court: New York Supreme Court — Appellate Division

116 A.D.3d 1148

983 N.Y.S.2d 642

2014 N.Y. Slip Op. 02373

NEW YORK STATE WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and attendant regulations, and as Successor in Interest to the Healthcare Memorandum and Order Industry Trust of New York et al., Appellant–Respondent,

v.SGRISK, LLC, et al., Respondents–Appellants.

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

April 3, 2014.

Rupp, Baase, Pfalzgraf, Cunningham & Coppola, LLC, Buffalo (Charles D.J. Case of counsel), for appellant-respondent.

Hitchcock & Cummings, LLP, New York City (Terry Cummings of counsel), for SGRisk, LLC, respondent-appellant.

Veeder Price, New York City (John H. Eickemeyer of counsel), for UHY, LLP, respondent-appellant.

Before: LAHTINEN, J.P., STEIN, McCARTHY and GARRY, JJ.

McCARTHY, J.

Cross appeals from an order of the Supreme Court (Platkin, J.), entered March 13, 2013 in Albany County, which partially granted defendants' motions to dismiss the complaint.

Between 1999 and 2008, Compensation Risk Managers, LLC (hereinafter CRM) acted as the group administrator ( see12 NYCRR 317.2[g] ) for eight workers' compensation group self-insured trusts that were formed to provide workers' compensation coverage to employees of the trusts' members ( seeWorkers' Compensation Law § 50[3–a]; 12 NYCRR 317.2[i]; 317.3). CRM contracted with defendant UHY, LLP for accounting services that included the preparation of annual audited financial statements that each trust was required to submit to plaintiff ( see12 NYCRR 317.19[a][2] ). CRM contracted with defendant SGRisk, LLC for actuarial services that included the preparation of annual actuarial reports that the trusts were required to submit to plaintiff ( see12 NYCRR 317.19[a][3] ). At different points between 2007 and January 2010, plaintiff deemed each of the trusts insolvent and assumed their administration ( see12 NYCRR 317.20). Plaintiff subsequently obtained independent forensic accountings of each trust and discovered that the trusts had deficits ranging from $4 million to $170 million.

Plaintiff commenced this action, as the governmental entity charged with administering the state's workers' compensation system and as successor in interest to the trusts, asserting causes of action for breach of fiduciary duty, breach of contract, aiding and abetting breach of fiduciary duty, fraud and unjust enrichment. Basically, plaintiff alleged that SGRisk manipulated the trusts' future claims liabilities and UHY purposely portrayed the trusts' financial conditions in a more favorable light for CRM's financial benefit. UHY and SGRisk each moved pre-answer to dismiss the complaint. Supreme Court partially granted the motions (38 Misc.3d 1229(A), 2013 WL 842527 [2013] ). Plaintiff appeals and UHY and SGRisk each cross-appeal.

Supreme Court partially erred in granting the portion of UHY's motion to dismiss plaintiff's breach of contract cause of action. A breach of contract cause of action generally must be commenced within six years of the breach ( seeCPLR 203[a]; 213[2]; Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1030, 981 N.Y.S.2d 643, 4 N.E.3d 944 [2013] ), but where a plaintiff seeks “to recover damages for malpractice, other than medical, dental or podiatric malpractice,” the cause of action must be commenced within three years “regardless of whether the underlying theory is based in contract or tort” (CPLR 214[6]; see Matter of R.M. Kliment & Frances Halsband, Architects [ McKinsey & Co., Inc.], 3 N.Y.3d 538, 541, 788 N.Y.S.2d 648, 821 N.E.2d 952 [2004];City of Binghamton v. Hawk Eng'g P.C., 85 A.D.3d 1417, 1418, 925 N.Y.S.2d 705 [2011],lv. denied17 N.Y.3d 713, 2011 WL 4978965 [2011] ). “In the context of a malpractice action against an accountant, the claim accrues upon the client's receipt of the accountant's work product since this is the point that a client reasonably relies on the accountant's skill and advice” ( Ackerman v. Price Waterhouse, 84 N.Y.2d 535, 541, 620 N.Y.S.2d 318, 644 N.E.2d 1009 [1994] [citations omitted]; see Mitschele v. Schultz, 36 A.D.3d 249, 252, 826 N.Y.S.2d 14 [2006] ). Plaintiff alleged that UHY breached its agreements with CRM, which contracts were for the benefit of the trusts, by, among other things, “failing to originate, follow, and/or consistently apply generally accepted accounting [principles] and generally accept[ed] auditing standards in its analysis of the [t]rusts' reserve liabilities and financial conditions,” “failing or refusing to offer an accurate analysis of the [t]rusts' financial conditions,” and “failing or refusing to identify the dangers the [t]rusts' liabilities posed to their solvency.” These allegations are couched as breaches of contract, but could be construed as essentially a professional malpractice claim to the extent that the allegations are that UHY failed to perform its contractual services in a professional, nonnegligent manner ( see City of Binghamton v. Hawk Eng'g P.C., 85 A.D.3d at 1418, 925 N.Y.S.2d 705;Boslow Family Ltd. Partnership v. Kaplan & Kaplan, PLLC, 52 A.D.3d 417, 417, 860 N.Y.S.2d 526 [2008],lv. denied11 N.Y.3d 707, 868 N.Y.S.2d 599, 897 N.E.2d 1083 [2008] ). To the extent that the complaint alleges negligent performance of professional duties, the three-year statute of limitations applies to plaintiff's breach of contract cause of action against UHY ( see Matter of R.M. Kliment & Frances Halsband, Architects [ McKinsey & Co., Inc.], 3 N.Y.3d at 543, 788 N.Y.S.2d 648, 821 N.E.2d 952). As the complaint states that UHY prepared its last audited financial statements for each trust in 2006 or 2007, and the action was commenced in July 2011, that aspect of the breach of contract cause of action is time-barred ( see id.;City of Binghamton v. Hawk Eng'g P.C., 85 A.D.3d at 1418, 925 N.Y.S.2d 705;RGH Liquidating Trust v. Deloitte & Touche LLP, 47 A.D.3d 516, 517, 851 N.Y.S.2d 31 [2008],lv. dismissed11 N.Y.3d 804, 868 N.Y.S.2d 584, 897 N.E.2d 1065 [2008] ).

On the other hand, to the extent that plaintiff alleged that UHY breached the contracts through intentional actions, such as by “refusing” to perform certain obligatory functions, these allegations are not in essence a malpractice claim. Professional malpractice “is but a species of negligence” ( Weiner v. Lenox Hill Hosp., 88 N.Y.2d 784, 787, 650 N.Y.S.2d 629, 673 N.E.2d 914 [1996];see Scott v. Uljanov, 74 N.Y.2d 673, 674, 543 N.Y.S.2d 369, 541 N.E.2d 398 [1989];Dries v. Gregor, 72 A.D.2d 231, 235, 424 N.Y.S.2d 561 [1980];see also Simcuski v. Saeli, 44 N.Y.2d 442, 453–454, 406 N.Y.S.2d 259, 377 N.E.2d 713 [1978] ), and, thus, does not generally encompass intentional acts. Accordingly, the portion of the complaint alleging breach of contract through intentional conduct is subject to a six-year statute of limitations ( seeCPLR 213[2] ), rendering the intentional portion of that cause of action timely.

Supreme Court did not err in converting a portion of plaintiff's unjust enrichment cause of action into a breach of contract cause of action and denying UHY's motion to dismiss as relates to that portion. The court dismissed as untimely that part of the unjust enrichment cause of action that challenged the competency of the professional services rendered, dismissed the remainder of that claim because there is an enforceable contract between the trusts and UHY, and converted the allegation that UHY did not perform some of the required services into part of plaintiff's breach of contract cause of action. The only portion of the unjust enrichment cause of action at issue on appeal is the last portion. Plaintiff alleged that UHY was retained by CRM to perform accounting services on behalf of the trusts, was paid from the trusts' funds for performing services for the trusts' benefit, and that UHY “did not perform some of the services for which it was paid,” resulting in damages to the trusts. Accepting these allegations as true and affording plaintiff the benefit of every reasonable inference ( see 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] ), Supreme Court properly determined that plaintiff stated a cause of action for breach of contract ( see Torok v. Moore's Flatwork & Founds., LLC, 106 A.D.3d 1421, 1422, 966 N.Y.S.2d 572 [2013];Clearmont Prop., LLC v. Eisner, 58 A.D.3d 1052, 1055, 872 N.Y.S.2d 725 [2009] ), and properly converted that portion of the unjust enrichment claim into a breach of contract claim. These allegations do not address negligence in the performance of professional services, akin to malpractice, but allege a pure breach of contract through an utter failure to perform part of the agreed-upon and paid-for services. Thus, they are timely under the six-year statute of limitations ( seeCPLR 213 [2] ).

Regarding the fraud cause of action against UHY, plaintiff has not challenged Supreme Court's determination to dismiss the portion alleging fraudulent misrepresentation of the trusts' financial conditions in the annual audit reports, on the basis that such actions are not independent from any professional malpractice. That leaves only the portion of the fraud claim alleging that UHY fraudulently misrepresented to the trusts that it would “accurately identify, and accurately disclose any changes in, the [t]rusts' financial statuses, including the danger of incurring operating deficits.” Because these allegations are essentially duplicative of the allegations that UHY intentionally breached the contracts, they do not give rise to a separate fraud cause of action and must be dismissed ( see Kosowsky v. Willard Mtn., Inc., 90 A.D.3d 1127, 1129, 934 N.Y.S.2d 545 [2011] ).

Supreme Court did not err in partially denying SGRisk's motion as it sought to dismiss the breach of fiduciary duty cause of action. Actuaries are not considered professionals for the purpose of the shortened statute of limitations applicable to malpractice claims ( see Health...