North State Autobahn Inc. v. Progressive Ins. Group

• Decision Date: 24 June 2011
• Citation: 928 N.Y.S.2d 199,32 Misc.3d 798,2011 N.Y. Slip Op. 21220
• Parties: NORTH STATE AUTOBAHN, INC. and North State Autobahn, Inc. d/b/a, North State Custom, Plaintiff,v.PROGRESSIVE INSURANCE GROUP, Progressive Northeast Insurance Company, Progressive Casualty Insurance Company, Progressive Direct Insurance Company, and Progressive Specialty Insurance Company, Jason F. Ceasar, Nicholas Stanton, Joseph Zumar, Allison Chabon, Mark Herzner, Al Lucette, Defendants.
• Court: New York Supreme Court

32 Misc.3d 798

928 N.Y.S.2d 199

2011 N.Y. Slip Op. 21220

NORTH STATE AUTOBAHN, INC. and North State Autobahn, Inc. d/b/a, North State Custom, Plaintiff,

v.PROGRESSIVE INSURANCE GROUP, Progressive Northeast Insurance Company, Progressive Casualty Insurance Company, Progressive Direct Insurance Company, and Progressive Specialty Insurance Company, Jason F. Ceasar, Nicholas Stanton, Joseph Zumar, Allison Chabon, Mark Herzner, Al Lucette, Defendants.

Supreme Court, Westchester County, New York.

June 24, 2011.

Anderson Kill & Olick, P.C., New York, Medina, Torrey, Mamo & Garcia, P.C., Sleepy Hollow, Attorneys for Plaintiff.Nelson Levine De Luca & Horst, New York, Attorneys for Defendants.GERALD E. LOEHR, J.

Upon the foregoing papers, Progressive is among the largest automobile insurers in the United States with a large presence in this State. Plaintiff is an automobile repair shop in Westchester County.¹ PLAINTIFF SPECIALIzes in high-end vehicle repair, particularly of foreign vehicles, and tends to be more expensive than other shops. In or about 2000, Progressive created a Direct Repair Program (“DRP”), a network of repair shops with which Progressive had contractual arrangements concerning the costs and terms of repairs. Where the work is done at a DRP shop, Progressive guaranties the work. Progressive advertised the DRP and discussed its asserted advantages over non-participating repair shops with its insureds. The scope of the DRP may be illustrated by the evidence that in 2006, Progressive spent $1. 45 billion on DRP repairs and $1.65 billion on non-DRP repairs.

On February 16, 2007, Plaintiff commenced this proceeding. As originally filed, the Complaint asserted eight causes of action: (1) violation of General Business Law § 349; (2) violation of New York Insurance Law § 2601; ² (3) common law fraud; (4) negligent misrepresentation; (5) tortious interference with prospective business advantage; (6) injurious falsehood; (7) prima facie tort; and (8) punitive damages. In response to the Defendants' motion to dismiss for a failure to state a cause of action, Plaintiff withdrew the seventh and eighth causes of action. By a Decision and Order dated June 26, 2007, this Court dismissed the Second, Third and Fourth Causes of Action. The Section 2601 claim was dismissed as the Legislature did not provide a private cause of action for its violation ( see Rocanova v. Equitable Assur. Soc., 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634 N.E.2d 940 [1994] ). The fraud and negligent misrepresentation claims were dismissed as no misrepresentations were made to, or relied upon, by Plaintiff. Thus, what remains before the Court is the section 349 claim against Progressive and the tortious interference and injurious falsehood claims against all the Defendants.

The gravamen of the claims is that Progressive, through its employees (the individual Defendants) steered its insureds to the DRP shops and away from Plaintiff by means of deceptive, misleading and untrue statements which disparaged Plaintiff. A Trial Readiness Order was issued on September 15, 2010. Progressive timely moves for summary judgment dismissing the § 349 claim and Plaintiff timely moves for summary judgment as to liability with respect to such claim.

General Business Law § 349(a) declares unlawful “[d]eceptive acts or practices in the conduct of any business” and was enacted in order to protect consumers from misleading advertizing ( see Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55, 698 N.Y.S.2d 615, 720 N.E.2d 892 [1999] ). As originally enacted, the statute was enforceable only by the Attorney General. In 1980, however, the statute was amended to provide a private right of action to “ any person who has been injured by reason of such illegal conduct” ( see General Business Law § 349[h] [emphasis added]; City of New York v. Smokes–Spirits.Com, Inc., 12 N.Y.3d 616, 621, 883 N.Y.S.2d 772, 911 N.E.2d 834 [2009] ). To establish Progressive's liability under § 349(h), Plaintiff must establish Progressive has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that Plaintiff has suffered injury as a result of the deceptive act or practice ( id.). On one hand, intent to defraud by Progressive and justifiable reliance by the Plaintiff are not required ( Small v. Lorillard Tobacco, Co., 94 N.Y.2d 43, 55, 698 N.Y.S.2d 615, 720 N.E.2d 892 [1999]; Wilner v. Allstate Ins. Co., 71 A.D.3d 155, 214, 893 N.Y.S.2d 208 [2d Dept. 2010] ); on the other hand, direct, as opposed to derivative, injury is required ( City of New York v. Smokes–Spirits.Com, Inc., 12 N.Y.3d 616, 622, 883 N.Y.S.2d 772, 911 N.E.2d 834 [2009] ).

Progressive moves for summary judgment upon the grounds: (1) Plaintiff cannot demonstrate the requisite broad impact on consumers at large; (2) Plaintiff cannot show that any consumer to whom Progressive made an allegedly “deceptive” statement suffered any actual harm; (3) Plaintiff cannot show that Progressive engaged in misleading or deceptive behavior; and (4) assuming any consumers were harmed, any injury Plaintiff suffered was derivative only and therefore not actionable by Plaintiff under § 349.

It is clear that misrepresentations uttered in connection with a private, business-to-business dispute does not turn the matter into a § 349 violation ( see, eg, Anesthesia Assocs. of Mount Kisco, LLP v. Northern Westchester Hosp. Ctr., 59 A.D.3d 473, 480, 873 N.Y.S.2d 679 [2d Dept. 2009]; Northeast Wine Dev., LLC v. Service–Univ. Distribs, Inc., 23 A.D.3d 890, 892, 804 N.Y.S.2d 836 [3d Dept. 2005], affd. 7 N.Y.3d 871, 826 N.Y.S.2d 173, 859 N.E.2d 912 [2006]; Canario v. Gunn, 300 A.D.2d 332, 333, 751 N.Y.S.2d 310 [2d Dept. 2002] ). On the other hand, practices by insurance companies involving routine, wide spread marketing and communication with insureds, impacting the public at large, may support a cause of action under § 349 ( Gaidon v. Guardian Life Ins. Co. of America, 94 N.Y.2d 330, 344, 704 N.Y.S.2d 177, 725 N.E.2d 598 [1999]; Wilner v. Allstate Ins. Co., 71 A.D.3d 155, 162, 893 N.Y.S.2d 208 [2d Dept. 2010]; Elacqua v. Physicians' Reciprocal Insurers, 52 A.D.3d 886, 888, 860 N.Y.S.2d 229 [3d Dept. 2008] ).

Progressive relies on MVB. Collision, Inc. v. Progressive Northeastern Ins. Co., 2010 WL 3617134, No. 18018/09 [Sup. Ct., Nassau Co. 2010] for the position that this is a private, non-consumer business dispute and therefore not protected by § 349. Plaintiff relies on M.V.B. Collision v. Allstate Ins. Co., 728 F.Supp.2d 205 [E.D.N.Y. 2010] for the contrary position. Ironically, although the cases involved the same plaintiff and apparently identical facts—facts also apparently identical to the facts herein—the Courts came to different conclusions as to whether a claim under § 349 had been stated. In the two cases, the defendant insurance companies were alleged to have made disparaging misrepresentations to its insureds concerning plaintiff, a body shop, in connection with its steering of its insureds away from plaintiff to other shops.

In the Progressive case, Supreme Court dismissed. The Progressive Court held that Progressive's alleged wrongdoing was only a private contract dispute without an extensive marketing scheme or broad consumer impact. The Progressive Court also held that, as the plaintiff-body shop was suing the insurer of its consumer-customers, its claim was derivative only in violation of Blue Cross & Blue Shield of N.J. v. Philip Morris USA Inc., 3 N.Y.3d 200, 785 N.Y.S.2d 399, 818 N.E.2d 1140 [2004] and City of New York v. Smokes–Spirits.Com, Inc., 12 N.Y.3d 616, 622, 883 N.Y.S.2d 772, 911 N.E.2d 834 [2009] and that the only non-derivative claim plaintiff had was that of steering in violation of Insurance Law § 2601, a claim the plaintiff lacked standing to prosecute.

The United State District Court in Allstate, on apparently identical facts, held that the evidence of Allstate's practice of steering and making misrepresentations to its insureds concerning plaintiff satisfied the consumer element of § 349 based on the number of Allstate policy holders all of whom were potential customers of plaintiff ( M.V.B. Collision, Inc. v. Allstate Ins. Co., 728 F.Supp.2d 205, 212 [E.D.N.Y. 2010] ). As to the argument that the plaintiff's only nonderivative claim was for steering in violation of section 2601, the Allstate Court held:

“When, for example, Allstate allegedly ... steered a car away from Mid Island [by misrepresentations], not only was the customer the victim of a deceptive practice, but Mid Island also suffered a loss of business or other injury....”

“In sum, given that Mid Island's alleged injuries [loss of business] occurred as a direct result of the alleged deceptive practices directed at consumers, its injuries were not solely as a result of injuries sustained by another party.” '

( Id. at 217). With respect to the argument that the plaintiff's cause of action was really a disguised steering claim, the Allstate Court held:

“Here, by contrast, there is evidence of a free-standing claim of deceptiveness' that simply happens to overlap' with a claim under the Insurance Law.... The alleged scheme [to dissuade Allstate insureds from going to Mid Island] involved not only ... steering but also, inter alia, alleged ... defamatory comments....”

* * *

“In sum, because plaintiff's § 349 claim merely happens to overlap' with provisions of New York Insurance Law, it is not an improper attempt to circumvent the lack of [a] private right of action under [the] Insurance Law....”

( Id. at 219–20). This Court agrees with M.V.B. Collision, Inc. v. Allstate Ins. Co., 728 F.Supp.2d 205 [E.D.N.Y. 2010] that an insurer's misrepresentations to its insureds as part of a broad DRP may be sufficiently consumer-oriented to state a cause of action under § 349, that the alleged loss of business resulting therefrom is direct injury and that Plaintiff's cause of action is not merely a disguised claim for steering in...