Reich v. Manhattan Boiler & Equipment Corp.

• Decision Date: 01 July 1998
• Citation: 698 N.E.2d 939,91 N.Y.2d 772,676 N.Y.S.2d 110
• Court: New York Court of Appeals Court of Appeals
• Parties: , 698 N.E.2d 939, 1998 N.Y. Slip Op. 6564 Louis S. REICH, as Assignee from John H. Thompson, Respondent, v. MANHATTAN BOILER & EQUIPMENT CORP., Appellant.

Page 110

676 N.Y.S.2d 110

91 N.Y.2d 772, 698 N.E.2d 939, 1998

N.Y. Slip Op. 6564

Louis S. REICH, as Assignee from John H. Thompson, Respondent, v. MANHATTAN BOILER & EQUIPMENT CORP., Appellant.

Court of Appeals of New York.

July 1, 1998.

O'Brien & Mayr, Rockville Centre (James M. O'Brien and Nicholas P. Calabria, of counsel), for appellant.

Gordon, Goldberg & Juengst, P.C., New York City (Lawrence A. Goldberg, of counsel), for respondent.

Kwiatkowski & Ryan, L.L.P., Floral Park (John E. Ryan and John M. Donnelly, of counsel), for State Insurance Fund, amicus curiae.

Michael D. Hess, Corporation Counsel of New York City (Stuart D. Smith and Barry P. Schwartz, of counsel), for City of New York, amicus curiae.

OPINION OF THE COURT

WESLEY, Judge.

Twenty-six years have elapsed since Joseph Kaban was injured in an automobile accident during the course of his employment with Manhattan Boiler & Equipment Corp. This action, commenced by attorney Louis S. Reich, the assignee of the satisfaction of judgment in Mr. and Mrs. Kaban's personal injury action, represents the Kabans' second attempt before this Court to recover indirectly a portion of a third-party judgment that the defendants in the personal injury action obtained against Manhattan. The issue on this appeal is whether the satisfaction-of-payment method approved by this Court in Feldman v. New York City Health & Hosps. Corp., 56 N.Y.2d 1011, 453 N.Y.S.2d 683, 439 N.E.2d 398, revg. 84 A.D.2d 166, 445 N.Y.S.2d 555, for the reasons stated in 107 Misc.2d 145, 437 N.Y.S.2d 491, permits a plaintiff to recover indirectly from a third-party defendant when the third-party defendant is the original plaintiff's employer. We conclude that the use of a Feldman-type loan agreement in a case where the third-party defendant is the original plaintiff's employer directly conflicts with the public policy considerations of the exclusivity of the workers' compensation remedy and should be disallowed.

Following the accident in 1972, Kaban received workers' compensation benefits from his employer's insurance carrier. ¹ Kaban and his wife sued John H. Thompson and the Public Administrator of New York County, as representative of Ralph Mazza, deceased, the other parties involved in the motor vehicle accident. Thompson and Mazza's estate brought a third-party action against defendant Manhattan and Kaban's fellow employee, Andre Nosaniuk, the driver of the vehicle owned by Manhattan. The case went to trial and the jury apportioned liability between Manhattan and Nosaniuk (25%) and Thompson and Mazza (75%). Appeals ensued.

In 1977, this Court considered the Kaban case under the consolidated title of Klinger v. Dudley, 41 N.Y.2d 362, 393 N.Y.S.2d 323, 361 N.E.2d 974, modfg. Valentino v. Thompson, 52 A.D.2d 601, 382 N.Y.S.2d 464. We modified the judgment for contribution from Manhattan to require that Thompson's third-party judgment against Manhattan be conditioned upon his payment of the primary judgment to the Kabans. Because both Thompson and Mazza were insolvent, the Kaban judgment went unenforced and uncollected. ²

In 1992, plaintiff Louis S. Reich, an attorney, decided to implement the Feldman formula to try to collect on the Kaban judgment. Using Feldman as their script, the Kabans, Thompson and plaintiff entered into a loan agreement, pursuant to which plaintiff agreed to loan Thompson the sum of $1,213,402.67, which plaintiff calculated to be the principal owed to the Kabans on their judgment, plus statutory interest from December 5, 1974 until April 1, 1992. In consideration for the loan, Thompson agreed (a) to use the entirety of the loan proceeds to satisfy the Kaban judgment; (b) to execute a promissory note in favor of plaintiff for the amount of the loan; (c) to assign his right, title and interest in his third-party judgment to plaintiff for the purposes of enforcement, and (d) to assign any satisfaction of the primary judgment received from the Kabans to plaintiff. The loan agreement required the Kabans to guarantee Thompson's note, in return for which plaintiff agreed to pay the Kabans 95% of any recovery plaintiff obtained in an action against defendant Manhattan to enforce the third-party judgment.

All the necessary documents were executed on April 1, 1992. Plaintiff drew a check on the account of his law firm payable to the order of Thompson in the sum of $1,213,402.67. The check was tendered to Thompson who endorsed it over to the Kabans, who in turn endorsed the check back to plaintiff's law firm to be held in escrow. The Kabans then tendered satisfactions of judgment and general releases in favor of Thompson. The escrow was ultimately released and the funds were repaid to plaintiff, thus discharging Thompson's debt and the Kabans' obligation.

Plaintiff commenced this action against Manhattan seeking to enforce the third-party judgment. Plaintiff thereafter moved for summary judgment seeking $303,353.13 (which represented Manhattan's proportionate share under the third-party judgment), plus statutory interest from April 1, 1992. Manhattan cross-moved for summary judgment dismissing the complaint, and also moved to compel joinder of Joseph Kaban as a necessary party plaintiff.

Supreme Court granted plaintiff's motion and entered judgment in favor of plaintiff with interest from April 1, 1992 and denied Manhattan's motion and cross motion. The court noted that the agreement in this case was "simply a loan arrangement similar to the one sanctioned in Feldman v. New York City Health & Hosps. Corp." The court concluded that the exclusivity of workers' compensation was not a bar to plaintiff's claim "under the limited loophole sanctioned by the Court of Appeals in Feldman." The Appellate Division affirmed, holding that Feldman authorized the transaction (240 A.D.2d 262, 659 N.Y.S.2d 737). We granted Manhattan's motion for leave to appeal, and now reverse. ³

The transaction upheld by this Court in Feldman v. New York City Health & Hosps. Corp., 56 N.Y.2d 1011, 453 N.Y.S.2d 683, 439 N.E.2d 398, supra, involved a loan arrangement similar to that used by the parties in this case. The inspiration for the loan mechanism came from a law review article (Farrell, Civil Practice, 29 Syracuse L.Rev. 449, 488-489) which offered it as a solution to the problems plaintiffs faced as a result of this Court's decision in Klinger v. Dudley, 41 N.Y.2d 362, 393 N.Y.S.2d 323, 361 N.E.2d 974, supra. Plaintiff Reich contends that the Feldman mechanism is of general applicability and, thus, can be implemented in any situation involving a contribution claim against a third-party defendant--even a third-party defendant otherwise insulated from direct liability to a plaintiff because of the exclusivity of the workers' compensation remedy. We disagree.

In response to an argument put forth by the Kabans in Klinger in 1977 (Klinger v. Dudley, supra, at 370, 393 N.Y.S.2d 323, 361 N.E.2d 974), we noted that although this Court's decision in Dole v. Dow Chem. Co., 30 N.Y.2d 143, 331 N.Y.S.2d 382, 282 N.E.2d 288, allowed a defendant to seek indemnification/contribution from the injured plaintiff's employer, Dole did not create a new direct right of recovery for a plaintiff/employee against the third-party defendant employer. "[T]he wrong that Dole remedied was one to tort-feasors, and not to plaintiffs" (Klinger v. Dudley, supra, at 370, 393 N.Y.S.2d 323, 361 N.E.2d 974). Thus Klinger prohibited the Kabans from recovering directly against Manhattan.

The Feldman loan agreement was sanctioned for the limited purpose of alleviating the burdens created by Klinger in the specific factual circumstances of Feldman (see, 107 Misc.2d, at 150-152, 437 N.Y.S.2d 491). In Feldman, the plaintiff in the underlying personal injury action brought claims against the driver and owner of the vehicle involved in the automobile accident in which plaintiff was injured and against the doctor who treated (and aggravated) his injuries. The defendants brought third-party claims against the hospital where plaintiff was treated. For some unknown reason, plaintiff never raised a direct claim against the hospital. The jury apportioned liability as follows: driver/owner 10%; doctor 36%; hospital 54% (id., at 147, 437 N.Y.S.2d 491). The trial court noted that as a result of Klinger, a plaintiff who failed to assert a direct claim against a third-party defendant "[m]ust * * * sit idly by with a large uncollectible judgment without recourse to anyone except perhaps [his or her] attorney" (id., at 152, 437 N.Y.S.2d 491). In that situation, the third-party defendant/tortfeasor "[i]rrespective of its degree of fault and the jury's finding of culpability and liability, and notwithstanding its ability to pay * * * may escape without having to pay a single dollar of the judgment against it" (id., at 151, 437 N.Y.S.2d 491). Thus, the equitable solution fashioned and allowed in Feldman was to permit that particular plaintiff to recover through the use of a loan arrangement between the parties that would, on a superficial level, satisfy Klinger.

Even Feldman recognized, however, that there were instances under Klinger where a plaintiff would not have a direct claim against a third-party defendant (id., at 150, 437 N.Y.S.2d 491). This case is distinguishable from Feldman for that very reason. In this case, the Kabans were prevented from asserting a claim against Manhattan by the Workers' Compensation Law (see, Workers' Compensation Law § 11). As we stated in Klinger:

"That the workings of fate result in plaintiffs Kaban being limited to a recovery under [workers'] compensation and a relatively small amount of insurance proceeds from main defendants * * * should not be a basis for allowing an indirect recovery by plaintiffs against the employer and coemployee in this case * * * To some, this result may seem unfair, but in fact it is in keeping with the events as they have unfolded. Plaintiffs Kaban were entitled to recovery...