State v. Madden

• Decision Date: 03 July 2014
• Citation: 2014 N.Y. Slip Op. 05000,119 A.D.3d 1022,989 N.Y.S.2d 156
• Parties: STATE of New York WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and attendant regulations, and as Successor in Interest to the Healthcare Facilities Workers' Compensation Trust, Appellant–Respondent, v. Cathy MADDEN et al., Respondents–Appellants, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

119 A.D.3d 1022
989 N.Y.S.2d 156
2014 N.Y. Slip Op. 05000

STATE of New York WORKERS' COMPENSATION BOARD, as Administrator of the Workers' Compensation Law and attendant regulations, and as Successor in Interest to the Healthcare Facilities Workers' Compensation Trust, Appellant–Respondent,
v.
Cathy MADDEN et al., Respondents–Appellants, et al., Defendants.

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

July 3, 2014.

[989 N.Y.S.2d 158]

Rupp, Baase, Pfalzgraf, Cunningham & Coppola, LLC, Buffalo (Daniel Sarzynski of counsel), for New York State Workers' Compensation Board, appellant-respondent.

Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Albany (Peter A. Lauricella of counsel), for Cathy Madden and others, respondents-appellants.

Bennett, Schechter, Arcuri & Will, LLP, Buffalo (Marissa Sweet of counsel), for Daniel Muskin, respondent-appellant.

Jaeckle, Fleishmann & Mugel, Buffalo (Bradley A. Hoppe of counsel), for Berenson & Company, LLP, respondent-appellant.

Hiscock & Barclay, LLP, Albany (David B. Cabaniss of counsel), for Steven Glaser, respondent-appellant.

Landman, Corsi, Ballaine & Ford, PC, New York City (Louis G. Corsi of counsel), for Lorette Belgraier, respondent-appellant.

Before: LAHTINEN, J.P., McCARTHY, GARRY, LYNCH and CLARK, JJ.

GARRY, J.

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

The New York Healthcare Facilities Workers' Compensation Trust, a group self-insured trust, was formed in 1996 to provide mandated workers' compensation coverage to employees of Trust members ( seeWorkers' Compensation Law § 50 [3–a]; 12 NYCRR 317.2[i]; 317.3). Hamilton Wharton Group (hereinafter HWG), the Trust's group administrator, contracted with defendant Berenson & Company, LLP for auditing services, defendant Lorette Belgraier for accounting services, and defendant Steven Glaser to serve as the Trust's counsel. In 2006, plaintiff determined that the Trust was insolvent and assumed its administration ( see12 NYCRR 317.20). Thereafter, plaintiff obtained a forensic audit and a deficit reconstruction revealing that the Trust had an accumulated deficit of over $30 million.

In May 2011, plaintiff commenced this action against, among others, Berenson, Belgraier, Glaser (hereinafter collectively referred to as the professional defendants) and 12 former trustees, seeking to recover damages for, among other things, breach of fiduciary duty, breach of contract, and common-law indemnification. The complaint asserts that, because of defendants' failures, plaintiff was required by the Workers' Compensation Law to assume

[989 N.Y.S.2d 159]

administration of the Trust, pay administrative expenses and workers' compensation claims, and indemnify the Trust for losses in the amount of the deficit allegedly resulting from defendants' acts and omissions. Some of the former trustees (hereinafter collectively referred to as the trustee defendants) and the professional defendants each moved pre-answer to dismiss the complaint. Supreme Court partially granted the motions by, among other things, dismissing plaintiff's common-law indemnification claims. Plaintiff appeals, and the professional defendants and trustee defendants cross-appeal.

Plaintiff first challenges the dismissal of its common-law indemnification claims. As relevant here, common-law indemnification is an equitable remedy that avoids unfairness by shifting losses arising from an obligor's discharge of a joint duty when failure to do so would result in unjust enrichment ( see McCarthy v. Turner Constr., Inc., 17 N.Y.3d 369, 374–375, 929 N.Y.S.2d 556, 953 N.E.2d 794 [2011] ). A contract to reimburse or indemnify is implied where a plaintiff has discharged a duty which is duly owed, but which, as between the plaintiff and another, in fairness should have been discharged by the other ( see McDermott v. City of New York, 50 N.Y.2d 211, 217, 428 N.Y.S.2d 643, 406 N.E.2d 460 [1980];Murray Bresky Consultants, Ltd. v. New York Compensation Manager's Inc., 106 A.D.3d 1255, 1258, 968 N.Y.S.2d 595 [2013];Germantown Cent. School Dist. v. Clark, Clark, Millis & Gilson, 294 A.D.2d 93, 98 n. 2, 743 N.Y.S.2d 599 [2002],affd.100 N.Y.2d 202, 761 N.Y.S.2d 141, 791 N.E.2d 398 [2003] ). Such an implied obligation “may arise from contractual relations or from the status of the parties as a matter of law, or it may be imposed by statute” ( Sea Ins. Co. v. U.S. Fire Ins. Co., 71 A.D.2d 51, 53–54, 421 N.Y.S.2d 930 [1979],lv. denied49 N.Y.2d 702, 426 N.Y.S.2d 1026, 403 N.E.2d 188 [1980] [internal quotation marks and citation omitted] ). Here, plaintiff contends that it is entitled to indemnification based upon its status as successor in interest to the Trust and, alternatively, as the governmental entity statutorily charged with enforcement of the Workers' Compensation Law.

We agree with Supreme Court that plaintiff is not entitled to indemnification based upon its role as successor in interest to the Trust. As the successor, plaintiff stands in the shoes of the Trust, but, like an assignee, does not obtain any greater rights than those originally possessed; accordingly, plaintiff is only entitled to indemnification on this basis if the Trust would have had such a claim ( compare Matter of Quail Aero Serv., 300 A.D.2d 800, 802 n., 755 N.Y.S.2d 103 [2002] ). Here, the complaint does not allege that the Trust and defendants had common duties to third parties that were discharged by the Trust, but should have been discharged by defendants ( compare State of New York v. Stewart's Ice Cream Co., 64 N.Y.2d 83, 88, 484 N.Y.S.2d 810, 473 N.E.2d 1184 [1984];Murray Bresky Consultants, Ltd. v. New York Compensation Manager's Inc., 106 A.D.3d at 1258–1259, 968 N.Y.S.2d 595). Instead, the gravamen of the claim is that defendants breached contractual and fiduciary duties that were owed, not to third parties, but to the Trust—and, by extension, to plaintiff ( see Germantown Cent. School Dist. v. Clark, Clark, Millis & Gilson, 294 A.D.2d at 99, 743 N.Y.S.2d 599;see also Bunker v. Bunker, 80 A.D.2d 817, 817–818, 437 N.Y.S.2d 326 [1981] ). Thus, plaintiff's claims against defendants arising from its role as successor in interest are direct, and do not sound in common-law indemnification.

[989 N.Y.S.2d 160]

We likewise agree, in part, with Supreme Court's dismissal of plaintiff's alternative claim for indemnification arising from its role as the governmental agency charged with administration of the Workers' Compensation Law. Relative to the professional defendants, plaintiff does not claim that they had any duty in common with plaintiff's statutory obligation to maintain the Trust's solvency; instead, the complaint alleges that the professional defendants owed duties to the Trust to provide professional auditing, accounting and legal services. Accordingly, plaintiff failed to state a cause of action in common-law indemnification against these defendants ( see HANYS Servs. v. Empire Blue Cross & Blue Shield, 292 A.D.2d 61, 66, 737 N.Y.S.2d 140 [2002],lv. denied98 N.Y.2d 612, 749 N.Y.S.2d 475, 779 N.E.2d 186 [2002];see also Lovino, Inc. v. Lavallee Law Offs., 96 A.D.3d 909, 910, 946...