T.R. America Chemicals, Inc. v. Seaboard Sur. Co.

Decision Date14 July 1982
PartiesT.R. AMERICA CHEMICALS, INC., Plaintiff, v. SEABOARD SURETY COMPANY, Defendant. SEABOARD SURETY COMPANY, Defendant and Third-Party Plaintiff, v. Harvey KIELL and Daniel Fullan, Third-Party Defendants.
CourtNew York Supreme Court

Barrett Smith Schapiro Simon & Armstrong, New York City, for plaintiff T.R. America; Jeffrey A. Mayer, New York City, of counsel.

Hart & Hume, New York City, for defendant and third-party plaintiff, Seaboard Sur. Co.; William Hart, New York City, of counsel.

Rosenthal, Curry & Hasemann, East Meadow, for third-party defendant Kiell.

Daniel Fullan, pro se.

Harvey Kiell, pro se.

BENTLEY KASSAL, Justice: *

ISSUE

This is a motion of apparent first impression, raising a unique issue concerning application of the doctrine of "relation back" contained in CPLR 203(e). Third-party defendant Fullan, appearing pro se, moves to interpose an amended third-party answer to assert causes of action sounding in defamation against the plaintiff. The motion, brought more than two and a half years after commencement of both the main action and the third-party action, is made well beyond the one year statute of limitations applicable to actions for defamation [CPLR 215(3) ]. Thus, the claims now sought to be interposed by the third-party defendant against the plaintiff would be time-barred, unless the right to assert them has been preserved by the provisions of CPLR 203(e). In that respect, the motion also raises a somewhat novel procedural aspect in that the third-party defendant seeks to assert a claim, not against the third-party plaintiff, but against the plaintiff.

FACTS

Plaintiff, parent corporation of Hollingshurst & Co., Inc. ("Hollingshurst"), brought this action to recover on a commercial blanket bond, No. 751201, issued by Seaboard Surety Company ("Seaboard") on April 14, 1971. The bond provides indemnity coverage in the fact amount of $100,000 for any loss sustained by the insured as a result of any fraudulent or dishonest act committed by any employee.

The principal action was commenced October 3, 1978. The complaint sets forth two causes of action, each to recover in the sum of $100,000 for the fraudulent and dishonest acts of third-party defendants Kiell and Fullan, employees of Hollingshurst at the time the critical events occurred. In its first cause of action, plaintiff alleges that Kiell had been employed by Hollingshurst as a commodities broker and that, among his duties, was the purchase and sale of commodities for his employer. Kiell is charged with fraud and dishonesty, allegedly acknowledged by him in a statement given to Hollingshurst on March 4, 1977. The fraud alleged includes concealment and falsification of records for more than 90 purchase and sale contracts; dishonestly exceeding authority by speculating in "open positions" beyond permissible limits; concealment of substantial losses from officers and directors of Hollingshurst by misrepresenting the extent of "open positions" and by extracting documents from incoming mail to further conceal the unauthorized transactions.

The second cause of action alleges that, on January 4, 1977, at a time when Kiell was not in the office, Fullan, albeit not authorized to make contracts or execute orders, fraudulently and dishonestly completed nine purchase and sale agreements and thereafter concealed the transactions from officers of the corporation. As a result of this alleged fraud by both employees, plaintiff seeks indemnity coverage under the bond.

Thereafter, on December 1, 1978, the insurer instituted the third-party action, impleading the two former employees, Kiell and Fullan. On December 8, 1978, Fullan appeared pro se, serving a third-party answer to the third-party complaint, specifically denying the allegations of fraud and dishonesty. Fullan also claims to have served an answer to plaintiff's complaint on December 15, 1978, although plaintiff denies having received any such answer addressed to the complaint.

The Motion for Leave to Serve an Amended Answer

Fullan moves for leave to serve an amended answer in the form annexed to the moving papers. The proposed amended pleading reiterates prior denials of any wrongdoing and seeks to interpose four counterclaims against the plaintiff seeking damages for defamation, mental anguish and willful and malicious injury to reputation.

The request for leave to amend was first made orally during a pre-trial conference before Hon. Shanley N. Egeth, prior to assignment of this matter to a trial part. On the surface, it appeared that the claims sought to be raised would be barred by the one-year statute of limitations applicable to actions for defamation if they had been made the subject of an independent suit, newly asserted against the plaintiff. On the other hand, depending upon the applicability of CPLR 203(e), the viability of the claims might be preserved were the causes to be interposed as counterclaims in this action, by amendment of the third-party answer. To afford the parties [and the Court] a full opportunity to present the legal considerations involved in the issue raised, the third-party defendant was given leave to make formal application for the relief sought.

A. First Cause of Action

The first proposed cause of action charges that on October 14, 1977, a letter was sent from plaintiff's attorney to an attorney for Seaboard, which contained the following false and malicious statements:

"During the course of our investigation we learned, and advised Hollingshurst "Mr. Fullan recently admitted to us that, on January 4, 1977, he caused Hollingshurst to enter into a number of unauthorized contracts for the purchase and sale of cottonseed meal, and thereafter failed to report these unauthorized contracts to management. Mr. Fullan's trades were made entirely on his own and without Mr. Kiell's prior knowledge or consent. Following our discovery of Mr. Fullan's dishonest and fraudulent activity, his employment with Hollingshurst was terminated." (emphasis added)

and its parent company, that not all of the losses previously reported to you by Hollingshurst were caused by the dishonest and fraudulent activities of Harvey Kiell (who was discharged last March), as Hollingshurst originally believed. It now appears that over $100,000 of these losses resulted from dishonest and fraudulent trading by another Hollingshurst employee, Dan Fullan.

B. Second Cause of Action

The second cause of action seeks to recover for libelous statements contained in plaintiff's Statement of Claim, sworn to January 27, 1978, which was submitted to Seaboard in conjunction with plaintiff's claim under the fidelity bond. The claim made on the policy incorporates the aforesaid letter of October 14, 1977, plaintiff claiming to have sustained actual losses of $106,295.73 "due to Mr. Fullan's fraudulent and dishonest activities..."

C. Third Cause of Action

This cause of action, also sounding in libel, seeks recovery for a defamatory letter, dated January 31, 1978, sworn to February 1, 1978, from plaintiff's vice president to Seaboard's attorney. The letter purports to amend certain portions of the prior correspondence of October 14, 1977 and the Statement of Claim of January 27, 1978:

"I am writing this letter to amend a statement in Gerald Novack's letter to you dated October 14, 1977, which letter is incorporated by reference in the formal proof of loss form which we submitted to you yesterday.

"Mr. Novack has advised me that although the statement on page two of his letter to you that Mr. Fullan made certain unauthorized trades on January 4, 1977 is correct, the source of our information is not Mr. Fullan, but rather Harvey Kiell, and his allegations are corroborated, in part, by an examination of the company's employee records, which indicate that Mr. Kiell was out of the office on January 4th, 1977, the day on which Mr. Fullan made the unauthorized trades." (emphasis added)

D. Fourth Cause of Action

This cause of action, also for libel, concerns an allegedly defamatory letter dated June 19, 1978, from plaintiff's insurance broker to Seaboard's attorney, apparently sent after Seaboard had initially rejected the claim. Referring to the original letter of October 14, 1977 and the statement of claim thereafter submitted, the broker wrote as follows:

"I believe the principals' conduct in carrying out their duties was dishonest. They consciously:

1. Exceeded their authority;

2. Falsified records to conceal fraudulent trades;

3. Intercepted incoming mail in order to avoid discovery; and

4. Misrepresented their 'positions' to management.

"The concealed trades were not just beyond their authority but strictly forbidden. They knew it and purposely sought to expand upon their authority in the above-stated manner to the severe detriment of the insured. I believe their acts were dishonest and the resultant loss covered under the bond terms and conditions."

Fullan alleges that the accusations were false and defamatory and were published wantonly and maliciously and with reckless disregard of his rights. As a result of the publications, he claims to have sustained injury to his reputation in the community and to have suffered great physical pain

and mental anguish. He seeks damages in the sum of $300,000 on each of the four causes of action.

DISCUSSION

A motion for leave to amend, made pursuant to CPLR 3025(b), vests in the court wide latitude to grant leave "freely, upon such terms as may be just." In passing upon the application, however, the court must consider the underlying merits of the claim sought to be interposed (East Asiatic Co. v. Corash, 34 A.D.2d 432, 312 N.Y.S.2d 311). Of necessity, this requires that disposition be made as to the merits of the defenses raised in opposition.

A. Laches

Plaintiff suggests that laches should preclude the amendment, since Fullan did not establish any excuse for the...

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