NEW YORK STATE WORKERS’ COMPENSATION BOARD, as Administrator of the WORKERS’ COMPENSATION LAW and Attendant Regulations and as Successor in Interest to the MANUFACTURING INDUSTRY WORKERS’ COMPENSATION SELF-INSURANCE TRUST et al., Appellant-Respondent, v CONSOLIDATED RISK SERVICES, INC., et al., Respondents-Appellants, et al., Defendants.
Supreme Court, Appellate Division, Third Department, New York
May 21, 2015
4 NYS3d 680
Lynch, J.; McCarthy, J.P., Egan Jr. and Clark, JJ., concur.
Plaintiff alleges that, as a result of defendants’ misconduct and malfeasance, the trusts became insolvent, requiring it to assume administration of NYMIT in March 2006, PATH in February 2006 and RITNY in October 2008, and that a forensic audit revealed deficits ranging from approximately $7 million to $25 million (see
As relevant here, Supreme Court partially denied the motions by the CRS defendants and insurance brokers to dismiss the breach of fiduciary duty, fraud and fraudulent inducement claims as untimely, finding that the claims were timely as to allegations on or after certain dates, and that questions of fact exist regarding whether the “discovery rule” would permit review of allegations relating to conduct before those dates on certain claims. With respect to the RITNY trustees, the court dismissed as untimely the breach of contract claim against certain trustees—defendants Jennifer Bartlett and Alice Nykaza—because they demonstrated that their services as trustees terminated more than six years before the action was
Plaintiff now appeals and, in its brief, challenges only those portions of Supreme Court’s order as limited the temporal scope of its claim for breach of fiduciary duty against the CRS defendants and insurance brokers, and dismissed its claim for common-law indemnification. The CRS defendants cross-appeal. Defendant Hickey-Finn & Co., Inc., an insurance broker, also cross-appeals, as limited by its notice of appeal, from so much of the order as partially denied its motion to dismiss the claims of breach of fiduciary duty, fraud and fraud in the inducement against it. Finally, former RITNY trustee defendant Mark Bartlett cross-appeals, as limited by his notice of appeal, from the partial denial of his motion to dismiss the claim for breach of contract against him.2
Initially, we agree with plaintiff that Supreme Court improperly limited the temporal scope of the actionable misconduct on its breach of fiduciary duty claim. Plaintiff maintains that the court misapplied the repudiation rule, which provides that “the applicable statutory period . . . does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated” (Westchester Religious Inst. v Kamerman, 262 AD2d 131, 131 [1999]; see Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195, 201-202 [2008]; Matter of Baird, 58 AD3d 958, 959 [2009]). The Court of Appeals has instructed that, under the repudiation rule, “the time starts running when a successor [fiduciary] is put in place” (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d at 202). After the fiduciary “has yielded . . . to a successor, . . . [t]he running of the statute [of limitations] then begins, and only actual or intentional fraud will be effective to suspend it” (Spallholz v Sheldon, 216 NY 205, 209 [1915] [citations omitted]; accord Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d at 201).
Here, for purposes of defendants’ motion to dismiss, we ac
We reject the argument of the CRS defendants on their cross-appeal that the statute of limitations for the entire breach of fiduciary duty claim is three years, rather than six. The parties are in agreement that, because plaintiff does not seek equitable relief, a six-year statute of limitations period applies to the breach of fiduciary duty claim against CRS only if “an allegation of fraud is essential to” the claim (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009]; see New York State Workers’ Compensation Bd. v SGRisk, LLC, 116 AD3d 1148, 1154 [2014]). To state a claim for fraud, a plaintiff must allege “that the defendant knowingly misrepresented a material fact for the purpose of inducing reliance upon it, that there was, in fact, justifiable reliance thereon, and that dam
Here, a portion of plaintiff’s breach of fiduciary duty claim is grounded in its allegations that the CRS defendants breached their fiduciary duties to the trusts by fraudulently concealing or misrepresenting the financial condition of the trusts, the danger of operating deficits and issues associated with underwriting deficiencies, and that CRS did so as part of a scheme to increase membership and thereby increase its own commissions. These are fraud allegations, and they are essential to this portion of the fiduciary duty claim. That is, the relevant portion of the claim is “based on fraud” and “there would be no injury but for the fraud” (Paolucci v Mauro, 74 AD3d at 1520 [internal quotation marks and citation omitted]). As such, that portion of the fiduciary duty claim is subject to a six-year limitations period (see New York State Workers’ Compensation Bd. v SGRisk, LLC, 116 AD3d at 1154; Paolucci v Mauro, 74 AD3d at 1519-1520; see also McDonnell v Bradley, 109 AD3d 592, 594-595 [2013]; Carbon Capital Mgt., LLC v American Express Co., 88 AD3d 933, 939-940 [2011]; Monaghan v Ford Motor Co., 71 AD3d 848, 850 [2010]; Kaufman v Cohen, 307 AD2d at 120).
While we further reject the CRS defendants’ assertions that Supreme Court improperly applied the “discovery rule” to certain of those defendants on the fraud and fraudulent inducement claims, we agree with Hickey-Finn, whose marketing agreements with PATH and NYMIT terminated effective January 1, 2000, that the court erred in relying upon that rule to sustain the claims against it. The “discovery rule” is found in
As regards CRS and its employees, Supreme Court determined that questions of fact exist regarding whether misconduct predating the statute of limitations period is cognizable under the two-year discovery rule. With respect to the insurance brokers, the court concluded that the fraud causes of action, along with the cause of action for breach of fiduciary duty, were untimely under a six-year statute of limitations, but that the record did not foreclose application of the discovery rule. Both the CRS defendants and Hickey-Finn argue that the claims against them are untimely even pursuant to the discovery rule because plaintiff could have discovered the fraud with reasonable diligence within two years of assuming administration of PATH and NYMIT in 2006 or, at the latest, when plaintiff received forensic accounting reviews for those trusts in 2008. In addition, the CRS defendants contend that the alleged fraud with respect to RITNY could have been discovered in 2002 when, according to the complaint, an audit revealed “material deficiencies” in that trust’s funding status.
As Hickey-Finn notes, plaintiff argues before this Court that “[i]t was only after . . . a forensic audit was completed [ ] that [plaintiff] possessed knowledge of the facts from which the fraud [committed by CRS] reasonably could be inferred.” In light of plaintiff’s admission that it had knowledge of the facts from which fraud could reasonably be inferred after receiving the forensic accountings, the two-year discovery rule would run from the date that plaintiff received the audit reports, February 19, 2008 for NYMIT and PATH, and June 11, 2010 for RITNY. Consistent with that admission, a review of the reports “unequivocally establish[es] that plaintiff was possessed of facts” upon receiving them “that put it on notice of a potential fraud claim” (Elhannon, LLC v Brenda J. DeLuca Trust, 108 AD3d at 913). Thus, to be timely under the discovery rule, an action on the claims involving NYMIT and PATH was required to be commenced by February 19, 2010, and on the claims involving RITNY by June 11, 2012, absent a further toll of the statute of limitations. This action was commenced on December 5, 2011. Even pursuant to the discovery rule, then, the fiduciary duty, fraud and fraudulent inducement claims are untimely with respect to Hickey-Finn, which had no involvement with RITNY (see Elhannon, LLC v Brenda J. DeLuca Trust, 108 AD3d at 913; cf. Kaufman v Cohen, 307 AD2d at 123).
As to the CRS defendants, however, the discovery rule would
Turning to the arguments of defendant David Bramwell, a former employee of CRS who submits his own brief on the CRS defendants’ cross-appeal, we are unpersuaded by his assertion that his affidavit and documentary evidence conclusively demonstrated that his employment with CRS terminated in September 1996, such that he had no obligations under the relevant agreements, and that all claims against him were, in any event, barred by the statute of limitations. “Under
On his cross-appeal, Bartlett, a former trustee of RITNY, challenges Supreme Court’s denial of his motion to dismiss plaintiff’s breach of contract claim against the trustees of RITNY. Supreme Court dismissed a breach of fiduciary duty claim against those trustees as untimely pursuant to a three-year statute of limitations. Bartlett argues that the breach of contract claim is also untimely because it is merely a restatement of the breach of fiduciary duty claim and that, in any event, there is no express or implied contract between the trustees and the trust because fundamental elements required for a contract—mutual assent and consideration (see Maas v Cornell Univ., 94 NY2d 87, 93-94 [1999]; Apfel v Prudential-Bache Sec., 81 NY2d 470, 475-476 [1993])—are absent. In our view, both of these arguments lack merit, and plaintiff adequately stated a cause of action for breach of contract to survive a motion to dismiss.
To state a cause of action for breach of contract, a plaintiff must allege “formation of a contract, performance by one party, failure to perform by another, and resulting damage” (New York State Workers’ Compensation Bd. v SGRisk, LLC, 116 AD3d at 1153). As Bartlett concedes, the same conduct that constitutes a breach of contractual obligation may also constitute a breach of fiduciary duty (see e.g. id. at 1153-1154). Here, plaintiff alleged that Bartlett executed a “Designation of Trustee” form in 2004, in which he agreed to accept all duties
This Court recently found that nearly identical allegations were sufficient to state a claim for breach of contract (see Murray Bresky Consultants, Ltd v New York Compensation Manager’s Inc., 106 AD3d at 1256-1258; see also New York State Workers’ Compensation Bd. v SGRisk, LLC, 116 AD3d at 1153), and Bartlett’s arguments that the required contractual elements of mutual assent and consideration were absent provide no basis for distinguishing those cases. As Supreme Court concluded, Bartlett’s assent is manifest in his signed, notarized agreement expressly “accept[ing] all duties and responsibilities of [a trustee] in accordance with the terms and conditions of the Trust Agreement.” Regarding consideration, we note that every trustee’s service was undertaken on behalf of their employers who were parties to a complex relationship with the trusts, and agree with Supreme Court that the record does not foreclose the possibility that consideration flowed to the trustees via their employers.
Finally, based upon this Court’s recent precedent, the portion of plaintiff’s common-law indemnification claim that was asserted against the RITNY trustees must be reinstated. Plaintiff acknowledges that, although it appealed from that portion of Supreme Court’s order as dismissed its common-law indemnification claim in the entirety, this Court’s decision in State of N.Y. Workers’ Compensation Bd. v Madden (119 AD3d 1022 [2014], supra)—which involved a substantially similar factual background and was decided while this appeal was pending—precludes it from seeking indemnification except as against the trustee defendants (id. at 1023-1025). However, as plaintiff further argues, Madden dictates that its claims
The parties’ remaining arguments, to the extent not rendered academic by our decision, have been considered and found to be lacking in merit.
McCarthy, J.P., Egan Jr. and Clark, JJ., concur. Ordered that the order is modified, on the law, without costs, by reversing so much thereof as (1) denied the motion of defendant Hickey-Finn & Co., Inc. to dismiss the first, fourth and fifth causes of action against it, (2) limited the actionable misconduct to the limitations period on the first cause of action as to the remaining defendants, and (3) granted the motion of defendants Mark Bartlett, Ronald Birdsall, Bonnie Carpineta, Robert Finch, Vince Minieri, Thomas Mirabito and William Bonisteel to dismiss the common-law indemnification claims against them; motion by Bartlett, Birdsall, Carpineta, Finch, Minieri, Mirabito and Bonisteel to dismiss is denied to the extent asserted by plaintiff in its governmental capacity as the entity charged with the administration of the Workers’ Compensation Law, motion by Hickey-Finn to dismiss the first, fourth and fifth causes of action is granted and said claims dismissed, and matter remitted to the Supreme Court to permit defendants to serve an answer within 20 days of the date of this Court’s decision; and, as so modified, affirmed.