Belair Care Center, Inc. et al. v. Cool Insuring Agency, Inc. et al., Index No. 51392/2016, 09/23/2016 (Platkin, J.)

Motion to Amend the Complaint; Fatal Defect; Breach of Contract; Negligence; False advertising; Aiding and Abetting Breach of Fiduciary Duty; and Aiding and Abetting Fraud; Sufficient Particularity; Statute of Limitations; Relation Back Doctrine; Fatal Defect

By Janel Rottkamp | Staff Writer

Belair Care Center (“Belair”) is a healthcare provider that was required to provide workers’ compensation insurance to their employees.  To distribute such insurance, Belair became a member of the Healthcare Industry Trust of New York (“HITNY”), a group self-insured trust.  HITNY, however, later became insolvent.  In response, the Worker’s Compensation Board (“WCB”) assumed administration of HITNY, at which time HITNY had an estimated deficit of over ninety million dollars.  WCB issued letters to members of HITNY, including Belair, advising them that they were jointly and severally liable for the entire deficit. Importantly, WCB advised Belair and HITNY members that collection actions would be initiated against members if the deficits were not satisfied. The WCB later commissioned a forensic audit showing an accumulated deficit of more than two hundred million.

Belair Care Center and other HITNY members (collectively “Plaintiffs”) commenced an action (“the HITNY action”) seeking to recover the accumulated deficit from other entities involved with HITNY, including the HITNY trustees, Compensation Risk Managers, LLC (“CRM”), and other entities associated with CRM (collectively “Defendants”).  In filing such a complaint, Plaintiff assigned their claims to WCB.  Due to procedural deficiencies, a stay was imposed on the HITNY action. A separate action was then instituted in order to allow a number of Plaintiffs to assert new claims against particular defendants. After the stays were lifted, Plaintiffs moved for leave to amend the complaint to join new parties, plead their damages, and add the following five new causes of action: (1) breach of contract; (2) negligence; (3) false advertising; (4) aiding and abetting breach of fiduciary duty; and (5) aiding and abetting fraud.  Plaintiffs argued that each amendment to the complaint merely amplifies allegation previously made, and are based on the same transactions, occurrences, and omissions set forth in prior pleadings, and as such the motion for leave to amend should be granted.

In response, Defendants argued that Plaintiffs’ motion should be denied for three reasons: (1) the absence of client affidavits of merit was a fatal defect in Plaintiff’s complaint; (2) the proposed new causes of action, coupled with its new allegations of fact were barred by the statute of limitations could not be saved under the Relation Back Doctrine; (3) the proposed new causes of action were legally insufficient because Plaintiffs failed to prove a reasonable excuse for their delay in seeking to amend the complaint.

The Court granted Plaintiffs’ motion. First, the Court held that the absence of affidavits of merit were not a fatal defect.  Fatal defect is not present in the absence of affidavits of merit when proposed amendments are otherwise adequately supported by the existing record.  Fatal defect is present if proposed amendments are not adequately supported by a record.  Although Plaintiffs’ affidavits were not meritorious because they were not sworn, not supportive of the proposed amendments, nor even supplied by sixteen of the Plaintiffs, the Court concluded here that the affidavits were merely amplifications of the original complaint allegations. For the Court to deny a leave to amend would lead to additional motion practice, introduce the opportunity for appeals, and give rise to additional delay, uncertainty, expense, and duplicitous efforts. Thus, Plaintiffs’ motion to amend complaint was granted.

Second, the Court used the statutes of limitations in tandem with the Relation Back Doctrine on an individual basis per Trustee. Expiration of the statute of limitations is measured from the date of injury.  The Relation Back Doctrine tolls the statute of limitations when subsequent or amended claim is tied directly to a prior transaction, such that both claims can be asserted as related to one another.  Here, there were two defendants named in the original action as “brokers” in the original complaint that alleged causes of actions not closely tied to amended claims asserted now such that they would have notice of the amended causes of action. For these two defendants, along with another defendant named in the original complaint, the Court held that it would be futile to allow Plaintiffs to amend their complaints as to these three defendants. Upon ruling on the other Defendants, the Court contrarily found that amending the complaints would not be futile and that the other Defendants failed to meet their affirmative burden in demonstrated that Plaintiffs were time-barred by an expiration of the statute of limitations, or that the Relation Back Doctrine did not apply.

Third, the Court held that the aiding and abetting a breach of fiduciary duty were pleaded with sufficient particularity.  For an aiding and abetting claim to be pleaded with legal sufficiency, it must put the defendant on notice of the incidence complained of and the material facts alleged in the complaint, in light of the surrounding circumstances. Such material facts must be sufficient to permit a reasonable inference of the alleged conduct, including the adverse party’s knowledge of, or participation in, the fraudulent scheme.  Plaintiff must allege a knowing breach of fiduciary duty in a fiduciary relationship.  Here, the Court reasoned that Plaintiffs’ proposed amendment alleged that Defendants knowingly induced and participated in frauds and cited examples of misrepresentations, putting Defendants on notice. Thus, the Court held that the claim was pleaded sufficiently.

The Court so ordered its holding and provided the amended complaint was submitted within thirty days of the Court’s order.

Belair Care Center, Inc. et al. v. Cool Insuring Agency, Inc. et al., Index No. 51392/2016, 09/23/2016 (Platkin, J.).

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