Opinion
19-0121
07-12-2019
URGENT MEDICAL CARE, PLLC, Plaintiff, v. Amy J. Brueckner AMEDURE, Defendant.
JOHN D. ASPLAND, JR., ESQ., FITZEGERALD MORRIS BAKER FIRTH P.C., PO Box 2017, 68 Warren Street, Glens Falls, NY 12801, Attorney for Plaintiff MICHAEL R. FRASCARELLI, ESQ., CATANIA, MAHON, MILLIGRAM & RIDER, PLLC, One Corwin Court, PO Box 1479, Newburgh, New York 12550, Attorney for Defendant
JOHN D. ASPLAND, JR., ESQ., FITZEGERALD MORRIS BAKER FIRTH P.C., PO Box 2017, 68 Warren Street, Glens Falls, NY 12801, Attorney for Plaintiff
MICHAEL R. FRASCARELLI, ESQ., CATANIA, MAHON, MILLIGRAM & RIDER, PLLC, One Corwin Court, PO Box 1479, Newburgh, New York 12550, Attorney for Defendant
Raymond J. Elliott, III, J.
When a person lawfully receives a payment for an ownership interest that was created through payments made by another person, can a claim be stated, based in equity, for unjust enrichment? In short, that is the issue this motion requires the Court to resolve.
Defendant worked as a doctor in a practice owned by Plaintiff. Plaintiff paid Defendant's malpractice premiums. Due to the demutualization of a malpractice insurance provider, Defendant received a payment of nearly double the amount of three years' worth of premium payments for her ownership interest in that company. Plaintiff is suing Defendant alleging that Defendant has become unjustly enriched through receipt of these proceeds since Plaintiff paid the premiums throughout the relevant period and believes it has an equitable claim to the distribution. Before the Court is Defendant's Motion to Dismiss. Plaintiff has submitted an Amended Summons and Complaint correcting the previously erroneously named Plaintiff. Defendant does not contest the amendment; however, she elects to have her Motion applied to the new pleadings.
Motion to Dismiss
In determining a motion to dismiss a complaint, the court's role is ordinarily limited to determining whether the complaint states a cause of action (see Frank v. Daimler Chrysler Corp. , 292 AD2d 118, 121 [1st Dept 2002] ). The court must "accept the facts as alleged in the complaint as true, accord plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Nonnon v. City of New York , 9 NY3d 825, 874 [2007] ). "The sole criterion on a motion to dismiss is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cognizable action at law, a motion for dismissal will fail" ( Harris v. IG Greenpoint Corp. , 72 AD3d 608, 609 [1st Dept 2010] ). "A motion [to dismiss] must be decided without regard to evidence submitted by defendants, unless that evidence ‘conclusively establishes the falsity of an alleged fact’ " ( ARB Upstate Communications LLC v. R.J. Reuter, L.L.C., 93 AD3d 929, 930 [3d Dept 2012], citing Gray v. Schenectady City School Dist. , 86 AD3d 771, 772 [3d Dept 2011] ). "Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of the motion to dismiss" ( Shaya B. Pacific, LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP , 38 AD3d 34, 38 [2nd Dept 2006], citing EBC I, Inc. v. Goldman , Sachs & Co. , 5 NY3d 11, 19 [2005] ). Even were this Court to have doubts about the viability of the claim, the existence of potentially meritorious claims within the record, even if inartfully pleaded, requires denial of a motion to dismiss (see Rovello v. Orofino Realty Co ., 40 NY2d 633, 635 [1976] ).
Unjust Enrichment
Although "unjust enrichment is not a catchall cause of action to be used when others fail" ( Corsello v. Verizon New York, Inc. , 18 NY3d 777, 790 [2012] ), the Court of Appeals has noted the broad equity jurisdiction of the Courts and our power to correct unjust enrichment, going so far as to cite Aristotle in this context, stating "[l]aw without principle is not law; law without justice is of limited value. Since adherence to principles of ‘law’ does not invariably produce justice, equity is necessary" ( Simonds v. Simonds , 45 NY2d 233, 239 [1978] ). To recover under a theory of unjust enrichment, "[a] plaintiff must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" ( New York State Workers' Compensation Bd. v. Program Risk Mgt., Inc. , 150 AD3d 1589, 1594 [3d Dept 2017] [internal quotation marks, brackets and citations omitted]; see Georgia Malone & Co., Inc. v. Rieder , 19 NY3d 511, 516 [2012] ).
"The essence of such a cause of action is that one party is in possession of money or property that rightly belongs to another" ( Clifford R. Gray, Inc. v. LeChase Const. Servs., LLC , 31 AD3d 983, 988 [3d Dept 2006] ). This requirement of ownership is in the context of an equitable claim, not legal ownership rights; therefore, a party may be legally entitled to a benefit through a contract but still equitably owe those funds to another (see Simonds v. Simonds , 45 NY2d at 239 ; see also Restatement [Third] Restitution and Unjust Enrichment § 26, Illustration 11). " ‘The essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered’ " ( Goel v. Ramachandran , 111 AD3d 783, 791 [2013], quoting Paramount Film Distrib. Corp. v. State of New York , 30 NY2d 415, 421 [1972], cert denied 414 US 829 [1973] ).
"[I]t is not prerequisite of unjust enrichment claim that one enriched commit wrongful or unlawful act" ( Mayer v. Bishop , 158 AD2d 878, 878 [3d Dept 1990], lv denied 76 NY2d 704 [1990] ). A claim for unjust enrichment "is undoubtedly equitable and depends upon broad considerations of equity and justice" ( Paramount Film Distrib. Corp. v. State of New York , 30 NY2d at 421. "In determining whether this equitable remedy is warranted, a court should look to see if a benefit has been conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant, if there has been otherwise a change of position by the defendant, and whether the defendant's conduct was tortious or fraudulent" ( Betz v. Blatt, 160 AD3d 696, 701 [2d Dept 2018] [internal quotation marks and citations omitted] ). Ultimately, "to determine whether there has indeed been unjust enrichment the inquiry must focus on the ‘human setting involved’, not merely upon the transaction in isolation" ( Mayer v. Bishop , 158 AD2d at 880, quoting McGrath v. Hilding , 41 NY2d 625, 629 [1977] ).
Statement of Facts
In 2018, Medical Liability Mutual Insurance Company (hereinafter MLMIC) approved a demutualization, resulting in a payment based on the ownership interest in the insurance policy at issue in this suit, which Plaintiff believes to be approximately $57,000 [Amended Complaint ¶ 19]. Defendant worked as a doctor for Plaintiff from 2009 until December 2018. Defendant swears she obtained a policy with MLMIC to provide malpractice coverage prior to her employment with Plaintiff [Defendant's Affidavit: ¶ 7]. Defendant states that not until 2011, when she ended her private practice, did Plaintiff assume responsibility for the MLMIC premiums [Defendant's Affidavit: ¶ 7-8]. Defendant asserts that she agreed to diminished compensation and the premium payments were "in lieu of" an increase in salary [Defendant's Affidavit: ¶ 8].
Plaintiff alleges that "[a]s a provider of health care services, Plaintiff's liability protection needs required all employees, providing health care services, to be covered by insurance" [Amended Complaint ¶ 4]. Therefore, "during the course of her employment and specifically for the period of July 15, 2013 through July 14, 2016, [Defendant] was covered with malpractice insurance by [Plaintiff]" [Plaintiff's Affidavit: ¶ 4]. Plaintiff alleges that "[d]espite the fact that [it] was maintaining the policy and making the premium payment directly to the insurer, through a clerical error, [Plaintiff] was mistakenly listed as the policy administrator" [Plaintiff's Affidavit: ¶ 6]. Further, Plaintiff asserts that "the premiums were simply an operating/overhead expense of [Plaintiff]" and not an employee benefit [Plaintiff's Affidavit: ¶ 7].
Demutualization
The New York Superintendent of Financial Services' September 6, 2018, decision (hereinafter DFS Decision) explains the nature of the demutualization and the ownership stake as follows:
A mutual insurance company is owned by and operated for the benefit of its policyholders. A policyholder's ownership interest in a mutual company is known as a "membership interest." These membership interests provide policy holders with certain benefits, including the right to vote on matters submitted to a vote of members such as the election of directors, and the right to receive a distribution of profits earned by the mutual insurance company in the form of a dividend. Membership interests are not freely transferrable; they exist only in connection with a policyholder's ownership of a policy.
When a demutualization occurs, membership interests in the mutual insurance company are converted to equity interests in the converted stock insurance company and eligible policyholders of the mutual insurance company thereby become shareholders of the converted stock insurance company. Under the Insurance Law, a plan of conversion is the operative document governing a demutualization, with such document subject to various procedural requirements and the Superintendent's approval. In the case of a property/casualty insurer such as MLMIC, such approval is subject to the standards set forth in Insurance Law § 7307 (h) (l) [DFS Decision p. 3-4].
Demutualization has been referred to as a "windfall" in some cases because it is often unclear if parties knew the ownership stake even existed prior to the demutualization plan (see e.g. Bank of New York v. Janowick , 470 F3d 264, 272 [6th Cir 2006] ["Here, it is clear that none of the parties expected to receive the demutualization proceeds, which will constitute a windfall to whoever receives them"]; see also Ruocco v. Bateman, Eichler, Hill, Richards, Inc. , 903 F2d 1232, 1238 [9th Cir 1990] ; Chicago Truck Drivers, Helpers & Warehouse Workers Union (Indep.) Health & Welfare Fund v. Local 710, Int'l Bhd. of Teamsters, Chicago Truck Drivers, Helper & Warehouse Workers Union (Indep.) Pension Fund , No. 02 C 3115, 2005 WL 525427, at *4 [ND Ill March 4, 2005] ). Following the trend of demutualization in the life insurance industry one expert wrote, regarding property/casualty insurance as at issue here, that "[m]ost policyholders in such companies--including not only individuals but businesses, non-profit institutions, and municipalities--are undoubtedly unaware that they have substantial rights as owners which could be realized in the form of stock ownership, or in cash or otherwise, upon demutualization" (Peter M. Lencsis, Demutualization of New York Domestic Property/casualty Insurers , NY St BJ 42 [October 1998] ).
MLMIC Demutualization
A recent Supreme Court case (Sedita III, J.) lays out the relevant history of this transaction:
The MLMIC Board of Directors approved a proposed transaction by which MLMIC would demutualize, convert to a stock insurance company, and be acquired by the National Indemnity Company (NICO) for $ 2.502 billion. The MLMIC Board later adopted a plan of conversion, whereby cash consideration would be paid to policyholders/members in exchange for the extinguishment of the policyholder membership interests. Pursuant to § 8.2 (a) of the Plan of Conversion (the Plan), "Each Eligible Policyholder (or it's designee) shall receive a cash payment in an amount equal to the applicable conversion." Pursuant to § 2.1 of the Plan, an "eligible policyholder" was the person designated as the insured, while a "designee" meant employers or policy administrators, "designated by Eligible Policyholders to receive the portion of the Cash Consideration allocated to such Eligible Policyholders." The Plan did not provide for the policy administrator to receive cash consideration absent such a designation from the policyholder/member.
The New York Superintendent of Financial Services held a public hearing and approved the Plan. In her September 6, 2018 decision (DFS Decision), the Superintendent wrote: "MLMIC's eligible policyholders will receive cash consideration. Insurance Law § 7307 (e) (3) expressly defines those persons who are entitled to receive the proceeds of the Demutualization as each person who had a policy in effect during the three-year period preceding the MLMIC Board's adoption of the resolution (the ‘Eligible Policyholders’) and explicitly provides that each Eligible Policyholder's equitable share of the purchase price shall be determined based on the amount of the net premiums paid on eligible policies" (DFS Decision, p.4).
The DFS Decision also acknowledged testimony and written comments from medical groups. Nearly identical to the plaintiff's contentions in this case, the medical groups had argued that the cash consideration belonged to them because they had paid the premiums on behalf of the policyholders and/or had acted as the policy administrators. Addressing these arguments, the Superintendent of Financial Services wrote: " Insurance Law § 7307 (e) (3) defines the policyholders eligible to be paid their proportional shares of the purchase price, but also recognizes that such policyholders may have assigned such legal right to other persons. Therefore, the plan appropriately includes an objection and escrow procedure for the resolution of disputes for those persons who dispute whether the policyholder is entitled to the payment in a given case." Such a claim would be, "decided either by agreement of the parties or by an arbitrator or court" (DFS Decision, p.25).
( Maple-Gate Anesthesiologists, P.C. v. Nasrin , 63 Misc 3d 703, 704 [Sup Ct, Erie County 2019, Sedita III, J.] ).
Ownership Interest: Policyholder vs. Policy Administrator
Both Insurance Law § 3435 and Regulation 135 (11 NYCRR 153) permit the issuance of group property/casualty insurance only with respect to public and not-for-profit insureds. Thus, under New York law with the limited exception of a risk retention group authorized under Federal law, group property/casualty insurance for physician groups may not be written in New York (see Office of General Counsel, Department of Financial Services, New York Medical Professional Liability Insurance [June 4, 2008] OGC Op No 08-06-02, available at https://www.dfs.ny.gov/insurance/ogco2008/rg080602.htm). Therefore, as a matter of course, medical malpractice insurance must generally be acquired for each provider rather than for a group. Thus, regardless for who paid the premium, the providers were the policyholders.
"A court may take judicial notice of matters of public record, such as an incontrovertible official document or other reliable documents, the existence and accuracy of which are not disputed, and information culled from public records" ( 10A Carmody-Wait 2d § 56:33 ; see Matter of 60 Mkt. St. Assoc. v. Hartnett , 153 AD2d 205, 208 n [3d Dept 1990], affd 76 NY2d 993 [1990] ; Matter of Sunhill Water Corp. v. Water Resources Commn ., 32 AD2d 1006, 1008 [3d Dept 1969] ). As both parties rely significantly on the demutualization process approved by the New York Superintendent of Financial Services, this Court finds it appropriate to take judicial notice of the entire record of the process as provided through the New York Superintendent of Financial Services (see Department of Financial Services, Public Hearings and Decisions: Medical Liability Mutual Insurance Company [MLMIC] Demutualization Plan of Conversion from Property and Casualty Mutual Insurance Company to Property and Casualty Stock Insurance Company, available at https://www.dfs.ny.gov/reports_and_publications/public_hearings [Last Accessed July 12, 2019] ).
Although the provider was the policyholder, MLMIC's counsel explained in written testimony that "a Policy Administrator is a Person designated by a Policyholder to act as administrator of the Policy for certain specified purposes. Designations are made on a form provided by MLMIC as part of the application process or at any point in time selected by the Policyholder. The form has been available on-line continuously throughout the Eligibility Period. Designations received as part of the application process are reflected on the declaration page of the applicable Policy. Policy Administrators can also be ‘otherwise designated’ by the submission of the prescribed form by the Policyholder following the issuance of the Policy. In such a case, the Policy Administrator would not be named on the declarations page of the Policy until the Policy is renewed, but an endorsement to the Policy would be issued in the interim" (Willkie Farr & Gallagher LLP, Written Testimony at Public Hearing In the Matter of Medical Liability Mutual Insurance Company, [August 28, 2018], available at https://www.dfs.ny.gov/docs/about/hearings/mlmic_08232018/willkie.pdf).
As part of the hearing process, several representatives for hospitals and other practices expressed concerns regarding the distribution of proceeds of the demutualization. MLMIC's Plan of Conversion (MLMIC, Plan of Conversation of Medical Liability Mutual Insurance Company , available at https://www.mlmic.com/wp-content/uploads/2018/09/mlmic_plan_of_conversion.pdf [June 15, 2018] ), included "Schedule I: Objection Procedures." This procedure created a process for Policy Administrators to object to the distribution to the policyholder, causing the payment to be escrowed. The fact that the plan itself contemplated objections between policy administrators and policyholders creates, at least some, inference of acknowledge that these proceeds would be in dispute.
A significant point of contention exists regarding the nature of the policy administrator designation. Dr. Richard Frimer of Maple Medical LLP testified that his practice made all the premium payments "actually suffering sometimes to pay the premiums" (Department of Financial Services, Hearing Transcript, 124-134, [August 23, 2018], available at https://www.dfs.ny.gov/system/files/documents/2019/01/mlmic_transcript_20180823.pdf [hereinafter Hearing Transcript] ). Frimer testified that despite MLMIC's estimate of 40 percent of policyholders having a different policy administrator, the common practice for many practices, including his own was for premiums to be paid on behalf of employees without designation [Hearing Transcript p.127-128]. Frimer also asserted that although the designation may have existed within the period at issue for calculating the proceeds, the designation has not always existed, thereby longtime employees could have a policy beginning before designation was even possible [Hearing Transcript p.131].
Frimer's testimony was further corroborated by one hospital system that went so far as book approximately $24 million in proceeds as part of their cash flow projection due to their belief that as the payor of the premiums, they were entitled to the payment [Hearing Transcript p.156-176]. That testimony also noted the obstacle to group policies forcing the current conflict [Hearing Transcript p.170]. In response to this testimony, the Superintendent specifically noted that that "nothing in this procedure prevent anyone from exercising whatever legal rights they have" [Hearing Transcript p. 175].
These examples are emblematic of multiple oral and written testimonies that were provided to the Department of Financial Services regarding the claims of employers having paid the premiums to MLMIC and having acted as the owners of the policy, despite not being the policyholders or, in some cases, even declared as the policy administrator. Notably, MLMIC's counsel submitted written testimony that stated, "In all events [regarding declaration of a Policy Administrator] there must be an affirmative designation in writing on MLMIC's prescribed form. The mere acceptance of a policy application and premium on a Policy from a Person not designated by the Policyholder as a Policy Administrator does not confer the status of Policy Administrator on such Person" [Willkie Farr & Gallagher LLP, Written Testimony ].
The DFS Decision stated that "[t]he Objection Procedure provides a reasonable framework for the resolution of disputes between certain policyholders and entities that claim to be Policy Administrators. Importantly, the Objection Procedure does not, in any way, impact any person's rights to resolve their dispute in any forum of their choosing or as required by contract or law. Rather, the sole purpose of the Objection Procedure is to create a category of disputed claims for which the cash consideration attributable to such claims will be placed in an escrow and released by MLMIC upon one of two events: MLMIC either receives (a) ‘joint written instructions from the Eligible Policyholder and the Policy Administrator... as to how the allocation is to be distributed,’ or (b) ‘a non-appealable order of an arbitration panel or court with proper jurisdiction ordering payment of the allocation to the Policy Administrator... or the Eligible Policyholder’ " (DFS Decision p.23).
First, the Court need not now resolve the dispute regarding what creates a policy administrator. Second, the Court does not, at this time, credit or give weight to the testimony provided at the hearing except to merely put context to the DFS Decision. Both the Superintendent's statement at the hearing and the decision's clear language stating that "the Objection Procedure does not, in any way, impact any person's rights to resolve their dispute in any forum of their choosing or as required by contract or law" clearly establish that the Department of Financial Services did not resolve the issues around equitable claims nor did they seek to in any way limit the ability of parties to bring these claims.
Precedent
There is a dearth of case law regarding demutualization of a property/casualty insurance company. Significantly, much of the case law that does exist is in the context of mutual life insurance and is driven by state law as well as the Federal Employee Retirement Income Security Act (hereinafter ERISA).
In Maple-Gate Anesthesiologists, P.C. v. Nasrin , (supra ), Supreme Court considered similar claims to those at issue here. The Court dismissed the complaint finding there was no claim of ownership and, therefore, no claim of unjust enrichment. Notably, in that case there were written employment agreements defining the relationship between the parties, which stated that "professional liability insurance premiums as an ‘employment benefit for and on behalf of’ the employee" ( Maple-Gate Anesthesiologists, P.C. v. Nasrin , 63 Misc 3d at 704 ). Neither party claims such an agreement exists here.
The only Appellate Court decision regarding this issue is from the First Department in Schaffer, Schonholz & Drossman, LLP v. Title (171 AD3d 465, 465 [1st Dept 2019] ). There, the Court ruled on stipulated facts that were submitted and relied on ERISA demutualization (Id .). The Court found that despite respondent being named as the policyholder, plaintiff had paid the premiums and all costs related to the policy and there was no record of bargaining for the benefit of demutualization proceeds, so [a]warding respondent the cash proceeds of MLMIC's demutualization would result in her unjust enrichment" (Id .) Here, the parties contest the nature of the understanding by which Plaintiff assumed payment of the premiums.
The Motion to Dismiss Must be Denied
In essence, an unjust enrichment claim accrues when one person has obtained money from the efforts of another person under such circumstances that, in fairness and good conscience, the money should not be retained (see Miller v. Schloss , 218 NY 400, 407 [1916] ). In such circumstances, the law requires the enriched person to compensate the other person (see Bradkin v. Leverton , 26 NY2d 192, 196-197 [1970] ). Such a claim is based not in legal title, but in equity (see Simonds v. Simonds , 45 NY2d at 239 ).
Here, viewing the Complaint in the light most favorable to Plaintiff and giving it all reasonable inferences, Plaintiff has stated a claim for unjust enrichment. Plaintiff paid the premiums. Plaintiff claims that, but for a mistake of fact, it would be the policy administrator, and it was its payments and efforts that created the proceeds from demutualization. Defendant vigorously disagrees and properly notes she has legal title to the proceeds. Legal title does not end the inquiry (see Simonds v. Simonds , 45 NY2d at 239 ; Castellotti v. Free , 138 AD3d 198, 207 [1st Dept 2016] ). "In determining a motion to dismiss ..., the evidence must be accepted as true and given the benefit of every reasonable inference which may be drawn therefrom. The question of credibility is irrelevant, and should not be considered" ( Gonzalez v. Gonzalez , 262 AD2d 281, 282, [2d Dept 1999] ). Therefore, it is not currently before the Court to resolve whether Plaintiff's claims are true or even plausible, but only if they state a claim. Here, Plaintiff has clearly stated such a claim.
According, it is
ORDERED, Defendant's Motion to Dismiss the Amended Complaint is denied .
This shall constitute the Decision, Order and Judgment of the court. This Decision, Order and Judgment is being returned to the attorney for Plaintiff. All original supporting documentation is being filed with the Greene County Clerk's Office. The signing of this Decision, Order and Judgment shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provision of that rule relating to filing, entry and notice of entry.
SO ORDERED AND ADJUDGED
Papers Considered:
1. Defendant's Notice of Motion to Dismiss dated March 28, 2019; Defendant's Affidavit in Support of the Motion to Dismiss sworn March 28, 2019; Attorney's Affirmation in Support of the Motion to Dismiss dated March 28, 2019; Defendant's Memorandum of Law in Support of the Motion to Dismiss dated March 28, 2019; Annexed Exhibits 1-8.
2. Plaintiff's Attorney Affirmation in Opposition to the Motion to Dismiss dated April 22, 2019; Plaintiff's Affidavit sworn April 19, 2019; Annexed Exhibit A.
3. Defendant's Reply Affirmation in Further Support of the Motion to Dismiss dated April 26, 2019; Annexed Exhibits 1-2.