Empire Blue Cross & Blue Shield v Various Underwriters At Lloyds, London, England

[*1] Empire Blue Cross & Blue Shield v Various Underwriters At Lloyds, London, England 2004 NY Slip Op 51528(U) Decided on October 18, 2004 Supreme Court, New York County Ramos, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 18, 2004
Supreme Court, New York County

EMPIRE BLUE CROSS AND BLUE SHIELD, Plaintiff,

against

VARIOUS UNDERWRITERS AT LLOYDS, LONDON, ENGLAND, SUBSCRIBING TO POLICY NO. 529/LB01053A96000 (as described more fully in the attached Rider), THE COPENHAGEN REINSURANCE COMPANY (UK) LTD., RIVER THAMES INSURANCE COMPANY LTD., SPHERE DRAKE INSURANCE PLC, and GAN INSURANCE COMPANY, LTD., Defendants.



125462/00

Charles Edward Ramos, J.

Motion sequence numbers 003 and 004 are consolidated herein for disposition. In motion sequence number 003, Various Underwriters at Lloyds, The Copenhagen Reinsurance Company (UK) Ltd., River Thames Insurance Company Ltd., Sphere Drake Insurance PLC, and GAN Insurance Company, Ltd. (collectively hereinafter referred to as Lloyds) moves to dismiss the amended complaint due to failure of plaintiff Empire Blue Cross and Blue Shield (EBCBS) to: (i) seek leave from the court to amend; and (ii) state a cause of action (CPLR 3211[a][7]).

In motion sequence number 004, EBCBS cross-moves for an order: (i) compelling Lloyds to accept service of, and answer, the amended complaint; (ii) compelling Lloyds to provide discovery [FN1]; and (iii) for costs, attorneys' fees, and sanctions pursuant to 22 NYCRR §130-1.1.

EBCBS alleges that it was insured by Lloyds against employee dishonesty, and that as a result of employee complicity with mob-controlled entities, EBCBS was overcharged for trash-hauling services at its former headquarters.

EBCBS' original complaint, of December 18, 2000, asserted causes of action for declaratory judgment stating EBCBS' entitlement to coverage, breach of contract due to Lloyds' refusal to provide such coverage, and breach of the implied covenant of good faith and fair dealing, because Lloyds, allegedly knowing that it intended to disclaim coverage, waited to issue its disclaimer until such time as EBCBS' claim would be time-barred.

Lloyds moved to dismiss the entire complaint of EBCBS under CPLR 3211(a)(7). By order of November 14, 2002, from the bench, Justice Ira Gammerman dismissed the first and second causes of action, but did not dismiss the third cause of action. On November 18, 2002, a hearing was held in open court in which the litigants agreed, and it was so ordered, that the action be discontinued, without prejudice, with the right to reinstate the third cause of action, nunc pro tunc, from November 14, 2002, with all the rights of the parties intact as of that date, regardless of the outcome of EBCBS' appeal of the dismissal of the second cause of action. [*2]

On November 18, 2003, the Appellate Division, First Department, affirmed Justice Gammerman's dismissal of the second cause of action. Empire Blue Cross and Blue Shield v Various Underwriters at Lloyds, 1 AD3d 291 (1st Dept 2003). On February 18, 2004, this court directed that the complaint be restored to the calendar, nunc pro tunc, from November 14, 2002.[FN2] On that same day EBCBS served an amended complaint on Lloyds. Lloyds rejected service, arguing that EBCBS cannot amend as of right, but must seek leave of the court to amend its complaint.

Amendment Without Leave

CPLR 3025(a) provides that "[a] party may amend his pleading once without leave of court within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it."

The First Department in New York has held that "[a] motion to dismiss a cause of action pursuant to 3211(a) operates to extend the time in which to serve a pleading in response thereto until 10 days after the service of notice of entry of the order disposing of the motion." Polish Am. Immigration Relief Comm., Inc. v Relax, 172 AD2d 374, 375 (1st Dept 1991); accord Siegel, NY Prac § 236 (3rd ed); Weinstein-Korn-Miller, NY Civ Prac ¶ 3025.07; see also Johnson v Spence, 286 AD2d 481, 483 (2nd Dept 2001); Perez v Wegman Cos., Inc., 162 AD2d 959 (4th Dept 1990).

Lloyds argues that EBCBS was required, under CPLR 3211(e), to indicate that it would seek leave to amend in the event that Lloyds' motion to dismiss was granted. This argument is ill-conceived. CPLR 3211(e) "should not be read so as to obviate the availability of an amendment as of right under CPLR 3025(a), since to do so would be to frustrate the intent of that statute ...." Sholom & Zuckerbrot Realty Corp. v Coldwell Banker Commercial Group, Inc., 138 Misc 2d 799 (Sup Ct, Queens County 1988). Moreover, here, EBCBS is amending as of right; CPLR 3211(e) explicitly addresses leave to amend.

Lloyds also argues that EBCBS could have, and should have, sought to serve its amended complaint at any time during the pendency of Lloyds' prior motion to dismiss. To support this contention, Lloyds cites Perez, 162 AD2d 959, supra. However, in Perez, the motion to dismiss was held in abeyance. The court stated that an amendment of the complaint as of right would have been disallowed had the causes of action already been dismissed. Here, dissimilarly, the motion to dismiss has been decided, the third cause of action was not dismissed, and the matter was restored to the court's active calendar.

Finally, turning to CPLR 3025(a), that section plainly states that amendment may be made as of right "at any time before the period for responding to [the complaint] expires." Lloyds has not answered the complaint; the period to respond to the complaint has not expired. Thus, EBCBS may amend as of right once, before the periods described in CPLR 3025(a) expire. Lloyds must accept service of the amended complaint.

Motion to Dismiss Failure to State a Claim

Lloyds moves, pursuant to CPLR 3211(a)(7), to dismiss the amended complaint for failure to state a claim. The motion is denied with respect to the third cause of action, for breach of the implied covenant of good faith and fair dealing. Lloyds has previously brought a motion to dismiss that cause of action, which remains substantially in the same form, and the motion was denied.[FN3] Only one such motion may be made. CPLR 3211(e).

With respect to the first two causes of action, Lloyds argues that EBCBS is simply trying [*3]to resuscitate the causes of action that have been dismissed by order of Justice Gammerman, whose order was affirmed on appeal, and that the new claims are collaterally estopped or barred by the doctrine of res judicata. This argument is specious; collateral estoppel and res judicata have no application within one action. Siegel, New York Practice, § 448; Nassau Roofing & Sheet Metal Co., Inc. v Celotex Corp., 74 AD2d 679, 680 (3rd Dept 1980).

Lloyds also argues that the rule against claim splitting bars EBCBS' new claims. This assertion is false. The rule against claim splitting prevents the segmentation of a cause of action into separate lawsuits, and likewise has no application in a single action. Charles E. S. McLeod, Inc. v R. B. Hamilton Moving and Stor., 89 AD2d 863, 864 (2nd Dept 1982); Scotto v Socony-Vacuum Oil Co., 268 App Div 832 (2nd Dept 1944). In fact, the very case that Lloyds cites to support its sophistic arguments clearly addresses two separate actions. See Brown v Lockwood, 76 AD2d 721, 738, 740 (2nd Dept 1980).

Nonetheless, an amended complaint, even as of right, may not simply rehash prior (dismissed) arguments in an attempt to circumvent the decisions of the court. Mayer v Miller, 246 App Div 541, 541 (2nd Dept 1935) (amended complaint cannot be substantially the same as an original complaint that was dismissed); see also City of Yonkers v Moore, 235 App Div 793, 793-794 (2nd Dept 1932); American Trading Co., Inc. v Fish, 87 Misc 2d 193, 196 (Sup Ct, NY County 1975).

The law of the case doctrine applies to this matter. "The principle established in all jurisdictions is that so long as the facts remain the same, the rule of law once held by the court of last resort remains the rule throughout the subsequent history of the cause." In re Laudy's Will, 161 NY 429, 434-435 (1900); accord Rankin on Behalf of Board of Ed. of City of New York v Shanker, 25 NY2d 780, 782 (1969); see also Trombley & Carrier Co. v Seligman, 133 App Div 525, 527 (3rd Dept 1909) ("[w]hen a question has been once decided the same parties cannot be permitted to reopen the discussion without great detriment to the public interest, and destroying that respect for the decisions of courts which it is important should be maintained").

EBCBS' amended complaint adds causes of action for fraud and fraudulent concealment. To maintain a claim for fraud, EBCBS must allege facts tending to show that Lloyds made a false representation of a material fact, with scienter, and that EBCBS justifiably relied upon that representation to its detriment. P. Chimento Co., Inc. v Banco Popular de Puerto Rico, 208 AD2d 385, 385 (1st Dept 1994).

As a preliminary matter, this court notes that "a cause of action for fraud will not arise when the only fraud charged relates to a breach of contract." Trusthouse Forte (Garden City) Management, Inc. v. Garden City Hotel, Inc., 106 AD2d 271, 272 (1st Dept 1984). Here, EBCBS' claims relate to Lloyds' contractual obligations to insure EBCBS against employee dishonesty.

However, more importantly, both Justice Gammerman (see Notice of Motion, Exhibit 3, November 14, 2002 Hearing Transcript at 10-11) and the Appellate Division (Empire Blue Cross and Blue Shield, 1 AD3d 291, supra) have made a determination that EBCBS has made no showing of detrimental reliance.

Thus, the law of the case is that EBCBS has not detrimentally relied upon the representations of Lloyds. Detrimental reliance is a necessary element to a cause of action for fraud. As such, the fraud claims must fail, and the motion of Lloyds to dismiss the first and second causes of action for fraud and fraudulent inducement is granted.

Motion for Sanctions

EBCBS moves for costs, attorneys' fees, and sanctions pursuant to 22 NYCRR §130-1.1 because Lloyds has: (i) filed a redundant motion to dismiss the third cause of action; (ii) improperly refused to accept service of the amended complaint; and (iii) argued disingenuously in an attempt to mislead the court in its memoranda.

This court is satisfied that Lloyds is aware of CPLR 3211(e), a section cited in its memorandum of law, that provides that "a party may move on one of the grounds set forth in [3211(a)], and no more that one such motion shall be permitted." Emphasis added. Here, Lloyds made a motion to dismiss the third cause of action for breach of the covenant of good faith and [*4]fair dealing previously, and has moved for the same relief, against the same cause of action, in this motion. The expansion of CPLR 8303-a into 22 NYCRR 130-1.1 was made with the purpose of preventing such dilatory motion practice. Siegel, New York Practice, § 414A.

Lloyds' res judicata, collateral estoppel, and claim splitting arguments all assert that EBCBS should have made its claims in the "prior action." As EBCBS has pointed out, there is no prior action here. Further, Lloyds' motion to dismiss the amended complaint, which was served as of right, because EBCBS did not seek leave from the court to amend is dilatory.

Nonetheless, Lloyds' arguments cannot be said to be completely without merit in law, unsupported by a reasonable argument for an extension, modification or reversal of existing law, or frivolous within the meaning of 22 NYCRR 130-1.1(c).

Accordingly, it is hereby

ORDERED that the motion of defendants Various Underwriters at Lloyds, The Copenhagen Reinsurance Company (UK) Ltd., River Thames Insurance Company Ltd., Sphere Drake Insurance PLC, and GAN Insurance Company, Ltd., to dismiss the amended complaint is granted to the extent that the first and second causes of action, for fraud and fraudulent inducement, respectively, are dismissed, and the motion is otherwise denied; and it is further

ORDERED that the cross motion of Empire Blue Cross and Blue Shield against defendants Various Underwriters at Lloyds, The Copenhagen Reinsurance Company (UK) Ltd., River Thames Insurance Company Ltd., Sphere Drake Insurance PLC, and GAN Insurance Company, Ltd.: (i) to compel defendants to accept service of the amended complaint is granted;(ii) to compel defendants to provide discovery is denied as moot; and(iii) for sanctions is denied; and it is further

ORDERED that defendants Various Underwriters at Lloyds, The Copenhagen Reinsurance Company (UK) Ltd., River Thames Insurance Company Ltd., Sphere Drake Insurance PLC, and GAN Insurance Company, Ltd. are directed to serve an answer to the amended complaint within 10 days after service of a copy of this order with notice of entry.

Dated: October 18, 2004

J.S.C. Counsel are hereby directed to obtain an accurate copy of this Court's opinion from the record room and not to rely on decisions obtained from the internet which have been altered in the scanning process. Footnotes

Footnote 1: This part of the cross motion was in response to a motion of Lloyds to stay discovery. As Lloyds has withdrawn that part of their motion, the part of EBCBS' motion that seeks to compel Lloyds to provide discovery is denied as moot.

Footnote 2: A written order restoring the third cause of action to the calendar, dated June 23, 2004, was entered on June 30, 2004.

Footnote 3: Lloyds also cross-moved, upon EBCBS' motion to restore, to dismiss the third cause of action of the original complaint. That cross motion has been superseded by the serving of an amended complaint and Lloyds' motion to dismiss the amended complaint in its entirety.