Dominion Fin. Corp. v Asset Indem. Corp.
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Dominion Fin. Corp. v Asset Indem. Corp. 2008 NY Slip Op 31812(U) June 24, 2008 Supreme Court, New York County Docket Number: 0600096/2007 Judge: Emily Jane Goodman Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCANNED ON 613012008 [* 1 ] . . SUPREME COURT OF THE STATE OF NEW YORK PRFRFNT. - NEW YORK EMILY JANE GOODMR~ COUNTY PART Justice L 3 Index Number : 600096/2007 DOMINION FINANCIAL vs. ASSET INDEMNIIY BROKERAGE INDEX NO. MOTION ,DATE MOTION SEQ. NO. SEQUENCE NUMBER : # 001 MOTION CAL. NO. DISMISS e read on this motion to/for PAPERS NUMBERED Notice of Motion/ Order t o Show Cause - Affidavits - Exhibits .. v) 1 z 0 v) U W a ... Answering Affidavits - Exhibits Replying Affidavits Cross-Motion: a Yes G N o Upon the foregoing papers, it I ordered that this motion s Check if appropriate 0 DONOTPOST REFERENCE I [* 2 ] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 17 X - - - - - - - - - - - - - - - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ DOMINION FINANCIAL CORP., Plaintiff, Index No. 6 0 0 0 9 6 / 0 7 -againstASSET INDEMNITY C O R P . , This is an action for negligence by plaintiff Dominion Financial Corporation (Dominion) against defendant Asset Indemnity Corporation (Asset Indemnity), arising from defendant s alleged failure to properly place insurance coverage on behalf of plaintiff. Defendant moves, pursuant to CPLR 3211 (a)(1) and (a)(7) , for an order dismissing the Complaint. In the alternative, defendant seeks leave to file and serve an Amended Answer and to compel discovery. Defendant also seeks an order disqualifying plaintiff s counsel. Plaintiff cross-moves, pursuant to CPLR 3 0 2 5 ( b ) , for permission to file and serve an Amended Complaint. The Complaint alleges that in December of 2003, Dominion was approached by non-parties Eric and Ian Brown, who wanted to borrow */ $2 million to finance t h e operations of their parking garage business. Dominion eventually made entities that owned the leases loans for t h e to three corporate garages in question (Borrowers). The Complaint states that the parties agreed that each 1 [* 3 ] of the Borrowers would engage an affiliated company, FB Acquisition Corporation (FBI, to operate the three garages and make the scheduled payments directly to Dominion. Dominion states that it required that a third-party be engaged to secure the funds that it was lending to the Borrowers. It alleges that FT3 and/or Eric Brown engaged Asset Indemnity to assist FB in procuring surety coverage. On January 30, 2004, non-party United Assurance issued three surety bonds to Dominion to secure the monies lent by Dominion to the Borrowers. In November of 2005, Dominion commenced a suit against United Assurance in the United States District Court for the Southern District of New Y o r k . Dominion alleged that United Assurance had breached its obligations under the surety bonds by failing t o m a k e certain payments due to Dominion arising from certain defaults by FB several months earlier in 2005. Dominion states that United Assurance failed to post a bond as required by the District Court. On August 29, 2006, a default judgment was entered against United Assurance for $2 million. However, Dominion asserts that it was not able to recover the money and now asserts that United Assurance has no appreciable assets. On November 3 , 2006, FB Acquisition executed a written agreement w h e r e b y it assigned any claims it had against Asset Indemnity to Dominion. Dominion then commenced the instant action 2 [* 4 ] in January of 2007, asserting two claims for negligence against Asset Indemnity. The first: cause of action is a direct claim for negligence. The second cause of action is asserted pursuant to the assignment from FB. The gravaman of the Complaint is that, in placing the coverage, Asset Indemnity failed to properly investigate United Assurance s solvency, as well as its management and claims practices. Asset Indemnity also allegedly failed to confirm that United Assurance maintained funds in trust for the benefit of its insureds and failed to ensure that United Assurance was eligible under New York law to provide excess-line coverage. Asset Indemnity n o w moves to dismiss the Complaint for failure to state a cause of action. It argues that Dominion cannot assert a claim for negligence because the parties were not in privity of contract. As such, it argues that it had no d u t y to Dominion which would support a claim for negligence. In general, the duty of an insurance b r o k e r runs to its customer and not to third-parties with whom there is no privity of contract. w, Dezer Primerties 11, LLC v Kaye Tns Associates, In?, 38 AD3d 213 [lst Dept 20071; Merchants Ing C o of New Hampshire, Inc v The Gaqe A q e n ~ v , Inc, 21 AD3d Citv of New York, 6 AD3d 1 3 3 2 [4th Dept 20051; Arredondo v [lst D e p t 328 20041. Here, it is undisputed that Dominion and Asset Indemnity were not in privity 3 [* 5 ] since it was FB that hired Asset Indemnity, not Dominion. A s such, Asset Indemnity's duty was to its client, FB, not to Dominion. Therefore, the first cause of action for negligence is dismissed. The second cause of action is also for negligence. However, that claim is asserted by Dominion as the assignee of FB, which was in privity of contract with Asset Indemnity. As such, Asset Indemnity has not demonstrated that this claim should be dismissed for lack of privity. Asset Indemnity argues that Dominion has no rights to assert under the surety bonds because it assigned those bonds to its then lender, Valley National Bank, in 2004. However, at most, Asset Indemnity has demonstrated that Dominion assigned the bonds as collateral in connection with a loan from Valley National Bank. It has not demonstrated that the assignment was absolute or otherwise deprived Dominion of the right to pursue claims under the bonds. &g, Aqristor Leasinq v Barlow , 180 AD2d 899, 900 [3d Dept 19921, citing southern A g s n c i a t e s , Inc v United Brands C 0 , 6 7 AD2d 199 [ l E t Dept 19791; F i f W State s Manasement Corn v Pioneer Ai 1 to Parks, 4 4 AD2d 8 8 7 [ 4 t h Dept 1 9 7 4 1 . Dominion cross-moves for permission to file and serve an Amended Complaint, asserting two additional causes of action. "While CPLR 3025 provides that leave to amend a pleading shall be freely granted, leave to amend is not to be granted upon the mere 4 [* 6 ] request of a party without a proper basis. Moman v Prospect Park It V H o l d i n s x , LP , 251 AD2d 306 [2d Dept 1 9 9 8 1 , citing EJieder v Skala, 168 AD2d 355 [16t Dept 19901. In determining whether to grant leave, a court must examine the underlying merit of the proposed claims, since to do otherwise would be wasteful of judicial resources. Id,citing McKiernan v McKiernan, 207 AD2d 825 [ 2 d Dept 19941; see, Toscapo v Toscarto, 302 AD2d 453 [2d Dept 20031. Dominion s first proposed new claim, for breach of contract, alleges that Dominion was a third-party beneficiary of the agreement between Asset Indemnity and FB to procure surety -coverage for Dominion. party A asserting rights as a third-party beneficiary must establish ( 1 ) the existence of a v a l i d and binding contract between other parties, (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a d u t y to compensate him if the benefit is lost. Stat e of California Public mnlove es Retirement System v Shearman & I Sterlinq, 95 NY2d 427, 434-35 [ Z O O O ] , quoting Burns Jackson Miller Summit & $pitzer v Lindner, 59 NY2d 314, 3 3 6 [ 1 9 8 3 ] ; see Edqe Manaqewnt Consultins, Inc. v B l u r 2 5 AD3d 3 6 4 [ l m t Dept 2 0 0 6 1 . Here, the proposed Amended Complaint adequately alleges that 5 [* 7 ] Dominion was an intended third-party beneficiary of the agreement between Asset Indemnity and FB to procure surety coverage for Dominion. Among other things, Dominion submits an affidavit from Eric Brown, who states that FB contracted with Asset Indemnity for the specific purpose of procuring some type of t h i r d party security for Dominion. He states that he expressly told Asset Indemnity's principal that the security was being sought for Dominion's benefit. He also states that he participated in a three person conference call with Asset Indemnity's principal and Dominion's principal to discuss how best to structure the transaction so as to provide such surety coverage for Dominion. Brown also asserts that Asset Indemnity sent United Assurance's financial statements directly to Dominion. Based on these factors, the court finds that Dominion has adequately alleged a claim for breach of contract as a third party beneficiary of the contract between FB and Asset Indemnity . Dominion's second proposed claim is also for breach of contract, which Dominion asserts in FB's name, pursuant to FB's assignment of its rights to Dominion on November 3, 2006. Based on that assignment, t h e court finds that Dominion's second proposed claim is also adequately pleaded.' ' The court notes that Asset Indemnity raised certain additional arguments in support of its motion to dismiss the Complaint, based on additional affirmative defenses set f o r t h in its proposed Amended A n s w e r . As permission to serve had not 6 [* 8 ] Finally, A s s e t Indemnity seeks an order disqualifying Donald Rosenthal from acting as t h e attorney for Dominion. Asset Indemnity asserts that Mr. Rosenthal may eventually be required to testify on the i s s u e of late notice, ie whether Dominion was late in notifying United Assurance of the defaults under the bonds.2 Asset Indemnity states that if Mr. Rosenthal w a s responsible for such late notification, then his interests may be adverse to those of his client. The motion to disqualify is denied. A t this point, it is not clear whether Mr. Rosenthal will be needed to testify in this action or whether his interests will be adverse to those of Dominion. Therefore, Asset Indemnity has not demonstrated that disqualification is warranted. a, s s& 80tel Ventures Ltd P8rtnership v 777 SH C Q ~ D , 6 9 NY2d 4 3 7 [ 1 9 8 7 ] . Accordingly, it is ORDERED that defendant's motion to dismiss the Complaint is granted as to the first cause of action and that cause of action is dismissed and the motion is otherwise denied; and it is further ORDERED that plaintiff's cross-motion to amend the Complaint is granted; and it is further previously been granted, the arguments were raised prematurely. the court has qranted leave to serve an Amended Complaint, defendant may now serve its Amended Answer as of right. As I 'Asset Indemnity asserts t h a t the original Complaint should be dismissed because Dominion was late in providing notice of the defaults to United Assurance. However, f a c t u a l questions exist which preclude dismissal on those grounds. 7 [* 9 ] ORDERED that plaintiff shall serve the Amended Complaint, in the form annexed to the moving papers, upon defendant within 20 days of receipt of a copy of this Decision and Order; and it is further ORDERED that defendant shall serve its Amended Answer within 2 0 days after receipt of the Amended Complaint; and it is further ORDERED that, in the discretion of the Court, and in light of the fact that discovery has now been substantially delayed, the automatic stay of discovery, provided in the CPLR, shall not apply if either party files a motion for summary judgment.3 Thie Constitutes the Decision and Order of the C o u r t . DATED: June 24, 2008 ENTER : 3A1though the Court did not reach Ass concerning its additional affirmativ proposed Amended A n s w e r , it is aware Dominion s counter-arguments), and has concluded that, agreement of the parties, discovery s h o u l d continue, even if a motion for summary judgment is filed. 8
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