NY GO Express, Inc. v New York State Ins. Fund

[*1] NY GO Express, Inc. v New York State Ins. Fund 2018 NY Slip Op 28163 Decided on May 30, 2018 Supreme Court, Warren County Muller, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on May 30, 2018
Supreme Court, Warren County

NY GO Express, Inc., d/b/a GOExpress, and Subcontracting Concepts, LLC, Petitioners,

against

New York State Insurance Fund, Respondent.



64419



Peter Fidopiastis, Queensbury, for petitioners.

Barbara D. Underwood, Acting Attorney General, Albany (Shannon C. Krasnokutski of counsel), for respondent.
Robert J. Muller, J.

Petitioner NY GO Express, Inc. d/b/a GOExpress (hereinafter NY GO) is a federally licensed logistics broker—or transportation broker—which commissions commercial carriers to transport freight for its customers. Naipaul Trucking (hereinafter Naipaul) and Nate's Management Services, Inc. (hereinafter Nate's Management) own and operate commercial carriers which have been commissioned by NY GO. All three companies use the services of petitioner Subcontracting Concepts, LLC (hereinafter SCI), a third-party administrator which acts as an intermediary between logistics brokers and the owners/operators of commercial carriers. SCI provides a host of services including, inter alia, facilitating payments from logistics brokers to owners/operators and assisting owners/operators in obtaining workers' compensation insurance coverage.

Respondent is a New York State agency which also functions as a private workers' compensation insurance carrier. NY GO had an insurance policy with respondent for the periods of December 31, 2014 to December 31, 2015 and December 31, 2015 to November 28, 2016, at which time NY GO terminated the policy. Part 4 (D) of this policy — which pertains to the assessment of premiums — provides as follows:

"Premium for each work classification is determined by multiplying a rate times a premium basis. Remuneration is the most common premium basis. The premium basis [*2]includes payroll and all other remuneration paid or payable during the policy period for the services of:"1. all your officers and employees engaged in work covered by this policy; and"2. all other persons engaged in work that could make us liable under Part One (Workers' Compensation Insurance) of this policy . . . . This paragraph 2 will not apply if you give us proof which we deem sufficient to establish that the employers of these persons have lawfully secured their workers' compensation obligations . . . ."

On June 19, 2016, respondent conducted an audit of NY GO and determined that, between December 31, 2014 and December 31, 2015, it paid $574,968.00 to Naipaul and $224,920.00 to Nate's Management. As a result—and in accordance with Part 4 (D) of the policy—respondent advised NY GO that it would be assessed $55,871.02 in additional premiums unless it could demonstrate that Naipual and Nate's Management had workers' compensation insurance coverage during the relevant time period. SCI—acting on behalf of NY GO—then submitted certificates of insurance listing it as the insured and Naipaul and Nate's Management, respectively, as the certificate holders. Respondent, however, found that the certificates of insurance did not provide sufficient proof of coverage. It then requested that SCI provide an analysis of NY GO's relationship with Naipaul and Nate's Management under the New York State Commercial Goods Transportation Industry Fair Play Act (hereinafter the Fair Play Act).

The Fair Play Act, codified in Labor Law article 25-C, was enacted as a measure to curb widespread abuses in the trucking industry stemming from the misclassification of drivers as independent contractors, resulting in unfavorable consequences for both the drivers and the public (see Sponsor's Mem of Support, Bill Jacket, L 2013, ch 558). In accordance therewith, the Fair Play Act contains a statutory presumption that a person performing services for a commercial goods transportation contractor shall be classified as an employee unless it is demonstrated that such person is an independent contractor or a separate business entity (see Labor Law § 862-b [1], [2]). In order to be considered an independent contractor, a person must satisfy three criteria set forth in Labor Law § 862-b (1): (a) the person must be free from the contractor's direction and control in performing the transportation services; (b) the transportation services performed must be outside the usual course of the contractor's business; and (c) the person must be customarily engaged in an independently established occupation similar to the transportation services performed. This statutory test is sometimes referred to as the ABC test (cf. Matter of Barrier Window Sys., Inc. [Commissioner of Labor], 149 AD3d 1373, 1375 [2017]). The separate business entity test, codified in Labor Law § 862-b (2), sets forth 11 criteria to be used to determine whether a person is a separate business entity and, thus, not subject to the presumption that he or she is an employee of the commercial goods transportation contractor. These 11 criteria are as follows:

"(a) the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the commercial goods transportation contractor for whom the service is provided to specify the desired result or federal rule or regulation;"(b) the business entity is not subject to cancellation or destruction upon severance of the relationship with the commercial goods transportation contractor;"(c) the business entity has a substantial investment of capital in the business entity, [*3]including but not limited to ordinary tools and equipment;"(d) the business entity owns or leases the capital goods and gains the profits and bears the losses of the business entity;"(e) the business entity may make its services available to the general public or others not a party to the business entity's written contract referenced in paragraph (g) of this subdivision in the business community on a continuing basis;"(f) the business entity provides services reported on a Federal Income Tax form 1099, if required by law;"(g) the business entity performs services for the commercial goods transportation contractor pursuant to a written contract, under the business entity's name, specifying their relationship to be as independent contractors or separate business entities;"(h) when the services being provided require a license or permit, the business entity pays for the license or permit in the business entity's name or, where permitted by law, pays for reasonable use of the commercial goods transportation contractor's license or permit;"(i) if necessary, the business entity hires its own employees without the commercial goods transportation contractor's approval, subject to applicable qualification requirements or federal or state laws, rules or regulations, and pays the employees without reimbursement from the commercial goods transportation contractor;"(j) the commercial goods transportation contractor does not require that the business entity be represented as an employee of the commercial goods transportation contractor to its customers; and"(k) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses."

Notably, in each test, all of the criteria must be met to overcome the statutory presumption of an employment relationship.

SCI submitted the requested analysis on July 26, 2016 contending that the Fair Play Act is not applicable to Naipaul and Nate's Management and that, even if it is applicable, Naipaul and Nate's Management qualify as independent contractors and separate business entities under the tests set forth in Labor Law §§ 862-b (1) and (2), respectively. Respondent was not persuaded, however, and advised on September 2, 2016 that it was adhering to its initial determination. NY GO then paid the additional premiums over the next several months—under protest—with the final payment being made on December 22, 2016.

The "Policyholder Notice of Right to Appeal" in NY GO's policy provides that "[p]olicyholders are entitled to inquire, challenge and dispute issues relating to . . . premium auditing." The policy then sets forth the following appeals procedure:

"To be considered for review, a written request explaining the reason(s) for the appeal must be submitted to the [New York Compensation Insurance Rating Board (hereinafter the Rating Board)]. Upon receipt of the request for review, the following actions will be taken:"1. A staff member will review the request and respond to the insured within sixty (60) days, in writing, acknowledging receipt of the request, granting the insured its request or sustaining its original ruling."2. The insured, if not satisfied with the outcome in 1. above, may then request, in [*4]writing, a conference with members of the Rating Board staff. . . . ."3. If the dispute is not resolved at the conference, the insured may then appeal to the Underwriting Committee of the Rating Board for a hearing to consider the staff ruling. . . . .

The policy further provides that, if the insured is not satisfied with the decision of the Underwriting Committee, it may request a hearing before the New York State Department of Financial Services and the decision of that Department "may [then] be appealed to a higher court, by either the insured or the Rating Board."

In accordance with this procedure, SCI sent correspondence to the Rating Board on October 25, 2016 requesting that the assessment of additional premiums be vacated. By written determination dated November 16, 2016, the Rating Board denied the request and sustained respondent's original ruling. SCI then requested a conference with members of the Rating Board staff by correspondence dated January 17, 2017.[FN1] Hearing nothing in response, SCI called the Rating Board in April 2017 and was advised that it never received the January 2017 correspondence. As such, a second copy of the correspondence was sent on April 4, 2017. After another follow-up telephone call, SCI emailed a third copy of the January 2017 correspondence to the Rating Board on May 18, 2017. With no response to this third request, petitioners commenced the instant CPLR article 78 proceeding on September 15, 2017 seeking to vacate respondent's determination. Petitioners also seek a refund of all additional premiums paid by NY GO relative to Naipaul and Nate's Management.

" '[T]he standard of review for this proceeding, which challenges a determination that was not made after a quasi-judicial hearing, is whether [respondent's] determination was arbitrary and capricious' " (Matter of Mallick v New York State Div. of Homeland Sec. and Emergency Servs., 145 AD3d 1172, 1174 [2016], quoting Matter of CDE Elec., Inc. v Rivera, 124 AD3d 1178, 1180 [2015]; see CPLR 7803 [3]). " 'An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts' " (Matter of CDE Elec., Inc. v Rivera, 124 AD3d at 1180, quoting Matter of Peckham v Calogero, 12 NY3d 424, 431 [2009]; accord Matter of Mallick v New York State Div. of Homeland Sec. and Emergency Servs., 145 AD3d at 1174). "When a determination is supported by a rational basis, it must be sustained even if the reviewing court would have reached a different result" (Matter of Mallick v New York State Div. of Homeland Sec. and Emergency Servs., 145 AD3d at 1174, quoting Matter of CDE Elec., Inc. v Rivera, 124 AD3d at 1180).

Here, petitioners first contend that the determination must be vacated because the certificates of insurance provided to respondent adequately demonstrate that Naipaul and Nate's Management had workers' compensation insurance coverage through SCI during the relevant time period.

At the outset, the Court observes that both the petition and the answering papers attach copies of the certificates of insurance purportedly given to respondent by SCI as proof of workers' compensation insurance coverage for Naipaul and Nate's Management. With that said, [*5]the certificates of insurance attached to the petition differ from those attached to the answering papers.

Specifically, there are four certificates of insurance attached to the petition. Two are dated November 21, 2014 and list SCI as the insured, Bankers Standard Insurance Company (hereinafter Bankers Standard) as the insurer and Naipaul and Nate's Management, respectively, as the certificate holders. These certificates pertain to a policy in effect from May 23, 2014 to April 1, 2015. The other two certificates of insurance attached to the petition are dated March 27, 2015 and list SCI as the insured, Bankers Standard as the insurer and Naipaul and Nate's Management, respectively, as the certificate holders. These certificates pertain to a policy in effect from April 1, 2015 to April 1, 2016. All four certificates of insurance have a box marked to indicate that the type of coverage provided is "workers' compensation and employers' liability." In contrast, the two certificates of insurance attached to the answering papers are dated July 28, 2016 and list SCI as the insured, Protective Insurance Company as the insurer and Naipaul and Nate's Management, respectively, as the certificate holders. These certificates pertain to a policy in effect from April 1, 2016 to April 1, 2017. They have a box marked to indicate that the type of coverage is "occupational accident."

As the record contains no apparent explanation for the discrepancy between the certificates of insurance attached to the petition and those attached to the answering papers, it is unclear which certificates of insurance were in fact provided to respondent for consideration. With that said, the Court finds that all of the certificates of insurance are insufficient to demonstrate that either Naipaul or Nate's Management had workers' compensation insurance coverage. As such, the ambiguity is irrelevant.

Each certificate of insurance has the following legend written in bold at the top of the page:

"THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. . . . IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. . . . A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s)."

As a result, for respondent to find that Naipaul and Nate's Management had workers' compensation insurance coverage, it would have needed proof that SCI's insurance policy was endorsed so as to name Naipaul and Nate's Management as additional insureds. Petitioners never provided respondent with any such proof—nor has any such proof been presented to the Court.

It must also be noted that the certificates of insurance attached to the answering papers would be insufficient in any event, as they pertain to a workers' compensation insurance policy in effect from April 1, 2016 to April 1, 2017—and the audit covered December 31, 2014 to December 31, 2015.

Petitioners have also submitted a copy of an October 19, 2009 Decision and Order issued by the Supreme Court of Warren County (Aulisi, J.) in Subcontracting Concepts, Inc. v New York State Ins. Fund (Index No. 51372), a case which bears some similarities to the instant case. There, the Court found that the certificates of insurance presented by SCI were sufficient to demonstrate that certain carriers commissioned by a logistics broker had workers' compensation insurance coverage through SCI. Petitioners therefore contend that the certificates of insurance [*6]at issue here must also be deemed sufficient. This contention, however, is without merit. The Court has not been provided with copies of the certificates of insurance under consideration in Subcontracting Concepts, Inc. v New York State Ins. Fund and is not bound by this precedent in any event.

Petitioners next contend that the determination must be vacated because respondent erred in finding that the Fair Play act is applicable to Naipaul and Nate's Management.

The Fair Play Act defines a commercial goods transportation contractor as "any . . . corporation . . . or other legal entity that compensates a driver who . . . operates a commercial motor vehicle as defined in [Transportation Law § 2 (4-a)]" (Labor Law § 862-a [1]). Transportation Law § 2 (4-a) then defines a commercial motor vehicle as, inter alia, "any self-propelled or towed motor vehicle used on a highway in intrastate, interstate or international commerce to transport passengers or property [that] has a gross vehicle weight rating or gross combination weight of [10,001] pounds or more, whichever is greater" (Transportation Law § 2 [4-a]). According to petitioners, neither Naipaul nor Nate's Management used a vehicle weighing over 10,001 pounds when making deliveries for NY GO and, as such, the Fair Play Act is not applicable.

Petitioners provided copies of the Owner/Operator Agreements between SCI and Naipaul and Nate's Management, respectively. In these Agreements, Naipaul "agree[d] to use [a 2004 Ford M4 Truck] in support of its business" and Nate's Management "agree[d] to use [a 2009 Chevrolet Express full-size Van ] in support of its business." With that said, petitioners provided no information whatsoever relative to how much each of these vehicles weighs. Perhaps petitioners know the poundage associated with trucks, vans and other commercial carriers, but such information is not within the common knowledge of most laymen—or the Court. Moreover, petitioners appear to concede that both Naipaul and Nate's Management own vehicles weighing more than 10,001 pounds—they simply contend that such vehicles were never used when making deliveries through SCI. Petitioners, however, provided no affidavits from the owners of Naipaul or Nate's Management, nor from anyone else with personal knowledge of the vehicles used when making deliveries commissioned by NY GO. Under the circumstances, the Court cannot find that respondent erred in finding that the Fair Play act is applicable to Naipaul and Nate's Management.

Petitioners next contend that the determination must be vacated because—even if the Fair Play Act is applicable—Naipaul and Nate's Management qualify as independent contractors. Specifically, petitioners contend that Naipaul and Nate's Management satisfy all three criteria set forth in the ABC test (see Labor Law § 862-b [1]). According to petitioners, Naipaul and Nate's Management are free from control and direction when making deliveries commissioned by NY GO; the delivery services performed by Naipaul and Nate's Management are outside the usual course of business for NY GO—which merely commissions such services; and Naipaul and Nate's Management are independently owned entities responsible for their own profits and losses. Petitioners further contend that all payments from NY GO to Naipaul and Nate's Management are reported on 1099 forms.

Petitioners again rely upon the Agreements between SCI and Naipaul and Nate's Management, which provide as follows: "The results achieved are more important than the methods used by which the results are achieved; therefore, the Owner/Operator and its drivers are [*7]free to select their own routes or the order of their deliveries, taking into account the needs and deadlines or their Customers." Petitioners also submitted copies of certain advertisements circulated by Naipaul and Nate's Management, respectively, which seem to suggest that the companies are operated independently. Notably missing, however, are copies of any 1099 forms used to record payments to Naipaul and Nate's Management. Also missing are affidavits from the owners of Naipaul and Nate's Management to establish that they were in fact free from control and direction when performing the deliveries commissioned by NY GO. Indeed, while the language in the Agreements with SCI suggest that they were free from control, Labor Law § 862-b (1) (a) expressly requires that individuals be "free from control and direction in performing the job, both under [their] contract[s] and in fact" (emphasis added). Finally, the record does not include a copy of any written agreement between NY GO and SCI. To the extent that such an agreement exists—and presumably it does—it would likely shed more light on the relationship between NY GO and the commercial carriers it commissions through SCI. In view of these shortcomings, the Court cannot find that respondent erred in determining that Naipaul and Nate's Management do not qualify as independent contractors under the Fair Play Act.

Briefly, in Subcontracting Concepts, Inc. v New York State Ins. Fund that Court found certain commercial carriers were independent contractors and, as such, respondent could not assess additional premiums for them. Petitioners contend that this Court must make that same finding. This contention, however, is also without merit. Subcontracting Concepts, Inc. v New York State Ins. Fund was decided more than four years prior to the enactment of the Fair Play Act,[FN2] which changed the landscape substantially in this area of the law.

Finally, petitioners contend that the determination must be vacated because—even if the Fair Play Act is applicable—Naipaul and Nate's Management are separate business entities, satisfying all 11 criteria set forth in Labor Law § 862-b (2). Specifically, petitioners contend that the 11 criteria are satisfied as follows:

(1) Naipaul and Nate's Management are not controlled or directed by NY GO;

(2) Naipaul and Nate's Management have many clients and will not cease to exist upon the severance of their respective relationships with NY GO;(3) Naipaul and Nate's Management have made substantial investments in their respective businesses, including purchasing and maintaining their delivery vehicles;(4) Naipaul and Nate's Management gain the profits and bear the losses of their respective businesses;(5) Naipaul and Nate's Management advertise their services to entities other that NY GO;(6) Naipaul and Nate's Management report their income on 1099 forms;(7) the Agreements which Naipaul and Nate's Management executed with SCI expressly provide that there is no employer/employee relationship;(8) Naipaul and Nate's Management are registered as carriers with the United States Department of Transportation and both have the necessary permits to perform deliveries;(9) Naipaul and Nate's Management hire their own drivers without any input from NY GO;(10) neither Naipaul nor Nate's Management represents themselves as employees of NY [*8]GO but, rather, advertise as their own discrete business entities; and(11) Naipaul and Nate's Management may perform similar services for other logistics brokers.

These contentions notwithstanding, petitioners simply failed to put forth the requisite evidence to prove that Naipaul and Nate's Management satisfy all 11 criteria. As discussed above, the record contains little more than the Agreements between SCI and Naipaul and Nate's Management, respectively, and the petition verified by the "Vice President for Client Services" of SCI—there is simply nothing from anyone with personal knowledge of the daily operations of Naipaul and Nate's Management. Under the circumstances, the Court cannot find that respondent erred in determining that Naipaul and Nate's Management do not qualify as separate business entities under the Fair Play Act.

Based upon the foregoing, the Court concludes that respondent's determination is supported by a rational basis and is neither arbitrary nor capricious. The requested relief is accordingly denied and the petition dismissed in its entirety.

The Court must take this opportunity to note that it is troubled by the Rating Board's failure to respond to SCI's request for a conference. If the Rating Board had followed the appeals procedure set forth in NY GO's policy and held a conference—as well as a hearing, if necessary—then the record would be far more developed. Petitioners would have had the opportunity to present additional evidence. The Court in fact considered adding the Rating Board as a necessary party under CPLR 1001 so the matter could perhaps be remitted.[FN3] The Court ultimately decided against it, however, as petitioners had the opportunity to present any missing evidence in the context of this proceeding and failed to do so. Indeed, as expressly stated in the petition: "[Respondent] has refused to participate in its own administrative review process and prevented the creation of an administrative record. Therefore, [the] Court may decide the matter based on the evidence submitted by the parties."

To the extent not addressed herein, the parties' remaining contentions have been considered and are either academic or without merit.

Therefore, having considered the Petition with exhibits attached thereto, verified September 14, 2017; Answer, verified December 1, 2017; Affidavit of Phyllis Martin with exhibits attached thereto, sworn to December 1, 2017; Memorandum of Law of Shannon C. Krasnokutski, Esq., dated December 1, 2017; and Reply and Memorandum of Law in Support of Petition of Peter Fidopiastis, Esq., dated December 7, 2017; and oral argument having been heard on May 22, 2018 with Peter Fidopiastis, Esq. appearing on behalf of petitioners and Shannon C. Krasnokutski, Esq. appearing on behalf of respondent, it is hereby

ORDERED AND ADJUDGED that the requested relief is denied; and it is further

ORDERED AND ADJUDGED that the petition is dismissed.

The original of this Decision, Order and Judgment has been filed by the Court together with the Notice of Petition dated September 14, 2017 and the submissions enumerated above. Counsel for respondent is hereby directed to promptly obtain a filed copy of the Decision, Order and Judgment for service with notice of entry upon petitioners in accordance with CPLR 5513.

Dated: May 30, 2018

Lake George, New York

ROBERT J. MULLER, J.S.C. Footnotes

Footnote 1:Respondent conducted a second audit on January 20, 2017 and determined that, from December 31, 2015 to November 28, 2016, NY GO paid a total of $389,011.00 to Naipaul. It is unclear whether NY GO has paid the additional premiums charged in connection with this audit.

Footnote 2:The Fair Play Act became effective on March 11, 2014 (see L 2013, ch 558).

Footnote 3:The Court notes that respondent and the Rating Board are two separate State agencies.