Opinion
405326/06.
Decided January 14, 2008.
For Plaintiff: Andrew M. Cuomo Attorney General of the State of New York, New York, Melvin L. Goldberg, Esq.
For Defendants: Skadden, Arps, Slate, Meagher Flom, N.W. Washington, Richard L. Brusca, Esq. Michelle Rogers, Esq.
Defendants Wells Fargo Insurance Services, Inc. (Wells Fargo) and Wells Fargo Bank, N.A. (Wells Fargo Bank) move (1) for dismissal of the complaint pursuant to CPLR 3211 (a) (1), (a) (3), and (a) (7), on the grounds of a defense founded upon documentary evidence, lack of legal capacity to sue, and failure to state a cause of action, and pursuant to CPLR 3016 (b), on the ground that plaintiff has failed to state the circumstances underlying the fraud claim in sufficient detail; and (2) in the alternative, for an order requiring plaintiff to file a more definite statement, pursuant to CPLR 3024 (a), because the complaint is so vague and ambiguous that defendants cannot respond.
The complaint alleges as follows: the Attorney General, on behalf of the People of the State of New York, commenced this action based upon his authority under the Executive Law and the General Business Law. Wells Fargo is one of the largest provider of insurance brokerage and consulting services in the world, and is the largest bank-affiliated insurance brokerage in the United States.
The complaint originally named, as plaintiff, Eliot Spitzer, the then Attorney General, and, as defendants, Acordia, Inc. and Wells Fargo Bank, N.A. By stipulation dated May 23, 2007, the parties agreed to amend the caption to reflect that Andrew M. Cuomo subsequently became the Attorney General, and that Acordia, Inc. changed its name to Wells Fargo Insurance Services, Inc.
Since at least the late 1990's, complicit insurance companies have paid Wells Fargo hidden compensation in a variety of forms, generally based on the amount and profitability of the business that Wells Fargo steered to them. This compensation caused Wells Fargo to shirk its duty to find the best insurance coverage at the best price for its clients.
In 1999, Wells Fargo management systematized its contingent commission program to steer business more efficiently to the insurance companies that paid it the most in hidden compensation, called the "Millennium Partnership Program" (MPP), the purpose of which was to consolidate Wells Fargo's business with a very small number of "Preferred Market Partners," including "Travelers, Hartford, Chubb, Royal SunAlliance, and Atlantic Mutual."
The goal was to extract ever greater payments from these "Partner Markets" in exchange for steering clients to the "Millennium Partners." In return for the hidden compensation, Wells Fargo assured the participating insurers that their business would increase at the expense of non-participating insurers. Wells Fargo promised the Preferred Market Partners that Wells Fargo's senior executives were committed to supporting the MPP, and Wells Fargo's employees dutifully executed the plan. The flip-side to Wells Fargo favoring complicit insurers was that any insurance company that rejected Wells Fargo's invitation to become a Millenium Partner faced significant negative consequences, and it made them aware of the consequences.
Moving business to meet Wells Fargo's production obligations to its Millenium Partners often conflicted with the client's best interests, in that it often made different recommendations to its clients than it would have made absent the MPP. Wells Fargo also entered into "special, one-off deals with Travelers and Hartford to steer whole blocks of business" consisting of thousands of customers. For example, in 2003, Wells Fargo and Hartford put together a wide range of initiatives termed the "Share Shift" with the goal of doubling the business that Wells Fargo steered to Hartford over the following three-year period. As part of the scheme, Wells Fargo's parent, Wells Fargo Bank, agreed with Hartford to mine its customer database, highlighting middle market business customers that fit within industries that Hartford planned to target. Wells Fargo Bank referred those customers to Wells Fargo which, in turn, steered the customers to Hartford, regardless of whether Hartford was best for the customer. Because of Wells Fargo Bank's highly focused screening, Hartford management expected to provide quotes on 75% of the business that Wells Fargo presented to it as part of this scheme, a rate that was 2.5 times better than Hartford's usual submission-to-quote ratio.
As another example, after Kemper Insurance Company's rating was lowered in 2003, representatives from Travelers quickly approached Wells Fargo management to request that Wells Fargo transfer Kemper's entire book of business. Travelers offered and paid secret incentives to Wells Fargo to secure the deal, including up to a 10% "override" if Wells Fargo placed more than 75% of the Kemper book with Travelers. Travelers even sent in "SWAT" teams to local Wells Fargo offices to facilitate the transfer of Kemper business.
In 1999, several insurers declined to join MPP for various reasons. Nonetheless, Wells Fargo continued its efforts to leverage its market power into greater contingent compensation through national agreements with these insurance companies. Wells Fargo entered into numerous other deals that caused them to steer their customers without proper regard for the client's interests, and without revealing the conflicts to the clients. For example, Chubb conspired with Wells Fargo in what was described in the documents outlining the parameters of a "Special Incentive Arrangement" as an effort to maximize and capitalize on their cross-selling opportunities with Wells Fargo. Chubb sought business that it would not have otherwise gotten had it not entered into this agreement, under which Chubb agreed to increase the contingent commission that it paid to Wells Fargo by 5 to 40%, depending upon the extent to which each local Wells Fargo office exceeded a growth target.
The complaint alleges further that Wells Fargo's continued steering has harmed its clients in at least two other ways. First, Wells Fargo often advised its customers in complex insurance placements where all things are rarely equal, and where subjective decisions must be made among competitors with varying coverages, financial stability, and price. Wells Fargo failed to make its recommendations strictly based on the customer's best interests. Second, insurance carriers pass the cost of contingent commissions directly on to the clients in the form of higher premiums. Wells Fargo's receipt of contingent commissions has effectively raised the price of insurance for its customers, and thus the market as a whole, and Wells Fargo has put some of this increase into its own pocket.
These allegations (among others) are the basis for the following causes of action: (1) violation of Executive Law § 63 (12), in that defendants engaged in repeated fraudulent or illegal acts, or demonstrated persistent fraud or illegality in the carrying on and transacting of business; (2) unjust enrichment, in that, by the above-described acts, defendants have unjustly enriched themselves while depriving their customers and the investing public of a fair marketplace; (3) common-law fraud, either actual or constructive; and (4) breach of fiduciary duty.
In support of the motion to dismiss, defendants argue that (1) the claims are not validly stated, because they do not allege conduct that is unlawful, and because the causes of action are not pled with sufficient particularity; (2) plaintiff does not have parens patriae standing to assert the common-law claims, and allowing him to do so offends the doctrine and the interests of judicial efficiency; and (3) the Gramm-Leach-Bliley Act preempts the action against Wells Fargo Bank. Plaintiff challenges the correctness of each of these arguments.
I am granting the motion to dismiss. As presently pled, none of the causes of action is validly stated, because they do not adequately allege any specific instances in which any persons or entities were adversely affected by defendants' conduct.
To state a cause of action for fraud, plaintiff must allege a representation of material fact, the falsity of the representation, knowledge by the party making the representation that it was false when made, justifiable reliance, and resulting injury ( Kaufman v Cohen, 307 AD2d 113 [1st Dept 2003]). The complaint does not allege any specific instance of an insurance client justifiably relying upon a material misrepresentation known by the maker to be false. The Executive Law § 63 claim similarly fails, because it is based on the allegation of the persistent and fraudulent transaction of business.
As for the breach of fiduciary duty claim, absent a special relationship of trust and confidence, an insurance agent is under no duty to disclose to the client the agent's contractual commitments, and the client could not justifiably rely on any advice given by the agent guiding him to a particular policy ( Wender v Gilberg Agency ( 304 AD2d 311 [1st Dept], lv denied 100 NY2d 507). A fiduciary relationship may be found to exist, however, in situations involving a special relationship of trust and confidence, which could impose upon the agent a duty to disclose to the client the agent's contractual commitments, thereby permitting the client to justifiably rely on any advice that the agent gave guiding to a particular policy ( Hersch v DeWitt Stern Group, Inc. , 43 AD3d 644 [1st Dept 2007]; Wender v Gilberg Agency ( 304 AD2d 311, supra). Here, however, without any specific information about the insurance clients, and the relationship between them and defendants, it is impossible to determine whether a fiduciary relationship exists. As now pled, the complaint fails to allege the existence of a fiduciary relationship, let alone the breach of any such duty. The lack of specificity is similarly fatal to the unjust enrichment claim.
At oral argument, plaintiff requested leave to replead, which I grant, and which plaintiff can do, if so advised, upon an appropriate showing of merit ( D'Agrosa v Newsday, Inc., 158 AD2d 229 [2nd Dept 1990]). A court has the discretion to excuse a failure to request leave to replead in the opposition papers ( Elliman v Elliman, 259 AD2d 341 [1st Dept 1999]).
Accordingly, it is
ORDERED that the motion is granted and the complaint is dismissed, but with leave to move to replead the complaint within 30 days of service of a copy of this order with notice of entry; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly. Dated: