Excess Line Association of New York (ELANY), Appellant,v.Waldorf & Associates, et al., Respondents, et al., Defendants.

Brief

N.Y.September 7, 2017

State of New York Court of Appeals REPLY BRIEF FOR PLAINTIFF-APPELLANT EXCESS LINE ASSOCIATION OF NEW YORK DICK BAILEY SERVICE, Inc. · 1-800-531-2028 · dickbailey.com [REPRODUCED ON RECYCLED PAPER] Appellate Division, Second Department, Docket No. 2013-06615 Supreme Court, Suffolk County, Index No. 35107/11 EXCESS LINE ASSOCIATION OF NEW YORK (ELANY), Plaintiff-Appellant, -against- WALDORF & ASSOCIATES, WALDORF RISK SOLUTIONS, LLC, WALDORF SPECIAL RISK, LLC, WALDORF SERVICING, LLC, WILLIAM G. WALDORF, STEPHEN M. WALDORF, Defendants-Respondents, PAMELA J. WALDORF, Defendant, CHRISTOPHER V. WALDORF, SR., CHRISTOPHER V. WALDORF, JR. and THE WALDORF FAMILY FOUNDATION, INC., Defendants-Respondents. TO BE ARGUED BY: COURT OF APPEALS NO. APL-2016-00069 DAVID B. HAMM, ESQ. HERZFELD & RUBIN, P.C. Appellate Counsel for Plaintiff-Appellant Excess Line Association of New York (ELANY) 125 Broad Street New York, New York 10004 (212) 471-8500 Date Completed: September 14, 2016 TABLE OF CONTENTS Page TABLE OF AUTHORITIES .................................................................................... .ii PRELIMINARY STATEMENT ............................................................................... ! ARGUMENT ............................................................................................................. 4 ELANY HAS BOTH THE CAPACITY AND STANDING TO SUE ONE OF ITS MEMBERS IN ORDER TO INSURE THE MEMBER'S COMPLIANCE WITH ITS OBLIGATIONS UNDER ELANY'S PLAN OF OPERATION. THE COMPLAINT SHOULD BE REINSTATED ...................................................... .4 A. THE ISSUES PROPERLY BEFORE THIS COURT ..................... .4 B. ELANY HAS THE CAP A CITY TO SUE IN ORDER TO ENFORCE ITS PLAN OF OPERATION ........................................ 6 C.ELANY HAS STANDING TO ENFORCE ITS PLAN OF OPERATION .................................................................................. 10 CONCLUSION ........................................................................................................ 12 TABLE OF AUTHORITIES Cases Page Bluebird Partners, L.P. v. First Fid. Bank, N.A., 97 N.Y.2d 456 (2002) ............................................................................................ 5 City of New Yorkv. City Civ. Service Comm., 60 N.Y.2d 436 (1983) ............................................................................................ 7 Community Board 7 v. Schaeffer, 84 N.Y.2d 148 (1994) ........................................................................................ 6, 7 ELANYv. Curiale,_ Misc.2d _(N.Y. Co.), 209 A.D.2d 365 (1st Dept. 1994) ........................................................ 8, addendum MMIA v. Supt. Of Ins., 72 N.Y.2d 753 (1988) ............................................................................................ 8 Parochial Bus Sys. v. Board ofEduc. Of City of N.Y., 60 N.Y.2d 539 (1983) ............................................................................................ 5 Powers v 31 E 31 LLC, 24 N.Y.3d 84 (2014) .............................................................................................. 5 Schiavone v. City of New York, 92 N.Y.2d 308 (1998) ............................................................................................ 6 Other Authorities Financial Services Law §203 ..................................................................................... 3 General Association Law§ 12 ................................................................................ 1, 6 Insurance Law § § 1 09 ................................................................................................ 7 Insurance Law§§ 2118 .......................................................................................... 4, 8 Insurance Law §2130 ................................................................................... 3, 8, 9, 10 11 STATE OF NEW YORK COURT OF APPEALS -------------~--------------------------------------------------------}( EXCESS LINE ASSOCIATION OF NEW YORK (ELANY) Plaintiff-Appellant, -against- WALDORF & ASSOCIATES, WALDORF RISK SOLUTIONS, LLC, WALDORF SPECIAL RISK, LLC, WALDORF SERVICING, LLC, WILLIAM G. WALDORF, STEPHENM. WALDORF, CHRISTOPHER V. WALDORF, SR., CHRISTOPHER V. WALDORF, JR., and THE WALDORF FAMILY FOUNDATION, INC., Defendants-Respondents, PAMELAJ. WALDORF, Defendant. --------------------------------------------------------------------}( REPLY BRIEF FOR PLAINTIFF-APPELLANT EXCESS LINE ASSOCIATION OF NEW YORK PRELIMINARY STATEMENT As Plaintiff-Appellant the E}(cess Line Association of New York ("ELANY") demonstrated in its Appellant's Brief, ELANY is a nonprofit association which, as is the case with all associations (see, General Association Law § 12), has the capacity to sue its members as a means of enforcing its Plan of Operation ·and of collecting fees which its members are mandated to pay (Appellant's Brief, pp. 14-20). Unable to effectively dispute ELANY's position in this regard, the W aldorfs insist that this action is not an effort to enforce ELANY' s Plan of Operation, but rather an attempt to punish the Waldorfs. They accuse ELANY of "rewrit(ing) history" (Respondents' Brief, pp. 4-5). The Waldorfs' accusation is unfounded. As the Verified Complaint makes clear (R59-R105)1 this action is and has always been about ELANY' s right to enforce the duties placed upon its members to submit polices issued by excess line insurers to ELANY for inspection 'and stamping, and to recover the stamping fees which are ELANY' s sole source of income, see, e.g., ~one hundred and fifty-ninth ("defendants have deprived ELANY of stamping fees from 1989 to 2011 ") (R91 ); ~ one hundred seventy-fi~h (same) (R95); and~~ one hundred and ninety-third and one hundred and ninety-fourth (R100). The Waldorfs' accusation is based on the fact that the Complaint includes a fraud count which incorporates a demand for treble damages and/or punitive damages. The Waldorfs essentially ask this Court to miss the forest for the trees. ELANY's attempt to recover stamping fees was couched in terms of fraud not to punish the Waldorfs, but due to their calculated insistence that no stamping fees are owed since the policies which they procured were "direct placement" policies (Respondents' Brief, p. 6). Whether the Waldorfs' continued characterization of Numbers in parentheses preceded by the letter "R" refer to pages of the Record on Appeal. 2 the policies in this manner, despite the terms of the agreement they reached with the New York State Department of Insurance2 which provides "the Waldorfs do not contest the Department's determination that one or more of the Waldorfs did in fact act as excess line brokers in making the aforementioned Lloyd's Placements" (R142), warrants the imposition of punitive damages in addition to the imposition of stamping fees, is not an issue currently before this Court. Nor is it an issue that must be resolved by this Court in order to determine the legal issue presented on this appeal, i.e., ELANY' s capacity to sue in order to enforce its Plan of Operation and particularly its right to recover stamping fees. In fact, it is the Waldorfs, and not ELANY, who are "rewriting history." Thus, throughout their brief, the Waldorfs continue to tout the Letter Agreement between Waldorf & Associates, et al. and the New York State Insurance Department as a bar to ELANY's claim (Respondents' Brief, pp. 2, 5, 11 20, 21, 27-28) and as evidence that ELANY lacks the capacity to institute an action for stamping fees. Nothing could be further from the truth. As the Letter Agreement makes clear, it does not deal with or address the Waldorfs' obligations to pay stamping fees pursuant to ELANY' s Plan of Operation and the provisions of Insurance Law §2130, a fact confirmed to ELANY by the Department of Insurance 2 The Superintendent of Insurance is now the Deputy for Insurance and the Head of the Insurance Division of the New York Department of Financial Services (see, Financial Services Law §203). 3 (R187). The Letter Agreement deals only with the Waldorfs' liability "for premium taxes and penalties due on the aforementioned Lloyd's Placements, and any disciplinary action that could be taken by the Department for violation of Section 2118 of the Insurance Law and Department Regulation 41" (emphasis added, R142-R143). Because ELANY is not seeking to "discipline" the Waldorfs or to impose penalties upon them, contrary to the Waldorfs' assertion (Respondents' Brief, Point V), the Letter Agreement is not a bar to the instant action. To the contrary, the Letter Agreement supports ELANY's claim that the Waldorfs were in fact acting as excess line brokers in making the Lloyd's Placements and are responsible to pay stamping fees on those placements. As we will demonstrate, ELANY has both the capacity and the standing to collect these stamping fees, the Order appealed from should be reversed and the Complaint reinstated. ARGUMENT ELANY HAS BOTH THE CAPACITY AND STANDING TO SUE ONE OF ITS MEMBERS IN ORDER TO INSURE THE MEMBER'S COMPLIANCE WITH ITS OBLIGATIONS UNDER ELANY'S PLAN OF OPERATION. THE COMPLAINT SHOULD BE REINSTATED. A. THE ISSUES PROPERLY BEFORE THIS COURT. The Order of the Appellate Division decided only two Issues, whether ELANY has the capacity to commence an action against one of its members, and 4 whether it has standing to pursue the claim for stamping fees. Nevertheless, the Waldorfs, ~iting to Parochial Bus Sys. v. Board of Educ. Of City of NY., 60 N.Y.2d 539, 545 (1983), insist that issues purportedly raised in their motion papers but not decided by the courts below, can be reviewed by this Court. Specifically, they ask this Court to review issues, such as the statute of limitations, which were never decided by the courts below (Respondents' Brief, p. 15). However, those issues, including the statute of limitations defense, are not subject to review at this time. Thus, Parochial Bus only "permits a respondent to obtain review of a determination incorrectly rendered below" (emphasis added) (60 N.Y. 2d at 545).3 As this Court has repeatedly recognized, issues raised but not decided below should be remitted to the lower courts for resolution (Powers v 31 E 31 LLC, 24 N.Y.3d 84, 95 [2014] ["Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to the Appellate Division for consideration of issues raised but not reached on the appeal to that court"]; Bluebird Partners, L.P. v. First Fid. Bank, NA., 97 N.Y.2d 456, 462 [2002] ["The Appellate Division did not address either of these arguments and we decline to decide them in the first instance ... we remit the matter to the Appellate Division for its consideration of those two issues and any other issue raised but not decided It is not surprising that issues like the Statute of Limitations were not resolved by the courts below since the issue was only obliquely raised in a footnote to Defendants' Memorandum of Law and Respondents' Brief at the Appellate Division. The merits of that defense and whether or not it was properly preserved is best left to the lower courts to resolve after the Complaint is reinstated. 5 below"]; Schiavone v. City of New York, 92 N.Y.2d 308, 317 [1998] ["The Appellate Division dismissed this action as untimely without addressing the other grounds for dismissal raised by the City at Supreme Court. While this Court may consider alternative legal grounds raised at but not addressed by the Appellate Division, the preferable, more prudent corrective action is remittal"]). B. ELANY HAS THE CAPACITY TO SUE IN ORDER TO ENFORCE ITS PLAN OF OPERATION. As ELANY demonstrated in its Appellant's Brief (Point 1), whether or not an artificial entity has the capacity to sue is to be determined on the basis of its enabling legislation, and can be inferred from the powers and responsibilities delegated to the entity. As this Court explained in Community Board 7 v. Schaeffer, 84 N.Y.2d 148, 156 (1994), "the power to bring a particular claim may be inferred when the agency in question has 'functional responsibility within the zone of interest to be protected."' ELANY is an association governed by the General Association Law, as such it is authorized to enforce the terms of its Plan of Operation and to commence an action for that purpose against one of its members (General Association Law § 12). What is more, even if this action were not authorized by the General Association Law, the fact that ELANY has the "functionaf responsibility" to review excess line policies, assess the stability of unauthorized insurers and oversee compliance with the excess line law and with the Plan of Operation, would provide a basis from which the capacity and standing 6 to compel one of its members to comply with ELANY' s Plan of Operation, including the obligation to pay stamping fees and make its books and records available for examination can be inferred (Community Board, supra, 84 N.Y.2d at 156; City of New York v. City Civ. Service Comm., 60 N.Y.2d 436, 445 [1983]). This is particularly true since ELANY is funded exclusively by those stamping fees which pursuant to ELANY' s Plan of Operation are the sole property of ELANY (R56). Unable to refute this point, the Waldorfs insist, as they did in the lower courts, that ELANY is acting ultra vires, and that it is trying to usurp the role assigned by the Legislature to the Superintendent to enforce the provisions of the Insurance Law. Specifically, the Waldorfs insist that permitting ELANY to pursue this action will somehow run afoul of those provisions of the Insurance Law which give the S1:1perintendent exclusive authority to "discipline" or penalize insurance brokers or providers (e.g., Insurance Law § § 109 ["The superintendent may maintain a civil action . . . to recover a judgment for a money penalty imposed by law for the violation of any provision of this chapter"]; 2130 ["Nothing in this section shall be construed to ... diminish the power of the superintendent to take any other disciplinary action .otherwise authorized by this chapter."]). The argument ignores the obvious. ELANY is not seeking to discipline or penalize the Waldorfs .. Nor is ELANY by this action seeking to "protect New York insureds" 7 or "the State's fiscal interests," (Respondent's Brief, pp. 18-19), although to be sure that is one of the ways in which ELANY works in tandem with the Superintendent especially by warning excess line insureds of the absence of Security Fund coverage. ELANY's lawsuit seeks, in principal purpose, to enforce its Plan of Operation, to collect the stamping fees which are its only source of income and to protect its right to examine the books and records of its members to insure that ELANY is receiving the fees to which it is entitled. Equally untenable is the W aldorfs' claim that ELANY is a powerless entity beholden to the Department of Financial Services, Insurance Division ("the Superintendent") and can do nothing more to enforce the Plan of Operation or collect stamping fees than report violations to the Superintendent, even if as a result ELANY is deprived of its only source of funding (Respondents' Brief, p. 20)4• In support of this position the Waldorfs cite to the various reporting requirements imposed on ELANY by the Insurance Law (see Insurance Law § § 2118 and 2130), including the duty to report those excess line brokers who fail to pay the stamping fees, as well as the decision in ELANY v. Curiale, _ Misc.2d _ (N.Y. Co.), aff'dfor the reasons stated below, 209 A.D.2d 365 (1st Dept. 1994)5, in 4 The Waldorfs reliance on MMIA v. Supt. Of Ins., 72 N.Y.2d 753 (1988), to support this proposition is misplaced. The case is inapposite. It addresses the scope ofthe Superintendent's discretion to set insurance rates and says nothing about an association's right to collect fees. A copy of the unreported decision issued by the Supreme Court, New York County is annexed as an addendum to this brief. 8 which the court rejected a challenge by ELANY to the Superintendent's authority to impose more reporting requirements on ELANY than are already imposed by statute (Respondents Brief, pp. 17-18). Once again, the Waldorfs insist on conflating the Superintendent's exclusive right to impose penalties authorized by the Insurance Law and ELANY's right to collect stamping fees. Stamping fees are not penalties. They are exactly what they are stated to be - fees that must be paid by all members ofELANY as a means of funding the association.6 The Waldorfs cite to the fact that they are the first excess line broker to be sued for stamping fees, as well as the fact that Insurance Law §2130 has never been amended to specifically authorize ELANY to commence an action to recover stamping fees, as evidence that ELANY lacks the capacity to bring the instant action (Respondents' Brief, pp. 17 -18). The argument is flawed. First, the fact that no other excess line broker so blatantly refused to fulfill the obligations imposed upon it by the Plan of Operation sheds no light on whether ELANY has the capacity to bring the instant action. Second, the fact that §2130 does not specifically authorize ELANY to commence an action to recover stamping fees is easily explained. ELANY, an association, derives its underlying authority to 6 The fact that the fraud cause of action included a demand for treble and or punitive damages does not change the stamping fee into a penalty. The claim is for damages authorized under the common law, not penalties imposed by the Insurance Law. 9 recover fees from its members from the General Association Law. Separate authorization did not have to be provided in the Insurance Law. Finally, the Waldorfs posit that ELANY is not without recourse with regard to the collection of stamping fees, claiming that ELANY could have commenced an Article 78 proceeding against the Superintendent for its failure to collect stamping ~ees from the Waldorfs as part of their settlement with the Insurance Department (Respondents Brief, pp. 20-21). Quite the contrary, the very fact that the Superintendent secured payment of past due taxes and fines from the Waldorfs but did not collect the stamping fees supports ELANY' s position here, that the stamping fees are ELANY's exclusive property and that ELANY can, if necessary, commence an action to recover those fees. C. ELANY HAS STANDING TO ENFORCE ITS PLAN OF OPERATION. As ELANY demonstrated in its Appellant's Brief, pp. 20-21, it has standing to enforce the Plan of Operation, and in particular its right to collect stamping fees. In order to dispute this showing, the Waldorfs posit that standing will only be found if th~ statute as a whole was adopted for the benefit of the plaintiff. Thus, according to the W aldorfs, in order to determine whether or not ELANY has standing to enforce its Plan of Operation, the Court will have to assess whether Insurance Law §2130 was enacted for the benefit of ELANY (Respondents Brief, pp. 24-25). The argument fails because by this action ELANY is not attempting to 10 enforce all of the provisions of Insurance Law §2130, but only §2130(±). That provision, which authorizes ELANY to charge the stamping fee was clearly adopted solely for the benefit of ELANY, since no one else benefits from the collection of the stamping fee. The Waldorfs' startling pronouncement that allowing this action to proceed would essentially allow competitors to sue each other (Respondents' Brief, pp. 25- 26), baldly misstates the nature and function of the stamping fee. The fee is collected and retained by ELANY. It is not distributed amongst its members, but rather it is used to defray ELANY' s expenses. ELANY is an association of all excess line brokers and does not compete with any of its members. Allowing it to enforce the Plan of Operation and collect unpaid stamping fees will inure to the benefit of all. The conflict envisioned by the Waldorfs simply does not exist. The Waldorfs have the temerity to call ELANY' s collection of state approved stamping fees a racket (Respondents' Brief, p. 25), while simultaneously and absurdJy arguing that their willful refusal to comply with the law and submit excess line transactions for review as required of them allows them to disclaim liability for fees incurred. It these fees are not collectable due to lack of capacity or standing, nothing would compel compliance with the filing requirements as intended by the legislature. 11 CONCLUSION For all of the reasons set forth here and in the Appellants Brief, the Order appealed from should be reversed and the complaint reinstated. Dated: New York, New York September 13, 2016 David B. Hamm Miriam Skolnik, Of Counsel Respectfully submitted, Miriam Skolnik HERZFELD & RUBIN, P.C. Appellate Counsel to Law Offices of Curtis, Vasile, Mehary & Dorry, P.C. Attorneys for Plaintiff-Appellant Excess Line Association of New York (ELANY) 125 Broad Street, New York, N.Y. 10004 (212) 471-8500 . By:~Q~ Miriam Skolnik 12 ADDENDUM 02/05/2014 11:55 FAX 212 SG4 2804 UNITED LAWVE~S SERVICE I:IJ 002/009 . . SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PART , 3 ?:--- PRESENT: Hon.._-liiC~Ai.L't.BO:::...::L::-.::;:::..:E.;_:_H~U-~P~· - ./u.st:ic~- 4~-~~-cf Ctv~ Notice of Notlon/OrdP.r to Show Cause - AfridHvi rl' :- Ex Answering Affidavits - Exhibits -----------L---,=-!!::~..l.!....-~~---- . ' ' \' ' --------~-~:L ______ ----:-JJ-F.~tF·=-· ------ - -- c,/: D9ted MAR 2 5 1994 ------------- ---- _ .---!!II CAROL ·e. HUFF .. . ~ ' 02/05/2014 11:55 FAX 212 SS4 2804 UNITED LAWYERS SERVICE llJ 003/009 SUPREME COURT OF THE STATE OF NEW YORK 419twl COUNTY OF NEW YORK: IAS PART 32 ----------~~----~------~~--------------------x In the Matter o~ the Application ot EXCESS LINE ASSOCIATION OF HEW YORK, . : Index No. 134460/93 Petitioner, For a Jud~ent Pursuant to Article 78 of the CPLR, - against - SALVATORE R.. CURIALE, Superintendent of Insurance of the State at New York, Respondent. : : : : --------------~~----~~---------~--------~----x CAROL E. HUFF, J.: In this Article 78 proceeding, petitioner seeks a judgment enjoininq the Superintendent of I:nsurance of the State of New York (the 11SUperintendent") from enforcing sections 27.6 (a) (2) and (a)(3) of the "new Re.qulation 4111 prmaulgated by the superintendant, and declaring sa•e null and void. The regulation took e~tect on January 1, 1994. Petitioner, the Excess Line Association of ~ew York ("ELAHY") is an association of •excess line brokers" which a.re licensed insurance brokers who have the right to obtain insurance coverage from insurers not authorized within New York State. since moat. of the consumer protections that are aYailable when authorized insurers provide insurance coverage are not present in the exc .. a line market, excess 1 ine brokers are required to use "due c:are 11 in selecting the unauthorized insurer from whom policies are procured under his license (Ins. Law §2ll8[a][l)). Excess line brokers •ay 02/05/20 14 11 : 55 FAX 212 964 280 4 UNITED LAIV ERS SERVI CE !ill 004/00 9 only solicit such coverage to the extent f ull coverage cannot he I obtained fro• a New York licensed insurer (Ins. Law S2118[b][3)[A])- Tha Superintendent Who issues licenses to axcess line brokers has the authority to discipline such licensees, and to suspend or revoke their licenses if they are found to be in violation ot the Insurance Law or have demonstrated untrustworthineaa or incompetency (Ine. Law S2110). Regulation 41 was originally enacted by the Insurance Department and effective on October l. , 1962 for the purpose of astablishinq procedures to be f o l lowed by excess l ine i nsurers. These procedure• were deemed essential in "the exercise of the due care and diligence as required by law~ . Regulation 41 was upheld 1 1 R IKe••• corp. v. Th&eher, 37 Misc.2d J07, aff'd 18 AD2d 1137. ELAHY was established by Chapter 6JO of the Laws of 1988, which addad Section 2130 to the Insurance Law. The Legislature created ELANY as an "advi sory" association "to f acilitate and encourage compliance by its members (excess line l i censees) with the laws of this state and the rules and reql.ll&tions of the superintendent relative to excess line insurance." L . 1.988, c. 630 S1 - The Legi•lature declared that ELANY has three ,.underlying purpoaes": to protect persons seeki ng insurance in this s tate; to per.it excess line i nsurance to be placed with reputable and tinancially s ound unauthorized insurers; and, to protect state revenues (Id. ). Subject to the Superintendent's re..,iew, .BLAHY's princi pal role - 2 - 02/05/2014 11:55 FAX 212 964 2804 UNITED LAWYERS SERVICE il 005/009 . / ~ is to act as a reca