Fialav.Metropolitan Life Ins. Co.

Appellate Division of the Supreme Court of New York, First DepartmentApr 27, 2004
6 A.D.3d 320 (N.Y. App. Div. 2004)
6 A.D.3d 320776 N.Y.S.2d 29

2808, 2809, 2810.

Decided April 27, 2004.

Order, Supreme Court, New York County (Herman Cahn, J.), entered February 26, 2003, which granted the motion of defendant Superintendent of Insurance of the State of New York to dismiss the action against him insofar as to convert the Shah plaintiffs' claims against him into a proceeding pursuant to CPLR article 78, granted the other defendants' motions to dismiss plaintiffs' claims against them pursuant to CPLR 3211, and denied the motion of Metropolitan Life Insurance Co. (MetLife) to require plaintiffs to post a bond, unanimously modified, on the law, to deny defendants' motion with respect to the Shah plaintiffs' claim against MetLife and MetLife, Inc. (the MetLife defendants) and the sixteen directors of MetLife (the individual defendants) under Insurance Law § 7312 for allegedly allocating excessive shares to Armstrong Tire and Rubber and to reinstate that claim, to deny defendants' motion with respect to the Fiala plaintiffs' fraud claim against the MetLife and individual defendants insofar as it is based on nondisclosure of their plan to buy back MetLife stock after the IPO and to reinstate that claim, and to permit the Fiala plaintiffs to replead their fraud claim against the MetLife defendants and the individual defendants insofar as it is based on nondisclosure of the allegedly preferential treatment given to Armstrong, and otherwise affirmed, without costs.

Lovell Stewart Halebian LLP, New York (Christopher Lovell of counsel), for Fiala, et al., appellants-respondents.

Debevoise Plimpton, LLP, New York (Bruce E. Yannett of counsel), for respondent-appellant and MetLife, Inc., et al., respondents.

Skadden, Arps, Slate, Meagher Flom LLP, New York (Douglas M. Kraus of counsel), for Goldman, Sachs Company and Credit Suisse First Boston Corporation, respondents.

Milberg Weiss Bershad Hynes Lerach LLP, New York (Barry A. Weprin of counsel), for Shah, et al., appellants-respondents.

Eliot Spitzer, Attorney General, New York (Robert H. Easton of counsel), for Neil D. Levin, respondent.

Before: Ellerin, J.P., Williams, Lerner, Friedman, JJ.


The appropriate vehicle for the Shah plaintiffs' claim that the Superintendent's approval of MetLife's demutualization plan (the Plan) violated Insurance Law § 7312 is a proceeding pursuant to CPLR article 78 ( see Chatlos v. MONY Life Ins. Co., 298 A.D.2d 316, lv denied 99 N.Y.2d 504). For the most part, the Shah plaintiffs' claims that the other defendants violated the statute constitute an impermissible "indirect challenge to the Superintendent's determination" ( id. at 317). However, the MetLife and individual defendants have not established the preclusive effect of the Superintendent's determination with respect to plaintiffs' claim that those defendants improperly accorded Armstrong Tire and Rubber, a large policyholder that complained about the Plan's allocation formula, preferential treatment when in the course of the demutualization they allegedly allotted it excessive shares, since there is no indication that the Superintendent was aware of the alleged excessive allocation at the time he passed upon the Plan. If there is evidence that the Superintendent was aware of this, defendants may move for summary judgment.

Permitting the Shah plaintiffs to assert a claim that the MetLife and individual defendants violated § 7312 by giving Armstrong preferential treatment would not violate the standards for a private right of action ( cf. Hammer v. Am. Kennel Club, 1 N.Y.3d 294).

The Shah plaintiffs' breach of contract claim constitutes a collateral attack on the Superintendent's approval of MetLife's demutualization, and as such, it was properly dismissed ( see Tierney v. John Hancock Mut. Life Ins. Co., 58 Mass. App. Ct. 571, 587-589, 791 N.E.2d 925, 938-939, lv denied 440 Mass. 1104, 797 N.E.2d 380, cert denied ___ US ___, 2004 US LEXIS 1858). An additional, independent basis for dismissal is that plaintiffs "fail[ed] to identify the policy terms allegedly breached" ( Chatlos, 298 A.D.2d at 317).

Also properly dismissed as impermissible collateral attacks on the Superintendent's determination were plaintiffs' claims for breach of fiduciary duty ( see Brawer v. Johnson, 231 A.D.2d 664; Matter of E. New York Sav. Bank Depositors Litig., 145 Misc.2d 620, 624-625, affd 162 A.D.2d 251; Tierney, 58 Mass App. Ct at 587-589, 791 N.E.2d at 938-939). These claims were additionally unsustainable since an insurance company does not owe its policyholder a common-law fiduciary duty except when it is called upon to defend its insured ( see Goshen v. Mut. Life Ins. Co., 1997 N.Y. Misc. LEXIS 486, *25-26, affd 259 A.D.2d 360, mod on other grounds 94 N.Y.2d 330; Rabouin v. Metro. Life Ins. Co., 182 Misc.2d 632, 634-635, affd 282 A.D.2d 381), which is not the case here. Nor does § 7312 give rise to a fiduciary duty upon which plaintiffs' claims of breach might be premised ( see Chatlos, 298 A.D.2d at 317).

Most of the Fiala plaintiffs' fraud claims are barred as collateral attacks on the Superintendent's determination ( see Brawer, 231 A.D.2d at 664; E. New York Sav. Bank, 145 Misc.2d at 624-625). To the extent they did not constitute impermissible collateral attacks, they were properly dismissed for other reasons. The complained-of statements made in November 1998 by defendant Robert H. Benmosche were statements of future intention, and the complaint does not allege facts showing that, when Benmosche made such statements, he never intended to honor his promises ( see Non-Linear Trading Co. v. Braddis Assocs., 243 A.D.2d 107, 118). Moreover, these statements were superseded by the Plan ( see Jackvony v. Riht Fin. Corp., 873 F.2d 411, 416).

However, the Fiala plaintiffs' claim that the plan of the MetLife and individual defendants to buy back MetLife stock after the IPO had taken place should have been disclosed in the Policyholder Information Booklet (PIB) was improperly dismissed at this stage on the ground that disclosure was not required because the buy-back plan was insufficiently certain at the time of the PIB. It is apparent, as the court found, that the defendants were considering a share repurchase and apparent, particularly in light of defendant Goldman Sachs' statement that "MetLife should indicate in the prospectus that it will implement a stock repurchase program immediately post IPO," that at the time of the PIB the event was at least reasonably likely to occur ( see Richardson v. White, Weld Co., 1979 US Dist LEXIS 12417, *3-*4 [SDNY]; see also Seagoing Uniform Corp. v. Texaco, Inc., 705 F. Supp. 918, 930, 934 n7 [SDNY 1989]). As to those policyholders who retained their shares, the complaint states a cause of action for dilution of their equity in MetLife ( see Katzowitz v. Sidler, 24 N.Y.2d 512).

The Fiala plaintiffs' claim that the PIB should have disclosed the preferential treatment given to Armstrong was properly dismissed because the complaint failed to provide a factual basis from which the materiality of such omission could be inferred ( see Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 141, 146). Nonetheless, we permit the Fiala plaintiffs leave to replead to rectify this deficiency, if they are able to do so ( see id.).

Because the Fiala plaintiffs' primary claims for breach of fiduciary duty were properly dismissed, their claim against the Advisor Defendants for aiding and abetting a breach of fiduciary duty cannot stand ( see e.g. Renner v. Chase Manhattan Bank, 2000 US Dist LEXIS 8552, * 63). The only fraud claims that survive are the one based on the discriminatory allocation of shares to Armstrong and the one based on the nondisclosure of the stock buy-back plan. However, since the complaint does not allege that the Advisor Defendants had anything to do with the complained-of allocation or with the nondisclosure of the buy-back plan, the claim against the Advisor Defendants for aiding and abetting fraud was properly dismissed ( see Kaufman v. Cohen, 307 A.D.2d 113, 126).

The IAS court properly exercised its discretion in refusing to require plaintiffs to post bonds. Unlike Business Corporation Law § 627, Insurance Law § 7312(t)(2) does not mandate that security be provided. A statute which, in derogation of the "American rule," shifts liability for attorneys' fees to the other side should be strictly construed ( see e.g. Matter of Peck v. New York State Div. of Hous. Community Renewal, 188 A.D.2d 327).

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.