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denying motion to intervene and finding no prejudice to the intervenor because it was "free to commence an independent action" in state court
Summary of this case from Beam v. HSBC Bank USAOpinion
No. 96-CV-0315E(H).
January 2, 1997
MEMORANDUM and ORDER
The plaintiff ("Provident") brings this action against Ginther alleging fraud and breaches of contract, of the underlying combined duty of good faith and fair dealing and of his fiduciary duty owed to it and seeks a judgment pursuant to 28 U.S.C. § 2201 declaring that it has no obligation to pay Ginther any benefits under the disability income insurance policy at issue. Jurisdiction is predicated upon 28 U.S.C. § 1332 and venue is proper pursuant to 28 U.S.C. § 1391(a). Presently before this Court is Ginther's motion to dismiss Provident's first four claims and to strike various other allegations from the Complaint pursuant, respectively, to Rules 12(b)(6) and 12(f) of the Federal Rules of Civil Procedure ("FRCvP"). The motion will be granted in part.
The Complaint alleges that Ginther — a Provident agent since 1983 — applied for a disability income policy for himself in March 1989, that in his written application Ginther made "specific representations concerning his medical history, treatment and medications, and regarding his earned income" upon which Provident relied in deciding to issue to him in June 1989 a disability income policy with an effective date of April 28, 1989 ("the Policy"), that Ginther permitted the Policy to lapse, that, in a written application dated January 10, 1990 for reinstatement of the Policy, Ginther "made specific representations concerning his health, his physical condition, and his earned income" upon which Provident relied in reinstating the Policy, that in March of that year Ginther applied for additional coverage, that Provident, relying upon his earlier and then current representations, issued an Update Rider to him with greater monthly benefits in the event of total disability and yearly increases in such which ultimately raised his monthly benefit to $5,380 effective April 28, 1994, that Ginther served as Provident's agent throughout such time and in such capacity signed his applications dated March 9, 1989 and March 9, 1990, that Ginther "knowingly and intentionally submitted false information" including material misrepresentations "regarding his medical history, treatment and medications" and his earnings (several instances of specific representations in support of its accusations are provided, and that Ginther submitted a claim for benefits under the Policy which Provident, on May 10, 1996, denied. Provident commenced this lawsuit May 13, 1996 requesting that this Court declare the Policy void or find that it is not liable under its terms and provisions. In the event that it is found liable to Ginther in his capacity as the insured under the Policy, Provident seeks indemnification from Ginther in his capacity as its agent for any amounts due under the Policy and requests to offset such indemnification against any amounts due Ginther.
After receiving two extensions of time within which to "answer" the Complaint, on June 24, 1996 Ginther simultaneously filed his Answer and Counterclaim and a motion predicated upon FRCvP 12(b)(6) to dismiss Provident's various claims on the grounds that they are time barred by pertinent statutes of limitation and by the Policy's incontestability clause. FRCvP 12(b) specifically states that a motion to dismiss for failure of the Complaint to state a claim upon which relief can be granted "shall be made before pleading." Inasmuch as Ginther filed his Answer and Counterclaim simultaneously with his motion to dismiss, the latter is untimely under a plain reading of the rule. See, e.g., Hallberg v. Pasco County, No. 95-1354-CIV-T-17A, 1996 WL 153673, *2 (M.D.Fla. March 18, 1996) (motion to dismiss filed simultaneously with rather than before answer is not a 12(b)(6) motion) and Perkins v. University of Illinois, No. 95 C 4320, 1995 WL 680758, *1 (N.D.Ill. Nov. 14, 1995) (defendant violated 12(b) by filing motion to dismiss simultaneously with an answer; motion to dismiss must be brought before, "not after or even at the same time as," such pleading). Generally, such an untimely motion can be treated as a motion for judgment on the pleadings pursuant to FRCvP 12(h)(2) and FRCvP 12(c). See, e.g., George C. Frey Ready-Mixed Con. v. Pine Hill C.M., 554 F.2d 551, 553, fn. 2 (2nd Cir. 1977). However, a motion for a judgment on the pleadings is authorized only "[a]fter the pleadings are closed." FRCvP 12(c). When Ginther filed the instant motion, he simultaneously counterclaimed for damages and for a declaration that he is due all benefits under the insurance policy. Provident, pursuant to FRCvP 7(a) and FRCvP 12(a), was resultantly required to file and did file a reply to such Counterclaims. The pleadings were then and thereby closed. A motion for judgment on the pleadings brought prior to the close of pleadings is premature under a plain reading of FRCvP 12(c). Nevertheless, neither party will be prejudiced if this Court rules on the merits of Ginther's motion, recharacterized as one for a judgment on the pleadings, which could have been properly brought at any later time so long as the trial of this matter were not thereby delayed. FRCvP 12(c). Finally, matters not made part of the pleadings pursuant to FRCvP 10(c) have been excluded from this Court's consideration as required by FRCvP 12(c) inasmuch as it does not appear that the parties have had a reasonable opportunity to adequately develop the record. See, e.g., Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2nd Cir. 1991); Nat. Ass'n of Pharmaceutical Mfrs. v. Ayerst Lab., 850 F.2d 904, 910-913 (2nd Cir. 1988).
Stipulation to Extend Defendant's Time to Answer Complaint filed June 11, 1996; see also Stipulation filed June 24, 1996.
Ginther submitted excerpts from the Policy and from an Increased Benefit Amendment and an Update Rider (Affidavit of George E. Ginther, sworn to June 28, 1996, Exh A) and Provident submitted copies of various documents (Affidavit of Donna Gravitt, Disability Claims Adjuster for Provident, sworn to July 23, 1996, Exhs A-N) which are excluded from the present consideration.
In deciding a defendant's motion for judgment on the pleadings pursuant to FRCvP 12(c), this Court is to apply the same standard as is used when passing on a motion to dismiss predicated upon FRCvP 12(b)(6) — viz., this Court evaluates the pleadings in the light most favorable to the plaintiff, accepting as true all material facts alleged in the Complaint and drawing all reasonable inferences and resolving any ambiguities in favor of the nonmovant. Sheppard v. Beerman, 18 F.3d 147, 150 (2nd Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 73 (1994). The defendant should not be granted a judgment on the pleadings "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
Ginther contends that Provident's claim for breach of the agency contract is barred by New York's pertinent statute of limitations. "Under New York law, a cause of action for breach of contract accrues and the [six-year] statute of limitations commences when the contract is breached" even if the damages caused thereby are not actually suffered until sometime after the breach. T N PLC v. Fred S. James Co. of New York, Inc., 29 F.3d 57, 59 (2nd Cir. 1994); subsection 213(2) of New York Civil Practice Law and Rules ("CPLR"). The last agency act alleged in the Complaint occurred March 9, 1990. Inasmuch as the limitations period for a breach of contract action based on such conduct expired March 10, 1996, Provident's claim against Ginther for breach of his agency contract is time-barred. Furthermore, Provident's claim alleging breach of the duty of good faith and fair dealing — a covenant implied in every contract in New York ( Carvel Corp. v. Diversified Management Group, 930 F.2d 228, 230 (2nd Cir. 1991)) — is merely a duplicative claim for breach of the underlying contract and is, therefore and similarly, time-barred. Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052, 1056 (2nd Cir. 1992); Geler v. National Westminster Bank USA, 770 F.Supp. 210, 215 (S.D.N.Y. 1991).
The parties do not dispute that New York law applies.
Provident's allegations sounding in fraud and in breach of Ginther's fiduciary duties are inseparably intertwined. New York law expansively characterizes fiduciary relationships and recognizes that fiduciary duties may arise in and from agency relationships independent of contractual obligations. In re Shulman Transport Enterprises, Inc., 744 F.2d 293, 295 (2nd Cir. 1984); GLM Corp. v. Klein, 665 F.Supp. 283, 286 (S.D.N.Y. 1987); U.S. v. Brennan, 938 F.Supp. 1111, 1120 fn. 11 (E.D.N.Y. 1996). New York's statutes provide no expressed time limitation for actions predicated upon breach of fiduciary responsibilities. However, when a fiduciary duty claim derives from or has its genesis in the parties' contractual relationship or includes allegations of fraud, courts have applied New York's six-year limitations period and, when appropriate, have applied New York's discovery rule. CPLR §§ 203(g) 213; Menke v. Glass, 898 F.Supp. 227, 232 (S.D.N.Y. 1995); Dymm v. Cahill, 730 F.Supp. 1245, 1264 fn. 7 (S.D.N.Y. 1990); Zola v. Gordon, 685 F.Supp. 354, 374 (S.D.N.Y. 1988). This Court finds that claims of fraud and breach of fiduciary duty which are inextricably related, as are Provident's, must be brought within six years from the date the fraud was committed or within two years from the date that the plaintiff discovered or, using due diligence, should have discovered the fraud, whichever period ends later. CPLR §§ 203(g) 213. In this case, the last allegedly fraudulent act took place March 9, 1990 and the six-year period had ended by March 10, 1996. However, Provident argues that it did not discover the underlying facts until it had performed an investigation after Ginther had filed a claim for disability benefits under the Policy which investigation led it to deny his claim on May 10, 1996. Such is sufficient to withstand a motion for dismissal on statute of limitations grounds at the pleading stage. A determination whether Provident should have been on inquiry notice sooner or whether it exercised sufficient diligence in a timely manner would be premature at this juncture and is not possible on the present record.
Ginther argues that Provident's fraud claim amounts to breach of contract allegations plus the added element of scienter which is not sufficient to state a separate claim of fraud upon which relief may be granted. It is true, as Ginther argues, that under New York law general allegations that a party entered into a contract while lacking the intent to perform it do not state a claim for fraud separate and distinct from a claim for breach of the underlying contract. Bridgestone/Firestone v. Recovery Credit, 98 F.3d 13, 19-20 (2nd Cir. 1996); Papa's-June Music, Inc. v. McLean, 921 F.Supp. 1154, 1160-1161 (S.D.N.Y. 1996). However, allegations of a knowingly false representation of a material existing fact made with the intent to induce reliance thereupon and of actual and reasonable reliance thereupon and of injury resulting therefrom state the essential elements of a cause of action for fraud. Graubard Mollen Dannett Horowitz v. Moskovitz, 86 N.Y.2d 112, 122 (1995); Deerfield Commun. v. Chesebrough-Ponds, 68 N.Y.2d 954, 956 (1986). Provident alleges that Ginther knowingly made several false representations concerning his medical history and his income in order to obtain the insurance coverage afforded by the Policy, all of which Providence relied upon and in the absence of which Provident would not have issued the Policy to Ginther or granted his applications for reinstatement or for increased coverage. Such adequately alleges the essential elements of a fraud claim and pleads substantially more than a general allegation of scienter or of an intent not to perform a future obligation. Furthermore, the allegations of a fiduciary relationship commensurately raise and implicate the affirmative duty in Ginther as Provident's agent to have disclosed material facts bearing upon the nature of the insured risk particularly inasmuch as he was dealing with himself. Cutler v. Hartford Life Insurance Co., 22 N.Y.2d 245, 254 (1968). Such serves to partially demonstrate the inextricable interdependence of the fraud and breach of fiduciary duty claims and lends further support to Provident's fraud claim.
Ginther argues that New York's statutory incontestability requirements and the contractual incontestability clauses bar the fraud claims. Such argument is premature, inasmuch as the Policy and the amendments thereto are not in the pleadings. Furthermore, even if a fraudulent insurance purchaser would have a defense based on the statutory incontestability requirements or the policy's incontestability provisions, a conspiring fraudulent agent of the company would be subject in an action to damages for the breach of his fiduciary duty. Id., at 254. "Where, as here, the purchaser and agent are the same, the insurer's right to" claim against the agent would operate to effectively defeat the right of the purchaser to recover under the Policy. Id., at 255.
See, e.g., subsection 3216(d) of New York's Insurance Law.
See footnote 2, supra.
Ginther contends that Provident does not allege facts upon which an indemnity claim can be made. This Court agrees. A right to indemnification technically arises when one party expressly assents or is compelled by law to hold a second party harmless for injuries suffered by a third party. Knight v. H.E. Yerkes and Associates, Inc., 675 F.Supp. 139, 143 (S.D.N.Y. 1987); see generally W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS, § 51 (5th ed. 1984 1988 Supp.). There is no third party in this action; a claim for indemnification simply does not lie on the facts alleged and Provident's claim for such must be dismissed.
Ginther has also brought, pursuant to FRCvP 12(f), a motion to strike various allegations as incorporated into Provident's Fifth, Sixth and Seventh Claims. FRCvP 12(f) specifically requires that a motion to strike be brought "before responding to a pleading". Inasmuch as Ginther brought such motion simultaneously with, rather than prior to, his answer, it is formally untimely. E.E.O.C. v. Sage Realty Corp., Inc., 87 F.R.D. 365, 372 (S.D.N.Y. 1980); Kelly v. McHenry County, No. 93 C 20194, 1994 WL 149707, *6, fn 1 (N.D.Ill. April 11, 1994). Furthermore, even a properly made motion to strike requests a "drastic remedy which is disfavored by the courts and infrequently granted." ILA S.S. Clerks Local 1624 v. Va. Inter. Terminals, 904 F.Supp. 500, 504 (E.D.Va. 1995). Such a motion, when timely brought, will be denied unless the matter sought to be stricken clearly has "no possible relation to the matter in controversy." Mikropul Corp. v. Desimone Chaplin-Airtech, Inc., 599 F.Supp. 940, 945 (S.D.N.Y. 1984). Provident's allegations provide a better understanding of the background facts supporting its claims for relief and are thus proper. Moreover, inasmuch as it has alleged fraud, Provident was required to and did comply with FRCvP 9(b)'s particularity requirement. Based upon the foregoing, the motion to strike must be denied.
Accordingly, it is hereby ORDERED that Ginther's motion is granted solely to the extent that Provident's claims for indemnification and for breaches of contract and of the duty of good faith and fair dealing are dismissed and that the remainder of Ginther's motion is denied.