Supreme Court, Erie County, March 22, 2019

Hurwitz & Fine, P.C. (Amber Storr and Andrea Schillaci of counsel) for defendants.

Barclay Damon, LLP (Robert J. Portin and Michael E. Ferdman of counsel) for plaintiff.

The plaintiff is suing the defendants for unjust enrichment and conversion. Before the court is the defendants' pre-answer motion to dismiss the lawsuit.

The plaintiff is a medical practice. It provides anesthesia services to hospitals and ambulatory surgical centers in Western New York. These facilities require the plaintiff's physicians and certified registered nurse anesthetists to maintain professional liability insurance.

The defendants are certified registered nurse anesthetists. Defendant Deixry Nasrin was employed by the plaintiff from March 13, 2012, to April 28, 2017. Defendant Douglas Brundin was employed by the plaintiff from January 1, 2010, to January 6, 2016. Article 3 (c) (ii) of their employment agreements provided that the plaintiff would pay professional liability [*2]insurance premiums as an "employment benefit for and on behalf of" the employee. That insurance was secured through the Medical Liability Mutual Insurance Company (MLMIC). The defendants were named as the insured under their individual MLMIC policies. They consequently became policyholders and members of MLMIC.

MLMIC and the defendants entered into a "MLMIC Policy Administrator—Designation &/or Change" agreement, by which the defendants designated the plaintiff as their agent and policy administrator. According to its terms, "The Policy Administrator is the agent of all Insureds herein for the paying of premium, requesting changes in the policy, including cancellation thereof and for receiving dividends and any return premiums when due."

Neither the employment agreement nor the MLMIC Policy Administrator—Designation &/or Change agreement contained language indicating that the defendants waived, transferred or assigned their ownership interest in the policy to someone else.

The MLMIC Board of Directors approved a proposed transaction by which MLMIC would demutualize, convert to a stock{**63 Misc 3d at 705} insurance company, and be acquired by the National Indemnity Company (NICO) for $2.502 billion. The MLMIC Board later adopted a plan of conversion, whereby cash consideration would be paid to policyholders/members in exchange for the extinguishment of the policyholder membership interests. Pursuant to section 8.2 (a) of the plan of conversion (the plan), "Each Eligible Policyholder (or its designee) shall receive a cash payment in an amount equal to the applicable conversion." Pursuant to section 2.1 of the plan, an "eligible policyholder" was the person designated as the insured, while a "designee" meant employers or policy administrators, "designated by Eligible Policyholders to receive the portion of the Cash Consideration allocated to such Eligible Policyholders." The plan did not provide for the policy administrator to receive cash consideration absent such a designation from the policyholder/member.

The Superintendent of the New York State Department of Financial Services (DFS) held a public hearing and approved the plan. In her September 6, 2018 decision (DFS decision), the Superintendent wrote:

"MLMIC's eligible policyholders will receive cash consideration.

"Insurance Law § 7307 (e) (3) expressly defines those persons who are entitled to receive the proceeds of the Demutualization as each person who had a policy 'in effect' during the three-year period preceding the MLMIC Board's adoption of the resolution (the 'Eligible Policyholders'), and explicitly provides that each Eligible Policyholder's equitable share of the purchase price shall be determined based on the amount of net premiums . . . paid on . . . eligible policies" (DFS decision at 4).

The DFS decision also acknowledged testimony and written comments from medical groups. Nearly identical to the plaintiff's contentions in this case, the medical groups had argued that the cash consideration belonged to them because they had paid the premiums on behalf of the policyholders and/or had acted as the policy administrators. Addressing these arguments, the Superintendent of Financial Services wrote:

"Insurance Law § 7307 (e) (3) defines the policyholders eligible to be paid their proportional shares of the purchase price, but also recognizes that such policyholders may have assigned such legal right to other persons. Therefore, the Plan appropriately{**63 Misc 3d at 706} includes an objection and escrow procedure for the resolution of disputes for those persons who dispute whether the policyholder is entitled to the payment in a given case" (DFS decision at 23).

Such a claim would be "decided either by agreement of the parties or by an arbitrator [which must be voluntary] or court" (DFS decision at 25).

The plaintiff did not make a claim, or otherwise avail itself of the objection and escrow procedure. MLMIC paid $18,532.60 to defendant Nasrin and $15,546.95 to defendant Brundin [*3]on October 4, 2018. Plaintiff's counsel corresponded to both defendants on the very same day. He threatened the defendants with legal action and demanded that they "execute an [enclosed] Assignment Agreement transferring your right to the cash consideration to the Practice."

Much of the foregoing detail is alleged in the plaintiff's complaint. It additionally alleges, inter alia, that the money received by the defendants is "unwarranted" and "rightly belongs to Maple-Gate" (¶¶ 29-32); that "it is against equity and good conscience" for defendants to have kept these benefits because the plaintiff paid the premiums (¶ 40); that the defendants were "unjustly enriched" (¶ 41); that the "cash consideration that Defendants received is Maple-Gate's property" (¶ 45); and that "by failing and refusing to remit the Benefit that each Defendant received, each Defendant has converted Maple-Gate's property" (¶ 48).

The defendants filed their motion to dismiss, in lieu of an answer, on January 6, 2019. Pursuant to CPLR 3211 (a) (7), the defendants allege that the complaint fails to state a cause of action. Pursuant to CPLR 3211 (a) (1), the defendants also allege that the documentary evidence conclusively establishes that the plaintiff does not have a cause of action. The plaintiff's opposition papers were filed on February 8, 2019. Oral arguments were heard by the court on February 20, 2019.

In support of their motion to dismiss, the defendants principally contend that they were the lawful policyholders and thus possessed an actual and exclusive ownership interest in the cash consideration.

In opposition, the plaintiff principally contends that it is entitled to the cash consideration because it had a virtual ownership interest in the cash consideration; i.e. being designated as the policy administrator, paying the premiums and using any refunds to reduce overall business costs "vested {**63 Misc 3d at 707}the Practice w/ virtually all incidents of ownership in the policies" (plaintiff's mem of law at 5). The plaintiff also contends that the plan and the DFS decision "control everything in the case and take precedence over everything in the case" and that "both expressly recognize the practice's claims to the proceeds and expressly or implicitly, at least, refute the claim that the defendants have to those proceeds as a matter of law" (tr of mots argument at 11).

CPLR 3211 authorizes the summary dismissal of a complaint. The court, when considering such a motion, must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. (Leon v Martinez, 84 NY2d 83, 88 [1994]; Murnane Bldg. Contrs., LLC v Cameron Hill Constr., LLC, 159 AD3d 1602, 1603 [4th Dept 2018].) A cause of action cannot, however, be predicated on mere conclusory statements unsupported by factual allegations. (Bratge v Simons, 167 AD3d 1458 [4th Dept 2018]; Miller v Allstate Indem. Co., 132 AD3d 1306 [4th Dept 2015].) Allegations consisting of bare legal conclusions, as well as claims flatly contradicted by documentary evidence, are not entitled to consideration. (Maas v Cornell Univ., 94 NY2d 87, 91 [1999]; Attallah v Milbank, Tweed, Hadley & McCloy, LLP, 168 AD3d 1026 [2d Dept 2019].) Such a complaint should be dismissed when the documentary evidence conclusively refutes its allegations. (Dominski v Frank Williams & Son, LLC, 46 AD3d 1443 [4th Dept 2007]; also see Liberty Affordable Hous., Inc. v Maple Ct. Apts., 125 AD3d 85 [4th Dept 2015].)

The complaint's allegations are made in support of two causes of action, namely, conversion and unjust enrichment. An actionable conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession. (Reeves v Giannotta, [*4]130 AD3d 1444 [4th Dept 2015].) The key elements of conversion are (1) the plaintiff's possessory right or interest in the property and (2) the defendants' dominion over the property or interference with it, in derogation of the plaintiff's rights. (Palermo v Taccone, 79 AD3d 1616, 1619-1620 [4th Dept 2010].)

Like conversion, an unjust enrichment claim presupposes that the plaintiff has an ownership interest in the property or benefit it seeks to recover from the defendants (see Glen Banks, {**63 Misc 3d at 708}Contract Law § 4:14 [28 West's NY Prac Series]; Roslyn Union Free School Dist. v Barkan, 71 AD3d 660, 661 [2d Dept 2010]). The key elements of unjust enrichment are (1) that the defendants were enriched (2) at the plaintiff's expense and (3) that it is against equity and good conscience to permit the defendants to retain what is sought to be recovered. The doctrine is a narrow one and is not a catchall cause of action to be used when others fail. (E.J. Brooks Co. v Cambridge Sec. Seals, 31 NY3d 441, 455 [2018].) Mere enrichment is not enough to warrant liability and an allegation that the defendants received benefits, standing alone, is insufficient to establish the cause of action. Critical is that the enrichment be unjust (see Goel v Ramachandran, 111 AD3d 783, 791 [2d Dept 2013]).

It is undisputed that the plaintiff received refunds, like returned dividends and premiums, while it was the policy administrator and MLMIC was the insurer. The benefit at issue in this matter is the cash consideration. Unlike a refund, the cash consideration was clearly intended to be in exchange for the extinguishment of the defendants' membership interest in MLMIC.

It is important to note that MLMIC was a mutual insurance company. Generally speaking, a mutual insurance company is a cooperative enterprise in which the policyholders constitute the members for whose benefit the company is organized, maintained, and operated (68 NY Jur 2d, Insurance § 179). In this regard, Insurance Law § 1211 (a) provides, in part, that "[e]very domestic mutual insurance corporation shall be organized, maintained and operated for the benefit of its members as a non-stock corporation. Every policyholder shall be a member of such corporation." Thus, when the defendants, at the plaintiff's behest, signed up for professional liability policies issued by MLMIC, they acquired certain rights and benefits, including membership in MLMIC.

It is also important to take note of the demutualization process by which MLMIC was converted from a mutual insurance company into a stock insurance company acquired by NICO. Section 7307 of the Insurance Law governs this process. Insurance Law § 7307 (e) (3), in relevant part, provides that

"each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the resolution . . . shall be entitled to receive in exchange for such equitable share, without additional payment,{**63 Misc 3d at 709} consideration payable in voting common shares of the insurer or other consideration, or both."

The statute goes on to repeatedly refer to the eligible recipient as the policyholder and sets forth a formula regarding how to calculate the amount of consideration the policyholder would receive as a result of demutualization. The formula takes into account the amount of premiums paid. No distinction is made between a policyholder who pays the premium out of his own pocket versus a policyholder whose employer pays the premium as part of an employee compensation package. Insurance Law § 7307 does not confer an ownership interest in the stock or to the cash consideration to anyone other than the policyholder.

Being designated as the policy administrator did not make the plaintiff a policyholder, did not make the plaintiff a member of MLMIC and did not entitle the plaintiff to the cash consideration. More was required. Under the plan, the policyholder was required to designate someone as being entitled to the cash consideration before that person or entity was entitled to that benefit. The DFS decision reiterated that it was the policyholder who was entitled to the [*5]cash consideration; recognized that such policyholders "may have assigned such legal right to other persons" (DFS decision at 23, 25); and tied eligibility for the objection and escrow process to when the policyholder had, in fact, assigned the right to cash consideration to another person or entity. It appears certain that such a designation or assignment never took place in this case. More to the point, the plaintiff does not allege that such a designation or assignment ever took place. This alone is fatal to the plaintiff's claim that it is entitled to the cash consideration.

As it appears the defendants never had designated the plaintiff to receive the cash consideration, it is no wonder that the plaintiff did not avail itself of the objection and escrow process. The plaintiff instead demanded that the defendants "execute an Assignment Agreement transferring your right to the cash consideration to the Practice." Such an explicit recognition of the defendants' right to the cash consideration undermines the claim that they unlawfully converted it to themselves or that they were unjustly enriched. The transfer demand is also an implicit acknowledgement that the defendants had never designated the plaintiff to receive the cash consideration.

The controlling statutes and the documentary evidence conclusively demonstrate that the defendants had an actual{**63 Misc 3d at 710} and exclusive ownership interest in the cash consideration. Allegations to the effect that the plaintiff had a legally cognizable ownership interest in the cash consideration are flatly contradicted by the same statutes and evidence. Allegations to the effect that the defendants' windfall was unwarranted, or that the defendants converted to themselves that which rightly belonged to the plaintiff, or that the defendants were unjustly enriched, or that it is against equity and good conscience for the defendants to keep their money, are nothing more than bare legal conclusions. Accordingly, the defendants' motion to dismiss the complaint, pursuant to CPLR 3211 (a) (1) and (7), is granted.