Claimant's motion for summary judgment denied and the New York State Insurance Fund's cross-motion for summary judgment is granted dismissing a claim to recover workers compensation insurance premiums charged for outside labor and subcontractors added to claimant's payroll following an audit. The Court finds subject matter jurisdiction exists in the Court of Claims pursuant to Court of Claims Act Section 9 (2) for a breach of contract claim for recoupment of premiums paid. The Court also finds that Article 25-b of Labor Law Section 861 applies and that claimant meets the definition of a contractor, that the work performed meets the definition of construction, and that no issue of fact exists that any individual retained by claimant is exempt from workers compensation insurance coverage.
|Claimant(s):||HOMESTEAD REPAIR & RENOVATION INC.,|
|Claimant short name:||HOMESTEAD|
|Footnote (claimant name) :|
|Defendant(s):||NEW YORK STATE INSURANCE FUND|
|Footnote (defendant name) :|
|Judge:||J. DAVID SAMPSON|
|Claimant's attorney:||HOGAN WILLIG, PLCC
BY: Thomas B. Hughes, Esq., of Counsel
Alex M. Neurohr, Esq., of Counsel
|Defendant's attorney:||HON. BARBARA D. UNDERWOOD
New York State Attorney General
BY: Timothy J. Flynn, Esq.
Assistant Attorney General
|Third-party defendant's attorney:|
|Signature date:||June 8, 2018|
|See also (multicaptioned case)|
Claimant Homestead Repair & Renovation Inc. filed this claim on May 2, 2013 in which it alleges that it purchased a workers compensation insurance policy, policy no. B 976478-8, with defendant New York State Insurance Fund. On November 2, 2012, the defendant conducted an insurance premium audit and concluded that certain independent contractors retained by claimant were, in fact, classified as employees. The defendant charged claimant the additional workers compensation insurance premium, which claimant paid. The claim alleges that defendant breached its contract with claimant and seeks to recoup $12,900.67 in additional premiums paid to defendant plus interest, attorneys fees and litigation costs. Claimant alleges that the money damages sought in this claim represent the total workers compensation insurance premium payments made by claimant for outside labor and subcontractors that were added by defendant to claimant's payroll to calculate its audited workers compensation premium. The accrual date of this claim is alleged to be November 2, 2012. The defendant filed its answer on June 7, 2013, denying the allegations in the claim and asserted numerous affirmative defenses.
On April 13, 2017, claimant filed an amended claim in which it asserted that several subsequent insurance premium audits were conducted and that claimant was seeking to recover additional money damages for similar determinations where additional workers compensation insurance premiums were charged for outside labor and subcontractors added to claimant's payroll by defendant to calculate its audited workers compensation premium. The defendant filed a motion to dismiss in lieu of an answer to the amended claim, M-90738, pursuant to Court of Claims Act §§ 9, 10 and 11, CPLR 3211 (a) (2, 7 and 8) and Uniform Rules for the Court of Claims § 206.7 (a). Claimant filed a cross-motion, CM-90873, seeking leave to amend the claim pursuant to CPLR 3025. This Court's decision dated October 3, 2017 granted defendant's motion and denied the cross-motion, dismissing the amended claim as it would have impermissibly expanded the original claim and because the new causes of action were not timely asserted and were jurisdictionally defective.
The claimant now brings a motion for summary judgment on its original claim pursuant to CPLR § 3212. The defendant opposes that motion and has brought a cross-motion for summary judgment pursuant to CPLR § 3212. Claimant opposes defendant's cross-motion.
The Court of Claims has exclusive jurisdiction for claims against the State of New York and its agencies for breach of contract (Court of Claims Act § 9 ). Claimant contends that its cause of action is one for breach of contract for money had and received and for recoupment. Specifically, the claimant seeks money damages already paid to defendant totaling $12,900.67, representing the total workers compensation insurance premium charged to it by the State Insurance Fund (SIF) following an audit. The SIF contends that the claim is not one for breach of contract but rather that claimant seeks to overturn the SIF's November 12, 2012 determination that certain "outside labor/subcontractors should be added to Claimant's payroll for workers compensation insurance purposes."(1) As such, the SIF contends that New York State Supreme Court has exclusive jurisdiction to review whether the actions of state officials were "in violation of lawful procedure, [were] affected by an error of law or [were] arbitrary and capricious or an abuse of discretion" (see CPLR Article 78, CPLR §§ 7803  and 7804 [b]).
In order to determine whether the Court of Claims has subject matter jurisdiction, there are two issues that must be determined (City of New York v State of New York, 46 AD3d 1168 [3d Dept 2007], citing Psaty v Duryea, 306 NY 413, 416-417 ). The first issue is "[w]hether the essential nature of the claim is to recover money, or whether the monetary relief is incidental to the primary claim" (Buonanotte v New York State Off. of Alcoholism and Substance Abuse Servs., 60 NY3d 1142 , lv denied 12 NY3d 712 ; citing Madura v State of New York, 12 AD3d 759, 760 [3d Dept 2004], lv denied 4 NY3d 704 ; quoting Matter of Gross v Perales, 72 NY2d 231, 236 ). In this regard, "[w]hen the damage allegedly sustained arises from a breach of the contract by a public official or governmental body, then the claim must be resolved through the application of traditional rules of contract law" (Safety Group No. 194P New York State Sheet Metal Roofing & A.C. Contrs. Assn. v. State of New York, 298 AD2d 785, 786 [3d Dept 2002], citing Abiele Contr. v New York City School Constr. Auth., 91 NY2d 1, 7-8 ). The second issue to be resolved, regardless of how the cause of action is framed, is whether the claim would require the court to review an administrative agency's determination. If the answer is in the affirmative, the Court of Claims has no subject matter jurisdiction to hear the claim and a review of that determination must be brought in Supreme Court as a CPLR Article 78 proceeding (City of New York, supra at 1169).
In the present claim, the issue is whether the monetary damages sought to be recovered by claimant are based upon a breach of contract or only incidental to the issue of the SIF's determination pursuant to the Workers Compensation Law and Article 25-b of the New York Labor Law § 861.(2) In its most basic terms, the claim alleges breach of contract and seeks to recoup an alleged overpayment of workers compensation premiums. Although the SIF argues that to recognize a contract claim would necessarily require the court to review their administrative determination of premiums due, claims for recoupment of premium overpayments have previously been held to state a viable claim for breach of contract that are properly brought before the Court of Claims (Matter of DiPietro v State Ins. Fund, 206 AD2d 211 [4th Dept 1994]; Dennis Fink Trucking v State of New York, 264 AD2d 582 [1st Dept 1999]; see Commissioners of State Ins. Fund v Trio Asbestos Removal Corp., 9 AD3d 343, 345 [2d Dept 2004]; Family & Educational Consultants v State Insurance Fund, UID No. 2017-038-512, [Ct Cl, DeBow, J., Feb. 10, 2017]). Accordingly, the Court concludes that the primary claim sought by claimant is recoupment of an alleged overpayment of premiums arising from its workers compensation insurance policy with the SIF, which is properly brought in the Court of Claims.
As to the motions brought by the parties, summary judgment is a drastic remedy which should only be granted when the moving party establishes that there are no triable issues of fact (Vega v Restani Constr. Corp., 18 NY3d 499 ). The proponent of such a motion must present facts in evidentiary form sufficient to establish its right to judgment as a matter of law (Alvarez v Prospect Hosp., 68 NY2d 320 ; Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 ). If the proponent of the motion fails to make a prima facie showing of entitlement to summary judgment, the motion must be denied regardless of the sufficiency of the opposing papers (Alvarez v Prospect Hosp., supra at 324). In deciding a summary judgment motion, the court must view the evidence in a light most favorable to the non-moving party (Black v Kohl's Dept. Stores, Inc., 80 AD3d 958 [3d Dept 2011]).
In first addressing claimant's motion, it is alleged that there is no genuine dispute as to any material fact, alleging that the additional premium charged for "outside labor/subcontractors" was based upon Workers Compensation Law § 56 (WCL 56), and that claimant is exempt from liability for coverage as it is not a "contractor" within the meaning of WCL 56. This statute provides, in relevant part that:
A contractor, the subject of whose contract is, involves or includes a hazardous employment, who subcontracts all or any part of such contract shall, in any case of injury or death to any employee, arising out of and in the course of such hazardous employment, be liable for and pay compensation to such employee or persons entitled to compensation on the death of such employee, and in any such case of injury or death where the employer of such employee would be required to make payments into the special funds provided by subdivisions eight and nine of section fifteen and subdivision three of section twenty-five-a, the contractor or, if insured, his insurance carrier shall be liable for and pay into such special funds the amounts required by such subdivisions eight and nine of section fifteen and subdivision three of section twenty-five-a to be paid by such employer; unless the subcontractor primarily liable for such compensation or payments into such special funds has secured compensation therefor as provided in this chapter.
Workers Compensation Law § 3 (WCL 3) provides that a contractor is liable for payment of compensation benefits for injuries to employees of its subcontractor when the subcontractor has not secured the required coverage, and such injury arises out of and in the course of a hazardous employment. It has been held, however, that there is an exception to WCL 56 and that this occurs when an owner directly contracts with a subcontractor to perform work. As stated in the Practice Commentaries to WCL 56, "[i]f one owns property and hires someone to build on it, the owner is not considered a general contractor. Therefore the owner would not be held liable under this section for any compensation awarded the injured employee" (see Practice Commentaries to WCL 56).
Claimant contracts directly with the laborers retained to perform work on the rental properties that are owned by Corey J. Hogan (Hogan), who is the sole shareholder of claimant. Claimant argues that since Hogan is the sole shareholder, he is, in effect, contracting directly with the contractors to perform work on properties he owns and is entitled to the exception provided by WCL 3.
In opposition, the SIF contends that a corporation is considered a separate and distinct legal entity apart from its shareholder. As such, the exception provided by WCL 3 cannot apply where claimant is the entity who contracts with the individual laborers. Hogan states in his affidavit in support of this motion that claimant is an S-corporation, wholly owned by him and its business purpose is to refurbish and renovate properties owned personally by him (Affidavit of Corey J. Hogan at paragraphs 3 and 4). The deeds to the various properties, attached to claimant's motion papers as Exhibit A all indicate that claimant is not the title owner of any of the rental properties. In his deposition, Hogan agreed that claimant's business is to maintain, renovate, repair and perform construction work on the properties that are owned by him personally. He also testified that claimant's employees perform about 95% of this work and that on occasion claimant hires other laborers to perform work. Hogan also acknowledged in his deposition that claimant is a "separate corporation."(3)
Claimant cannot selectively choose when it wishes the legal recognition and protections that the corporate form permits and when it would prefer to remove its corporate identity so as to benefit its sole shareholder, Mr. Hogan. The Court finds that claimant is a corporation that is recognized by law as a separate legal entity and as it directly contracted with individuals to perform construction activities on properties owned individually by Hogan, the exception provided by WCL 3 is not applicable. Claimant has offered no legal authority to support its contention that a corporation with a sole shareholder who owns property is equivalent to or "one and the same" as that owner for purposes of determining workers compensation insurance coverage. The cases cited by claimant in support of its motion all set forth the general proposition that "an owner of property who contracts directly with others to perform work for the owner, the owner is not a contractor within the meaning of Workers Compensation Law § 56" (Matter of Griffin v New York State Dept. of Commerce, 141 AD2d 961, 962 [3d Dept 1988], emphasis added). The key phrase is "who contracts directly" and as Hogan did not contract directly with the individuals, claimant is a contractor within the meaning of WCL 56. As claimant's contention in support of its motion for summary judgment is based entirely upon this premise, its argument fails and its motion is denied.
In support of its cross-motion for summary judgment, the SIF contends that the applicable statute to apply to the claim is Article 25-b of Labor Law § 861, which is also known as the New York Construction Fair Play Act (FPA). The FPA was enacted in 2010 to address a workers compensation insurance issue pertaining to the misclassification of contractor employees. The Legislature determined that employers were intentionally reporting some employees as independent contractors or keeping them off their books altogether, instead of listing them as employees for workers' compensation coverage purposes. By doing so, the Legislature concluded that this gave those contractors an unfair competitive advantage over contractors who properly reported and paid workers compensation insurance premiums for their employees. Thus, the FPA requires that any person who works for a contractor is to be deemed an employee unless that person is a separate "business entity"(4) and meets the defined criteria set forth in the statute of an independent contractor(5) . In its notice of motion for summary judgment, claimant does not address the FPA and states only that it is not a "contractor" within the meaning of WCL 56. In its reply affirmation, claimant contends that it cannot be considered a "contractor" within the meaning of the FPA, again arguing that since claimant is an S-corporation and Hogan is the sole shareholder, officer and member of claimant's board of directors, that claimant and Hogan are effectively "one and the same." The FPA defines the term "contractor" as "any sole proprietor, partnership, firm, corporation, limited liability company, association or other legal entity permitted by law to do business within the state who engages in construction as defined in this article" (Labor Law § 861-b ). It defines the term "construction" as constructing, reconstructing, altering, maintaining, moving, rehabilitating, repairing, renovating or demolition of any building, structure, or improvement, or relating to the excavation of or other development or improvement to land (Labor Law § 861-b ).
In opposition, claimant contends that the same case law holding that an owner who contracts with an independent contractor for construction of his own property is not a contractor within the meaning of WCL 56 applies and exempts claimant from having to comply with the requirements of the FPA.(6) Ronald Reed, Business Manager of the SIF's Buffalo office testified at his deposition that a one member limited liability corporation (LLC) is treated the same as a sole proprietor in that so long as the LLC has no more than two members and there are no employees, there is no legal requirement to obtain workers compensation coverage.(7) However, that is not the legal ownership that we have in the present claim. The policy holder with the SIF is claimant, not Hogan. Hogan is the owner of the properties that are insured in the workers compensation policy, not claimant. Claimant was established for the purpose of refurbishing and renovating properties owned by Hogan. Claimant handles the payroll for laborers working on properties owned by Hogan.(8) It does not matter that Hogan is the sole shareholder, officer and member of the board of directors as claimant is a separate legal entity and the party who retained individuals to perform construction work upon properties owned not by claimant but by Hogan. The Court agrees that the SIF has established that the FPA applies to the facts of this claim, that claimant meets the definition of a contractor, and that the work that was performed on the properties owned personally by Hogan meets the definition of construction.
Once a moving party has made a prima facie showing of its entitlement to summary judgment, the burden falls upon the opposing party to show, also by evidentiary proof in admissible form, that there is a material issue of fact requiring a trial of the matter (Alvarez, supra at 324). "[M]ere conclusory statements, expressions of hope, or unsubstantiated assertions are insufficient" for this purpose (Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 967 , citing Zuckerman v. City of New York, 49 NY2d 557, 562 ). Viewing the evidence in a light most favorable to claimant, the Court finds as a matter of law that claimant has failed to establish a viable question of fact that any of the individuals it retained to perform work on these properties would meet the criteria of a "business entity" and an "independent contractor" as defined by the FPA and thereby be exempt from workers compensation insurance coverage. In that claimant has failed to establish that an issue of fact remains warranting a trial of this matter, its breach of contract claim must be dismissed. Accordingly, it is hereby
ORDERED, that claimant's motion for summary judgment, number M-91759 is denied; and it is further
ORDERED, that the SIF's cross-motion for summary judgment, motion CM-92125 is granted and the claim is hereby dismissed.
June 8, 2018
Buffalo, New York
J. DAVID SAMPSON
Judge of the Court of Claims
The following were read and considered:
1. Notice of motion of Thomas B. Hughes, Esq., dated January 31, 2018 with annexed Exhibits A-C;
2. Cross-motion of Assistant Attorney General Timothy J. Flynn, Esq., dated April 10, 2018 with annexed Exhibits A-D;
3. Reply affirmation of Alex M. Neurohr, Esq., dated April 13, 2018 with annexed Exhibit A; and
4. Reply affidavit of Assistant Attorney General Timothy J. Flynn, Esq., sworn to April 17, 2018.
1. Exhibit A to Cross-Motion, the Claim at paragraph 4.
2. Article 25-b of the New York Labor Law § 861 is also known as and referred to in the motion papers as the New York Construction Industry Fair Play Act (FPA).
3. Examination before trial of Corey J. Hogan, Exhibit C to the SIF's notice of motion for summary judgment at pp. 21-27
4. In order to meet the criteria to be a "business entity", the FPA requires that the business entity meet twelve criteria, which include that (1) the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result; (2) the business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor; (3) the business entity has a substantial investment of capital in the business entity beyond ordinary tools and equipment and a personal vehicle; (4) the business entity owns the capital goods and gains the profits and bears the losses of the business entity; (5) the business entity makes its services available to the general public or the business community on a continuing basis; (6) the business entity includes services rendered on a Federal Income Tax Schedule as an independent business or profession; (7) the business entity performs services for the contractor under the business entity's name; (8) when the services being provided require a license or permit, the business entity obtains and pays for the license or permit in the business entity's name; (9) the business entity furnishes the tools and equipment necessary to provide the service; (10) if necessary, the business entity hires its own employees without contractor approval. Pays the employees without reimbursement from the contractor and reports the employees' income to the Internal Revenue Service; (11) the contractor does not represent the business entity as an employee of the contractor to its customers'; and (12) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.
5. In order to be designated an "independent contractor", the FPA requires that it be established that (1) the individual is free from control and direction in performing the job, both under his or her contract and in fact;
(2) the service must be performed outside the usual course of business for which the service is performed; and(3) the individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
6. Reply Affirmation of Alex M. Neurohr, Esq., at paragraphs 20 through 24.
7. Claimant's Notice of Motion for Summary Judgment at Exhibit B, pp. 6, 12-14.
8. Reply Affirmation of Alex M. Neurohr, Esq., at paragraphs 22 and 23.