Altruis Group, LLC v. Prosight Specialty Management Company, Inc.

Background

Altruis Group, LLC provides services in the captive insurance market. The defendants are Prosight Specialty Management Company, New York Marine and General Insurance Company, and Gotham Insurance Company. The parties entered a Niche Management Agreement under which Altruis would provide services in exchange for a percentage of commissions.

The agreement addressed what would happen to specified intellectual property if the agreement ended. If either party terminated because of the other party’s material breach, the terminating party would retain its rights and interests in that intellectual property. If a party terminated in a way not contemplated by the agreement, the terminating party would transfer those rights and interests to the non-terminating party.

The complaint alleged that Prosight exited the captive insurance business in August 2021 and that the defendants later terminated the agreement based on an alleged material breach by Altruis. According to the complaint, the defendants did not identify a specific breach or give Altruis an opportunity to cure it. Altruis asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of New York General Business Law Section 349, and declaratory relief.

Legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. To survive the motion, the complaint had to allege enough facts to make relief reasonably plausible. For purposes of the motion, the court accepted the complaint’s factual allegations as true but did not have to accept legal conclusions or unsupported statements of the elements of a claim.

Implied covenant claim

The court held that the implied-covenant claim was based on the same facts as Altruis’s breach-of-contract claim. Both claims alleged that the defendants improperly terminated the agreement, failed to pay commissions, and failed to provide an opportunity to cure. Altruis also sought the same $2,310,000 in damages on both claims.

The court rejected Altruis’s argument that allegations of false pretenses and improper motives made the implied-covenant claim different. The court explained that a bad-faith breach remains a breach of contract when it is based on the same conduct. It also rejected the argument that requests for consequential and punitive damages saved the claim, concluding that the complaint did not adequately allege entitlement to those damages under New York law. The court dismissed the implied-covenant claim.

General Business Law Section 349 claim

Section 349 prohibits deceptive business practices. The court explained that a claim under this provision must allege consumer-oriented conduct that is materially misleading and has a broader effect on consumers generally. A private contract dispute between the parties ordinarily does not meet that requirement.

Altruis based its claim only on the defendants’ alleged bad-faith refusal to follow their obligations under the agreement. The court found that Altruis did not allege that the defendants engaged in similar conduct directed at consumers or had an established practice of doing so. Because the allegations concerned a dispute unique to the parties, the court dismissed the Section 349 claim.

Declaratory-relief claim

Altruis sought a declaration that the defendants materially breached the agreement and that Altruis retained rights and interests in the agreement’s intellectual property. The court declined to entertain that request because the breach-of-contract claim would necessarily resolve those issues.

The court reasoned that deciding whether the defendants improperly terminated the agreement would also determine which party held the intellectual-property rights under the agreement. If Altruis prevailed on the contract claim, the agreement’s termination provisions would govern the ownership consequences; if the fact-finder determined that the defendants terminated because of a material breach by Altruis, other provisions would govern. The court dismissed the declaratory-relief claim as serving no separate useful purpose.

Disposition

Judge Mary Kay Vyskocil granted the defendants’ partial motion to dismiss. The ruling dismissed the claims for breach of the implied covenant of good faith and fair dealing, violation of New York General Business Law Section 349, and declaratory relief. The opinion states that the breach-of-contract claim remained. The court did not state that the dismissed claims were dismissed with or without prejudice. The clerk was directed to terminate docket entry 30.