Zapin v. CBS Coverage Group, Inc.

(Sup. Ct. NY 6/12/2006)

We represented: Defendant Emek & Metro Partners, Inc.

Helen R. Freedman, J.

DECISION and ORDER

In this action, plaintiff Zapin, Endlich & Lombardo ("ZEL"), a licensed insurance broker/agent, sues defendant Metro Partners, Inc, ("Metro"), its former administrative and processing agent, claiming that Metro breached its contract to provide administrative and processing services for a period of at least four months. ZEL also claims that Metro owes it substantial premium commission funds for that period as well as a percentage of moneys collected from insurance premiums for previous and subsequent periods. ZEL also sues Sharon Emek, principal of Metro and CBS Coverage Group, Inc. ("CBS"). CBS is the entity into which Metro either merged or which became a successor-transferee of the bulk of Metro's business. CBS currently holds $146,043 representing commissions that ZEL produced before and after the merger that occurred on or about February 9, 2001.

In its Complaint, plaintiff alleges causes of action for breach of contract, moneys had and received, breach of fiduciary duty, and an accounting against Metro and CBS Coverage Group, Inc. The total amount sought is calculated to be the commissions on insurance sales of $1,004,691.00 plus additional commissions in an unknown amount. This Court dismissed plaintiff's fourth cause of action against Sharon Emek for tortious interference with the contract between ZEL and Metro, and that decision was affirmed on February 16, 2006.

Defendant Metro Partners, Inc. ("Metro") counterclaims against ZEL claiming ZEL owes it moneys; $31,000 for commissions due as of the date of ZEL's breach of contract terminating the parties' Insurance Service Center Agreement ("Agency Agreement") and $174,000 representing commissions collected by ZEL allegedly due to Metro after termination of the Agency Agreement. Defendant Emek also counterclaims for various moneys for leases and leased equipment that Sharon Emek and her prior brokerage entity, the Emek Group, had expended to settle lawsuits brought by equipment vendors against both Emek and ZEL before Metro came into existence. She also seeks half of the $32,000 she expended in attorneys fees incurred in connection with those lawsuits on the ground that she and Ira Zapin were both guarantors on the leases and both were sued individually. In addition, Metro seeks attorneys fees in connection with the current dispute pursuant to 12.1 of the Agency Agreement. After trial, Metro and Emek claimed that plaintiff owed it just over $147,000 in addition to the funds held in escrow by CBS.

This matter was tried non-jury before me over a substantial number of days in January and February 2006. The parties submitted trial and post trial briefs. It became an accounting matter which might well have been assigned to a referee. In December 1998, the ZEL and Metro (an entity created by a stock purchase agreement that subsumed the Emek Group) entered into an Insurance Service Center Agreement ("Agency Agreement") effective January 1, 1999. Prior to entry into this Agency Agreement, Ira Zapin, principal of plaintiff, and Sharon Emek, principal of Emek Group, conducted independent insurance brokerage businesses sharing the same space. Both the leases for equipment and furniture that they used were in the name of Emek Group and were personally guaranteed by Sharon Emek and Ira Zapin. They had worked together previously in several venues and had enjoyed a personal relationship as well. Both Mr. Zapin and Ms. Emek were "producers" to the extent that both were brokers who obtained customers for property and casualty insurance companies.

The Agency Agreement, effective January 1, 1999, provided that Metro would provide administrative and processing services for ZEL including preparation of billings and collections, ratings and marketing services, acceptance, processing and settlement of claim notices and other usual and customary administrative services for ZEL. ZEL in turn, would be entitled to a percentage of the commissions received from its business in accordance with schedules appended. For the bulk of commissions, ZEL would be entitled to 40%-the percentage applicable to policies with a gross commission of between $200 and $999. ZEL would receive 45% for those between $1000 and $4,999 and 50% for policies with a gross commission of between $5,000 and $12,499. Other provisions required ZEL to terminate any direct relationship with insurance companies and transfer and assign to Metro all agency agreements with each insurance company which the Agent (ZEL) represented (Section 5.2 et seq.).

Ira Zapin also signed a letter, as president of ZEL, dated December 30, 1998, confirming that Zapin, Endlich & Lombardo was indebted to Metro for the sum of $152,111 as of November 30, 1998, and for additional expenses incurred from November 30, 1998 through December 31, 1998 in an amount to be determined consistent with prior allocation practices for services rendered to ZEL by Metro and its wholly owned subsidiary, The Emek Group, Inc. That Letter Agreement also stated that Metro would deduct twenty percent for the first three months and 10 percent thereafter from commissions due ZEL until the indebtedness "is paid in full." It also provided that "ZEL hereby assigns and transfers to Metro all of its right, title and interest in and to any and all profit commissions… and agrees to pay over such commissions to Metro immediately upon receipt by ZEL." The Agency Agreement provided that either party could terminate the relationship on 180 days notice. Zapin gave notice to Metro on December 28, 2000 that Metro was not performing and therefore ZEL was terminating the agreement, but it appears that Metro dissolved in or about February 9, 2001, official notice having been given on January 23, 2001, when it merged with CBS. Because of the circumstances of the break-up, neither party actually breached the termination provisions of the Agreement or can be held accountable for a breach.

Although Metro's claim that ZEL breached one or the other of the Agreements by not signing a commingling agreement that would have facilitated payment of all commission moneys that Zapin received into Metro accounts until June of 1999 has some validity, the issues of who, if either breached the Agency Agreement is subordinate to the main accounting claims that consumed most of the time. Similarly, the parties did not clearly demonstrate alleged breaches of the various accounting provisions of the agreements. Thus the only real issue is who owes what to whom.

Ira Zapin, Robert A. Vigna, ZEL's accountant for the purposes of this action, Sharon Emek, Sherise Ritter, Sharon Emek's and Metro Partners Inc.'s accountant, Warren Russo, another producer serviced by Metro, and Frank Sentner, Chief Information Officer at Metro and the developer of the Sagitta accounting system used independently by Zapin and Emek prior to the formation of Metro Partners Inc., all testified at trial. When the commingling agreement was signed in June 1999, all of the Metro receipts were merged into a single Sagitta system.

Testimony disclosed that Mr. Vigna and Ms. Ritter met at Ms. Emek's office on March 3, 2004 and agreed that as of June 1999 ZEL or Zapin owed Metro $221,281. This reflected the $152,116 that Zapin owed at the commencement of the Agreement plus an additional $35,771.05 for December 1998 expenses as provided for in the letter agreement. Although Mr. Zapin initially denied owing the $35,771.05 at trial he acknowledged that he owed at least $28,000 for those services and was unable to justify any discount. The additional moneys owed reflected commission funds received by Zapin but not paid over to Metro during the first six months. This sum also accounted for commission payments from Metro to ZEL as provided for in the Agency Agreement and deductions taken pursuant to the Agency Agreement.

Plaintiff initially claimed that he received no commission payments from September of 2000 through February 9, 2001. However, cancelled checks produced at trial and testimony of by Sherise Ritter and Sharon Emek made it clear that Mr. Zapin did receive commissions up until November 2000. ZEL contends that the November payment was for October, but in fact there were two November payments. Although the Sagitta system showed that an $11,976 check was paid to him in December representing November commissions, defendants have conceded that there is no record of that check having been received or cashed. Plaintiff now claims that he should be paid the full amount of commissions rather than the 40% provided in the Agreement because he claimed that Metro ceased performing services as of September 2000. However, he was unable to substantiate any service failure up to the end of January of 2001. His only evidence was what someone told him in December that he would have to handle correspondence in January, and that he hired one or two Metro employees part time to handle some work during January. Mr. Zapin's cousin, Warren Russo, another producer, testified that Metro continued servicing producers until it actually closed its doors. Moreover, ZEL could not document any attempt to either terminate the Agency Agreement or substitute a service provider prior to the end of December of 2000. All of the records showed that Metro continued performing services for all producers including Mr. Zapin until it closed its doors on February 9, 2001.

Emek Counterclaims

Sharon Emek's individual counterclaim is for payments that she made to settle law suits against Emek Group and ZEL for furniture and equipment leases in their previous shared quarters. Plaintiff conceded that Sharon Emek settled and paid settlement sums on two law suits brought against her and Ira Zapin for unpaid installments on furniture and equipment leases and rentals for the years preceding the formation of Metro Partners. Both Zapin and Emek were individual guarantors on the leases and thus liable for moneys due. Emek hired and paid attorneys who settled those cases. Her counterclaim legitimately includes a request for half the money paid to settle the claims. That sum is $27,000 without paying any part of the legal fees. While her expenditure of $32,000 to attorneys to settle the cases for a total of $54,000 exceeds reasonable value, Zapin is liable for a portion of those fees. Upon finding that a fee of $16,000 is fair and reasonable, Zapin's or ZEL?s share for legal fees is $8000. Thus, Zapin owes Emek $35,000 in total for expenses relating to the furniture and equipment leases and rentals. Although plaintiff argues in his post trial brief that the $152,111 debt set forth in the December 1998 letter may have included the moneys owed to Emek Group for the lease equipment, neither Zapin nor anyone else so testified at trial.

Remaining Claims

The parties both claim that they are owed moneys that were not accounted for in the June 1999 determination made by their accountants for the period between the beginning of Metro and June 30, 1999. However, the commission moneys collected and disbursed during that period are difficult to track; some of the moneys Zapin or ZEL received may have gone directly into the ZEL account rather than to Metro because Mr. Zapin failed to sign the co-mingling agreement that the parties had agreed to pursuant to the December 1998 letter until June 1999. Ms. Emek and Ms. Ritter produced some evidence that certain commissions totaling $65,015 were wired directly into ZEL's or Zapin's account in March and April 1999 for which he did not provide Metro with supporting documentation. Metro also claims that deductions from commissions were taken by insurance companies for policies that had been canceled prior to January 1999 (before Metro became ZEL's agent) and that Metro should not have had to bear those subtractions. The total amount Metro claims due from these deductions and direct deposits is $18,233. Zapin denied not giving Metro moneys due after January of 1999, averring that moneys that came in had been earned before Metro began servicing ZEL. He also disputes the deductions. The parties do, however, agree that ZEL gets 100% of commissions for policies written prior to January 1, 1999, and the 40% begins on policies written prior to January 1, 1999 or thereafter. I find that Metro has not sustained its burden of proof as to the $18,233 and therefore reject Metro's claim that as of June 1999 Metro was owed $239,514 rather than the agreed upon amount of $221,281. Similarly, ZEL has not sustained its burden that during the January-June transition period it was owed about $8000 for commission payments made by Atlantic, CGU, Travelers and Chubb directly to Metro for which no portion was remitted to ZEL. While ZEL produced some documents indicating receipt of this money there was no showing that this amount was not credited to ZEL's accounts. Finally, direct receipt of the $65,015 is also disputed and not sufficiently documented to increase ZEL's debt from the agreed upon $221,281.

Having already determined that ZEL was no more than $221,281 in arrears as of June 30, 1999 (not counting the $35,000 owed for leases and attorneys fees), the allocation of funds from commissions obtained after June 30, 1999, will now be considered. The undisputed evidence shows that Metro received $447,454 in producer commissions from ZEL's clients between July 1, 1999 and February 9, 2001, and that $ 229,579 minus the $11,976.46 (from the uncashed December 2000 check) were paid to him. That leaves $229,851 paid out but $221,281 owing from the first six months. In addition, Metro and Emek have established that during the period following June 1999, $2,797 was wired to Zapin's account and not posted to Metro and that Zapin's bank statements disclose shelter $24,274 that Mr. Zapin collected but was not posted to Metro. Metro established that ZEL was given his portion of the commission for that money but Metro never actually received the commission funds. The same applies to the $2,797 which is the sum of serial checks directly wired into Zapin's accounts ($1,576.17, $534.37 and $726.48). Based on the above, I find that as of February 9, 2001 ZEL owed Metro $18,401 as opposed to the $101,649 that Metro claims for commissions due on premiums and commissions paid.

The next item Metro claims is the Aged Accounts Receivables and earned premiums. According to defendants and as set forth in their reports, commissions were due on $442,224 of premiums that went not collected from insureds, but for which the producer and agent were responsible. An earned premium of $46,202 is subtracted from the premiums due leaving $396,022, the commission portion of what was due was $28,514. Adding that to $46,202 that Metro claims it paid for premiums but received no reimbursement, defendant claims that a total of $74,816 is due for Aged Accounts Receivable. However, the argument for the full amount is unconvincing as to the latter part of the claim; therefore $28,514 will be awarded for Aged Accounts Receivable.

In addition, Metro claims it is owed $20,946 for direct-bill commissions representing 60% of commissions that were directly wired to ZEL as per an insurer receivable report and $4,005 for future accounts receivable for future installments paid on policies written as of February 9, 2001. The Court discounts the latter inasmuch as there is no evidence that those amounts were paid or that any services were provided for those installments. As for Direct bill commissions receivable per the insurer receivable report, it does appear that for policies written prior to February 9, 2001 New York Insurance Law holds that commissions on premiums are earned. Whether Metro is entitled to its full contractual percentage (60%) of the commissions is another matter in that it clearly did not provide any services past the beginning of February. In fact the January 23rd letter stated that "We have sent you copies of all your policies and files so that you can service your own accounts…" Moreover, ZEL had already hired counsel, Weltman and Moskowitz, LLP who had written a letter dated December 28, 2000 complaining about failures to process premium transfers. I will however, credit $15,000 to Metro. As for the amounts collected by CBS on direct bill premiums, it is not clear how much of the $118,157 collected was really attributable to policies placed before January 23 when Metro notified ZEL that it was ceasing to operate. For placements made after that date, ZEL is entitled to the full amount. For that reason, I allocate 30% rather than the full 60% to Metro, and ZEL is awarded $83,000 rather than $47,263 that Metro believes ZEL is entitled to from the $118,157 commission. The parties are in agreement as to the commissions that ZEL earned in 2002, 2003, and 2004, which total $17,986. Metro's request for $33,398 for interest is neither justified nor supported inasmuch as the December 1998 Agreement specifically provided that repayment of any outstanding debt would be made by means of deductions from commissions. By not making commission payments for November and December of 2000 and January and early February of 2001, most of plaintiff's debt was repaid.

Defendants claim that they are entitled to attorneys fees pursuant Section 12.1 of the Agency Agreement. Section 12 of the Agency Agreement is entitled "Indemnification" and 12.1 provides inter alia that:

From and after the date hereof… the Agent shall indemnify and hold harmless Metro… from and against any and alI damages, losses… or expenses of any kind… (including legal fees and other expenses reasonable [sic] incurred… or sustained by such protected Party… in connection with any claim, action, suit or legal proceeding… (1) by reason of Protected Party acting on behalf of the Agent or any of its affiliates, in connection with the provision of the services set forth herein, unless it is determined by a court of competent jurisdiction by final judgment that Protected Party acted with gross or willful misconduct; or (2) by reason of the Agent's conduct which constitutes (a) a breach of this Agreement, or (b) gross negligence or willful misconduct of the Agent, or its directors, officers, employees agents or affiliates.

Correspondingly, Section 12.2 provides that Metro will indemnify Zapin for broaches of contract or its gross negligence.

Defendant claims that it has shown that ZEL breached the Agency Agreement and that, based on the above cited provision, Metro is entitled to indemnification for the legal fees incurred in connection with defending the lawsuit and prosecuting the counterclaims. However, it is not clear that 12.1 or 12.2 under the section entitled Indemnification refers to legal fees incurred by the parties to the Agreement themselves suing each other. Moreover, Metro has not shown that plaintiff "breached this Agreement" by bringing a law suit that claimed it (ZEL) was owed funds. First, neither party was in a position to give the other party the 180 days notice required under the Agreement to terminate it. Second, Metro's termination letter to ZEL on January 23, 2001 sent in response to ZEL's counsel's letter requesting accountings and complaining about premium transfer failures, specifically stated:

"…As soon as possible after the closing of Metro on February 9th, you will receive a commission check for all commission's owed to you through the end of January… "

A subsequent letter, dated January 25, 2001 indicated that "Zapin is the owner of its accounts that are administered through Metro, and those accounts are fully portable by Zapin, subject only to a final accounting…." That letter stated that Metro would "not have the capability of continuing to administer the Zapin accounts much past January 31." There was no statement that ZEL had breached any contract at that point. The only claim of contract breach was contained in the Weltman and Moskowitz letter to Metro in behalf of ZEL, dated December 28, 2000.

Thus, I find that neither party acted either grossly negligent or breached the Agency Contract so as to warrant imposition of attorneys fees upon the other. Instead, what remains is an accounting and allocation of moneys held by CBS for the benefit of ZEL and Metro.

It is relevant to note that Plaintiff testified that his book of business was at a minimum of $330,000 a year representing his portion of commissions, but that in the preceding year or last year that Metro performed services he received just about $312,000. Based on prior practice it would seem that no substantial amount could be owed to him. However, based on the foregoing analysis, I find that the $146,043 held in escrow by CBS is allocated as follows:

Metro has established that it is entitled to $97,365 ($18,401, $28,514, $15,000, and $35,450) of the $146,043. CBS shall pay $48,678 to ZEL with interest from December 31, 2002, and the remainder of the $146,043 shall be paid or credited to Metro or CBS, after which CBS’ liability will be fully discharged. ZEL may enter judgment in that amount without costs. Emek shall have judgment against ZEL for $35,000 plus costs and disbursements and interest from January 1, 2003. That judgment shall be separate from ZEL's claim against the CBS funds and shall not be credited against liability of CBS or Metro to ZEL.

It is hereby

ORDERED that plaintiff shall have judgment against CBS and Metro in the sum of $48,678 plus interest from December 31, 2002; and it is further

ORDERED that defendant Emek shall have judgment against plaintiff the sum of $35,000 plus costs and interest from January 1, 2003; and it is further ORDERED that defendants Metro and CBS are entitled to the remainder of the funds held in escrow by CBS.

The foregoing constitutes the judgment of the Court.

Dated: June 5, 2006

Helen R. Freedman, J.S.C.