Barclay Damon
Barclay Damon

Legal Alert

Appellate Court Affirms Preliminary Injunction Against State’s Pursuit of Collection Efforts Against Former Self-Insurance Trust Members

The Appellate Division, Fourth Department issued its long-awaited decision in Riccelli Enterprises, Inc., et al., v. State of New York Workers’ Compensation Board, 2014 N.Y. App. Div. LEXIS 3091 (4th Dep’t May 2, 2014), rejecting the appeal by the Workers’ Compensation Board of the trial court’s searing decision criticizing the Board’s handling of the State’s Group Self Insured Trust (GSIT) Program, which it is now in charge of dismantling, on behalf of the very members it is pursuing. The unanimous appellate determination upheld the controversial 168-page decision, which chronicled the catastrophic failure of the of the State’s GSIT program that created and regulated the 60+ Trusts and created crippling liabilities for thousands of employer members that collectively have faced nearly a billion dollars of liabilities accumulated by the Trusts. The underlying decision by Supreme Court Justice Cherundolo (who subsequently retired from the bench) found Petitioner’s proffered evidence against the Board to be persuasive:

If proven as argued here, the Board’s own pervasive reckless behavior and nonfeasance in the approval and oversight of the Trust - and the Board’s attempts to thrust the disastrous consequences of that behavior onto petitioners/plaintiffs (who were, after all, good faith participants in a program they believed to be lawfully and competently formed and administered by the Board) - is the very definition of manifest injustice.

Riccelli Enterprises, Inc., et al., v. State of New York Workers’ Compensation Board, 2012 N.Y. Misc. LEXIS 2241, at *148 (Sup. Ct. Onondaga County Apr. 30, 2012).

Many employers have become insolvent due to the impacts of the collection efforts of the Board on behalf of the trusts, adding to the joint liability of the remaining members. Others have been required to sign settlement agreements for large payments that have had a similarly-crippling effect on their businesses and employees. Some of these employers have settled to avoid threatened judgments but have been required by the Board to sign controversial releases protecting the State from liability for the GSIT crisis and further releasing their claims against third parties (such as trust administrators ) as a condition of making payments to the trusts.

The Fourth Department decision upheld the lower court’s determination that the Petitioners are likely to succeed on some of their claims asserted against the Board. Members of other trusts are likely to seize upon the decision, which may be binding upon the State in important respects in other cases and have greater influence in this sprawling, decade-long litigation.

In its annual report to the Governor regarding the GSIT failures in December, 2013, the Chair of the Board reported that the Riccelli decision had been “compromised” by subsequent precedent. See http://www.wcb.ny.gov/content/main/TheBoard/December2013GSITReport.pdf. The Appellate Division’s hearty appellate affirmance is likely to give the epic decision renewed legal vigor in the litigation amid renewed efforts by members to seek legislative relief and could fuel interest in a formal investigation of the Board’s handling of the crisis and it’s aftermath, as requested by various trust member groups and members of the state legislature.

The decision comes on the heels of recent media coverage of the devastating impact of the State’s collection efforts against employers (see http://www.nydailynews.com/blogs/dailypolitics/sen-tony-avella-calls-state-workers-comp-board-protect-health-care-providers-blog-entry-1.1775657; http://www.scribd.com/doc/221433966/Avella-2c-Tony-WCB-DOH-4-30-13) and developing momentum toward a legislative resolution that will provide relief for the New York-based employers currently being pursued by the State in various industries, including health care, transportation, construction, manufacturing and other industries that employ many thousands of New York workers who could face layoffs as a result of the GSIT failures.

If you require further information or assistance regarding the information presented in this Legal Alert and its impact on your organization, please contact Linda J. Clark at (518) 429-4241 or lclark@hblaw.com.