Oriska Insurance v. Power P.E.O., Inc.

Citations: 317 F. Supp. 2d 161; 2004 U.S. Dist. LEXIS 7931; 2004 WL 985063Docket: 5:03-CV-01481

Court: District Court, N.D. New York; April 28, 2004; Federal District Court

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Oriska Insurance Company issued a workers' compensation insurance policy to U.S. Management, Inc., a labor contractor. An agreement later added The Power P.E.O. Inc. as an additional insured under this policy. Plaintiffs allege that Power misrepresented its ability to issue and bind workers' compensation policies under its agreement with Oriska, claiming a violation of the Lanham Act. Defendants have moved to transfer the case to the U.S. District Court for the Central District of California, a motion opposed by the plaintiffs.

Oriska, based in Oriskany, New York, is authorized to conduct workers' compensation business in New York. U.S. Management operates out of Brooklyn, New York. Power, incorporated in New York, Arizona, and California, provides payroll and administrative services, including workers' compensation coverage, to its clients. Following an agreement in June 2002, Power was added as an additional insured, leading Oriska to assume responsibility for workers' compensation claims of Power's clients, mainly in California.

Power provided payroll information and remitted premiums to Oriska monthly, initially resulting in U.S. Management issuing approximately 80 certificates of insurance to Power's California clients. Oriska later took over this function, issuing between 200-400 certificates. However, Oriska alleges that Power issued additional certificates without authorization, despite receiving written guidelines prohibiting this. Additionally, a Third Party Administrator, Stuart Baron, was appointed to handle claims adjusting and administrative tasks. On April 1, 2003, the California Department of Insurance issued a Cease and Desist Order against both Oriska and Power, prohibiting them from marketing or selling new or renewal workers' compensation policies.

Oriska, licensed for workers' compensation policies in New York, was found to be unlicensed in California, violating California Labor Code § 3700, which mandates that employers obtain insurance from authorized insurers. A Cease and Desist Order issued on May 1, 2003, prohibited Oriska and Power from selling or collecting premiums for new or renewal policies but did not relieve them of the obligation to pay claims from policies effective before the expiration date. On December 23, 2003, it was communicated that Oriska could not pay claims and would transfer responsibility to the State of California's Uninsured Employers Fund. Subsequently, on January 13, 2004, Oriska and U.S. Management filed a complaint under the Lanham Act, alleging that Power misrepresented its authority to issue and manage workers' compensation insurance, misleading insureds and potential insureds. The plaintiffs seek a declaration that Power lacked authority to bind coverage and demand payment for claims related to certificates issued by Power. In response, defendants requested a transfer of venue to the U.S. District Court, Central District of California, citing convenience for witnesses and the predominance of communications occurring in California, as well as the residency of most defendants. The decision to transfer under 28 U.S.C. § 1404(a) considers various factors, including the convenience of witnesses, access to evidence, and the forum's familiarity with applicable law, with the plaintiff's chosen forum being dominant unless strong reasons favor the transfer.

The defendant bears the burden of establishing a strong case for transferring the venue of the case. The convenience of witnesses is deemed the most critical factor in determining the appropriateness of transfer. Defendants argue that all ninety-five small business owner defendants and the injured employees are based in California, along with key witnesses, including the Administrator and representatives from the California Department of Insurance. However, the case focuses on the contractual relationship and potential misrepresentations between the parties, rather than the relationship with claimants who did not receive benefits. The reliance on California witnesses is misplaced since evidence regarding the contractual relationship can be presented without their physical presence, diminishing the significance of their convenience in New York.

Regarding the location of documents, defendants assert that relevant records are in California, but this factor is neutral due to modern communication methods that facilitate the transfer of documents. Since the contract was directly negotiated between Oriska and Power in New York, essential discovery materials are likely housed in New York, further negating the argument for transfer.

The convenience of the parties is also a point of contention, as the defendants highlight the California location of the ninety-five witnesses. However, since Oriska and U.S. Management are based in New York, their convenience, along with Power's, takes precedence, indicating no support for transfer.

Lastly, concerning the locus of operative facts, while defendants claim that transactions occurred in California, the critical contract negotiations and agreement formation took place in New York. The involvement of the Administrator in discussions in New York further undermines the defendants' stance, as they have not sufficiently demonstrated that this factor favors a transfer to California.

The availability of process to compel unwilling witnesses supports the plaintiffs' forum choice, as defendants argue New York cannot compel their attendance since the injured workers have not been to New York. Their testimony would only confirm the existence of insurance policies, not the contractual relationship regarding certificates of insurance, indicating that transfer is unwarranted. 

Regarding the relative means of the parties, while this factor can influence venue decisions, there is no evidence of disparity that favors a transfer to California. The case, primarily revolving around the Lanham Act, will assess whether Power was authorized to sell insurance and made misrepresentations, matters equally manageable by a federal court in New York, thus not supporting a transfer.

The plaintiffs' selected forum typically holds significant weight, especially given the established connection to New York as the locus of operative facts, which leads to deferring to the plaintiffs' choice. 

In terms of trial efficiency and justice, defendants argue that plaintiffs can better handle litigation costs in California, where a Cease and Desist Order has been issued. However, since injured workers will not influence the contractual issues at stake, their financial situation is irrelevant. The core issue concerns Power's alleged misrepresentations in its New York-negotiated contract with Oriska, making transfer to California unnecessary for justice or efficiency.

In conclusion, defendants have not substantiated any argument favoring a transfer to California, resulting in a denial of their motion for venue transfer, with a deadline set for filing answers or motions to the amended complaint by May 14, 2004.