In October 2006, the Attorney General of New York State commenced an enforcement action against Coventry First LLC and its parent corporation, executive vice-president and an affiliate (collectively, Coventry First). The complaint alleged that the defendants, life settlement providers, engaged in bid-rigging by paying substantial concealed commissions to life settlement brokers who, in return, persuaded their clients to accept Coventry First’s offers rather than higher bids from rival life settlement providers. Included among the Attorney General’s six causes of action was a claim for inducement of breach of fiduciary duty. Coventry First responded by filing a motion to dismiss for failure to state a cause of action and a motion to compel arbitration, both of which were denied by the New York Supreme Court. Upon Coventry First’s appeal, the appellate division affirmed the lower court’s ruling but granted leave to appeal to the court of appeals. On June 30, the New York Court of Appeals, affirming the appellate division’s decision, issued a ruling stating that: (i) the arbitration agreements between the defendants and their alleged victims does not bar the Attorney General from pursuing victim-specific judicial relief in his enforcement action; and (ii) the Attorney General sufficiently pleaded Coventry First’s knowledge of the life insurance brokers’ fiduciary duties to withstand the motion to dismiss.
In its motion to compel arbitration, Coventry First had argued that because the Attorney General was suing on behalf of policy sellers who contracted with Coventry First, he was bound by their contractual obligation to arbitrate. The Court stated, “the Attorney General should not be limited, in his duty to protect the public interest, by an arbitration agreement he did not join. Such an arrangement between private parties cannot alter the Attorney General’s statutory role or the remedies that he is empowered to seek.” The Court also denied Coventry First’s motion to dismiss the inducement of breach of fiduciary duty claim. In doing so, the Court, for the purposes of deciding the motion, accepted as true the Attorney General’s statement that life settlement brokers hold themselves out as working to obtain the highest purchase price for their clients’ policies and found that “[t]hese allegations comport with the legal theory of fiduciary duty.” It then found that the Attorney General’s allegations also sufficiently stated a claim that defendants knew that the brokers’ conduct constituted a breach of fiduciary duty. The Court refuted Coventry First’s argument that it could not have had the requisite knowledge because the fiduciary duty on the part of life settlement brokers had not previously been announced by the New York courts, citing email messages between Coventry First executives which referred to the fiduciary duties of life settlement brokers. (People ex rel. Cuomo v. Coventry First, LLC, 2009 WL 1851007 (N.Y., June 30, 2009))