Kernan et al v. New York State Department of Financial Services et al

Filing 102

MEMORANDUM & ORDER denying 84 Motion to Amend/Correct/Supplement; For the foregoing reasons, Plaintiffs' motions to supplement the record on appeal (Docket Entries 84 and 98) are DENIED. So Ordered by Judge Joanna Seybert on 9/29/2016. C/ECF (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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JAMES M. KERNAN, individually and on
behalf of all those independent
entrepreneurs, small and disadvantaged
business enterprises, suffering
serious, permanent and irreparable
economic and social injury and damage
as a result of actions by the
Defendants to limit the effectiveness
of Plaintiffs James M. Kernan, Oriska
Corporation and Oriska Insurance
Company to support the efforts of
independent entrepreneurs, small and
disadvantaged business enterprises to
create jobs for the disadvantaged which
can lead to rewarding careers providing
reliable and steady income and benefits
for their workers and their families,
ORISKA CORPORATION, and ORISKA
INSURANCE COMPANY,
Plaintiffs,
-againstNEW YORK STATE DEPARTMENT OF FINANCIAL
SERVICES f/k/a New York State Department
of Insurance; BENJAMIN M. LAWSKY,
Superintendent of the New York State
Department of Financial Services;
CHARLES “BUZZ” SAWYER, Assistant Chief
Investigator; JAMES MASTERSON,
Supervising Insurance Examiner, Property
Bureau; MICHAEL V. IMBRIANO, Principal
Insurance Examiner; EUGENE BENGER, Esq.,
Deputy General Counsel, Insurance; JON
G. ROTHBLATT, Esq., former Principal
Counsel; JEFFREY A. STONEHILL, Esq.,
Hearing Officer; HOWARD D. MILLS,
III, former Superintendent; the UNITED
STATES OF AMERICA, as their several
interests may appear; PAUL DEROBERTIS;
CHRISTINE GRALTON; JAMES HANSON;
BERTRAM A. HOROWITZ; BERTRAM HOROWITZ,
INC.; GLORIA HUBERMAN; THOMAS HURLEY;

MEMORANDUM & ORDER
13-CV-3196(JS)(ARL)

KEVIN McCARTY; SHEIK MOHAMED; ROBIN
WESCOTT, individually, and collectively,
alone and in concert with present and
former associates and other still
unidentified parties; ANDREW BORON,
Director of the Illinois Department of
Insurance; PATRICK HUGHES, Deputy
Director of the Illinois Office of the
Special Deputy; ILLINOIS DEPARTMENT OF
INSURANCE; ILLINOIS OFFICE OF THE
SPECIAL DEPUTY; and FLORIDA OFFICE
OF INSURANCE REGULATION,
Defendants.
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APPEARANCES
For Plaintiffs
James M. Kernan:
Daniel L. Hitzke, Esq.
Hitzke & Associates
100 Oceangate, Suite 1100
Long Beach, CA 90802
Oriska Corp. and
Oriska Ins. Co.:

Daniel L. Hitzke, Esq.
Hitzke & Associates
100 Oceangate, Suite 1100
Long Beach, CA 90802
Antonio Faga, Esq.
7955 Airport Rd. N. 202
Naples, FL 34109

For Defendants
New York State
Defendants:

Federal Defendants:

Ralph Pernick, Esq.
New York State Attorney General
200 Old Country Road, Suite 240
Mineola, NY 11501
James Halleron Knapp, Esq.
Varuni Nelson, Esq.
United States Attorney’s Office
Eastern District of New York
610 Federal Plaza
Central Islip, NY 11722

2

Florida State
Defendants:

No Appearances

Illinois State
Defendants:

No Appearances

SEYBERT, District Judge:
Presently pending before the Court are plaintiffs James
M. Kernan (“Kernan”), Oriska Corporation, and Oriska Insurance
Company’s

(“OIC”

and,

collectively,

“Plaintiffs”)

motion

to

supplement the record on appeal (Docket Entry 84) and motion to
further supplement the record on appeal (Docket Entries 97 and
98).1

For the following reasons, Plaintiffs’ motions are DENIED.
BACKGROUND
The Court assumes familiarity with the underlying facts

of this case, which are set forth in the Court’s Memorandum and
Order dated July 15, 2015 (the “Order”).

(Order, Docket Entry

80.) As set forth more fully in the Order, Kernan owns and controls
OIC and Oriska Corporation.
guilty

to

violating

18

(Order at 4.)

U.S.C.

§

After Kernan pled

1033(e)(1)(B)--which

bars

individuals engaged in the insurance business from “willfully
permitting certain convicts from engaging in the business of
insurance”--Kernan

himself

business of insurance.

was

barred

(Order at 4.)

from

engaging

in

the

Kernan applied to the New

The Court construes Docket Entries 97 and 98, a declaration and
memorandum of law filed by Plaintiffs after briefing concluded
on Plaintiffs’ initial motion, as a second motion to supplement
the record on appeal.
1

3

York

State

Department

reinstatement,

but

DFS

of

Financial

found

that

Services

Kernan

had

(“DFS”)

for

demonstrated

untrustworthiness and ordered Kernan to divest of his holdings.
(Order at 5.)
Plaintiffs’ Amended Complaint in this action asserts
claims pursuant to 42 U.S.C. § 1983 and Title VII of the Civil
Rights Act of 1964 on behalf of a class of “‘minority, women,
veteran, disabled business enterprises and other disadvantaged
individuals’” who have been deprived of the ability to utilize
Plaintiffs’ insurance services; a Section 1983 conspiracy claim
regarding the restraints placed on Plaintiffs’ ability to practice
insurance; a challenge to the constitutionality of 18 U.S.C.
§ 1033(e)(1)(A) as applied to Kernan; and a challenge to DFS’s
determination of Kernan’s untrustworthiness pursuant to New York
Civil Practice Law and Rule Article 78.

(Order at 6; see also Am.

Compl., Docket Entry 62.)
Defendants

Eugene

Benger,

Esq.,

Paul

DeRobertis,

Christine Gralton, Bertram A. Horowitz, Bertram Horowitz, Inc.,
Gloria

Huberman,

Thomas

Hurley,

Michael

V.

Imbriano,

James

Masterson, Howard D. Mills, III, Sheik Mohamed, Jon G. Rothblatt,
Esq., Charles “Buzz” Sawyer, Jeffrey A. Stonehill, Benjamin M.
Lawsky, Superintendent of the New York State of Department of
Financial Services, and the New York State Department of Financial
Services (“DFS” and, collectively, the “State Defendants”) moved
4

to dismiss the Amended Complaint (the “State Defendants’ Motion”).
(St. Defs.’ Mot., Docket Entry 70.)

The Court’s Order dated July

15, 2015, granted the State Defendants’ motion and dismissed the
Amended Complaint with prejudice.

(Order at 3.)

The Order’s

background section notes that the facts were drawn from the Amended
Complaint
notice.”

and

“documents

of

(Order at 4 n.2.)

which

this

Court

takes

judicial

Particularly, the Court took judicial

notice of a superseding indictment in the matter of U.S. v. Kernan,
No.

08-CR-0061,

(N.D.N.Y.

Mar.

20,

2009)

(the

“Superseding

Indictment”), and noted that “[o]n March 20, 2009, Kernan pled
guilty to count twelve of a fifteen count superseding indictment
arising from his alleged involvement in a scheme to defraud several
professional employer organizations by misrepresenting that his
company,

OIC,

insurance.”

was

authorized

(Order at 4.)

filed on the docket.

to

write

workers

compensation

The Superseding Indictment was not

The Court also took judicial notice of a DFS

Final Determination and Order, state court petition, and state
court

decision,

all

of

which

were

filed

on

the

docket

in

conjunction with the underlying motion or an earlier motion to
dismiss filed by the State Defendants.

(Order at 4-5.)

The Court held that Oriska Corporation lacked standing
because it failed to allege a particular injury and derived its
claims from its ownership interest in OIC.

(Order at 8.)

The

Court also held that Plaintiffs lacked standing to assert their
5

claims on behalf of a class in light of their failure to establish
their membership in the putative class.

(Order at 9-11.)

With

respect to Plaintiffs’ conspiracy claim, the Court held that the
Amended Complaint failed to plausibly allege an agreement among
Defendants.

(Order at 14-16.)

Plaintiffs’

“as

interpretation

applied”
of

Additionally, the Court rejected

claim

Section

and

declined

1033(e)(1)(A),

to

credit

holding

their

that

“the

legislature intended the practice bar to apply to all individuals
convicted of an insurance-related crime, irrespective of whether
honesty or breach of trust was involved,” and the statute does not
“run[] afoul of any constitutional guarantee.”
(emphasis in original).)
supplemental

jurisdiction

(Order at 17-18

Finally, the Court declined to exercise
over

Plaintiffs’

Article

78

claim.2

(Order at 19.)
On August 15, 2015, Plaintiffs filed Notices of Appeal.
(See Docket Entries 82 and 83.)

On September 20, 2016, Plaintiffs

filed Amended Notices of Appeal indicating that they will not be
appealing the Court’s Article 78 claim.

(See Docket Entries 100

and 101.)
I.

Plaintiffs’ Motion
On December 16, 2015, Plaintiffs filed a motion to

supplement the record on appeal.

(Pls.’ Mot., Docket Entry 84.)

The Court sua sponte dismissed Plaintiffs’ claims against the
non-moving defendants. (Order at 19-20.)
2

6

Plaintiffs allege that the Order “relied upon and took judicial
notice of matters outside the allegations in the amended complaint
but did not reference or take into consideration full facts and
events regarding the matters on which judicial notice was taken.”
(Pls.’ Decl., Docket Entry 84-1, ¶ 2.)
that

they

“were

documentation

not

relative

given
to

the

Plaintiffs further allege

opportunity

[Kernan’s]

to

conviction

complete

the

such

the

as

Petition for Coram Nobis Relief, Docket No. 6:14-cv-1093 pending
in District Court for the Northern District of New York, Kernan v.
[DFS] Index No. 2015-2494, RJI No. 32-15-1125 pending in Supreme
Court Oneida County New York and Kernan v. New York State, Claim
No 126419 pending in the New York State Court of Claims[.]” (Pls.’
Decl. ¶ 3.) The State Defendants oppose Plaintiffs’ motion, noting
that the Order only took judicial notice of three documents that
“set

forth

proceedings.”

historical

information

concerning

the

underlying

(Defs.’ Opp., Docket Entry 93, at 2.)

Following a phone conference conducted by the Court on
January 11, 2016, (see Minute Entry, Docket 92), the parties filed
additional submissions regarding Plaintiffs’ motion.

Plaintiffs

withdrew their request to add certain documents to the appellate
record,

(Pls.’ Ltr., Docket Entry 94, at 3-4), and clarified that

they seek to supplement the record to include the following
documents: (1) documents regarding Kernan’s application for Coram
Nobis relief filed in the Northern District of New York; (2) an
7

Opinion of the State’s Office of General Counsel; (3) a Judgment
dated December 14, 2007, based on a stipulation during a state
court trial dismissing with prejudice a receivership action filed
by

DFS

against

Oriska

Corporation;

(4)

documents

regarding

Kernan’s claim against the State of New York in the Court of
Claims; (5) Kernan’s reinstatement to the New York State bar by
the

Appellate

Division,

Fourth

Department;

(6)

Kernan’s

reinstatement to the Eastern District bar; (7) the transcript of
December 3, 2015 proceedings in state court; (8) the transcript of
December 17, 2015 proceedings in state court; and (9) DFS’s Freedom
of Information Law (“FOIL”) responses dated January 14, 2016, and
January 20, 2016.3

(Pls.’ Ltr. at 4; Exs. A-I, Docket Entry 94-1

through 94-9.)
II. Plaintiffs’ Supplemental Motion
On April 29, 2016, Plaintiffs filed a second motion to
supplement the record on appeal, requesting that the record also
include DFS’s FOIL response dated April 5, 2016.
Decl., Docket Entry 97, ¶ 3.)

(Pls.’ Suppl.

Plaintiffs allege that DFS conceded

that it destroyed and discarded exculpatory evidence.

(Pls.’

Suppl. Decl. ¶ 3.)

On February 10, 2016, Plaintiffs filed a sur-reply memorandum.
(Docket Entry 96.) The Court declines to consider Plaintiffs’
submission based on their failure to request permission to file
a sur-reply.
3

8

DISCUSSION
Federal Rule of Appellate Procedure 10(e) (“Rule 10(e)”)
provides that the record on appeal may be corrected or modified
where

“any

discloses

difference

what

arises

occurred

in

about

the

whether

district

the

court”

record
or

truly

“anything

material to either party is omitted or misstated in the record by
error or accident.”

FED. R. APP. P. 10(e)(1)-(2).4

However, Rule

10(e) “‘is not a device for presenting evidence to [an appellate
court] that was not before the trial judge.’”

McGee v. Pallito,

No. 04-CV-0335, 2013 WL 105173, at *1 (D. Vt. Jan. 8, 2013)
(quoting Eng v. N.Y. Hosp., 199 F.3d 1322, 1999 WL 980963, at *1
(2d Cir. Sept. 30, 1999)) (alteration in original).

See also Miro

v. Plumbers & Pipefitters Nat’l Pension Fund, No. 01-CV-5196, 2002
WL 31357702, at *2 (S.D.N.Y. Oct. 17, 2002) (“[i]t is well settled
that the purpose of Rule 10(e) is not to allow a district court to
add to the record on appeal matters that did not occur there in
the course of proceedings leading to the judgment under review”)
(internal quotation marks and citation omitted; alteration in
original).
Plaintiffs

argue

that

the

appellate

record

must

be

supplemented to include the “full facts and events” regarding the

Rule 10(e) also provides that “[a]ll other questions as to the
form and content of the record must be presented to the court of
appeals.” FED. R. APP. P. 10(e)(3).
4

9

documents that were accorded judicial notice.

(Pls.’ Decl. ¶ 2.)

First, as set forth above, Rule 10(e) is not a mechanism to provide
the Second Circuit with documents that were not filed on the docket
or otherwise submitted to this Court.

It is beyond dispute that

the documents that Plaintiffs seek to add to the record were not
before the Court.

Indeed, of the nine sets of documents that

Plaintiffs seek to include in the record pursuant to their initial
motion, three sets of documents post-date the Order, (See Pls.’
Ltr. at Exs. G through I, Docket Entries 94-7 to 94-9), and four
sets of documents post-date the submission of the State Defendants’
Reply to the underlying motion to dismiss (State Defs.’ Reply,
Docket Entry 79; Pls.’ Ltr. at Exs. A, D-F, Docket Entries 94-1,
94-4 through 94-6.)

Plaintiffs’ second motion to supplement the

record also seeks to include a document that post-dates the Order.
(See Pls.’ Br.)
a

“clear

view

Thus, supplementing the record will not provide
of

the

factors

influencing

decision,” as suggested by Plaintiffs.

the

trial

court’s

(Pls.’ Reply Br., Docket

Entry 89, at 4.)
Second, the Court took judicial notice of the existence
of a handful of documents for the purpose of providing a factual
background.

The Court did not consider these documents in its

determination of standing, nor did it deem these documents to be
incorporated by reference or otherwise integral to the Amended
Complaint.

See Dechberry v. N.Y. City Fire Dep’t, 124 F. Supp. 3d
10

131, 135 (E.D.N.Y. 2015) (the Court’s consideration of a Rule
12(b)(6) motion to dismiss is “limited to consideration of the
Complaint itself,” but the complaint includes exhibits, “materials
incorporated in it by reference, and documents that, although not
incorporated

by

reference,

are

integral

to

the

complaint”)

(internal quotation marks and citation omitted).
Parenthetically,

the

Court

is

not

persuaded

by

Plaintiffs’ argument that the record must be supplemented to
correct the Court’s alleged error in stating:
Kernan challenged the DFS’s finding of his
untrustworthiness in an Article 78 proceeding.
See Petition, Oriska Ins. Co. v. N.Y. Dep’t of
Fin. Servs., No. 13-0824 (Apr. 19, 2013).
[Docket Entry 9-10, at 8-23.] On May 1, 2014,
his petition was denied. See Decision, Order,
and Judgment, Oriska Ins. Co. v. N.Y. Dep’t of
Fin. Servs., No. 13-0824 (May 1, 2014).
[Docket Entry 70-2.]
(Order at 5; Pls.’ Reply, at 4-5.)

Upon further review, the Court

acknowledges that the Article 78 proceeding in Oriska Ins. Co. v.
N.Y. Dep’t of Fin. Servs., No. 13-0824 (N.Y. Sup. Ct. Oneida Cty.)
(the “State Court Article 78 Proceeding”), did not challenge DFS’
finding of untrustworthiness.
error is of no moment.

However, the Court’s inadvertent

The documents cited by the Court in this

portion of the factual background are already included in the
record.

The Decision, Order, and Judgment referenced by the Court

was filed as an exhibit to the State Defendants’ Motion.

(See

Docket Entry 70-2.) The petition referenced by the Court and DFS’s
11

determination of Kernan’s untrustworthiness were filed on the
docket in conjunction with the State Defendants’ prior motion to
dismiss, (see Docket Entries 9-5 and 9-10), and incorporated by
reference in the State Defendants’ Motion, (State Defs.’ Br.,
Docket Entry 70-1, at 2, 5-6 (noting that “‘Appendix’ references
are to the documents previously submitted in support of [State]
[D]efendants’ earlier motion to dismiss (DE 9-2 through 9-10),
which are incorporated by reference and physically attached to the
courtesy copy of this motion”).

CONCLUSION
For

the

foregoing

reasons,

Plaintiffs’

motions

to

supplement the record on appeal (Docket Entries 84 and 98) are
DENIED.
SO ORDERED.

/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:

September
29 , 2016
Central Islip, New York

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