15‐2589‐cv (L)
Kernan v. New York State Depʹt of Fin. Servs., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 2nd day of November two thousand seventeen.
PRESENT: DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges,
JANE A. RESTANI,
Judge.*
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x
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, ORISKA CORPORATION, ORISKA
INSURANCE COMPANY,
Plaintiffs‐Appellants, 15‐2589‐cv
15‐2600‐cv
v. 16‐3643‐cv
16‐3658‐cv
* Jane A. Restani, Judge for the United States Court of International Trade, sitting
by designation.
NEW YORK STATE DEPARTMENT OF FINANCIAL
SERVICES, FKA New York State Department of
Insurance, BENJAMIN M. LAWSKY, Superintendent
of 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, UNITED STATES OF AMERICA, as
their several interests may appear, PAUL
DEROBERTIS, CHRISTINE GRALTON, BERTRAM
A. HOROWITZ, BERTRAM HOROWITZ, INC.,
GLORIA HUBERMAN, THOMAS HURLEY, SHEIK
MOHAMED,
Defendants‐Appellees,
MICHAEL A. MARK, Investigator, BETH COHEN,
ESQ., Associate Attorney, EDWARD R. BROTON,
Assistant United States Attorney, JAMES HANSON,
KEVIN MCCARTY, 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 OFFICE OF THE SPECIAL
DEPUTY, ILLINOIS DEPARTMENT OF
INSURANCE, FLORIDA OFFICE OF INSURANCE
REGULATION,
Defendants.
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x
FOR PLAINTIFFS‐APPELLANTS: LEIGHTON R. BURNS, Kernan and Kernan,
P.C., Utica, New York.
2
FOR DEFENDANTS‐APPELLEES: ANDREW RHYS DAVIES, Assistant Solicitor
General (Barbara D. Underwood, Solicitor
General, Steven C. Wu, Deputy Solicitor
General, on the brief), for Eric T. Schneiderman,
Attorney General, State of New York, New
York, New York.
Appeal from the United States District Court for the Eastern District of
New York (Seybert, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment and order of the district court are
AFFIRMED.
Plaintiffs‐appellants James M. Kernan, Oriska Corporation, and Oriska
Insurance Company appeal from a July 27, 2015 judgment of the district court
dismissing their amended complaint with prejudice and a September 29, 2016 order of
the district court denying their second motion to supplement the record on appeal.1
The amended complaint alleges, inter alia, that defendants‐appellees the New York State
Department of Financial Services (ʺNYSDFSʺ), the Superintendent of NYSDFS, and
thirteen other individuals currently or formerly affiliated with NYSDFS discriminated
against potential customers of plaintiffsʹ insurance business and conspired to violate
1 The appeals of Kernan and the Oriska entities from the judgment (15‐2589‐cv, 15‐
2600‐cv) and from the order denying their motion to supplement the record on appeal (16‐3643‐
cv, 16‐3658‐cv) have been consolidated, and this order disposes of all four appeals.
3
plaintiffsʹ constitutional rights. We assume the partiesʹ familiarity with the facts,
procedural history, and issues on appeal.
The facts are drawn from plaintiffsʹ allegations in the complaint, which we
accept as true, and augmented by a series of federal and state proceedings related to
Kernanʹs ban from engaging in the business of insurance, of which we may and do take
judicial notice. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
Kernan owns and controls both Oriska Insurance Company and Oriska Corporation
(together, ʺOriskaʺ). In March 2009, Kernan pled guilty in the District Court for the
Northern District of New York to violating 18 U.S.C. § 1033(e)(1)(B), which prohibits
individuals from knowingly and willfully permitting convicted felons to engage in the
insurance business. In January 2010, he was sentenced principally to five yearsʹ
probation and fined $250,000.2
Kernanʹs conviction barred him from engaging in the insurance business
in a particular state absent consent by the stateʹs insurance regulator. See 18 U.S.C.
§§ 1033(e)(1)(A) and (e)(2). In February 2013, NYSDFS, New York Stateʹs insurance
regulator, denied Kernanʹs application for consent to engage in the business of
insurance in New York. Plaintiffs filed a challenge to the determination pursuant to
N.Y. C.P.L.R. Article 78 in New York state court, which is still pending. That same
2 Kernanʹs appeal from the denial of his 2014 petition for a writ of coram nobis in
connection with this conviction is pending before this court. See Kernan v. United States, No. 17‐
1113‐cv.
4
month, NYSDFS also issued an ʺimpairment orderʺ prohibiting Oriska from issuing
insurance policies until its capital stock and policyholder surplus were sufficient to
cover its liabilities. The Supreme Court, Oneida County dismissed Oriskaʹs petition to
annul the impairment order in May 2014.
On June 4, 2013, plaintiffs filed the complaint in this action, alleging that
NYSDFS and its employees targeted plaintiffs for improper investigation and
prosecution. Plaintiffsʹ amended complaint asserts (1) claims under Title VI of the Civil
Rights Act of 1964 (ʺTitle VIʺ), 42 U.S.C. § 2000d et seq., and the Equal Protection Clause
on behalf of a class of ʺminority, women, veteran, and disabled business enterprisesʺ
that were unable to access Oriskaʹs products as a result of Kernanʹs bar from the
insurance industry, Supp. Appʹx 1; (2) a conspiracy claim, alleging that defendants
conspired to violate plaintiffsʹ constitutional rights; (3) a constitutional challenge to 18
U.S.C. § 1033, the basis for Kernanʹs 2009 conviction; and (4) an Article 78 claim to set
aside NYSDFSʹs denial of consent to Kernan engaging in the insurance business in New
York.
The district court granted defendantsʹ motion to dismiss the complaint in
July 2015. The district court concluded that plaintiffs lacked standing to bring claims on
behalf of minority‐owned businesses and failed to state a claim of conspiracy or as to
the unconstitutionality of 18 U.S.C. § 1033. Because plaintiffsʹ federal claims warranted
5
dismissal, the district court declined to exercise supplemental jurisdiction over the
Article 78 claim. This timely appeal followed.3
In April 2016, after filing notices of appeal, plaintiffs filed a motion in the
district court to supplement the record on appeal to include an email from NYSDFS to
Kernan, sent after the dismissal of the amended complaint, regarding his request under
New Yorkʹs Freedom of Information Law. The district court denied the motion because
the email had not been before the district court and was not a proper subject of judicial
notice. Plaintiffs timely appealed the denial of the motion, and the appeals have been
consolidated for this courtʹs consideration.
We review de novo the district courtʹs grant of a motion to dismiss. MGM
Resorts Intʹl Glob. Gaming Dev. v. Malloy, 861 F.3d 40, 44 (2d Cir. 2017); Carlin v. Davidson
Fink LLP, 852 F.3d 207, 212 (2d Cir. 2017). To survive a motion to dismiss under Rule
12(b)(6), a complaint must contain factual allegations that, accepted as true, are
sufficient ʺto state a claim to relief that is plausible on its faceʺ; ʺ[t]hreadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not
suffice.ʺ Carlin, 852 F.3d at 212 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal citation marks omitted)).
3 Plaintiffs do not appeal the district courtʹs decision not to exercise supplemental
jurisdiction over their Article 78 claim.
6
1. Discrimination claims
Plaintiffs allege that, by refusing to consent to plaintiffsʹ participation in
the insurance industry, NYSDFS discriminated against minority‐owned businesses
wanting to buy insurance from Oriska, in violation of Title VI and the Equal Protection
Clause. These claims fail because plaintiffs lack standing to assert the rights of this
purported class of potential customers.
To have Article III standing to bring a claim, a plaintiff must demonstrate
ʺ(1) injury‐in‐fact, which is a ʹconcrete and particularizedʹ harm to a ʹlegally protected
interestʹ; (2) causation in the form of a ʹfairly traceableʹ connection between the asserted
injury‐in‐fact and the alleged actions of the defendant; and (3) redressability, or a non‐
speculative likelihood that the injury can be remedied by the requested relief.ʺ W.R.
Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 106‐07 (2d Cir. 2008)
(quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560‐61 (1992)). As to the injury
requirement, ʺa plaintiff must have personally suffered an injury,ʺ id. at 107, because
ʺ[t]he Art[icle] III judicial power exists only to redress or otherwise to protect against
injury to the complaining party,ʺ id. (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)).
Plaintiffs do not allege that they are members of the class or that they have
been injured by NYSDFSʹs discrimination. Instead, they attempt to rely on injuries
ʺsuffered by other, unidentified members of the class . . . [that] they purport to
represent.ʺ Lewis v. Casey, 518 U.S. 343, 357 (1996). Accordingly, because the named
7
plaintiffs have not alleged that they were personally injured under Title VI and the
Equal Protection Clause, their discrimination claims must be dismissed for lack of
standing. See W.R. Huff Asset Mgmt., 549 F.3d at 110.4
2. 18 U.S.C. § 1033
Next, plaintiffs challenge the constitutionality of 18 U.S.C. § 1033(e)(1)(A)
as it applies to Kernan. As an initial matter, plaintiffsʹ theory that Congress did not
intend § 1033ʹs statutory bar to apply to individuals convicted of the strict liability
offense in § 1033(e)(1)(B) is belied by the plain language of the statute. Section
1033(e)(2) provides that ʺ[a] person described in paragraph (1)(A) may engage in the
business of insurance or participate in such business if such person has the written
consent of any insurance regulatory official authorized to regulate the insurer.ʺ Section
1033(e)(1)(A), in turn, provides that:
Any individual who has been convicted of any criminal felony involving
dishonesty or a breach of trust, or who has been convicted of an offense under
this section, and who willfully engages in the business of insurance whose
activities affect interstate commerce or participates in such business, shall
be fined as provided in this title or imprisoned not more than 5 years, or
both.
18 U.S.C. § 1033(e)(1)(A) (emphasis added). Plaintiffs do not dispute that Kernan was
convicted under § 1033(e)(1)(B), i.e., ʺan offense under this sectionʺ; thus, the bar applies
to Kernan by operation of the statute. Furthermore, plaintiffs offer no other explanation
4 This deficiency is not remedied by the proposed second amended complaint, as
discussed further below.
8
of how the statute violates any of Kernanʹs constitutional rights, or why NYSDFS would
be liable for a federal prosecution under the statute in question. Accordingly, the
district court properly dismissed this claim.
3. Conspiracy
Plaintiffsʹ fourth claim alleges that defendants ʺconspired and agreed to
restrain for an unlawful purpose and prohibit lawful operations by Plaintiffs.ʺ Supp.
Appʹx 19. To bring a § 1983 conspiracy claim, a plaintiff must allege ʺ(1) an agreement
between two or more state actors . . . ; (2) to act in concert to inflict an unconstitutional
injury; and (3) an overt act done in furtherance of that goal causing damages.ʺ Pangburn
v. Culbertson, 200 F.3d 65, 72 (2d Cir. 1999). Plaintiffs allege in conclusory fashion that
the state regulators and the federal government worked together to ʺsnuff outʺ Oriska,
Supp. Appʹx 15, but include no facts from which we can infer the existence of such an
agreement. Additionally, as noted above, the amended complaint does not specify
which of plaintiffsʹ constitutional rights defendants conspired to violate. Nor does the
amended complaint allege what acts were taken in furtherance of such scheme.
Without any underlying facts to set forth the nature of the alleged conspiracy, the claim
must be dismissed. See Gallop v. Cheney, 642 F.3d 364, 369 (2d Cir. 2011) (ʺIt is well
settled that claims of conspiracy ʹcontaining only conclusory, vague, or general
allegations of conspiracy to deprive a person of constitutional rights cannot withstand a
motion to dismiss.ʹʺ (citation omitted)).
9
4. Due process
On appeal, plaintiffs argue that they also asserted a due process claim in
the amended complaint. Any due process claim asserted by plaintiffs fails due to a total
lack of factual allegations to support such a claim. Furthermore, NYSDFS afforded
Kernan notice and the opportunity to be heard prior to both the denial of consent to
operate in the business of insurance and the impairment order. Accordingly, to the
extent plaintiffs allege that defendants violated their due process rights, such claim was
properly dismissed by the district court.
5. Leave to amend
This Court ʺordinarily review[s] a district courtʹs denial of a motion to
amend the pleadings for abuse of discretion.ʺ AEP Energy Servs. Gas Holding Co. v. Bank
of Am., N.A., 626 F.3d 699, 725 (2d Cir. 2010). Plaintiffsʹ proposed second amended
complaint added six new plaintiffs who, according to plaintiffs, cure any standing
defects due to their ʺassociations with Oriska.ʺ Appellantsʹ Br. at 20. Plaintiffs have not
alleged, however, that any of the new proposed plaintiffs previously bought or planned
to buy insurance from Oriska.5 Because leave to amend need not be granted where the
proposed amendments would be futile, Krys v. Pigott, 749 F.3d 117, 134 (2d Cir. 2014),
5 Although the proposed second amended complaint sought to add two entities that had
purportedly entered memoranda of understanding to secure bonding from Oriska, neither
entity was a contractor who could have benefitted from such bonding, and neither cured the
complaintʹs standing problem.
10
we conclude that the district court acted within its discretion in denying plaintiffs leave
to amend again their complaint.
6. Documents outside the record on appeal
Finally, we review the district courtʹs decision not to supplement the
record on appeal or take judicial notice of a document for abuse of discretion. United
States v. Apple Inc., 787 F.3d 131, 139 n.3 (2d Cir. 2015); Staehr v. Hartford Fin. Servs. Grp.,
Inc., 547 F.3d 406, 424 (2d Cir. 2008).
We identify no abuse of discretion in the district courtʹs denial of plaintiffsʹ
motion to supplement the record on appeal with or to take judicial notice of the April
2016 email from NYSDFS to Kernan. To the extent plaintiffs ask this court to take
judicial notice of the email or supplement the record on appeal with the email, we
decline to do so. The email is not a proper subject of judicial notice. Furthermore,
ʺabsent extraordinary circumstances, federal appellate courts will not consider rulings
or evidence which are not part of the trial record.ʺ Intʹl Bus. Machs. Corp. v.
Edelstein, 526 F.2d 37, 45 (2d Cir. 1975) (per curiam). No such circumstances are
presented here, where no new allegations based on the email could cure plaintiffsʹ
conspiracy claim.
We have considered all of plaintiffsʹ remaining arguments and conclude
they are without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
11