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Professional Insurance Management v. Ohio Casualty Group of Insurance Companies

February 29, 2000

PROFESSIONAL INSURANCE MANAGEMENT,
PLAINTIFF-APPELLEE,
V.
THE OHIO CASUALTY GROUP OF INSURANCE COMPANIES, ET AL.,
DEFENDANTS-APPELLANTS.
AND
PROFESSIONAL INSURANCE MANAGEMENT,
PLAINTIFF- APPELLEE,
V.
THE OHIO CASUALTY GROUP OF INSURANCE COMPANIES, ET AL.,
DEFENDANTS- APPELLANTS.



(Bankr. No. 94-13602) (Adv. No. 94-1312) (Bankr. No. 94-13602) (Adv. No. 94-1312)

The opinion of the court was delivered by: Jerome B. Simandle U.S. District Judge

OPINION

SIMANDLE, District Judge:

Introduction

This matter is before this Court on appeals of rulings entered in the Bankruptcy Court, the Honorable Judith Wizmur presiding, in a dispute between an insurance company and its former agent. In opinions dated July 12, 1999 and September 22, 1999, and Orders dated, respectively, July 30, 1999 and October 14, 1999, the Bankruptcy Court ruled that defendants-appellants, The Ohio Casualty Group of Insurance Companies ("Ohio Casualty"), must turn over to plaintiff, Professional Insurance Management ("PIM" or "Debtor"), $216,569.79 in owed commissions, plus additional commissions that continue to be earned. Since that time, the Bankruptcy Court has also ordered that Ohio Casualty also pay interest on that amount and has held Ohio Casualty in contempt for failure to pay over the moneys due by the deadline set by the Bankruptcy Court. Ohio Casualty appeals *fn1 those orders to this Court and asks this Court to reject the Bankruptcy Court's findings of fact and conclusions of law regarding the issue of contempt. For the reasons stated herein, this Court will affirm the Bankruptcy Court's orders to pay over commissions and interest, and this Court vacates the Bankruptcy Court's finding of contempt.

I. BACKGROUND

The facts of this case are set out at length in previous opinions of this Court. Largely, this Court refers the reader to the facts as stated by the Bankruptcy Court in the July 12, 1999 and September 22, 1999 Opinions; though Ohio Casualty disputes some of these facts, upon an independent review of the record, this Court finds that none of the factual findings were clearly erroneous. *fn2 By way of background for this Opinion, this Court will summarize the most relevant facts and procedural history.

Debtor/Appellee, Professional Insurance Management ("PIM"), is a licensed New Jersey insurance agent that produces both personal and commercial lines of insurance. In 1982, PIM entered into an agency relationship with the Ohio Casualty Group of Insurance Companies and its subsidiaries. Under the Ohio Casualty-PIM agency agreement, PIM was to market Ohio Casualty's personal and commercial insurance policies by locating customers, determining their insurance needs, and selling them appropriate Ohio Casualty insurance. In the case of personal automobile insurance, Ohio Casualty was to collect premiums directly from the policy holders and then send commissions to PIM. Other premiums, such as those on commercial insurance, were collected by PIM, who sent the money to Ohio Casualty minus the sales commissions. The agency agreement allowed Ohio Casualty to cancel the contract on 90 days notice.

For those insurance premiums which were paid through PIM (personal automobile insurance), Ohio Casualty provided PIM and its other agents with a monthly account statement detailing each insurance account, the type of insurance, the gross premium, the commission rate, and details of the amounts currently due, past due, and due in the future. The statements were compiled on the last day of the month and PIM would receive them at the beginning of the next month. PIM would compare its own records with the statement and reconcile the items in the "currently due" column, placing a check mark next to each item that it would pay or take a credit on, and "line off" entries with which it disagreed, explaining why it disagreed and "carrying forward" that item to the past due column on the next monthly statement. Some items remained in that column for months while the parties resolved them. The undisputed payments would be totaled and paid by check and through credits representing either credit vouchers or amounts deposited into PIM's account by Ocasco Budget Company, Ohio Casualty's premium financing arm.

The reconciliation and payments were due by the fifteenth of the month, at which time Ohio's Agency Accounts Department would review the reconciliation, either agreeing that PIM was correct that a particular item was not due or disagreeing with PIM and therefore placing a "please remit" code next to the disputed item in the past due column. Ohio Casualty had further review procedures in place when an item remained unpaid. Ohio Casualty became concerned about PIM's accounting practices because 25% or more of the amount due on PIM's statements was typically "past due," causing Ohio Casualty to worry that PIM was "floating money." The process continued in this fashion.

In 1992 and 1993, PIM paid approximately 96-98% of its premiums with Ocasco premiums or with cash received from other premium financing companies or the insureds themselves. Ohio Casualty allowed PIM to use credits to pay currently-due amounts even though the credit taken might be from a different insured's policy than the one for which PIM was paying Ohio Casualty and retaining its premiums; the Ocasco Budget manual provided that the credit voucher "may be used to pay any balance currently due to Ohio and does not have to be used to pay the premium of the policy financed." (Trial Ex. P-8, p.3.)

There was a history of accounting problems with PIM dating back to 1989. Part of these problems included that PIM would take credits prematurely (i.e., before policy numbers were issued, before credit vouchers were returned, or before Ocasco deposited moneys into PIM's account). Other problems included that PIM would make payment one to five days late. Ohio Casualty would complain to PIM about its practices and temporarily suspend PIM as an agent or deny PIM the opportunity to use Ocasco Budget financing, only to reinstate PIM's privileges that same day or within a few days.

On November 15, 1993, Ohio Casualty, through its Branch Manager, David Himes, sent a letter to PIM that provided that Debtor would "no longer have the authority to write new business or bind coverage effective November 19, 1993," and that the agency relationship was terminated effective March 1, 1994. Four days later, Ohio Casualty issued the "official form letter" establishing the procedures for renewals. For example, for the first twelve months after March 1, 1994, PIM could request renewal of policies in writing; for personal automobile insurance policies only, the insured could choose to renew its policy after the twelve-month period through PIM, while renewals on all other policies after the twelve-month period would not go through PIM. The parties dispute the reason for the termination. According to Ohio Casualty, PIM had failed to account for premiums due the Company and for conversion of premiums. According to PIM, it was terminated because it was unwilling to violate the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), N.J.S.A. 17:33B-1 et seq.

In the months after the Notice of Termination was sent, monthly statements continued to be sent, reconciliations conducted, and payments made by PIM. Continued correspondence confirmed Ohio's intention to renew commercial policies through PIM for one year. The Notice of Termination itself, as well as forms Ohio Casualty submitted to the New Jersey Department of Insurance noticing PIM's termination, stated that the reasons for termination were "Poor loss ratio; continued accounting differences and continued pay off [sic] problems with premium finance companies and canceled accounts." PIM unsuccessfully sought injunctive relief, first in federal court and then in state court, after this termination.

Beginning in January 1994, after the Notice of Termination was sent, PIM began to take "improper credits" through self-help. *fn3 For example, at one point, PIM took a $9,095.52 credit against premiums due to Ohio Casualty because PIM claimed that a producer had a "restrictive covenant." (Debtor's Ex. 11 to Debtor's Motion to Expunge Ohio Casualty's Claim.) Another time, PIM improperly took a $52,000 offset. (Id. at Ex. 10.) After January 1994, PIM applied credit for commissions owed on personal lines that Ohio Casualty began to withhold in October of 1993. As a result, as of the date of bankruptcy filing on August 4, 1994, PIM owed Ohio Casualty approximately $252,000. PIM's acts in withholding those sums were not fraudulent in the absence of knowing misrepresentations, but they were unjustified.

In May 1994, PIM entered into a contract to sell its book of business to another New Jersey producer, AJM, effective June 1, 1994. Ohio Casualty sought injunctive relief in the New Jersey superior Court to enforce the provisions of the agency agreement and to impose a prejudgment Writ of Attachment on the proceeds of the sale. On May 31, 1994, the Honorable John Mariano, J.S.C., preliminarily ordered that Ohio Casualty owned the book of business and required that any proceeds from the sale of the expirations be placed in escrow pending a final resolution. The order was upheld on reconsideration a month later, but no proceeds were ever placed in escrow because PIM's negotiations with AJM collapsed and the sale was never brought to fruition.

On August 5, 1994, PIM filed for Chapter 11. Ten days later, Ohio Casualty sent letters to PIM's insureds informing them that PIM was no longer Ohio Casualty's agent and that further renewals of their insurance policies would not come through PIM. On August 17, 1994, PIM filed its adversary complaint in the Bankruptcy Court seeking injunctive relief against Ohio Casualty. Temporary restraints were ordered two days later, but preliminary injunctive relief was denied; the Bankruptcy Court held that Ohio Casualty owned PIM's book of business. Ohio took over the book of business with AJM as its agent.

On March 7, 1996, the Bankruptcy Court held on the merits that Ohio Casualty did not own the book of business, but rather held an unperfected security interest in it, and the Bankruptcy Court ordered that the book of business be returned to the debtor. Six weeks later, the Bankruptcy Court ordered Ohio Casualty to pay PIM commissions on all commercial and personal insurance policies from April 1, 1996 going forward and to renew commercial policies in accordance with subsection (d) of N.J.S.A. 17:22-6.14a, and ordered Ohio Casualty to rescind the sixty-five notices of cancellation it had issued on personal automobile insurance policies. On appeal, the District Court affirmed in part and reversed in part, In re Professional Ins. Mgmt., Civil No. 96-2499, Slip Op. and Order (D.N.J. July 8, 1996), and on November 25, 1997, the Third Circuit upheld the reversal by the District Court in two respects, In re Professional Ins. Mgmt., Nos. 96-5447 and 96-5516, Slip Op. and Order (3d Cir. Nov. 25, 1997), determining that Ohio Casualty did not violate New Jersey's "two-for-one rule" when it issued the sixty-five cancellations, and holding that the Bankruptcy Court could not order Ohio Casualty to pay commissions to PIM before the Bankruptcy Court determined whether the termination was under subsection (d) or (e) of N.J.S.A. 17:22-6.14a.

The Bankruptcy Court began plenary consideration of that issue, holding five days of hearings in July of 1998. On July 16, 1998, however, by notice of discontinuance, Ohio Casualty, informed PIM that effective September 1, 1998, Ohio Casualty would stop accepting renewals and service requests from PIM and additionally would refuse to pay PIM any commissions.

PIM went to the Bankruptcy Court and filed an Order to Show Cause seeking a preliminary injunction and a six count Verified Complaint against Ohio Casualty, alleging that the Bankruptcy Court had jurisdiction to enjoin the Notice of Discontinuance pursuant to 28 U.S.C. § 1334(b). PIM contended that the Notice of Discontinuance violated the Automatic Stay and intentionally interfered with PIM's book of business, and asked for monetary damages in addition to preliminary and permanent injunctive relief. The Bankruptcy Court preliminarily enjoined Ohio Casualty from taking such action, and it scheduled a full plenary hearing for November 17, 1998 to determine whether Ohio Casualty should be permanently enjoined from discontinuing PIM as a terminated agent. The July hearings were continued for an additional two days in August and October of 1998, and the parties thereafter submitted written closing summaries.

At the time that the Bankruptcy Court held trial in this matter (for a total of seven trial days), there were several motions before the Court: PIM's motion for the turnover of post-petition commissions from the expirations renewing through Ohio Casualty, and Ohio Casualty's cross-motion for a determination that N.J.S.A. 17:22-6.14a(e) should govern and bar the entitlement to renewals and commissions. The Bankruptcy Court, in a July 12, 1999 Opinion and July 30, 1999 Order, denied Ohio Casualty's cross-motion, holding that the termination was not under N.J.S.A. 17:22-6.14a(e), but rather under N.J.S.A. 17:22- 6.14a(d).

Ohio Casualty sought to appeal that Order. Applying the standards for determining whether to grant interlocutory appeal, this Court held that leave to appeal was not yet warranted, both because there was no substantial ground for difference of opinion on controlling questions of law and because granting leave would not materially advance the end of the litigation. In re Professional Ins. Mgmt., Civil No. 99-3930, Slip Op. at 9, 18 (D.N.J. Sept. 22, 1999). In making those conclusions, this Court noted that the dispute between the two parties would not end with a resolution of the subsection (e) issue alone: if Ohio Casualty lost on appeal, then the Bankruptcy Court would still have to address Ohio Casualty's other arguments as to why PIM's motion for turnover of commissions should be denied, and, additionally, many other issues remained between the parties in the litigation (including whether Ohio Casualty's true reason for terminating PIM as an agent was because PIM refused to help Ohio Casualty violate FAIRA). Id. at 18-20.

Shortly before this Court issued its September 22, 1999 Order denying leave to appeal the July 30, 1999 Order, on September 15, 1999, the Bankruptcy Court entered a supplemental decision rejecting Ohio Casualty's claims for recoupment and constructive trust. The September 15, 1999 Opinion was effectuated by an October 14, 1999 Order which directed the turnover of commissions that accrued after April 1, 1996 on policies renewing pursuant to N.J.S.A. 39:6A-3 through Ohio Casualty. The October 14, 1999 Bankruptcy Court Order provided as follows:

§ Ohio Casualty must turn over $216,569.79 in direct bill commissions to PIM, from April 1, 1996 to July 26, 1999, plus any additional commissions through the date of the Order, without prejudice to PIM's right to seek interest on those commissions.

§ Ohio Casualty must provide a detailed accounting of direct bill commission income since April 1, 1996.

§ Ohio Casualty must continue to pay direct bill commissions that accrue to PIM as a terminated agent under N.J.S.A. 17:22-6.14a(d), along with an accounting, on the 10th of every month after commissions are earned. (10/14/99 Bankruptcy Court Order pp. 1-3.)

Additionally, the October 14, 1999 Order denied the application of a constructive trust on the commissions for Ohio Casualty's benefit, denied a recoupment, denied Ohio Casualty's application to stay payment of commissions generated after September 1, 1998 (based on the Notice of Discontinuance) or February 1, 1999 (based on Debtor's license revocation), *fn4 set up a mechanism by which PIM gives notice to Ohio Casualty before making distribution of the funds, and reserved decision on PIM's claim for commissions for the period from August 1994 through April 1996. (Id. at p. 3.)

After the October 14, 1999 Order was issued, Ohio Casualty sought clarification on certain issues, including whether the October 14, 1999 order was an interlocutory order or a final order, whether the turnover of funds could be stayed pending completion of the adversary proceeding, and whether Ohio could have an extension of time to file an appeal, and an October 20, 1999 telephone conference call was held to discuss the matter. In an October 22, 1999 Letter Opinion, the Bankruptcy Court specifically declined to characterize the nature of the October 14, 1999 Order, "except to note that the October 14, 1999 order was a final resolution of the debtor's motion for turnover of commissions from April 1, 1996, which motion was made in Adversary Proceeding No. 94-1312, and to recognize that additional issues remain to be heard in that proceeding...." (10/22/99 Letter Opinion at 3.) The Bankruptcy Court also denied Ohio Casualty's request for a stay of the October 14, 1999 Order pending resolution of remaining issues in the adversary proceeding because none of the issues remaining in the case "relate to debtor's entitlement to commissions since April 1, 1996." (Id.) Finally, the Bankruptcy Court denied the request for an extension of time for filing a notice of appeal. (Id. at 4.)

On October 25, 1999, Ohio Casualty filed a notice of appeal of the October 14, 1999 order and also sought a stay pending appeal. On October 29, 1999, PIM filed an application for an order to show cause why Ohio Casualty should not be held in contempt for violating the October 14, 1999 Order. The Bankruptcy Court addressed both motions at a November 15, 1999 hearing and in a November 17, 1999 Letter Opinion. The Bankruptcy Court rejected Ohio Casualty's argument that it had the automatic right to a stay pending appeal upon the posting of a supersedeas bond (pursuant to Fed. R. Civ. P. 62(d) and Fed. R. Bankr. P. 7062 and 9014) for two reasons. First, the Bankruptcy Court noted that certain types of judgments, "including an interlocutory or final judgment in an action for an injunction or in a receivership action,..." are excepted from the automatic stay rule of 62(d), and commented that "the relief sought in this case by the debtor is more akin to injunctive relief than it is to a money judgment." (11/17/99 Letter Opinion at 6.) Second, the Bankruptcy Court found that the Court retained some discretion even where a bond is posted, and exercised that discretion to deny a stay. (Id.)

The Bankruptcy Court also found that Ohio Casualty was in contempt of the Court's October 14, 1999 Order that Ohio Casualty turn over $216,569.79 plus additional commissions within seven (7) days, since it had not sought a stay pending appeal in a timely fashion and had not yet paid. (Id. at 17.) The Bankruptcy Court ordered Ohio Casualty to turn over the commissions by Monday, November 22, 1999, with a daily sanction of $100 commencing the next day for every day after November 22 until the commissions were paid, as well as interest from October 21, 1999 until the date of actual turnover of commissions and attorneys fees in connection with the Order to Show Cause. (Id. at 19.) The issue of whether Ohio must pay interest from April 1996 remained open. (Id.) Ohio Casualty timely filed objections to the Bankruptcy Court's findings of fact and conclusions of law with regard to the issue of contempt.

On January 5, 2000, the Bankruptcy Court issued an opinion and order stating that interest would indeed be due but leaving open the amount to be due. (01/05/00 Letter Opinion.) On January 19, 2000, the Bankruptcy Court entered an order directing Ohio Casualty to pay interest to PIM on the commissions due and owing as a result of the October 14, 1999 Order, from April 1, 1996 through the present date, according to the state post-judgment interest rate pursuant to New Jersey Court Rules, 2000, R. 4:42-11(a). In an Order dated February 17, 2000, the Bankruptcy Court set the amount of commissions at $228,933.29 and the total interest at $30,382.66. Ohio Casualty raises no challenge to the amount of interest but challenges the Bankruptcy Court's finding that interest be paid at all.

On November 19, 1999, Ohio Casualty asked this Court for an emergent stay pending appeal, and the Honorable Joseph E. Irenas entered a temporary stay until November 22, 1999, which was conditioned on Ohio Casualty paying $275,000 into Court. Based on reasons expressed in a November 22, 1999 Oral Opinion, I extended the temporary stay until the expedited date for oral argument upon the merits of the appeal. This Court held oral argument on January 21, 2000. The merits of the appeal are now before this Court.

II. DISCUSSION

A. Jurisdiction and Standard of Review

1. Appellate Jurisdiction

28 U.S.C. § 158 governs appeals from bankruptcy courts to district Courts, and appeals to district courts are taken in the same manner as appeals from district courts to the courts of appeals. Fed. R. Bankr. P. 8001; 28 U.S.C. § 1291. Pursuant to 28 U.S.C. § 158(a), the District Court may hear appeals from "final judgments, orders, and decrees of the Bankruptcy Court; or with leave of court, from other interlocutory orders and decrees." 28 U.S.C. § 158(a)(1) and (3). Ohio Casualty contends that it has an appeal of the Bankruptcy Court's July 30, 1999 and October 14, 1999 Orders as a matter of right because those Orders are final orders for the ...


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