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Chao v. New Jersey Licensed Beverage Association

November 2, 2006


The opinion of the court was delivered by: Joel A. Pisano United States District Judge


USPO & COURT HOUSE 1 FEDERAL SQUARE, ROOM 417 P.O . BOX 999 NEWARK, NJ07101-0999 (973) 645-3136



Dear Parties:

Presently before the Court are two motions filed by Starline USA, LLC ("Starline")*fn1 and Horizon Healthcare Systems ("Horizon"), respectively, seeking to dismiss the Third Party Complaint filed by Stephen DiTomasso and Midlantic Healthcare, Inc. ("Midlantic," collectively with DiTomasso, the "Midlantic defendants") under Federal Rules of Civil Procedure 12(b)(6) and/or Rule 14(a). For the reasons set forth below, Starline's motion is granted and Horizon's motion is denied.

I. Background

This is an action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et. seq., relating to the collapse of the New Jersey Licensed Beverage Association Employee Welfare Benefit Plan (the "Plan"). The original complaint in this matter was brought by Elaine Chao, Secretary of Labor, United States Department of Labor ("DOL"), against the New Jersey Licensed Beverage Association, Inc. ("NJLBA"), the individual trustees of the Plan (collectively with the NJLBA, the "NJLBA defendants"), and the Midlantic defendants seeking, among other things, the restoration of over $6 million in losses suffered by the Plan.

According to the complaint, Midlantic was the Plan Administrator and a fiduciary to the Plan from 1998 through 2003. DiTomasso was an officer of Midlantic and is also alleged to have been a fiduciary to the Plan. The complaint alleges that the Midlantic defendants breached their fiduciary duties to the Plan by (1) failing to properly determine Plan funding needs and contribution rates; (2) failing to provide the NJLBA and the Plan trustees with timely financial information; (3) failing to obtain and maintain appropriate reinsurance; (4) incurring excessive administrative expenses; and (5) mismanaging the Plan.

The Midlantic defendants filed a Third Party Complaint ("TPC") seeking contribution and indemnification against Starline and Horizon pursuant to New Jersey's Joint Tortfeasors Contribution Act, N.J.S.A. 2A:53A-1, et seq., and the Comparative Negligence Act, N.J.S.A. 2A:15-5.1, et seq. According to the TPC,*fn2 Horizon acted as the Third Party Administrator ("TPA") for the Plan between 1990 and sometime in 2001. Horizon's role was "to administer all health insurance claims made by participating members of the Plan and was responsible for submitting claims and monitoring recovery under relevant reinsurance contracts." TPC at ¶ 10. The TPC alleges that Horizon became unable to process the claims, did not report its failures to the third-party plaintiffs or the Plan's trustees, and "otherwise acted in a manner detrimental to the Plan so as to breach its duties and cause damages to the Plan." TPC at ¶ 14.

The TPC also alleges that Starline, a reinsurance broker and agent, was responsible for "underwriting, writing and administering" reinsurance coverage for the Plan between 1993 and 2003. TPC at ¶ 38. The Midlantic defendants claim that Starline failed to process certain claims, and as a result "of Starline's negligence and failure to comply with the contractual obligations, Starline caused damage to the Plan." TPC at ¶ 41.

Starline argues that the TPC should be dismissed as to it because (1) the claims asserted allege damage to the Plan and not to the Midlantic defendants; and (2) the TPC does not state a valid claim for contribution or indemnity under New Jersey law. Horizon has adopted the arguments and reasoning set forth in Starline's papers, and it also argues that the Midlantic defendants lack standing to sue Horizon because Horizon is not a fiduciary with respect to the Plan and the Midlantic defendants are not parties to any agreement with Horizon.

In response to these motions to dismiss, the Midlantic defendants argue that it was the negligent conduct of Starline and Horizon that caused damages to the Plan, which damages the DOL alleges were caused by the Midlantic defendants and the NJLBA defendants. As such, the Midlantic defendants argue that Starline and Horizon are liable for contribution and indemnification. Through the TPC, the Midlantic defendants "seek[] ...

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