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Smith v. Life Partners

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


October 3, 2007

M. SMITH, A PENNSYLVANIA RESIDENT (FULL NAME AND ADDRESS WITHHELD TO PROTECT PLAINTIFF'S PRIVACY DUE TO THE EXTREMELY SENSITIVE AND PERSONAL NATURE OF THE SUBJECT MATTER OF THIS ACTION), PLAINTIFF-RESPONDENT,
v.
LIFE PARTNERS, INC., LIFE PARTNERS HOLDINGS, INC., AND STERLING TRUST COMPANY, DEFENDANTS-APPELLANTS.

On appeal from Superior Court of New Jersey, Chancery Division, Camden County, Docket No. C-214-05.

Per curiam.

RECORD IMPOUNDED

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 11, 2007

Before Judges Wefing, R. B. Coleman and Lyons.

Defendants, Sterling Trust Co. ("Sterling"), Life Partners, Inc. ("LPI"), and Life Partners Holdings, Inc. ("LPHI") are, respectively, a trust company and purchasing agents of viatical settlements for individuals and corporate investors. They appeal from an order for summary judgment entered against them and in favor of plaintiff, a 52-year-old HIV-positive woman who sold LPI her life insurance policy in 1994. We affirm in part and reverse in part.

The following factual and procedural history is relevant to our consideration of the issues advanced on appeal. Plaintiff, 52-year-old M. Smith, was diagnosed with HIV/AIDS in 1992. She is insured under a group insurance plan with The Guardian Life Insurance Company ("Guardian"). The plan includes various components: term life insurance, health insurance and accidental death and disability coverage. The life insurance policy provides a $150,000 benefit at the time of death.

In early 1994, plaintiff read an advertisement in a magazine for HIV-positive readers offering prompt payment of cash to AIDS patients for their life insurance policies. The advertisement was placed by Page & Associates, a viatical settlement broker located in Ohio.

In August 1994, plaintiff entered into a "Purchase Agreement and Assignment of Life Insurance Policy," as well as a "Funds Transfer Agreement" to sell her life insurance policy to defendant, LPI. LPI is a Texas corporation, which serves as the purchasing agent of viatical settlements for individuals and corporate investors. As a result of the assignment and purchase agreement, LPI agreed to pay plaintiff $90,000 for the life insurance policy. Of that amount, $5,510.64 was placed into escrow to pay the anticipated premiums for the group insurance plan (including both the life insurance policy and the health policy for a period of two years). In the event that plaintiff outlived the initial two-year period, LPI undertook to make all future premium payments on the Guardian group insurance plan. The Assignment and Purchase Agreement specifically provides in relevant part:

8. . . . Purchaser agrees to make any necessary contributions to the escrow fund to pay future premiums in the event such escrowed funds are exhausted and Seller shall have no further liability for payment of premiums on the policy.

In addition, Article 2 § 2.04a of the Funds Transfer Agreement reads, in relevant part, as follows:

Premiums for both the Health and Life portion of this policy, being inseparably billed by the insurance carrier, will be paid by the Escrow Agent from funds escrowed for that purpose. Purchaser agrees to make any necessary contributions to the escrow fund to pay future premiums in the event such escrowed funds are exhausted and Seller shall have no further liability for payment of premiums on the policy.

In March 1998, LPI informed plaintiff that it would not pay her health insurance coverage. In that notice, LPI told plaintiff that the escrow account established in 1994 from funds withheld from plaintiff's share of the policy, while originally anticipated to be sufficient to pay the costs of both her health and life insurance coverage because they could not be billed or paid separately, had been exhausted and the investors in plaintiff's policy were no longer willing to support the cost of her health coverage. Accordingly, plaintiff was noticed that she had to contribute the funds to maintain her health insurance coverage. Following a letter from plaintiff's counsel asserting that LPI's denial of payment was a breach of contract, LPI agreed to continue to pay the full premiums of the policy acknowledging that section 8 of the Purchase Agreement and Assignment "binds us to pay the premiums for both health and life insurance". LPI noted at that time, however, that it was "under no obligation to keep this policy in force . . . should it become unfeasible to continue paying the premiums, LPI may decide to abandon the policy and allow it to lapse." Following this exchange, LPI continued to pay plaintiff's insurance premiums through the beginning of 2005.

On August 15, 2005, the day that payment of semi-annual premiums were due to be paid on the Guardian insurance plan, LPI wrote to plaintiff to inform her that it would not pay the Guardian premiums attributable to the health policy. LPI explained that plaintiff would be responsible for the premium on the health policy because at the time LPI purchased the policy, the billing for the life policy could not be separated from the health coverage, which it did not purchase. However, at the time the August 15, 2005 correspondence was written, the premium billing statements offered a specific breakdown of the amounts due for the life and health insurance separately and Guardian agreed to apply payments separately to the health coverage and the life coverage. Therefore, since LPI only purchased the life insurance policy, it stated it would pay the premium for the life policy but plaintiff would be responsible for the premium on the health policy to the extent it was kept in force.

On August 29, 2005, Ronda Goldfein of the AIDS Law Project of Pennsylvania wrote a letter to LPI on behalf of plaintiff. Goldfein's letter referred LPI to section 8 of the Purchase Agreement and Assignment and Article 2 § 2.04a of the Funds Transfer Agreement and noted that, "[t]he fact the health and life insurance premiums are identified as 'inseparably billed' does not render [LPI's] obligation to pay the premiums conditional . . . the obligation of payment is clear. . . ." Goldfein's letter also stated that LPI's "refusal to pay [plaintiff's] health insurance is a clear breach of the contract." Goldfein demanded proof of payment of the entire payment due in the sum of $8,502.59. Despite this correspondence, LPI did not make the requested payment and refused to pay the premium on the health policy. The grace period for payment of the premium expired on September 15, 2005, and plaintiff was unable to pay the premium for the health policy.

Plaintiff's counsel contacted LPI's president and general counsel, R. Scott Peden ("Peden") to discuss the insurance situation. Plaintiff's counsel informed Peden that if LPI did not agree to pay the full premium, plaintiff would seek emergent injunctive relief. On September 19, 2005, Peden responded by e-mail and reiterated LPI's position that there was no legal or factual basis for plaintiff's claims. Peden set forth the reasons for LPI's position as follows:

1. Injunctive relief is inappropriate because irreparable harm cannot be demonstrated.

2. Your underlying claim fails because LPI never contracted to purchase or provide [plaintiff] with health insurance. The premium reference in the contract refers only to the unwillingness of Guardian Insurance to separate the health and life premiums at the time of the assignment. Guardian will now properly divide and attribute those premiums. To the extent your client claims to have misunderstood these terms, there was a mutual mistake which would void the contract, not result in damages.

3. The contract sets forth no fiduciary duty or relationship for LPI to have breached. Further, your client is not a consumer under the Consumer Frauds Act. She was the seller in our transaction, not a consumer.

Following a responding e-mail by plaintiff's counsel informing LPI that plaintiff would be filing suit, Peden e-mailed plaintiff's counsel on the afternoon of September 19, 2005 and informed him that while LPI had no liability for payment of plaintiff's health insurance premiums, LPI agreed to advance full payment of both the health and life premium on plaintiff's policy. The September 2005 payment by LPI provided plaintiff with health coverage through February 2006.

On November 21, 2005, plaintiff filed a complaint against defendants in the Chancery Division of the Superior Court. The complaint, composed of five counts, alleged breach of contract, Consumer Fraud Act violations, and breach of fiduciary duty. It sought injunctive relief, a constructive trust for the benefit of plaintiff as well as damages, punitive damages, and attorneys fees.

On January 6, 2006, defendants filed a motion to dismiss plaintiff's complaint on the ground that the court lacked personal jurisdiction over defendants and on the basis that plaintiff failed to state a cause of action since LPI had complied with the assignment and purchase agreement. The motion was supported by an affidavit of Peden filed February 13, 2006, "reaffirming LPI's contractual obligation to plaintiff" and "LPI's obligation under said contracts to pay plaintiff's health insurance premiums under Group Policy No. G-156141-VN".

On January 26, 2006, plaintiff cross-moved for an order to show cause for a preliminary injunction pursuant to Rule 4:52. The order to show cause specifically asked the court to enjoin defendants from refusing to pay the health insurance premiums until a final hearing on the merit of plaintiff's claim. In addition, in February 2006, LPI paid the semi-annual premium payment that became due that month.

Oral argument on the motion to dismiss was heard on February 17, 2006. The trial judge found that in light of the contradictions between Peden's prior e-mails and LPI's affidavit to the court reaffirming its obligation to pay plaintiff's health insurance, there was an anticipatory breach by LPI when it refused to pay her premiums, particularly when Peden sent his e-mails in September 2005. Thus, the court found that there was a justiciable issue. In addition, the court found that it had both specific and general jurisdiction. The court denied defendant's motion to dismiss and proceeded to consider the matter of the order to show cause.

The trial judge did not sign the order to show cause, finding at oral argument that the hearing concerned only the motion to dismiss. The judge instead encouraged plaintiff's counsel to discuss possible remedies for the alleged anticipatory breach of contract.

On the basis of the record before him, particularly the Peden affidavit and counsel's statements at the hearing, the judge believed he could relax the rules pursuant to Rule 1:1-2 and address the sole remaining issue, that of remedy, as a matter of law. At the hearing, plaintiff argued that she was entitled to one of three choices for a remedy: (1) a decree of specific performance; (2) an accelerated lump sum award of future anticipated benefits; or (3) the funding of a trust by defendants to pay future insurance premiums. In connection with the latter two choices, plaintiff's counsel stated that he was prepared at the appropriate time to put on evidence that AIDS is no longer a death sentence. And that [plaintiff] may be expected to live many more years. And number two, evidence of what her health care premiums are anticipated to rise to so that the court can do a calculation and come back to an in [sic] gross lump sum.

In response, defendants' counsel pointed out that there was no application before the court by plaintiff for relief. The trial judge consequently indicated that he was not prepared to rule on a remedy at that time. Defendants thereafter filed an answer with separate defenses on February 27, 2006.

On April 18, 2006, without notice to the parties and without a motion having been filed, the judge ruled sua sponte that judgment be entered against defendants. The court issued a letter to counsel ordering LPI "to place the sum of $837,357.00 in trust for plaintiff's benefit" with any corpus remaining upon plaintiff's death to be returned to LPI. On the same date, the court placed its reasoning for the decision on the record.

In its oral decision, the court reiterated its findings that there "was absolutely an anticipatory breach of this contract." Relying upon Cipala v. Lincoln Technical Institute, 179 N.J. 45 (2004), the court held, "[i]n light of the defendant['s] blatant anticipatory repudiation and the language of the e-mail, it is noted that . . . plaintiff is entitled to some comfort and should be put at ease, requiring the defendant to establish a trust." The court then explained how it arrived at the trust value. It calculated this amount by taking plaintiff's approximately 28.79-year life expectancy as supplied by the Table of Mortality and Life Expectancy adopted by the Court Rules and multiplied it by the then-current annual premium on the Guardian group plan. To adjust the calculation to take account of the possibility that plaintiff's condition will shorten her lifespan, the court did not provide for any increases in the annual premiums charged by Guardian.

By correspondence to the court dated April 24, 2006, defendants raised an objection on the ground that the court's sua sponte judgment was procedurally irregular and contrary to Rule 1:6-2(a). The judge convened a telephone conference on May 4, 2006, and vacated his decision of April 18, 2006. At the conclusion of the telephone conference, the judge instructed plaintiff to file a motion for summary judgment with the court. The court entered its order vacating the decision of April 18, 2006, on May 16, 2006.

Plaintiff filed her summary judgment motion on June 9, 2006, returnable July 7, 2006. Defendants opposed the motion and filed a cross-motion to compel discovery on or about June 21, 2006. In addition, on June 21, 2006, defendants filed a motion that the trial judge recuse himself based on his sua sponte judgment and comments in his decision of April 18, 2006, allegedly indicating that he prejudged the case.

The trial judge heard oral argument on July 10, 2006, and denied the motion for recusal. The trial court also denied defendants' cross-motion on this date, placing his findings on the record. The trial court also heard oral argument on plaintiff's summary judgment motion. It deferred decision on this motion until July 28, 2006, to permit defendants to obtain discovery concerning the Guardian insurance policy and plaintiff's medical condition and so that interrogatories may be prepared. The court further deferred its decision until August 18, 2006 at the request of defendants, who were awaiting medical records from plaintiff's primary treating physician.

At the July 10, 2006 hearing, defendants' counsel requested a stay pending appeal which was denied by the court. On this date, defendants made a motion for emergent relief staying the trial court proceedings with the Appellate Division. The Appellate Division denied defendants' application for emergent relief on July 10, 2006. On August 15, 2006, the Appellate Division also denied defendants' motion for leave to appeal from the order denying the disqualification of the trial judge.

Prior to the second oral argument on August 18, 2006, defendants obtained an expert's report from Steven M. Smith, M.D., of CFO Medical Services; the report was submitted to the court in opposition to plaintiff's motion for summary judgment.

Dr. Smith opined that plaintiff's health risks "substantially" reduced her life expectancy of 27.94 years, but did not specifically mention by how many years or give an approximate time. At oral argument, LPI asked the court for additional time to obtain a report from an actuary to further adduce the reduction in plaintiff's life expectancy.

After oral argument, the judge ruled that plaintiff was entitled to partial summary judgment and that the proper remedy was to require that defendants deposit funds to pay for further insurance premiums. While ruling that LPI had anticipatorily repudiated its contract with plaintiff and finding that a decree of specific performance and the establishment of a trust was appropriate, the court deferred final judgment concerning the proper amount of security LPI should provide. The judge instead indicated that a proof hearing would be appropriate to permit defendants to obtain an additional expert's report regarding plaintiff's life expectancy.

Without having had the proof hearing referred to on August 18, 2006, the trial judge issued a letter opinion on August 23, 2006 granting final summary judgment to plaintiff in the amount of $837,357.15, the same amount he ordered in April. In that opinion, the court stated in relevant part:

Upon further reflection, the Court finds that Defendant, while submitting an expert report that claims Plaintiff's life expectancy is less than that set forth in the Mortality Table found in the Rules of Court, does not state or suggest how much less. Accordingly, the Court, as noted at oral argument is forced to speculate. . . .

As a result of the foregoing, the court grants final summary judgment and orders the Defendant to deposit the sum of $837,357.15 with the Clerk of the Court. This sum is computed by multiplying the plaintiff's life expectancy of her attained age set forth in the said mortality table times the present premium. While the premium has increased without interruption since the relationship with the parties was established, the Court does not factor in further increases. Similarly, the above sum has not been reduced to present value. . . .

Upon deposit of the sum of $75,000 with the Clerk of the Superior Court, the Court will grant a stay of this decision pending an appeal if taken within 45 days of the execution and service of the order. . . .

That portion of Plaintiff's motion seeking summary judgment for consumer fraud is denied because plaintiff has failed to set forth an adequate basis for the computation of damages. Consequently, if plaintiff wishes to pursue a money damages claim based on consumer fraud, that action should be brought in the Law Division.

As a result of the foregoing, there shall be no further hearings.

On September 25, 2006, the judge entered an order of final judgment and decree granting plaintiff's motion for summary judgment in part, consistent with the letter opinion.

Specifically, it required that LPI make a deposit of $837,357 with the Clerk of the Superior Court as security for the continued performance of its contractual obligation to pay plaintiff's health insurance premiums.

Defendant filed their notice of appeal on October 26, 2006. On appeal, defendants present the following arguments for our consideration:

POINT I:

THE TRIAL COURT ERRED WHEN IT ENTERED SUMMARY JUDGMENT IN FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANT.

A. The trial court erroneously held that the actions of defendant LPI constituted an anticipatory breach of the contract.

B. Even if the court properly found that there was an anticipatory breach, there was no basis for the court to require that the defendants fund a trust to pay future premiums.

C. A genuinely disputed issue of material fact exists as to the amount which the court ordered the defendants to place in trust.

POINT II:

THE TRIAL COURT ERRED IN DENYING DEFENDANTS' MOTION TO DISMISS THE COMPLAINT BASED UPON THE COURT'S LACK OF PERSONAL JURISDICTION OVER THE DEFENDANTS.

POINT III:

THE TRIAL COURT SHOULD HAVE DISMISSED THE CASE AT THE OUTSET BECAUSE THERE WAS NO ACTUAL CONTROVERSY.

POINT IV:

THE TRIAL JUDGE SHOULD HAVE RECUSED HIMSELF GIVEN HIS SUA PONTE ENTRY OF A MONEY JUDGMENT AGAINST THE DEFENDANTS IN RESPONSE TO THEIR MOTION TO DISMISS ON NON-SUBSTANTIVE GROUNDS.

POINT V:

THE TRIAL COURT SHOULD NOT HAVE GRANTED PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT SINCE DISCOVERY HAD NOT BEEN COMPLETED.

POINT VI:

THE TRIAL COURT ERRED IN DISMISSING THE CLAIMS AGAINST LIFE PARTNERS HOLDINGS, INC. AND STERLING TRUST COMPANY WITHOUT PREJUDICE.

Defendant LPI argues on appeal that the trial court erred by entering summary judgment in favor of plaintiff. It submits that the trial court erroneously held that anticipatory breach resulted from defendants' actions, that there was no basis for the court to require defendants to fund a trust to pay future premiums, and that a genuine issue of material fact existed concerning the amount that the court ordered defendants to place into the trust. Plaintiff asserts that the evidence clearly shows an anticipatory breach occurred, that a basis exists to establish a trust to pay future premiums, and that no issue of material fact exists as to the amount to be placed into the trust.

According to Rule 4:46-2, summary judgment must be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2.

All papers on file must be considered. Even though the allegations of the pleadings may raise an issue of fact, if the other papers show that, in fact, there is no real material issue, then summary judgment can be granted. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75 (1954). An opposing party who offers no substantial or material facts in opposition to the motion cannot complain if the court takes as true the uncontradicted facts in the movant's papers. Ibid.

In consideration of a summary judgment motion, the trial court must not decide issues of fact: it must only decide whether there are any such issues. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995). Further, the trial judge must decide whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. . . . If there exists a single, unavoidable resolution of the alleged disputed issue of fact, that issue should be considered insufficient to constitute a "genuine" issue of material fact for purposes of Rule 4:46-2. [Thus,] when the evidence is "so one sided that one party must prevail as a matter of law," the trial court should not hesitate to grant summary judgment.

[Ibid. (internal citations omitted).]

On appeal, the court uses these same standards: it decides first whether there was a genuine issue of fact. If there is not, the court then decides whether the lower court's ruling on the law was correct. Prudential Prop. Ins. v. Boylan, 307 N.J. Super. 162, 167 (App. Div. 1998). The appellate court "owes no deference to the trial court's 'interpretation of the law and the legal consequences that flow from established facts . . . ' and, hence, [] its review of legal issues is de novo." Pressler, Current New Jersey Court Rules, comment 3.1 on R. 2:10-2 (2007).

I. ANTICIPATORY BREACH

An anticipatory breach of a contract has long been defined by our courts as "a definite and unconditional declaration by a party to an executory contract - - through word or conduct - -that he [or she] will not or cannot render the agreed upon performance." Ross Systems v. Linden Dari-Delite, 35 N.J. 329, 340-41 (1961); Holt v. United Sec. Life Ins. Co., 76 N.J.L. 585 (E. & A. 1909); Miller & Sons Bakery Co. v. Selikowitz, 8 N.J. Super. 118 (App. Div. 1950); Dun & Bradstreet, Inc. v. Wilsonite Prods. Co., Inc., 130 N.J.L. 24 (Sup. Ct. 1943); O'Neill v. Supreme Council Am. L. of Honor, 70 N.J.L. 410 (Sup. Ct. 1904). Anticipatory repudiation has also been defined as a total breach of contract which arises from "a positive statement to the promisee or other person having a right under the contract, indicating that the promisor will not or cannot substantially perform his [or her] contractual duties. . . ." Brakarsh v. Brown, 294 N.Y.S. 848, 850 (Sup. Ct. Kings County 1937). If the breach is material, that is, the breach "goes to the essence of the contract," the non-breaching party may treat the contract as terminated and refuse to render continued performance. Ross Systems, supra, 35 N.J. at 341. In the instant matter, the court did not err in finding that the evidence demonstrates an anticipatory breach by defendant.

Defendant's first point of argument is that, contrary to Rules 1:7-4 and 4:46-2, the court did not explain the basis for its conclusion that there was an anticipatory breach. This argument has no merit in light of the court's discussion of breach in the record of the February 17, 2006, hearing when it considered and denied LPI's motion to dismiss. There, the court made clear that it reviewed the evidence before it and stated:

I have a letter or an email. I have an affidavit. One would think from reading the two together that they were written by two different people, looking at two different contracts. But surprisingly, they're written by the same person, looking at the same contract. There is no question in my mind whatsoever at this junction that paragraph 8 of the contract obligates the company to do precisely what Mr. Peddin said in his most recent affidavit. . . .

. . . . . . . And of course the first email I read, if that is not an anticipatory breach, I don't know what is. The fact that later on they said oh well, we paid it, we'll pay. That's not the court's purpose to look into the mindset or the reasoning on the plain language of that document presented to Mr. Cohen, there was a breach.

Reading the court's oral opinion as a whole, it is clear that the court considered the facts and adequately stated its conclusions of law consistent with the requirements of Rules 1:7-4(a) and 4:46-2(c). In addition, the court's determination that an anticipatory breach occurred in this case is supported by proofs in the record.

LPI's letter of August 15, 2005 clearly declared that LPI would no longer fund any portion of plaintiff's premiums other than those allocable to her life insurance policy and that she "will be responsible for the premium on the health policy to the extent you elect to keep it in force." Peden's subsequent e-mail of September 19, 2005 contained a positive statement from LPI that it would not fulfill its duties to pay her health premiums, "Ms. Smith's claim is bereft of any legal or factual basis and we will use all means at our disposal to combat any frivolous action which may be asserted against us." A second e-mail sent that same day by LPI asserted, "we have no liability for payment of Ms. Smith's health insurance premiums. . . ." A September 21, 2005 e-mail from Peden threatened "an immediate motion for sanctions" and costs if litigation was commenced by plaintiff against LPI. Likewise, a September 22, 2005 e-mail from Peden stated that LPI "has graciously and without consideration paid Ms. Smith's health insurance premium when we were not obligated to do so." These statements completely contradict Peden's affidavit that, in fact, LPI has an obligation to pay the health insurance premiums of plaintiff. Based on these various communications, the court did not err in finding an anticipatory breach because they constituted definite and unconditional declarations that LPI would not fulfill its contractual obligations.

Defendant claims for the first time that the e-mails were wrongly considered by the trial court because rather than being properly placed before the court as evidence pursuant to Rule 1:6-6, they were submitted as exhibits to the complaint or to plaintiff's briefs in support of her order to show cause. The September 19th e-mails were originally attached to plaintiff's complaint and because the complaint was verified by plaintiff, it served as the functional equivalent of an affidavit. See Pressler, Current New Jersey Court Rules, comment 2 on R. 1:4-4(b) (2007). In addition, although the e-mail chain containing Peden's September 21-22 reiterations of LPI's original repudiation were attached to a brief and were not verified, their authenticity went unchallenged by defendant until this point. Since all of the e-mails were confirmatory of LPI's August 15, 2005 repudiation, in no event could the trial court's consideration of them be said to be "clearly capable of producing an unjust result," much less constitute the "plain error" required for an appellate court to review an issue not raised in the trial court.

Finally, LPI asserts that the disputed e-mails do not support the conclusion that there was a definite and unconditional declaration by LPI that it would not continue to pay plaintiff's health premiums. As discussed above, a plain reading of the e-mails demonstrates that LPI intended to breach its contract with plaintiff.

In addition, the fact that LPI belatedly paid the August 2005 premiums before legal proceedings were filed did not cure the breach. First, defendant had threatened to cut off payments of plaintiff's health premiums in the past. Thus, her filing of suit even after payment was made was to secure her interests and prevent a subsequent lapse of payment. Second, when LPI made its payment of the August 2005 premiums, it did so only after the thirty-day grace period for late payments had expired and was able to do so only because plaintiff tendered a small fraction of the premium and requested more time in which to pay from the Guardian. Thus, it cannot be said that defendant's late payment before the suit cured the breach. In addition, defendant's past conduct supports plaintiff's doubt about whether payments would be cut off again in the future without advanced notice.

Based on the foregoing, we are satisfied there was sufficient evidence in the record to support the trial court's findings of an anticipatory breach of contract under our law.

II. REMEDY

In fashioning a remedy for this case, the trial court ordered defendants "to place the sum of $837,000.00 in trust for plaintiff's benefit" with any corpus remaining upon plaintiff's death to be returned to LPI. The court found that a trust was appropriate and "that security need be established" based upon defendant's prior conduct, specifically its "absolute disregard for the contract [and its] insensitivity to place upon the plaintiff the burden and the fear that the very insurance, the very - - the vehicle for funds for medications which have kept her [a]live for the last ten years . . . would be taken away." The trial court cited as support for the formation of the trust, Cipala v. Lincoln Tech. Inst., 179 N.J. 45 (2004) for the proposition that "[a]bsent a trust, plaintiff will be left to rely on defendant's good faith to make payments." The court also relied upon Stopford v. Boonton Molding Co., 56 N.J. 169 (1970) as further support of its creation of a trust and its entry of specific performance on the ground that plaintiff has the choice of remedies where there has been an anticipatory repudiation.

On appeal, defendants argue that the court entered a nontraditional remedy which has no basis in New Jersey law. Stating that both Cipala and Stopford are inapposite and inapplicable in this case because they concern employment disputes and the breach has been cured, defendants argue that the creation of a trust was improper because it would make plaintiff more than whole and because the trial court went far beyond the relief sought in plaintiff's complaint.

Plaintiff argues that it requested various forms of relief in its complaint and did not simply request specific performance. Moreover, plaintiff claims that the cases relied upon the court clearly support its decision to establish a trust in this case.

A review of the law supports establishing a trust as one acceptable remedy in situations such as this. In Stopford, a pension case involving a damage claim based upon an alleged anticipatory breach by an employer of an employee's vested contractual right to a lifetime pension, the Supreme Court held:

When defendant-company terminated the pension plan and advised plaintiff that he would receive no further retirement benefits, its action amounted to a renunciation - - a total anticipatory breach of its agreement to pay plaintiff $296.17 monthly during his lifetime. When that occurred, plaintiff had a choice of remedies. He could elect to sue for the accumulated benefits from October 1, 1966 to the date of trial and for a judgment of specific performance of the obligation to pay the benefits until his death. Or he could treat the breach as total and seek recovery of one lump sum representing the present value of the monetary benefits he could have received over his expectancy.

[56 N.J. at 188.]

In Cipala, the case predominantly relied upon by the trial court to support the formation of a trust, the Supreme Court addressed whether the creation of a trust fund was an appropriate remedy for an employee when there has been a wrongful breach of a disability contract by an employer. In Cipala, the employee was injured on the job and sought long-term disability benefits from her employer under its long-term disability plan. However, she was told that she was not covered by the policy. The employee filed a breach of contract action, and the jury found a breach occurred because the employer had not provided the long-term disability benefits pursuant to its insurance plan. In that case, the Supreme Court held that she was entitled to a judgment for specific performance but that she could not recover a lump sum for present value of future disability payments because her disability was not shown to be permanent. The Court therefore, found the imposition of a trust to be appropriate, holding "[t]he trust device gives Cipala no more than she would have received if the contract had not been breached." The Supreme Court further held that when remedies are not feasible "because a substitute insurance policy or annuity is not practical, such as here, the trial court may employ other non-traditional remedies to achieve the goal of placing plaintiff in the position she would have been in if the contract had been performed." Cipala, supra, 179 N.J. at 53-54. The Court also found a trust appropriate because "absent a trust device, plaintiff would be left to rely on defendant's good faith to make the payments. In light of defendant's prior breach, plaintiff justifiably had little faith that defendant would comply with the obligation to pay the regularly scheduled payments during her disability." Id. at 54.

In this case, Cipala, Stopford, and equitable principles support the trial court's creation of a trust for plaintiff's benefit as an acceptable remedy because the trust is intended to make plaintiff whole in the present and in the future. See Knecht v. Mandek Corp., 281 N.J. Super. 439, 447 (App. Div. 1995) (holding "the court of equity has the power of devising its remedy and shaping it so as to fit the changing circumstances of every case and the complex relations of all the parties") (quoting Sears Roebuck & Co. v. Camp, 124 N.J. Eq. 403, 411-12 (E. & A. 1938). However, while we find that the creation of a trust in a situation such as this may be an appropriate remedy, we are troubled that this remedy, as well as the amount and language of the trust, were decided by the court without affording all parties a full plenary hearing.

In calculating the amount of the trust, the trial court simply took the actuarial life expectancy of a fifty-year-old woman from the table of mortality contained in the Court Rules and multiplied that number by the amount of the then-current annual premium to arrive at a corpus sum of $837,357. The trial court made no allowance for premium increases. Moreover, the trial court did not afford all parties a full plenary hearing concerning what remedies might accomplish the court's end as well as the amount of the corpus and language of any trust, if one is found to be the appropriate remedy.

Defendants assert that the trial court erred in basing its calculation of the trust corpus on the most recent premium but failed to consider that under the terms of the policy, the premium would likely decrease when plaintiff becomes eligible for Medicare. We also note from defendants' counsel's argument before the trial court and our court, his assertion that plaintiff's continued employment is a condition of continued coverage under the policy.

Due process is implicated in this case because the funding of the trust affects defendants' interest by depriving them of continued use of some portion of their property. See Township of Montville v. Block 69, Lot 10, 74 N.J. 1, 8 (1977) (holding that divestiture of property must conform to due process principles). "In New Jersey, as elsewhere, "'[t]he essential components of due process are notice and as an opportunity to be heard'", First Resolution Inv. v. Seker, 171 N.J. 502, 513-514 (quoting Netting v. Globe Slicing Mach. Co., 153 N.J. 371, 389 (1998)). We agree that the trial court should have held a plenary hearing so that expert opinions concerning plaintiff's life and work expectancy and other relevant evidence could be presented and evaluated by the court in fashioning a remedy, whether it be a trust or another appropriate remedy.

Thus, we have concluded from a review of the record that while a trust may ultimately be the appropriate remedy the matter of the nature of the remedy, the funding of same, and its operation should be remanded to the trial court for a plenary hearing.

III. JURISDICTION

Defendant LPI argues on appeal that the trial court erred by finding that the courts of New Jersey have personal jurisdiction in this matter. LPI states that it is not subject to the general jurisdiction of New Jersey courts because it does not conduct continuous and systematic business activities in New Jersey. Specifically, it has no office in the State, does not employ any advertising in the State, and does not actively conduct business here. LPI also asserts that it is not subject to the specific jurisdiction of this State because its interstate communications with plaintiff during the formation of the contract were de minimis, its headquarters are located in Texas, the contract was prepared in Texas and provides that Texas law governs. In addition, LPI asserts that plaintiff was not a full-time resident of New Jersey when the contract was executed in 1994 and no facts were demonstrated that defendant could have anticipated being haled into a New Jersey court.

Plaintiff argues that there are sufficient contacts in New Jersey to establish both general and specific jurisdiction. Plaintiff notes that while defendant does not have a physical office in New Jersey, LPI has a presence in the state, it corresponds with plaintiff's New Jersey doctors, regularly purchases life insurance policies in New Jersey, holds itself out as being able to do business in all fifty states, and conducts a nationwide effort to attract policy holders in New Jersey. With regard to specific jurisdiction, plaintiff asserts that LPI has availed itself of the New Jersey forum by creating contracts with a New Jersey resident and by conducting business nationwide.

The trial court held LPI's "nationwide efforts to attract potential sellers and potential investors" subject it to the general jurisdiction of this State. The trial court also held that "[t]here is no question in respect to specific jurisdiction that this New Jersey court has jurisdiction over the defendant." The court determined that specific jurisdiction existed on the ground that LPI contacted plaintiff through a third party, purposefully availed itself of doing business in New Jersey, and deliberately engaged in activities within New Jersey which created continuing obligations between itself and the New Jersey plaintiff. In addition, citing equitable principles, the court noted that plaintiff's website advertisements that it does business in all fifty states indicates an expectation to be haled into court in each of those states and also noted that the fact that plaintiff subsequently moved to Pennsylvania was irrelevant.

In addressing jurisdictional issues, which are matters of law, a reviewing court considers the issue de novo. Mastondrea v. Occidental Hotels Mgmt., 391 N.J. Super. 261, 268 (App. Div. 2007). We have discussed the principles concerning personal jurisdiction in the recent past. Our court has held that:

A New Jersey court may exercise in personam jurisdiction over a non-resident defendant "consistent with due process of law." New Jersey's long-arm jurisdiction extends to the "outermost limits permitted by the United States Constitution." As our Supreme Court recently reiterated:

[T]he test for "due process requires only that in order to subject a defendant to a judgment in personam, if he [or she] be not present within the territory of the forum, he [or she] have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" . . . Thus the issue before us is whether plaintiff's cause of action against these defendants arises out of a sufficient relationship between defendants and the State of New Jersey to invoke this court's specific jurisdiction, which requires that defendants have certain "minimum contacts" with the state. "In the context of specific jurisdiction, the minimum contacts inquiry must focus on 'the relationship among the defendant, the forum, and the litigation.'"

Due process is satisfied "so long as the contacts resulted from the defendant's purposeful conduct and not the unilateral activities of the plaintiff." In determining whether the defendant's contacts are purposeful, a court must examine the defendant's "conduct and connection" with the forum state and determine whether the defendant should "reasonably anticipate being haled into court [in the forum state]." "[T]he existence of minimum contacts turns on the presence or absence of intentional acts of the defendant to avail itself of some benefit of a forum state." The minimum contacts of a defendant are evaluated on a case-by-case basis.

Because "minimum contacts" requires that the contacts supporting jurisdiction result from the defendant's purposeful conduct and not the unilateral actions of the plaintiff, New Jersey courts have found it significant to identify the initiator of the commercial contact.

[Bayway Ref. v. State Util., 333 N.J. Super. 420, 428-30 (App. Div.), certif. denied, 165 N.J. 605 (2000) (internal citations omitted).]

In weighing the sufficiency of the contacts our Supreme Court has considered whether the cause of action arose out of the defendant's contacts within this State. If the two are related, the contacts support the exercise of jurisdiction . . . The more the defendant has purposefully directed its activities to the forum state, and the greater the benefits it has received from its contacts within the forum state, the more reasonable the exercise of jurisdiction becomes. [Waste Mgmt., Inc. v. Admiral Ins. Co., 138 N.J. 106, 123 (1994).]

The Court further elaborated that "the defendant must be aware that the transaction 'will have direct consequences in [the forum state] such that it should [be] aware of the possibility of litigation arising in that forum.'" Id. at 124 (quoting Lebel v. Everglades Marina, Inc., 115 N.J. 317, 328 (1989).

Specific jurisdiction exists over LPI because New Jersey exercises long-arm jurisdiction to the fullest extent permissible and because minimum contacts have been demonstrated under applicable case law.

Defendant LPI has purposefully availed itself of doing business in New Jersey by invoking the benefit and protection of its laws. After entering into the purchase agreement with plaintiff, LPI sustained a continuous business relationship with a New Jersey resident. It also maintained contact with plaintiff's New Jersey physicians, corresponding periodically with their respective offices. Moreover, by committing to pay plaintiff's insurance premiums well into the future, LPI knowingly and purposefully created obligations between itself and, at the time, a resident of New Jersey and has benefited from its transactions in this State. Its contractual relationship with plaintiff, together with its continued obligation to her and its nationwide effort to attract business, including in New Jersey, have established sufficient minimum contacts to extend New Jersey's specific jurisdiction over LPI. Indeed, it is well-established that:

[W]here the defendant "deliberately" has engaged in significant activities within a State or has created "continuing obligations" between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by "the benefits and protections" of the forum's laws, it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well. [Burger King v. Rudzewicz, 471 U.S. 462, 475-76, 105 S.Ct. 2174, 2184, 85 L.Ed. 2d 528, 543 (1985).]

Moreover, LPI's claimed lack of a physical presence in New Jersey is of minor concern to the overall due process analysis because of its purposeful availment of New Jersey's benefits. The United States Supreme Court has held:

Jurisdiction in these circumstances may not be avoided merely because the defendant did not physically enter the forum state. . . .

So long as a commercial actor's efforts are "purposefully directed" toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there. [Id. at 476, 105 S.Ct. at 2184, 85 L.Ed. 2d at 543].

In this case, LPI reached beyond its headquarters in Texas and agreed to create a continuing obligation to pay plaintiff's insurance premium, thus manifestly availing itself of the benefit of doing business in New Jersey. In fact, it has not disputed plaintiff's claim that it continues to periodically correspond with her New Jersey physicians to obtain her medical records for business purposes.

Because LPI does business in New Jersey and on a national level as well, it is reasonable to require defendant to defend itself in this forum. Moreover, when the contract was signed, plaintiff was a citizen and resident of New Jersey, and at the present time, her physicians are in New Jersey. Thus, the courts of this State have a strong interest in adjudicating this dispute. In addition, we perceive no reason to compel plaintiff to litigate her case in a distant jurisdiction, rather than in New Jersey.

Although defendant claims that it could never have expected to been haled into a New Jersey court if a legal dispute arose because the contract was drafted in Texas and contains a choice of law provision expressing preference for Texas law, defendant certainly contemplated having to one day litigate in New Jersey considering the past disputes between plaintiff and defendant and the facts that plaintiff resided in New Jersey and her doctors were located in New Jersey. It should also be noted that while the Funds Transfer Agreement states that it "shall be governed by and construed in accordance with the Laws of the State of Texas," there is no choice of forum provision in the agreement, indicating that defendant knew it would likely have to litigate outside of its home state. Consequently, defendant cannot argue that it would be contrary to notions of "fair play and substantial justice" if it were forced to defend its claims in the New Jersey courts. Based on the foregoing, the trial court did not err in finding that New Jersey had specific jurisdiction over LPI and defendant's motion to dismiss on this ground was properly denied. Because we find specific jurisdiction over LPI exists in this matter we need not address defendant LPI's arguments concerning general jurisdiction.

III. JUSTICIABILITY

Defendants submit that the trial court should have dismissed this dispute when they filed their motion to dismiss because there was no anticipatory breach of contract and charges that the court improperly rendered an advisory opinion by ruling in plaintiff's favor. Plaintiff asserts that there was an actual controversy and that an anticipatory breach has been demonstrated.

To be actionable, the case must present "a real and substantial controversy admitting of specific relief. . . ." Dworman v. Mayor and Bd. of Aldermen, etc., Morristown, 370 F. Supp. 1056, 1079 (D.N.J. 1974). Thus, a "judicial proceeding must be adversary in character, and not illusory or academic. . . ." Trustees of Rutgers College v. Richman, 41 N.J. Super. 259, 284 (Ch. Div. 1956). In this case, the trial court's judgment was not advisory in nature because it did not concern a merely academic or illusory dispute but a substantive contractual dispute.

Although LPI made the payments two months before suit was filed, the payment was still late and a breach of the contractual terms had occurred. In addition, contrary to defendants' assertions that there was no anticipatory breach because there was no definite statement by LPI that it would not pay future health premiums, there is overwhelming evidence in the record to show that defendants' intention was to cease making the required future payments, particularly Peden's e-mails and affidavits. In light of the proofs and defendants' actions before suit was filed, the court acted properly in denying the motion to dismiss because there was a real and substantial controversy between the parties which rested on certain facts concerning breach of contract.

IV. RECUSAL

Defendants argue that the trial court erred by denying their request that the trial judge recuse himself from this case. Specifically, defendants assert that the judge's partiality was clear when, after denying defendants' motion to dismiss, he entered judgment against them without providing an opportunity to be heard. Defendants further complain that the trial judge evidenced partiality when he ordered relief that was beyond that requested in the complaint. In addition, defendants point to his entering a sua sponte judgment on April 18, 2006, which he later reversed. Lastly, defendants submit that the judge should have recused himself on the basis of comments made during the April 18, 2006 hearing.

Rule 1:12-1 governs the disqualification and disability of judges and provides, in relevant part, as follows:

The judge of any court shall be disqualified on the court's own motion and shall not sit in any matter, if the judge (d) has given an opinion upon a matter in question in the action; or (f) where there is any other reason which might preclude a fair and unbiased hearing and judgment, or which might reasonably lead counsel or the parties to believe so.

In addition, Canon 3(C)(1) of the Code of Judicial Conduct states:

A judge should disqualify himself or herself in a proceeding which the judge's impartiality might reasonably be questioned, including but not limited to instances where:

(a) the judge has a personal bias or prejudice concerning a party or a party's lawyer or has personal knowledge of disputed evidentiary facts concerning the proceeding. . . .

Furthermore,

[a] trial judge not only has the right, but moreover, has the obligation to recuse himself on his own motion if he is satisfied that there is good cause for believing that his not doing so might preclude a fair and unbiased hearing and judgment, or might reasonably lead counsel or the parties to believe so. [State v. Tucker, 264 N.J. Super. 549, 554 (App. Div. 1993), certif. denied, 135 N.J. 468 (1994) (internal quotations omitted).]

Thus, "[i]t is within the sound discretion of the judge, in the first instance, whether he should disqualify himself." Matthews v. Deane, 196 N.J. Super. 441, 445 (Ch. Div. 1984) (citing State v. Flowers, 109 N.J. Super. 309, 311-12 (App. Div. 1970)), appeal dismissed, 206 N.J. Super. 608 (App. Div. 1986). It has been held that in reviewing whether a trial judge should have recused himself or herself, the only inquiry to which an appellate court must respond is whether a reasonable person, knowing all the acknowledged circumstances, might question the judge's continued impartiality. Alexander v. Primerica Holdings, 10 F.3d 155, 164 (3d Cir. 1993).

In this case, a reasonable person possessing knowledge of all of the facts would not conclude that the judge demonstrated personal bias or prejudice toward defendants contrary to the Court Rules, the Code of Judicial Conduct, and relevant case law. There is no evidence clearly demonstrating that he was biased against defendants. The judge permitted defendants the opportunity to submit relevant discovery, offered defendants several hearings, and, as discerned from the record, considered defendants' papers and pleadings fairly and judiciously. There is no evidence clearly demonstrating that he was biased.

V. DISCOVERY

Defendants argue that the trial court's summary judgment should be reversed because they were not permitted to take the deposition of plaintiff or a representative of Guardian and thus were deprived of essential information, including the amount of future premiums, how Medicare would affect these premiums, and possible circumstances which would cause Guardian to cancel the health policy.

Discovery need not be completed before summary judgment is granted if further discovery will patently not change the outcome. Wellington v. Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.), certif. denied, 175 N.J. 493 (2003); Young v. Hobart West Group, 385 N.J. Super. 448-469, 470 (App. Div. 2005).

In this case, the evidence presented demonstrating that an anticipatory breach had occurred was overwhelming and there was no genuine issue of material fact that LPI breached the contract with plaintiff. Depositions of the plaintiff or a representative of Guardian, and information on Medicaid or future premiums would not have patently changed the court's finding of summary judgment on the issue of anticipatory repudiation in light of the discovery that had already been conducted and is currently in the record. Thus, the court did not err in granting summary judgment despite defendants' wish to seek further discovery.

VI. DISMISSAL

Defendants argue that despite the fact that plaintiff failed to place any evidence before the trial court regarding the liability of LPHI and Sterling, the trial court only dismissed those defendants without prejudice, leaving them vulnerable to a possible future lawsuit by the plaintiff. Defendants assert that there was no basis for the trial court's ruling and it must be reversed so that the claims against LPHI and Sterling can be dismissed with prejudice. Plaintiff argues that the court did not abuse its discretion by dismissing Sterling and LPHI without prejudice.

A judgment of "dismissal with prejudice constitutes an adjudication on the merits as fully and completely as if the order had been entered after trial." Alan J. Cornblatt, P.A. v. Brown, 153 N.J. 218, 243 (1998) (internal quotation omitted). "In contrast, a dismissal without prejudice generally indicates that there has been no adjudication on the merits of the claim, and that a subsequent complaint alleging the same cause of action will not be barred simply by reason of its prior dismissal." Ibid. (quoting Velasquez v. Franz, 123 N.J. 498, 507 (1991) (internal quotations omitted)). "[T]he decision whether to dismiss with or without prejudice is reposed in the sound discretion of the trial court. . . ." James v. Bessemer Processing Co., 155 N.J. 279, 314 (1998) (internal quotations omitted).

The trial court's decision to dismiss LPHI and Sterling without prejudice was proper and did not constitute an abuse of discretion. It is clear that both defendants were dismissed without prejudice because the claims against them were never adjudicated since the trial court's disposition of the claims against LPI made it unnecessary to do so at the time.

Accordingly, we affirm the trial court's finding of an anticipatory breach; its denial of the motion to recuse; its denial of defendant's motion to dismiss the complaint based on lack of personal jurisdiction; its denial of the motion to dismiss the case because there was no actual controversy; and its dismissal of the claims against LPHI and Sterling Trust without prejudice. We reverse the court's order establishing a trust and requiring it to be funded with approximately $837,000. We remand to the trial court the issue of the appropriate remedy to be established given the finding of an anticipatory breach. On remand, the establishment of the remedy should follow a plenary hearing on the issue.

Affirmed in part, reversed in part and remanded. We do not retain jurisdiction.

20071003

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