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Tunica Pharmacy, Inc. v. Cumberland Mutual Fire Insurance Co.


June 23, 2010


On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-5827-08.

Per curiam.


Argued March 3, 2010

Before Judges Payne, Miniman and Waugh.

Plaintiff, Tunica Pharmacy, Inc., a lead plaintiff in a class action lawsuit filed against defendant, Express Products, Inc., appeals from the dismissal without prejudice of an insurance coverage action instituted by it and Business Pro Communications, Inc.*fn1 against a liability insurer of Express Products, Cumberland Mutual Fire Insurance Company, on the ground of comity. We affirm, finding that (1) an earlier-filed insurance coverage action was instituted by Cumberland in the United States District Court for the Eastern District of Pennsylvania and remains pending; (2) the parties to the two actions are substantially the same as the result of the undertaking of Tunica and the class it represents to defend the interests of Express Products in the Pennsylvania coverage dispute; (3) a substantial identity exists in the issues presented in the two actions; and (4) special equities do not require continuation of the New Jersey litigation.


On December 30, 2004, Business Pro Communications, Inc., an Illinois corporation, filed a class action complaint against Express Products in the Nineteenth Judicial Circuit, Lake County, Illinois. In that suit, Business Pro claimed that Express Products had violated the Telephone Consumer Protection Act (TCPA), 47 U.S.C.A. § 227, and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. 505/2, and had committed common-law conversion of fax paper, toner, fax memory, and valuable time by sending unsolicited fax advertisements to businesses nationwide. In its complaint, Business Pro described the putative class as:

All persons who (1) on or after four years prior to the filing of this action, (2) were sent telephone facsimile messages of material advertising the commercial availability of any property, goods, or services by or on behalf of Defendant, and (3) with respect to whom Defendant cannot provide evidence of prior express permission or invitation for the sending of such faxes.

Tunica, a Mississippi corporation, was named as an additional plaintiff and class representative in an amended complaint filed on February 7, 2008.

During the period at issue, Express Products was covered by four policies of insurance, two issued by Maryland Casualty Company and two issued by Cumberland. At some point, Express Products tendered the defense of the action to Cumberland, which had insured the company pursuant to policy number S201221 from April 26, 2001 through April 26, 2003. Cumberland denied coverage, and on June 20, 2008, it filed a declaratory judgment action against Express Products in the United States District Court for the Eastern District of Pennsylvania seeking a declaration that it had no duty to defend or indemnify Express Products in connection with the class action litigation. Neither Business Pro nor Tunica was named as a defendant in Cumberland's coverage suit.

Five months later, on November 19, 2008, Tunica and Business Pro filed a complaint against Cumberland and Express Products in the Superior Court of New Jersey, Camden County, seeking a declaration that Cumberland owed a duty of defense and indemnification to Express Products.

On May 29, 2009, Business Pro and Tunica entered into a settlement agreement with Express Products. The agreement recited the allegations of the complaint; the existence of a purported class of 2,188 persons; and the alleged faxing of 125,191 unauthorized advertisements to class members in the period from February 27, 2002 through October 25, 2004, resulting in alleged statutory damages pursuant to the TCPA of $62.5 million. Recognizing that the assessment of such damages against Express Products would result in the company's bankruptcy, the parties agreed to settle the litigation for the sum of $7,999,999.96, collectible only from the proceeds of the two policies of insurance issued by Cumberland to Express Products and two policies issued by Maryland Casualty to it. The agreement thus contained a covenant not to execute that provided:

The Class agrees not to seek to execute, attach or otherwise acquire any of the property or assets of Defendant and/or its officers, directors, shareholders, and employees of any kind other than the four Insurance Policies and claims against Defendant's insurers to satisfy or recover on the Judgment, and agrees to seek recovery to satisfy the Judgment only against Defendant's insurers and from the Insurance Policies issued to Defendant including, but not limited to, those four Insurance Policies issued by Defendant's two insurers, Cumberland Mutual Fire Insurance Company and Maryland Casualty Company.

Significantly, the settlement agreement also stated, as a "Condition Precedent":

Both Cumberland Mutual and Maryland have initiated coverage lawsuits against Defendant to void coverage and claim no obligation to defend or indemnify. Plaintiffs have also initiated coverage lawsuits against Cumberland Mutual, Maryland, and Defendant.

The Class will pursue recoveries against Cumberland Mutual and Maryland. After preliminary approval, Class counsel will undertake, at no cost to Defendant, the defense of Defendant in the four coverage lawsuits, as well as any filed subsequently, and prosecute actions to permit recovery against Cumberland Mutual and Maryland.

Defendant understands that there is a conflict between Defendant and the Class with regard to Class Counsel's representation of Defendant in the coverage lawsuits and expressly waives any such conflict to permit Class Counsel to continue their representation of the Class. In the event final approval is not given to this Settlement, Class Counsel shall have the right to withdraw from their representation of Defendant in the four coverage lawsuits, as well as any filed subsequently.

In a paragraph entitled "Relief to Plaintiffs and the Class," Express Products agreed to allow the entry of judgment against it in the amount specified on the condition that recovery be limited to the four insurance policies, and the paragraph further provided:

Plaintiffs, the Class, and their counsel, at their sole expense, will pursue and attempt to recover the judgment against the four applicable insurance policies, Cumberland Mutual, and Maryland.

The agreement additionally contained a cooperation clause that stated:

Plaintiffs and Defendant agree to cooperate fully with one another to effect the consummation of this Settlement Agreement, to achieve the settlement provided for herein, and to obtain recovery thereon. Defendant agrees to provide assistance and information to Plaintiffs' counsel and to make available at its cost and expense its current officers, directors, and employees to testify in any action against Cumberland Mutual and Maryland to collect the judgment.

The agreement provided that plaintiffs' attorneys would receive attorneys' fees of 33-1/3 percent of the recovery plus litigation expenses.

On June 15, 2009, Business Pro and Tunica moved in the Illinois court for preliminary certification of the class and for preliminary approval of the settlement. The motion was granted on August 19, 2009, and Tunica was appointed as one of the class representatives.*fn2 A fairness hearing was scheduled for October 13, 2009.

On June 24, 2009, Express Products filed a motion to dismiss Cumberland's Pennsylvania coverage action on the ground that Tunica and Business Pro were indispensable parties that were not joined in the action. The motion was denied on October 15, 2009.

On June 26, 2009, a motion by Cumberland to dismiss the New Jersey coverage action on the ground of comity was heard. Following argument, the judge granted the motion, premising his oral decision primarily on the Supreme Court's decision in Sensient Colors, Inc. v. Allstate Insurance Co., 193 N.J. 373 (2008). Tunica has appealed.


"The determination of whether to grant a comity stay or dismissal is generally within the discretion of the trial court." Id. at 390 (citing Gosschalk v. Gosschalk, 48 N.J. Super. 566, 579 (App. Div.), aff'd, 28 N.J. 73 (1958)). However, we need not defer to the judge's discretion if he has misconceived the applicable law or misapplies it to the facts. Johnson v. Johnson, 320 N.J. Super. 371, 378 (App. Div. 1999). Here, we find no abuse of discretion.

As the motion judge recognized, Sensient Colors provides the legal framework by which Cumberland's comity motion must be evaluated. The Sensient Colors action resulted from a coverage dispute between Zurich-American Insurance Company and its insured, Sensient Colors, arising from environmental contamination emanating from a former Camden factory site owned by Sensient Colors, which had spawned a clean-up action by the U.S. Environmental Protection Agency (EPA) and the EPA's subsequent demand for reimbursement of clean-up costs, as well as a civil law suit by an adjacent property owner. Upon tender of the defense of the actions to Zurich, the insurer offered coverage to Sensient Colors under a reservation of rights, but it then filed a coverage action against Sensient Colors and its other insurers in a New York trial court. Sensient Colors responded by filing its own coverage action in New Jersey.

After Zurich successfully moved for dismissal of the New Jersey action, we reversed, Sensient Colors Inc. v. Allstate Ins. Co., 388 N.J. Super. 374 (App. Div. 2006), and our determination was affirmed by the Supreme Court. In reaching its decision, the Court stated that the party moving for a comity dismissal has the burden of establishing that "an earlier-filed action in another state 'involve[s] substantially the same parties, the same claims, and the same legal issues.'" Sensient Colors, supra, 193 N.J. at 391 (quoting American Home Prods. Corp. v. Adriatic Ins. Co., 286 N.J. Super. 24, 37 (App. Div. 1995)). However, the Court emphasized the fact that only "substantial" similarity was required. It stated:

We note that the moving party is required only to show that the parties, claims, and issues in the two lawsuits are substantially the same, not exactly the same. Mandating a complete identity of parties, claims, and issues would unfairly limit the exercise of comity on the basis of minor or technical differences between the two suits and give a party an undesirable incentive to change the format, and not the substance, of a pleading for the purpose of defeating comity. [Id. at 391-92.]

The Court then stated that if this preliminary burden were met, then the burden would shift to the party arguing that jurisdiction should be retained in the second-filed action. That party would have to demonstrate that it would not have the opportunity for adequate relief in the first-filed jurisdiction or that another special equity overcame the presumption favoring the first-filed action. Id. at 392-93.

Turning to the matter before it, the Court found it unnecessary to determine whether the New York and New Jersey actions involved substantially similar parties and claims*fn3 because it concluded that special equities strongly supported an exercise of jurisdiction by New Jersey in the case. Id. at 393. In particular, the Court focused on New Jersey's strong public policy interest in remediating environmental contamination within the State and ensuring that adequate funds were available for that purpose - interests that could only be protected in New Jersey as the result of the opposing approaches of New York and New Jersey to the interpretation of insurance policy pollution exclusion clauses. Id. at 393-96. In that regard, the Court noted that, as a matter of public policy, New Jersey will not enforce the standard pollution-exclusion clause unless the discharge was intentional. Id. at 395 (quoting Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am., 134 N.J. 1, 31 (1993), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed. 2d 878 (1994)). New York, in contrast, had enacted a law that required insurance carriers to include a pollution exclusion clause to deter companies from dumping toxic waste in the environment. Ibid. Although the law was now repealed, the Court observed: "we have no reason to believe that [a New York court] would refuse to enforce such a provision on public policy grounds." Id. at 395-96.

Additionally, the Court noted the presence of other special equities, which it found to be "deserving of lesser weight and by themselves not dispositive in this case." Id. at 396. They included the fact that the New Jersey action had progressed further than that in New York, as well as forum non conveniens factors. Id. at 396-97.

In the present case, unlike Sensient Colors, our first focus must be on the question of whether Cumberland met its burden of demonstrating that the Pennsylvania and New Jersey actions involve substantially the same parties, the same claims, and the same legal issues. Tunica argues that Cumberland's burden of demonstrating the substantial identity of the parties was unmet because the Pennsylvania action does not include Tunica as a party, and no assignment of the rights of Express Products to Tunica occurred.

We conclude, however, that the terms of the settlement are such as to render Tunica, and through it, the class, to be among the real parties in interest in any litigation over coverage for the costs of defense and the settlement between the class and Express Products. Tunica suggests in its reply brief that, once the settlement occurred and judgment had been entered, coverage became an "academic matter" for Express Products. We do not necessarily take the argument to that extreme. Nonetheless, it is clear to us that, by virtue of the settlement, the class and its counsel maintain a compelling interest in establishing the existence of coverage and, to that extent, its interest is coextensive with that of Express Products. Were it otherwise, class counsel could not ethically represent Express Products in connection with the Pennsylvania coverage action, as it has undertaken to do.

Protection of the right of the class to litigate the issue of coverage is insured by provisions of the settlement agreement, previously set forth, that require the class and its counsel to undertake the defense of Express Products in the four pending lawsuits instituted by its carriers, including the Pennsylvania coverage action, and by the cooperation clause set forth in that agreement.*fn4 Although an arrangement such as this may not previously have been the subject of comity analysis, it is clear to us that because of the present congruity of interests between Express Products, Tunica and the class and the unitary representation of their interests in the Pennsylvania action, Tunica and the class retain the ability to obtain adequate relief in the first-filed action, regardless of whether they are named as parties.*fn5 We find that fact to be dispositive of the issue presented.

Tunica additionally argues that the claims and issues in the New Jersey and Pennsylvania actions differ. It contrasts the relief requested in the following terms:

Plaintiffs ask the trial court to declare that Cumberland would be obligated to "pay any judgment entered against Express Products" and to declare the "payment obligations of Cumberland under its insurance polices." By contrast, Cumberland does not seek a declaration from the federal court regarding whether it must pay any judgment to Tunica, nor could it, because Cumberland failed to join Tunica. In sum, as Tunica seeks a declaration from the trial court regarding its rights, it asserts claims and raises legal issues that are not substantially similar to those at issue in [the Eastern District of Pennsylvania]. (Page references omitted.)

However, as Cumberland points out, "Tunica does not and cannot explain how it could have an entitlement to funds from Cumberland Mutual that does not arise from Express Products' entitlement to coverage under the Cumberland policies. Any rights of the injured party will necessarily be derivative of the rights of the policy holder." In fact, Cumberland filed the Pennsylvania action to determine its duties under the terms of its insurance policy. Tunica filed the New Jersey action to determine Cumberland's duties pursuant to the same policy. As a consequence, we find the coverage issues to be raised in both proceedings to be substantially similar, and we reject Tunica's arguments to the contrary.

Having found substantial identity of parties, claims and legal issues, we turn to the question of whether special equities overcome the presumption in favor of deference to the first-filed Pennsylvania action. In this regard, Tunica notes that of the 2,188 persons in the class and the 125,191 unauthorized advertisements sent by Express Products, 611 class members were New Jersey businesses, and they received 19,096 junk faxes as the result of the activities of Express Products during the time period at issue. It then seeks to equate New Jersey's interest in protecting those businesses from the receipt of junk faxes with the interest of New Jersey in remediating environmental contamination within the State and ensuring that adequate funds are available for that purpose.

However, Tunica points to no decision that would support its conclusion that New Jersey has a strong public policy in favor of protecting businesses from unauthorized use of fax paper, toner, and time. Nor does it suggest why a need to provide a remedy to New Jersey businesses would be a predominate concern when the beneficiaries of coverage litigation are principally from other jurisdictions. See Continental Ins. Co. v. Honeywell Int'l, Inc., 406 N.J. Super. 156, 181 (App. Div. 2009).

Tunica then argues that the Pennsylvania action was likely the result of the forum shopping based upon choice of law determinations that was disapproved in Sensient Colors, supra, 193 N.J. at 393-94. In support of that position, Tunica contrasts an unreported Law Division decision in Myron Corporation v. Atlantic Mutual Insurance Corp., No. BER-L-5539-06 (January 22, 2007), rev'd on other grounds, 407 N.J. Super. 302 (App. Div.), certif. granted, 200 N.J. 404 (2009), and a decision by the Massachusetts Supreme Judicial Court construing New Jersey law in Terra Nova Insurance Co. v. Fray-Witzer, 869 N.E.2d 565 (2007), with a decision in the Eastern District of Pennsylvania, Melrose Hotel Co. v. St. Paul Fire & Marine Ins. Co., 432 F. Supp. 2d 488 (E.D. Pa. 2006), aff'd o.b. sub. nom. Subclass 2 of the Master Class of Plaintiffs v. Melrose Hotel Co., 503 F.3d 339 (3d Cir. 2007).

In all the cases upon which Tunica relies, claims were made against the underlying insured corporations for violations of the TCPA and the state's consumer fraud and deceptive practices act, and for common law conversion as the result of the insured's act of sending unsolicited fax advertisements. Coverage actions resulted involving claims under policy property damage and under personal and advertising injury coverages. In Myron, the court denied summary judgment to the insured, finding an issue of fact to exist as to whether an injury to the fax recipient was expected or intended by the insured that would bar coverage under the definition of occurrence set forth in the policy's property damage coverage provisions. The court then found that the insurer's agreement, pursuant to its advertising injury coverage, to insure "[o]ral or written publication, in any manner, of material that violates a person's right of privacy," covered violation of a right to seclusion, and that the unsolicited fax transmissions violated such a right and were therefore covered. However, the court found issues of fact to exist as to whether the advertising injury was intended by the insured and thus excluded from policy coverage.

In Terra Nova, the Massachusetts Supreme Judicial Court construed similar policy language in accordance with New Jersey law, determining that property damage coverage did not exist because the injury was expected or intended from the standpoint of the insured. 869 N.E.2d at 570-71. However, after examining policy advertising injury coverage provisions like those in Myron, the Court construed "publication" to include the sending of faxes and violation of "privacy" to include violation of a person's right of seclusion. Id. at 572-74. The Court thus found a duty to defend to exist. Id. at 576.

In contrast to Myron and Terra Nova, in Melrose Hotel, a Pennsylvania District Court judge held that to obtain advertising injury coverage for "making known to any person or organization covered material that violates a person's right to privacy" the insured must demonstrate that the content contained in the covered material violated a person's right to secrecy and that it was made known to a third party. 432 F. Supp. 2d at 504. Further, the court concluded that coverage for injury to property was not afforded by the policy because the insured intended to cause the harm that befell class members. Id. at 510. Coverage was thus denied. Id. at 512. As stated previously, this decision was affirmed by the Third Circuit on appeal.

It is thus apparent from the foregoing that a conflict between the laws of New Jersey and Pennsylvania is likely to exist if, in fact, the reasoning of Myron is followed in the future in a precedential opinion. See R. 1:36-3 (declaring that "[n]o unpublished opinion shall constitute precedent or be binding upon any court."). However, that fact does not, in and of itself, establish that an unseemly race to the courthouse existed, particularly in a case such as this in which Express Products is a Pennsylvania corporation and it appears that the policy in question was issued in Pennsylvania. Moreover, our examination of choice of law principles in an insurance coverage context, discussed at length in Century Indemnity Co. v. Mine Safety Appliances Company, 398 N.J. Super. 422, 435-37 (App. Div. 2008), satisfies us that it is far from clear that, if the present action were to continue, New Jersey law would be found to apply. As a consequence, we find no special equity arising from forum shopping as the result of the existence of favorable coverage precedent.

As a final matter, we observe that both the Pennsylvania and New Jersey actions appear to be in their infancy. In such circumstances, the advanced state of one action in comparison to another cannot give rise to a special equity sufficient to overcome the presumption of deference to the first-filed Pennsylvania action.


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