The opinion of the court was delivered by: Freda L. Wolfson, U.S.D.J.
Plaintiff Syndicate 1245 at Lloyd's ("Lloyd's") filed the instant action against Defendant Walnut Advisory Corporation ("Walnut"), and John Does 1-5, alleging primarily that Walnut breached the parties' agreement by writing insurance for bars and nightclubs. Lloyd's claims sound in breach of contract, breach of fiduciary duty, and negligence. Walnut filed the instant motion to dismiss based on Lloyd's failure to file an affidavit of merit ("AOM") pursuant to N.J.S.A. 2A:53A-26, et seq. ("Affidavit of Merit Statute" or "AOM Statute"). Lloyd's subsequently served Walnut with an AOM and cross-moved for nunc pro tunc compliance with the statute. This Court held oral argument on April 27, 2010, and denied Walnut's motion to dismiss for failure to timely submit an AOM with respect to the breach of contract and breach of fiduciary duty claims. The Court now denies Walnut's motion to dismiss with respect to the negligence claim, and grants Lloyd's cross-motion for nunc pro tunc compliance.
Lloyd's alleges that it entered into a "2004 Binding Authority Agreement" ("the Agreement") with Walnut, whereby Walnut served as its Coverholder, i.e., insurance agent. Compl. at ¶ 1. Under the Agreement, Walnut was to "bind insurances and amendments thereto ...." Id. at ¶ 6. While granting Walnut general authority to bind policies, the Agreement included underwriting guidelines that limited Walnut's authority to write policies for certain businesses. See id. at ¶¶ 8-9. Specifically, the Agreement provided the following limitations:
No bar, tavern, or nightclub business to be written.
No hospitality business to be written without an Assault and Battery exclusion unless Liquor receipts are below 33.3% of total receipts, which inclusion of the Assault and Battery exclusion is at the Coverholder's discretion.
Id. at ¶ 10. The underwriting process, further, required Walnut to inspect an insured's business premises and operations after coverage was bound and to create an inspection report detailing the results of that inspection. Id. at ¶ 19.
In binding policies under the 2004 Binding Authority Agreement, the Complaint alleges, Walnut utilized the services of producing agents. Id. at ¶ 11. One of these agents was The Carman Agency ("Carman"). Id. According to the Complaint, Carman repeatedly submitted applications to Walnut for full Assault and Battery coverage. See id. at ¶¶ 12-13. "Notwithstanding the aforementioned underwriting guidelines and restrictions imposed by the [Agreement] and the knowledge which Walnut possessed regarding Carman's insistence on [Assault and Battery] Coverage, Walnut continuously accepted applications from Carman and bound insurance without A&B exclusions in contravention of [the A]greement," the Complaint alleges. Id. at ¶ 13. In addition, the Complaint continues, Walnut issued policies to bar, tavern, and nightclub businesses after receiving such applications from Carman, also in contravention of the Agreement. Id.
The Complaint, further, characterizes Walnut as having "held itself out . . . as a competent Coverholder who adhered to accepted professional standards in the practice of writing and placing insurance, and that it was skilled and capable in matter [sic] involving the issuance of insurance for the Lloyd's of London insurance market." Id. at ¶ 22. Also, in paragraph 23 of the Complaint, Lloyd's alleges that "Walnut owed a duty to exercise the skill, prudence, and diligence ordinarily possessed by a Coverholder in the rendering of their services." Id. at ¶ 23. Lloyd's alleges that it incurred over $7,876,932 in damages as a result of Walnut's breaches and derelictions. Id. at ¶ 26.
In late 2007, Lloyd's engaged the services of Paul Frank & Collins Insurance Services ("PFC") to review Walnut's underwriting for the 2004 contract year. Id. at 16. Walnut cooperated with PFC and, after reviewing Walnut's documents, PFC produced a written audit ("PFC Audit") containing its findings. In the PFC Audit, the Complaint alleges, PFC focused on two Walnut practices: (1) writing policies to bars, taverns, and nightclubs; and (2) writing policies to hospitality businesses, that had over 50% liquor receipts, without obtaining an Assault and Battery exclusion. Id. at ¶ 17. In terms of writing policies to bars, taverns, and nightclubs, the audit states that Walnut "routinely ignored information within . . . inspection reports that the insureds being provided coverage . . . were in many cases bars and taverns with only incidental food service, or were nightclubs, rather than quality restaurants that served alcohol." Id. at ¶ 21. In terms of writing policies to hospitality businesses, the audit states that Walnut received applications that expressly indicated greater than 33.33% liquor receipts. When Walnut subsequently inspected these businesses, "[i]n most instances the inspection report which was generated either confirmed the percentage of liquor sales stated in the application, or indicated a higher percentage of liquor sales than was stated on the application ...." Id. at ¶ 20. "[H]owever," the audit continues, "Walnut failed to react to the inspection report as it relates to the 2004 Binding Authority Agreement permitted class of businesses." Id.
In September 2008, and prior to bringing the instant suit, Lloyd's sent a letter to Walnut highlighting salient portions of the PFC Audit. See Manganiello Letter dated September 8, 2008 at 2-3, Jabbour Cert., Exh. 13. In that correspondence, Lloyd's stated that the PFC Audit "provides compelling grounds for a breach of contract claim against Walnut due to Walnut's issuing policies . . . that should have never been issued or should have included an [Assault and Battery] exclusion." Id. at 1. The correspondence cites one example from the PFC Audit as follows: The underwriting file for Twelfth Air Command provides an example of an insured that is clearly a nightclub, yet the policy application described it as a restaurant and tavern with 44% liquor sales. Notwithstanding the application, the inspection report unequivocally states 'this establishment is a nightclub.' . . . Walnut did not react to this inspection report and the policy was issued.
Id. at 3. After providing several of these examples, the correspondence stated that "[w]hile the Carman Agency may have misled Walnut concerning the nature and quality of risks presented, it appears that Walnut had enough independent information to discover the true nature of these business operations." Id. Thus, the correspondence continues, "Walnut failed to appropriately react to the information contained in the inspection reports" and this "apparent failure to effectively use the inspection process was a significant factor resulting in the binding authority violations." Id. Lastly, the correspondence clarified that Lloyd's damages claim against Walnut was based on "PFC's audit finding on losses from [Assault and Battery] claims that should have fallen under an [Assault and Battery] exclusion and all claims against bars, taverns, or nightclubs." Id. at 4.
Several months later, in December 2008, Lloyd's sent another letter to Walnut. Manganiello Letter dated December 3, 2008, Jabbour Cert., Exh. 14. In that letter, Lloyd's responded to a request from Walnut for a complete copy of the PFC Audit. Id. at 1. Lloyd's expressed its willingness to forward a complete copy, provided that Walnut agreed to disclose to Lloyd's certain emails, notes, and other communications relating to the parties' agreement. Id. By January 8, 2009, Walnut had not agreed to disclose the information Lloyd's sought. See Manganiello Letter dated January 8, 2009, Jabbour Cert., Exh. 19.
Meanwhile, Liberty Syndicates, another syndicate of Lloyd's, was also encountering difficulties with Walnut regarding the latter's writing and binding of policies for nightclubs and similar establishments. On March 23, 2009, Liberty Syndicates brought an action against Walnut in this Court, alleging that it "suffered . . . damages in the form of claims that Liberty [Syndicates] has paid . . . on policies wrongfully issued by Walnut in violation of its binding authority ....," Am. Compl. at ¶ 27, Liberty Syndicates at Lloyd's v. Walnut, Civil Action No. 09-1343. Liberty Syndicates also alleges that Walnut was a Coverholder for Liberty Syndicates, id. at ¶ 8, and that Walnut bound insurance for nightclubs in contravention of the parties' agreement, id. at ¶ 16. That complaint, further, alleges that Walnut "issue[d] policies to insureds who derive more than 50% of their receipts from liquor sales without [the syndicate] having been consulted and having approved the risk or binding" and such policies "failed to include assault and battery exclusions" where the parties' agreement "required such an exclusion be included ...." Id. The Liberty Syndicates Complaint asserts claims for "Negligent Errors and Omissions/Professional Malpractice," breach of contract, and breach of fiduciary duty, against Walnut.
It is important to summarize here the similarities between the Liberty Syndicates action and the instant action. The plaintiffs in each action are different Lloyd's Syndicates. The agreements in both suits are substantially the same, though they govern different time periods. Walnut is the defendant in both suits, and is represented by the same counsel. The alleged breaches by Walnut are mirrored in the complaints. Lastly, both complaints assert negligence-based claims, although the Liberty Syndicates action utilizes the "Professional Malpractice"caption while the Lloyd's complaint here utilizes a generic "Negligence" caption.
Little over a week after the Liberty Syndicate's Complaint was filed, on April 2, 2009, Lloyd's instituted the instant action in this Court. Lloyd's complaint here asserts negligence, breach of contract, and breach of fiduciary duty claims based on Walnut's binding and writing of policies to bars, taverns, and nightclubs along with Walnut's binding and writing of policies to hospitality establishments without the appropriate Assault and Battery exclusions. Walnut answered the complaint on June 3, 2009.
A Rule 26 conference was held, on July 20, 2009, before the Magistrate Judge. At this conference, Lloyd's counsel asserts, Walnut advised the judge that "the only anticipated motion practice relating [sic] to the addition of third parties." Pl. Supp. Br. at 1. Shortly thereafter, on July 30, 2009, the Magistrate Judge issued a pretrial scheduling order, which order generally directed that any dispositive motions be filed by June 25, 2010. Pretrial Scheduling Order dated July 30, 2009, Syndicate 1245 at Lloyd's v. Walnut, et al., Civil Action No. 09-1697, Docket Entry No. 13 ¶¶ 9, 14. The only other specific motions mentioned in the Order are a motion to join new parties and a motion to amend the complaint.
In addition, as part of its Rule 26 disclosure obligations, Plaintiff made the PFC Audit available for Walnut's inspection. Walnut, however, chose not to inspect the audit at that time. See Jabbour Letter dated Nov. 6, 2009, Jabbour Cert., Ex. 16.
On August 10, 2009, an AOM was filed in the Liberty Syndicates action. That AOM was authored by Samuel Bergerman, who stated that he is president of a licensed independent surplus lines insurance brokerage with over "30 years experience acting as a Lloyd's Coverholder." Affidavit of Merit of Samuel Bergerman dated July 2, 2009, Liberty Syndicates at Lloyd's v. Walnut, Civil Action No. 09-1343. The sworn affidavit states that "there is a reasonable probability that the care, skill or knowledge exercised by defendant, Walnut Advisory Corporation, fell outside the acceptable professional standards." Id.
The next month, on September 28, 2009, the parties in the instant action participated in a telephone conference with the Magistrate Judge. While the details of that conference are not part of the record before this Court, the parties agree that, at that conference, Walnut did not advise the Court or Lloyd's of any intention to file a motion to dismiss based on Lloyd's failure to serve an AOM. Walnut acknowledges that the parties also agreed, at that conference, that the instant action "should be consolidated with [the] similarly situated action[-Liberty Syndicates-] for purposes of discovery." Def. Supp. Br. at 2. Importantly, Defendant agreed to this consolidation prior to the expiration of the 120-day period for filing the AOM, which the parties agree was October 1, 2009.
Walnut filed the instant motion to dismiss for failure to file an affidavit of merit on October 12, 2009-eleven days after the AOM was due. On October 19, 2009, Lloyds served Walnut with an AOM.
See Affidavit of Merit of Samuel Bergerman dated October 16, 2009, Jabbour Cert., Exh. 9. That AOM, like the one in the Liberty Syndicates action, was authored by Samuel Bergerman and mirrors the language of the Liberty Syndicates' AOM. Id. The AOM was eighteen days late.*fn1 A few days after the AOM was filed, on October 21, 2009, the suit was consolidated with the Liberty Syndicates action for discovery purposes. Lloyd's then filed its opposition on November 23, 2009 to the motion to dismiss, and cross-moved for a finding of nunc pro tunc compliance with the AOM statute.
Once all briefing was filed, the Court held oral argument on the motion to dismiss on April 27, 2010. The Court denied Walnut's motion to dismiss for failure to submit an AOM with respect to the breach of contract and breach of fiduciary duty claims on the record. The Court found that the allegations related to those claims referenced only, and were rooted in, the parties' 2004 Binding Authority Agreement, and that expert testimony was not required to establish those claims. Lloyd's cross-motion for nunc pro tunc compliance, as to those counts, was rendered moot by the Court's finding and denial of Walnut's motion and, therefore, also denied. The Court reserved decision on the negligence count, and granted the parties leave to file supplemental briefing with respect to that claim. For the following reasons, the Court denies Walnut's motion to dismiss and grants Lloyd's cross-motion for nunc pro tunc compliance with the statute in regards to the negligence claim.
As the Court noted at oral argument, Defendant's motion to dismiss was improperly brought under Federal Rule of Civil Procedure 12(b)(6) because it was filed after Defendant's answer. For this reason, the Court construed Defendant's motion as if brought under Rule 12(c), which rule permits parties to challenge the sufficiency of the pleadings "after the pleadings are closed--but early enough not to delay trial." Fed. R. Civ. P. 12(c).
Adjudication of this motion necessitates that the Court consider documents outside the pleadings. These documents include the PFC Audit, correspondence between the parties regarding provision of the audit to Walnut, the 2004 Binding Authority Agreement, and the court records and proceedings of the Liberty Syndicates action. This raises an issue regarding the propriety of considering these documents because Rule 12(c) provides that on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Fed R. Civ. Proc. R. 12(c).
The Third Circuit has held, however, that the Rule's language does not prohibit a district court from considering exhibits attached to the complaint, matters of public record, and undisputedly authentic documents if the plaintiff's claims are based upon those documents. See Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993); see also Charles Alan Wright & Arthur R. Miller, 5C FEDERAL PRACTICE AND PROCEDURE: 3d § 1371 ("Because Rule 10(c) incorporates into the pleadings all exhibits attached thereto and materials referred to, the district court can consider those documents in deciding a Rule 12(c) motion"). The "critical [issue] is whether the claims in the complaint are 'based' on an extrinsic document and not merely whether the extrinsic document was explicitly cited." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original) (citations omitted). This is so whether the extrinsic document is attached to defendant's or the plaintiff's moving papers. See Pension Ben. Guar. Corp. v. White Consol. Industr., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). As long as the document is authenticated, and the parties do not dispute the document's authenticity, the court need not convert the motion into one for summary judgment in order to consider the document. See id.; In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426.
Each of the extra-complaint documents I rely upon in reaching my decision on the negligence count is appropriately considered under Rule 12(c). The PFC Audit was referenced in the complaint and forms part of the basis for the negligence claim. The correspondence between the parties regarding providing the audit to Walnut may also be considered to the extent it establishes pre-suit delivery of salient portions of the audit-a fact that Walnut does not dispute. Accord Citisteel USA, Inc. v. General Elec. Co., 78 Fed.Appx. 832, *2 (3d Cir. Oct. 28, 2003) (affirming district court's consideration, under Rule 12(c), of correspondence indicating delivery of purchase order). The 2004 Binding Authority Agreement is specifically referenced in the complaint, with the complaint quoting applicable portions thereof. Finally, the court records and proceedings of the Liberty Syndicates action are matters of public record. Accordingly, I need not convert the parties' motions to ones for summary judgment and may apply the motion to dismiss standard.
On a motion to dismiss under Rule 12(c), courts must "accept all factual allegations in the complaint as true and view them in the light most favorable to the plaintiff." Buck v. Hampton Tp. School Dist., 452 F.3d 256, 258 n.3 (3d Cir. 2006). The court, however, "will not accept unsupported conclusory statements." DiCarlo v. St. Mary Hosp., 530 F.3d 255, 263 (3d Cir. 2008). "Under Rule 12(c), judgment will not be granted unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law." Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) (quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290 (3d Cir. 1988)).
In addition, this Court may consider the extra-complaint documents in ruling on Plaintiff's cross-motion for substantial compliance under the AOM statute. New Jersey state and federal decisions routinely consider documents outside of the complaint in connection with substantial compliance rulings. See e.g., Galik v. Clara Maass Med. Ctr., 167 N.J. 341 (2001) (considering pre-suit correspondence between the parties and unsworn expert reports); Paragon Contractors, Inc. v. Peachtree Condo. Assn., 406 N.J. Super. 568, 579 (App. Div. 2009) (considering affidavit of plaintiff's legal assistant). See also Vitale v. Carrier Clinic, Inc., 2009 WL 2390602, * 9 (D.N.J. Jul. 31, 2009) (considering expert affidavit).
The AOM statute was enacted by the New Jersey legislature in 1995 to "require plaintiffs in malpractice cases to make a threshold showing that their claim is meritorious, in order that meritless lawsuits readily could be identified at an early stage of litigation." In re Petition of Hall, 147 N.J. 379, 391 (1997). One goal of the statute is that "the resources and time of the parties will not be wasted by the continuation of unnecessary litigation." Knorr v. Smeal, 178 N.J. 169, 176 (2003). In pertinent part, the statute provides that
[i]n an action for damages for . . . property damage resulting from an alleged act of malpractice or negligence by a licensed person in his profession or occupation, the plaintiff shall, within 60 days following the date of filing of the answer to the complaint by the defendant, provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability ...