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Church Mutual Insurance Company, As Subrogee of Vroom Street v. Beacon Oil Company

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 29, 2011

CHURCH MUTUAL INSURANCE COMPANY, AS SUBROGEE OF VROOM STREET EVANGELICAL FREE CHURCH, PLAINTIFF-APPELLANT,
v.
BEACON OIL COMPANY, INC., CONDREA CORP. AND FRANCIS LAMPARELLO, DEFENDANTS-RESPONDENTS.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-5041-09.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted March 29, 2011

Before Judges Parrillo and Skillman.

Plaintiff Church Mutual Insurance Company (Church Mutual) insured the premises of the Vroom Street Evangelical Free Church (Vroom Street Church). On October 5, 2003, there was a fire at the Vroom Street Church. Church Mutual paid the church for the damages caused by the fire.

Church Mutual's complaint, which it brings as the subrogee of the Vroom Street Church, alleges that defendants Beacon Oil Company, Inc. (Beacon) and Condrea Corp. (Condrea) negligently installed, maintained and serviced the church's boiler system, including the chimney and flue systems, which caused the fire.

On December 18, 2002, after they installed the boiler system at the church but before the fire, Beacon and Condrea sold their assets to Heating Oil Partners, L.P. (HOP). The terms of this sale, which included Beacon and Condrea retaining responsibility for most liabilities incurred as a result of operation of the business before the sale, were set forth in a lengthy asset purchase agreement.

On September 26, 2005, HOP filed for Chapter 11 bankruptcy. On June 15, 2006, the Bankruptcy Court confirmed HOP's reorganization plan and entered a discharge injunction which became effective on August 6, 2006.

During the pendency of HOP's bankruptcy proceeding, Church Mutual amended its complaint in a prior action filed against Beacon, as subrogee of the Vroom Street Church's claim, to add HOP as a defendant. HOP and Beacon failed to answer that complaint, and thereafter, Church Mutual obtained an $856,874.40 default judgment against both HOP and Beacon. American Home Assurance Company, HOP's insurer, moved in the Bankruptcy Court for the District of Connecticut for an order declaring the New Jersey default judgment void because it violated the discharge injunction entered in HOP's bankruptcy proceeding. The bankruptcy court granted this motion, and Church Mutual appealed this decision to the United States District Court for the District of Connecticut.

On December 17, 2009, the federal district court affirmed the order of the bankruptcy court determining that the default judgment entered in the prior Superior Court action was void as to both HOP and Beacon. This decision is currently on appeal to the Second Circuit Court of Appeals. The primary issue in that appeal appears to be whether the district court correctly held that the default judgment was void with respect to not only HOP but also Beacon.

When the present action was filed on October 5, 2009, there does not appear to have been any bankruptcy proceeding still pending because the bankruptcy court had confirmed HOP's reorganization plan in the summer of 2006, and entered a discharge injunction. Nevertheless, defendants moved to dismiss on the ground that the complaint was subject to an automatic stay under section 362(a) of the Bankruptcy Code. In support of this motion, the defendants relied upon the bankruptcy petition HOP had filed on September 26, 2005. Limited factual material, including the purchase agreement for the sale of assets from Beacon and Condrea to HOP, was presented in connection with the motion.

After hearing oral argument, the trial court granted defendant's motion and entered an order dismissing Church Mutual's complaint as to all defendants "without prejudice" on the ground that it was subject to an automatic stay under section 362(a). Church Mutual appeals from this order.

Initially, we note that the essential premise of the trial order dismissing Church Mutual's complaint is that there is a pending bankruptcy proceeding, which requires an automatic stay of this action. The record does not support this premise. The only bankruptcy petition in that record is HOP's September 26, 2005 petition. This petition would have triggered a stay under section 362(a) of the Bankruptcy Code. However, the record before us indicates that HOP's bankruptcy proceeding was concluded by the bankruptcy court's confirmation of HOP's reorganization plan and entry of a discharge injunction, effective August 6, 2006. As of that date, the stay in effect during the bankruptcy proceeding apparently would have expired, and the right to assert claims against HOP or any other party entitled to protection as a result of the HOP bankruptcy proceeding would be governed by the discharge injunction. See 11 U.S.C.A. § 362(c)(2)(C); Brown v. Pa. State Emps. Credit Union (In re Brown), 851 F.2d 81, 84 (3d Cir. 1988); Bank v. Kim, 361 N.J. Super. 331, 337 (App. Div. 2003).

If there was any further proceeding in the HOP bankruptcy that resulted in the automatic stay extending beyond August 6, 2006, or being reinstated at some later date, it is not evidenced by the record before us. In the absence of such evidence, which any party may submit on remand, Church Mutual's right to maintain this action would be governed by the discharge injunction. We also note that if Church Mutual's right to maintain this action against some or all defendants is barred by the discharge injunction, that defendant or defendants would be entitled to a dismissal with prejudice, rather than the dismissal without prejudice ordered by the trial court, which was based on the premise that there was an ongoing bankruptcy proceeding that resulted in an automatic stay.

In addition to the need for clarification as to whether Church Mutual's motion to dismiss is governed by the automatic stay provision of section 362(a) or the 2006 discharge injunction, there is also a need for discovery and development of a more complete record with respect to the relationship between HOP and the defendants. It appears undisputed that HOP acquired the assets of Condrea and Beacon. However, this by itself would not be sufficient for the automatic stay provided to HOP under section 362(a) to extend to those corporations, see Citizens First Nat'l Bank of N.J. v. Marcus, 253 N.J. Super. 1, 3-6 (App. Div. 1991), and the confirmation order does not refer to Condrea or Beacon.*fn1 Therefore, if the HOP bankruptcy stay is still operative, there is a need for discovery to determine the actual relationship between HOP and the defendants in this action, and if that stay has been superseded by the discharge injunction, defendants' assertion that that injunction extends to Church Mutual's claims against them should be presented to the bankruptcy court. See Grogan v. Garner, 498 U.S. 279, 284 n.10, 111 S. Ct. 654, 658, 112 L. Ed. 2d 755, 763 (1991); In re Schwager, 121 F.3d 177, 181 (5th Cir. 1997).

We recognize that the relationship between HOP and Beacon was discussed in the December 17, 2009 opinion of the federal district court. However, the issue in that case was the validity of a default judgment entered against HOP and Beacon in an action filed during the bankruptcy proceeding, which the court concluded was void ab initio because it violated section 362(a). That case did not involve the maintainability of an action filed after entry of an order confirming HOP's plan of reorganization and entry of a discharge injunction. And even assuming that the Connecticut federal district's conclusions concerning the relationship between HOP and Beacon could be entitled to collateral estoppel effect in this action, the district court's decision is now on appeal to the Second Circuit Court of Appeals. Moreover, the federal district court's opinion did not address the relationship between HOP and Condrea and thus could not have preclusive effect with respect to Condrea's right to invoke the HOP bankruptcy stay as a basis for dismissal of this action. Therefore, we conclude that discovery regarding the relationship between HOP and Beacon and Condrea should be allowed notwithstanding the possible collateral estoppel effect of the federal district court's decision regarding the maintainability of Church Mutual's claim against Beacon.

For these reasons, we reverse the order dismissing Church Mutual's complaint against Beacon and Condrea and remand for further proceedings in conformity with this opinion.

However, we affirm the dismissal of Church Mutual's complaint against Lamparello, although for reasons unrelated to the HOP bankruptcy proceeding. The only allegation in the complaint relating to defendant Francis Lamparello is that he "is an individual who, on information and belief, is or was a director and/or shareholder of Beacon, Condrea and/or ABC, and/or their respective affiliates, parents, subsidiaries, predecessors or successors in interest." A shareholder or director of a corporation is not ordinarily liable, based on that status alone, for a tort committed by the corporation. See Charles Bloom & Co. v. Echo Jewelers, 279 N.J. Super. 372, 381-82 (App. Div. 1995). Therefore, Church Mutual's complaint did not state a cause of action against Lamparello and was properly dismissed as to him on that basis. R. 4:6-2(e). This dismissal is without prejudice to the filing of an amended complaint that does state a cause of action against Lamparello. See Smith v. SBC Commc'ns, Inc., 178 N.J. 265, 282 (2004).

As to Lamparello, affirmed.

As to Beacon and Condrea, reversed and remanded for further proceedings in conformity with this opinion.


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