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Ais Risk Consultants, Inc v. Barry Moffett and Specialty Insurance Agency


November 1, 2011


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-0513-10.

Per curiam.


Argued September 21, 2011

Before Judges Cuff, Waugh and St. John.

Defendants Barry Moffett and Specialty Insurance Agency, Inc. (Specialty) appeal the July 9, 2010 order dismissing their counterclaim against plaintiff AIS Risk Consultants, Inc. (AIS) and their third-party complaint against defendant Allan I. Schwartz. They also appeal the January 27, 2011 order denying their motion for reconsideration.

In 2002, Security Indemnity Insurance Company (Security)*fn1 retained AIS to perform actuarial services on its behalf.*fn2

On May 1, 2003, Schwartz, AIS's principal and actuary, issued an actuarial report that outlined Security's reserves as of December 2002. On December 24, 2003, the Attorney General, acting on behalf of New Jersey's Commissioner of Banking and Insurance, issued a report to the General Equity Part stating that Security was insolvent, should be liquidated, and that any attempt to rehabilitate the company would be futile.

On April 8, 2004, AIS entered into a contract with Moffett and Specialty to provide additional actuarial services on behalf of Security in anticipation of the liquidation recommended by the Commissioner. Moffett and Specialty, as the "Managing General Agent" for Security, were named parties to the contract. The terms of the AIS-Moffett/Specialty agreement state, in pertinent part:

This document puts into writing the previous oral agreement wherein Barry Moffett and Specialty Insurance Agency . . . requested that AIS Risk Consultants . . . provide actuarial services in connection with the rehabilitation of Security Indemnity Insurance Company, proposed liquidation of . . . [Security Indemnity Insurance Company,] and related matters.

Attached to the agreement was a fee schedule, pursuant to which defendants made five payments, totaling $70,000, to AIS between March and June 2004.

On June 30, 2004, just one day before defendants were scheduled to make another payment to AIS, the General Equity judge issued a decision finding Security insolvent and subject to imminent liquidation. Defendants made no further payments to AIS after that decision.

AIS asserted in its complaint that it was owed approximately $347,000 (principal and interest) for its actuarial services. Defendants disagreed, arguing that they do not owe AIS the outstanding balance on the contract because AIS and Schwartz were negligent in performing the actuarial services by deviating from the customary standard of care in that profession. In addition to defendants' general denial, they counterclaimed, asserting that AIS is liable for damages as a "direct and proximate result of the negligence of . . . [AIS] in performing its actuarial services . . . [that forced Security] into insolvency."

The thrust of defendants' counterclaim was that Security would have avoided insolvency and subsequent liquidation had there been no actuarial negligence. Specialty and Moffett claim that they sustained losses in excess of $40 million.

Defendants also filed a third-party complaint against Schwartz for the negligent actuarial services provided to Specialty in its capacity of Managing General Agent of Security. Moffett claimed he was "harmed in that he was deprived of the income he was receiving from Security and Specialty, and otherwise sustained damages." In essence, because Moffett personally depended on Security's financial well-being and the money that Specialty earned from serving as Managing General Agent for Security, he personally suffered direct injuries as a result of Security's liquidation.

On July 9, 2010, the motion judge heard oral arguments on the motion which was brought under Rule 4:6-2(e), failure to state a claim upon which relief can be granted. AIS contended:

(1) defendants lack standing to assert both the counterclaim and the third-party complaint against Schwartz because, under the general rule of New Jersey corporation law, defendants like Moffett and Specialty cannot bring claims against third parties like AIS for alleged wrongdoing to the corporation with which they are associated (i.e. Security); and (2) defendants are barred by the six-year statute of limitations from bringing their claims because the requisite time to file such an action began to accrue in 2003, either on May 1, when AIS issued its report to Security, or on December 24, when the Attorney General issued its report on Security's insolvency.

Defendants argued in response that they did have standing to bring their claims in that "they suffered a special injury due to AIS's actions, and that their injury is separate and distinct from that suffered by other shareholders and directors because they lost income that they would have derived from serving as the Managing General Agent for Security." Further, defendants asserted that their claims were not time barred because the relevant date for accrual was April 8, 2004, the date the contract was signed, or June 30, 2004, when the General Equity judge ordered the liquidation of Security.*fn3

The motion judge granted the defendants' motion to dismiss the counterclaim and third-party complaint with prejudice, holding that defendants lack standing to prosecute their claims against AIS and Schwartz. The judge held that the type of claim defendants were advancing against AIS could only be made in a derivative suit on behalf of Security. Moreover, the judge concluded that "because a corporation is regarded as an entity separate and distinct from its shareholders, 'suits to redress corporate injuries which secondarily harm all shareholders alike are brought only by the corporation.'" Because Moffett was a shareholder and officer of Security, and because Specialty only sustained injuries as either a "manager" or "employee" of Security, both lacked standing to bring claims against AIS and third-party defendant Schwartz for any negligence in their dealings with Security. Finally, the motion judge held that the "injury that Moffett claims to have suffered is no different than what any director, manager, shareholder, or employee would have suffered if a corporation was liquidated due to a third party's negligence." Having dismissed the claims on the basis of defendants' lack of standing, the judge did not consider AIS's statute of limitations defense.

On January 27, 2011, the motion judge denied defendants' motion for reconsideration, holding that defendants "advanced essentially the same arguments they made in connection with the underlying motion." This appeal ensued.

On appeal, defendants argue they have standing to assert claims against AIS and Schwartz because their claims were for losses they incurred directly, which are distinct from those of Security. Therefore, they contend: the claims were not derivative in nature; they are in contractual privity with AIS; and their counterclaim was mandatory under the single controversy doctrine.

We review a dismissal for failure to state a cause of action pursuant to Rule 4:6-2(e) de novo, following the same standard as that of the trial court. See Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005). Like the trial court, we "must accept as true the facts alleged in the complaint, and credit all reasonable inferences of fact therefrom, to ascertain whether there is a claim upon which relief can be granted." Malik v. Ruttenberg, 398 N.J. Super. 489, 494 (App. Div. 2008). We pass no judgment on the truth of the facts alleged; we accept them as fact only for the purpose of reviewing the motion to dismiss. Banco Popular No. Am. v. Gandi, 184 N.J. 161, 166 (2005) (citing R. 4:6-2(e)).

In evaluating such a motion, "courts are cautioned to search the complaint 'in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement[.]'" Banco Popular, supra, 184 N.J. at 165 (quoting Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)). The review must be performed in a manner that is "generous and hospitable." Printing Mart, supra, 116 N.J. at 746. The Court's role is simply to determine whether a cause of action is "'suggested'" by the complaint. Ibid. (quoting Valentzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)).

Furthermore, in determining "whether a complaint states a derivative or an individual cause of action, courts examine the nature of the wrongs alleged in the body of the complaint, not plaintiff's designation or stated intention." Strasenburgh v. Straubmuller, 146 N.J. 527, 551 (1996) (emphasis added).

It has been said that "[t]he New Jersey cases have historically taken a much more liberal approach on the issue of standing than have the federal cases." Crescent Park Tenants Ass'n v. Realty Equities Corp. of N.Y., 58 N.J. 98, 101 (1971). A sufficient stake in the matter and a genuine adverseness are the basic requirements of standing. See N.J. Chamber of Commerce v. N.J. Elec. Law Enforcement Comm'n, 82 N.J. 57, 67 (1980).

Generally, to recover for an economic loss resulting from negligence by one furnishing a service, a "direct contractual relationship between the parties" must exist or the injured party must be a known "beneficiary of the defendant's undertaking." Rosenblum, Inc. v. Adler, 93 N.J. 324, 334-35 (1983) (emphasis added). We accept as true, as we must, that in 2004 AIS contracted with Moffett and Specialty to provide additional actuarial services.

Applying these standards, we conclude that the judge improperly found this to only be a derivative action and failed to consider the April 2004 direct contractual relationship among the parties. We agree defendants lack standing to assert claims for the negligent actuarial services performed pursuant to Security's 2003 engagement of AIS and Schwartz. Those claims belong to Security alone and defendants lack standing to bring actions for the 2003 engagement. However, we disagree with the motion judge that defendants lack standing to pursue the alleged negligence of AIS and Schwartz pursuant to the April 2004 contract. AIS's standing argument assumes that defendants cannot prevail on the merits, but that is a different question from whether they are permitted to make the claim of entitlement in the first place.

Defendants correctly argue that the Supreme Court has held that "a defendant must assert all matters which will defeat a claim against him and a plaintiff must seek complete relief for vindication of the wrong he charges." Applestein v. United Bd. & Carton Corp., 35 N.J. 343, 356 (1961). Moreover, a counterclaim "may claim relief exceeding in amount or different in kind from or not germane to that sought in the pleading of the opposing party." R. 4:7-2.

We do not address whether defendants' 2004 contractual claims are time barred, but leave that determination to the motion judge.

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

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