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New Jersey Dental Association v. Metropolitan Life Insurance Company and Aetna Life Insurance Company

February 15, 2012


On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2286-10.

The opinion of the court was delivered by: Grall, J.A.D.



Argued October 17, 2011

Before Judges Parrillo, Grall and Alvarez*fn1 .

The opinion of the court was delivered by GRALL, J.A.D.

In conjunction with dental plans approved by the Commissioner of the Department of Banking and Insurance (Commissioner or Department) pursuant to the selective contracting law, N.J.S.A. 17B:27A-54, Metropolitan Life Insurance Company and Aetna Life Insurance Company (collectively the carriers), offer an ancillary program for dental service not covered by their plans. The ancillary program allows a subscriber to receive a service not covered by the plan at a price the carriers fix in contracts with network dentists.

N.J.A.C. 11:22-5.10(a)(2). Contending that the selective contracting law does not authorize the offering of this ancillary program in conjunction with a dental plan, the New Jersey Dental Association (Association) filed a declaratory action seeking to invalidate and enjoin the clauses in its members' contracts with the carriers that are essential to the ancillary program. The carriers defended, arguing that the Association could not enforce the insurance law in a private action and that the ancillary programs are authorized by a regulation, N.J.A.C. 11:22-5.10, that the Commissioner adopted in order "to enforce and administer" the selective contracting law. N.J.S.A. 17B:27A-54.

Following a removal of the action to Federal District Court and its dismissal and remand, the trial court granted the carriers' motion to dismiss on the ground that there is no private cause of action to enforce the insurance law. In addition, the court denied the Association's motion for summary judgment on the ground that the ancillary programs are permitted by the regulation, N.J.A.C. 11:22-5.10(a)(2).

The Association appeals, and we have granted the Department leave to participate as amicus curiae. According to the Association, "the pivotal issue" on appeal is whether the Commissioner has "jurisdiction to authorize" carriers offering dental plans to establish fees that "can be charged by their network dentists for non-covered services." Passing the procedural irregularities, we reach the merits and reject this claim.


We address the questions relevant to our exercise of jurisdiction first. The Association's ability to challenge the legality of the Commissioner's action does not turn on whether the Legislature expressly granted or implied a private cause of action under the selective contracting law. R.J. Gaydos Ins. Agency, Inc. v. Nat'l Consumer Ins. Co., 168 N.J. 255, 271-76, 279-81 (2001). A private cause of action is essential when the plaintiff seeks damages for injury or loss suffered as a consequence of another's violation of a statute or to compel another private party to comply with a statute. Id. at 271-76; Piscitelli v. Classic Residence by Hyatt, 408 N.J. Super. 83, 103-04 (App. Div. 2009); Med. Soc'y of New Jersey v. AmeriHealth HMO, Inc., 376 N.J. Super. 48, 58 (App. Div. 2005).

The issue in this case is different. Although the terms of a contract are generally left to the parties, courts declare contracts invalid if they "violate statutes." Saxon Const. & Mgmt. Corp. v. Masterclean of North Carolina, Inc., 273 N.J. Super. 231, 235-36 (App. Div.), certif. denied, 137 N.J. 314 (1994); see Restatement (Second) of Contracts § 178 (1981) (discussing contracts that are unenforceable as a matter of public policy). One questioning the legality of a contract provision may obtain a judicial determination of the issue and injunctive relief. N.J.S.A. 2A:16-53, -54, -59. Such an action is not one to enforce the law, it is one to determine whether courts will enforce the contract.

In some circumstances, litigation of contractual rights affected by statutory law may raise a question distinct from the existence of a private cause of action - whether the courts or a governmental entity charged with implementing and enforcing the law has primary authority to address the issue. In Gaydos, the plaintiff sought relief for breach of the contractual duty of good faith and fair dealing. 168 N.J. at 258. The claimed breach was based "solely on" plaintiff's allegation that the defendant violated an insurance law. Id. at 278. Because the law at issue was part of an "elaborate legislative and regulatory scheme," the Court concluded that the Legislature intended to "invest [the Department] with primary authority" to implement and enforce it. Id. at 282. For that reason, and because the Commissioner had not considered whether the defendant's conduct violated the law, the Court held that the Department, not the trial court, should determine the question. Id. at 283. Accordingly, the Court directed a transfer of the issue to the Department. Ibid.; see R. 1:13-4 (authorizing such transfers by any court).

In this case, there was no risk of interference with the Commissioner's primary authority. The only issue was the legality of offering this ancillary program with the dental plan, and the Commissioner had exercised primary authority and resolved the issue by adopting a regulation allowing the practice.

When the trial court decided the dispositive motions, it was apparent that the Association was challenging the Commissioner's regulation approving the ancillary programs. A statutory cause of action is not needed to challenge governmental action; one aggrieved by improper official action has a constitutional right to seek judicial review. Elizabeth Fed. Sav. & Loan Ass'n v. Howell, 24 N.J. 488, 499-501 (1957); accord In re Camden County, 170 N.J. 439, 447 (2002). Indeed, the Legislature has recognized the constitutional limitation on its authority to restrict judicial review of agency action.

N.J.S.A. 52:14B-3.3; see In re Amico/Tunnel Carwash, 371 N.J. Super. 199, 208 (App. Div. 2004) (noting that N.J.S.A. 52:14B-3.3 indicates that the Legislature did not intend "to interfere with the constitutionally protected right to appeal an agency decision").

Exercise of the constitutional right is a function of standing, which "is available" not only "to the direct parties to that administrative action" but also to "any one who is affected or aggrieved in fact by that decision." In re Camden County, supra, 170 N.J. at 446; see, e.g., Indep. Energy Producers of N.J. v. N.J. Dep't of Envtl. Prot., 275 N.J. Super. 46, 55--56 (App. Div.), certif. denied, 139 N.J. 187 (1994). Moreover, an organization whose members are aggrieved and have interests that are sufficiently adverse has standing to challenge agency action on behalf of its members. Home Builders League of S. Jersey, Inc. v. Twp. of Berlin, 81 N.J. 127, 132-35 (1979); In re Six Month Extension of N.J.A.C. 5:91-1 et seq., 372 N.J. Super. 61, 86 (App. Div. 2004). The Association alleged economic detriment to its members, and that is a sufficient basis for standing. See In re Camden County, supra, 170 N.J. at 448.

For the foregoing reasons, the Association's complaint was improperly dismissed as an unauthorized private cause of action. That said, we consider whether we should reach the merits of the Association's challenge to the Department's action despite the Association's failure to file a direct appeal. Rule 2:2-3(a)(2) vests this court with exclusive jurisdiction to review State agency action. Prado v. State, 186 N.J. 413, 422 (2006). When it became clear that the Association's request for declaratory relief was in essence a challenge to a regulation, the Association should have amended its complaint, joined the Department and moved for a transfer to this ...

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