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Sandax, Inc., Wallington Exchange, and Agnieszka Zawadzki v. First Jersey Insurance Company

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


October 15, 2012

SANDAX, INC., WALLINGTON EXCHANGE, AND AGNIESZKA ZAWADZKI, PLAINTIFFS-RESPONDENTS,
v.
FIRST JERSEY INSURANCE COMPANY, DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-8641-11.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted October 1, 2012

Before Judges Fasciale and Maven.

In this insurance bad faith case, defendant First Jersey Insurance Company (First Jersey) appeals from a December 16, 2011 order denying reconsideration of a November 17, 2011 order compelling First Jersey to pay an excess judgment and awarding counsel fees. We reverse.

Debra Olsen filed a personal injury complaint against Sandax, Inc., Wallington Exchange, and Agnieszka Zawadzki (collectively Sandax) seeking damages for injuries she sustained in an accident. First Jersey insured Sandax in the amount of $1,000,000 and appointed counsel to defend Sandax (appointed counsel). At trial, the jury returned a verdict against Sandax in the amount of $1,125,000. Sandax appealed from the judgment. Thereafter, Olsen attempted unsuccessfully to settle with Sandax for the $1,000,000 policy limit. Sandax then pursued this bad faith claim against First Jersey and alleged that First Jersey failed to settle the Olsen case during the appeal from the judgment.

On October 17, 2011, counsel for Sandax attempted to provide First Jersey with notice of his intention to file a bad faith claim. Instead of notifying First Jersey, he faxed to appointed counsel "all of the [o]rder to [s]how [c]ause [OTSC] papers [which had not been filed, but disclosed] the nature of the relief [Sandax] sought."*fn1 Sandax's counsel certified to the judge that he understood appointed counsel represented First Jersey in the bad faith case. Appointed counsel, however, represented Sandax in the Olsen case, not First Jersey in this bad faith action. Counsel for Sandax did not serve First Jersey directly with the "OTSC papers" that he intended to file.

On October 19, 2011, the judge entered the OTSC against First Jersey, ordered Sandax to serve First Jersey with the verified complaint and OTSC,*fn2 and scheduled a November 4, 2011 return date. On October 21, 2011, appointed counsel notified the court and counsel for Sandax that he did not represent First Jersey and informed them that First Jersey had not been properly served with notice of the OTSC application. On October 24, 2011, appointed counsel received the executed OTSC, communicated with the judge's law clerk, and explained that he did not represent First Jersey in the bad faith case. On October 26, 2011, appointed counsel forwarded another letter to the judge reiterating that he did not represent First Jersey. He also informed the court and Sandax's counsel that he would not be appearing on the return date.

On November 4, 2011, counsel for Sandax appeared on the return date by himself and argued that First Jersey acted in bad faith by failing to settle the Olsen case on appeal. The judge then stated:

The [c]court having no opposition to the form of [the OTSC], and due notice being given[,] in fact, apparently . . . [appointed] [c]counsel is saying that [he] can't accept service on behalf of [First Jersey]; and obviously, the [c]court finds [First Jersey does] have actual notice of these proceedings.

Thereafter, counsel for Sandax submitted a proposed order under the five-day rule. On November 15, 2011, counsel for First Jersey in this bad faith case wrote to the judge and stated that on November 7, 2011, he received the proposed order. First Jersey objected to the proposed OTSC and stated that Sandax failed to serve First Jersey with notice of the OTSC. On November 17, 2011, the judge entered an "unopposed" order declaring that First Jersey "is responsible for the entire excess judgment" and awarded $20,840 to Sandax's counsel in fees.*fn3

On November 30, 2011, First Jersey filed a motion to vacate the November 17, 2011 order and requested oral argument. First Jersey contended that Sandax failed to properly provide it with notice of the OTSC application and timely objected to the proposed order. Furthermore, First Jersey argued that the judge knew before he entered the November 17, 2011 order that First Jersey had objected to it. On December 16, 2011, the judge denied First Jersey's reconsideration motion without oral argument and issued a five-page written opinion. The judge stated that First Jersey's claim that it did not receive notice [that the return date of the OTSC] was scheduled for November 4, 2011 is disingenuous and without merit. On October 17, 2011, counsel [for Sandax] . . . served the [OTSC] on [appointed counsel].

On October 21, 2011, [appointed counsel advised Sandax's counsel that he] could not represent First Jersey for conflict reasons. On October 26, 2011, this [c]court also received a letter from [appointed counsel] stating that [he] would not be appearing on November [4, 2011,] for oral argument [because he did not represent First Jersey and was not authorized to accept service on behalf of First Jersey of a proposed OTSC].

After First Jersey received [the November 17, 2011] order . . . it decide[d] to retain counsel to have this matter reconsidered. [First Jersey] chose not to have the matter reconsidered on the merits, but instead only for a claimed technical rule violation.

This appeal followed.

On appeal, First Jersey argues that (1) it was not properly served with notice of the OTSC and verified complaint, and (2) the judge denied it due process by entering the orders dated November 17, 2011 and December 16, 2011.

We agree with First Jersey that it did not receive proper notice of the OTSC and verified complaint, pursuant to Rule 4:67-3, which states:

If the order to show cause issues ex parte pursuant to R. 4:67-1(a), no summons shall issue unless the court otherwise orders. Process shall be a copy of the order to show cause, certified by the plaintiff's attorney to be a true copy. The order to show cause, together with a copy of the complaint and affidavits similarly certified, shall be served within this State at least ten days before the return day and in the manner prescribed by R. 4:4-3 and R. 4:4 for the service of a summons, unless the court orders shorter or longer service or some other manner of service. Service may be made outside this State, or by mail, publication, or otherwise, all as the court by order directs, provided the nature of the action is such that the court may thereby acquire jurisdiction. [(Emphasis added).]

See City of Passaic v. Shennett, 390 N.J. Super. 475, 482, 486 (App. Div. 2007) (reversing trial court because defendant was denied due process, in part, by plaintiff's failure to properly serve an order to show cause). Sandax's counsel's October 17, 2011 attempted service of the "OTSC papers" on appointed counsel was insufficient. Appointed counsel did not represent First Jersey in this case and was unauthorized to accept service on its behalf. Moreover, counsel for Sandax did not serve the October 19, 2011 OTSC and verified complaint "in the manner prescribed by R[ule] 4:4-3 and R[ule] 4:4." Ibid. He did not obtain personal service on First Jersey or serve the OTSC and verified complaint by registered or certified mail, return receipt requested (RRR). See R. 4:4-3 (requiring personal service or, under certain circumstances, by certified mail RRR); R. 4:4-4 (describing the procedure for obtaining personal service on a corporation).*fn4 It is undisputed that First Jersey was not properly served pursuant to Rules 4:67-3, 4:4-3, and 4:4-4.

We also agree with First Jersey that the judge denied it due process by entering the orders dated November 17, 2011 and December 16, 2011. First Jersey's counsel received the proposed OTSC for the first time after the return date and, on November 15, 2011, objected to its entry because First Jersey had been deprived of "its right to know exactly what the claims against it [were] and the basis for the relief sought by Sandax." The court entered the November 17, 2011 order nonetheless, and denied First Jersey's request to argue its reconsideration motion orally.

We reverse, remand, and direct the judge to permit First Jersey to oppose the OTSC on the merits.


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