United States District Court, D. New Jersey
FREDA L. WOLFSON, District Judge.
Before the Court is the Motion of Defendant and Counterclaim/Crossclaim Plaintiff Selective Insurance Company of America ("Selective") to interplead disputed flood insurance proceeds (the "Proceeds") and dismiss all claims against Selective in the Amended Complaint of Plaintiff Amethyst International, Inc. ("Plaintiff"). This matter was removed to the Court by Selective from the Superior Court of New Jersey. In a separately pending Motion to Dismiss, Defendant and Crossclaim Defendant Judith Duchess ("Duchess") contends that litigation concerning ownership of the Proceeds is already pending before the state Circuit Court of Florida.
For the reasons that follow, this Court (i) grants Selective's Motion to interplead funds, (ii) dismisses all claims against Selective with prejudice, and (iii) remands this action to the Superior Court of New Jersey, Ocean County, Chancery Division. The interpleaded funds shall be deposited with the Court and held until after the legal ownership of the Proceeds is determined by either the New Jersey or Florida state court.
I. Background & Procedural History
This case concerns the disputed ownership of flood insurance proceeds which were to be distributed after a property located in Point Pleasant Beach (the "Property") was damaged during Hurricane Sandy in October of 2012. Plaintiff owned the Property and insured it against flood damage with a Standard Flood Insurance Policy ("SFIP") purchased from Selective. All SFIPs issued by private insurers like Selective are governed by the regulations of the National Flood Insurance Program ("NFIP"), a federally administered program established by the National Flood Insurance Act ("NFIA").
After the Property sustained damage during Hurricane Sandy, Plaintiff notified Selective of its claim for flood damage on or about November 2, 2012. Shortly thereafter, Defendant Duchess contacted Selective and provided documentation evidencing her status as a mortgagee on the Property. Jean Fernicola, the mother of both Plaintiff's primary stockholder and of Duchess, was the original mortgagee on the property, having executed a mortgage in May of 1989. When Jean Fernicola died on March 26, 2006, Duchess, as the personal representative of her mother's estate (the "Estate"), became the new mortgagee of Plaintiff's property. It was thus in her capacity as a representative of the Estate that Duchess contacted Selective and asserted her rights as a mortgagee after Plaintiff's November 2012 insurance claim.
Once contacted by Duchess, and having received Duchess's corroborating mortgage documentation, Selective complied with 44 C.F.R. pt. 61, app. A(2), art. VII(Q) and added Duchess as the named mortgagee on Plaintiff's SFIP. Selective then retained an independent claims adjuster to review the damage to Plaintiff's Property. The adjuster inspected the Property and recommended payment of Plaintiff's claim in two installments. The first recommendation, issued on November 26, 2012, called for an advance payment of $75, 000 in insurance proceeds for Building Coverage losses to the Property. Selective issued a check in that amount on December 19, 2012. The second recommendation, issued on April 2, 2013, called for an additional payment of $246, 800 in Building Coverage losses. Selective issued a check in that amount on April 9, 2013. Selective made the checks payable both to Plaintiff as the holder of the insurance policy and to Duchess as the insured Property's mortgagee pursuant to 44 C.F.R. pt. 61, app. A(2), art. VII(Q). Selective mailed both checks to Plaintiff's mailing address. Neither check was ever cashed. The initial $75, 000 payment became stale-dated on June 23, 2013, and the subsequent $246, 800 check was voided after Selective decided to pursue its present Counterclaim/Crossclaim in interpleader.
The underlying action in this case began on February 25, 2013, when Plaintiff filed a Complaint in the Superior Court of New Jersey, Ocean County, Chancery Division, Docket No. OCN-C-49-13, naming Duchess and the Estate as defendants, and seeking declaratory relief in the form of an entitlement to flood insurance proceeds as well as damages for state law fraud, negligent misrepresentation, and tortious interference. Plaintiff later filed an Amended Complaint on May 2, 2013, in which Plaintiff's insurance broker ("Boynton & Boynton") and insurer ("Selective") were added as defendants. Plaintiff added claims against Boynton & Boynton for fraud, tortious interference, and bad faith, and, more importantly for the present Counterclaim and Motion, also added claims against Selective for breach of contract (Count Five), bad faith (Count Six), and fraud (Count Seven). Shortly thereafter, on June 25, 2013, Defendants, Duchess and the Estate, filed a Motion to Dismiss the Amended Complaint for lack of subject matter jurisdiction, lack of personal jurisdiction, and for failure to state a claim pursuant to New Jersey Court Rule 4:6-2(a)(b)(e). They also moved for the imposition of sanctions against Plaintiff and the award of attorney's fees and costs to Defendants pursuant to New Jersey Court Rule 1:4-8 and N.J.S.A. 2A:15-59.1. The primary basis of Defendants' motions was the contention that a lawsuit in Florida state court concerning the disposition of the disputed insurance proceeds was already pending at the time Plaintiff filed the Complaint,  and moreover, that any action in the state courts of New Jersey was foreclosed by the New Jersey Appellate Division's decision in John A. Fernicola v. Judith M. Duchess, Individually and as Executrix and Personal Representative of the Estate of Jean A. Fernicola a/k/a Angelina N. Fernicola, Deceased, 2008 WL 833965 (N.J.Super. App. Div.) (hereinafter " Fernicola I "). In that case, the court held that the courts of Florida and not New Jersey had jurisdiction over moneys disputed as part of larger claims surrounding a Florida decedent's estate. Accordingly, Defendants allege that Plaintiff, in bringing suit in New Jersey, is engaging in frivolous and vexatious litigation in direct violation of the New Jersey Appellate Division's ruling.
Before Defendants Duchess' and the Estate's motions could be heard, on July 12, 2013, Defendant Selective filed a Notice of Removal to this Court, invoking the Court's exclusive and original jurisdiction over breach of contract claims under the NFIA, pursuant to 42 U.S.C. § 4072; federal question jurisdiction, pursuant to 28 U.S.C. § 1331; and supplemental jurisdiction over Plaintiff's state law claims, pursuant to 28 U.S.C. § 1367. Defendants Duchess and the Estate promptly reinstated in this Court their Motions to Dismiss for Lack of Jurisdiction, on July 26, 2013, and for Sanctions, on August 14, 2013. During the same period, Selective, on August 2, 2013, Answered the Complaint and initiated a Counterclaim/Crossclaim in Interpleader. Plaintiff responded to Duchess' motions and filed its own Motion to Amend the Complaint on September 11, 2013, but failed to answer Selective's Counterclaim. Thereafter, on September 13, 2013, Selective made a Request for Default of the Clerk of Court on its Counterclaim/Crossclaim. Plaintiff responded with still another Motion for Leave to File an Answer to Selective's Counterclaim on September 18, 2013. While the Court was reviewing the voluminous briefing surrounding the pending motions, Selective, on October 11, 2013, filed the present Motion to Interplead Funds and Dismiss with prejudice Counts Five, Six, and Seven of the Amended Complaint as alleged against Selective. Duchess filed a Letter Brief in Opposition on October 21. Just a few days later, on October 25, Plaintiff filed its Opposition to the Motion, including both arguments against dismissal of the claims against Selective and Opposition to the Counterclaim in Interpleader, mooting the earlier Motion for Leave to Answer Selective's Counterclaim. Accordingly, the Court now considers Selective's Counterclaim/Crossclaim and Motion to Interplead Funds and Dismiss Claims along with the Oppositions of both Plaintiff and Duchess.
II. Jurisdiction & Venue
"There are two methods for bringing an interpleader in federal court. The first is the interpleader statute, 28 U.S.C. § 1335. District Courts have subject matter jurisdiction under this provision if there is minimal diversity' between two or more adverse claimants, and if the amount in controversy is $500 or more. See State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967). The second is Federal Rule of Civil Procedure 22. Unlike its statutory counterpart, rule interpleader is no more than a procedural device; the plaintiff must plead and prove an independent basis for subject matter jurisdiction. See NYLife Distrib., Inc. v. Adherence Group, Inc., 72 F.3d 371, 372 n. 1 (3d Cir. 1995); Commercial Union Ins. Co. v. United States, 999 F.2d 581, 584 (D.C. Cir. 1993)." Metro. Life Ins. Co. v. Price, 501 F.3d 271, 275 (3d Cir. 2007). Selective claims entitlement to both rule and statutory interpleader. While the Court is confident that Selective has also pleaded an independent basis for subject matter jurisdiction, because the jurisdictional elements of statutory interpleader are met in this case, I restrict my analysis to § 1335.
This Court has jurisdiction over Selective's Counterclaim/Crossclaim in Interpleader pursuant to 28 U.S.C. § 1335, which provides that:
(a) The district courts shall have original jurisdiction of any civil action of interpleader or in the nature of interpleader filed by any person, firm, or corporation, association, or society having in his or its custody or possession money or property of the value of $500 or more, or having issued a note, bond, certificate, policy of insurance, or other instrument of value or amount of $500 or more, or providing for the delivery or payment or the loan of money or property of such amount or value, or being under any obligation written or unwritten to the amount of $500 or more, if
(1) Two or more adverse claimants, of diverse citizenship as defined in subsection (a) or (d) of section 1332 of this title, are claiming or may claim to be entitled to such money or property, or to any one or more of the benefits arising by virtue of any note, bond, certificate, policy ...