United States District Court, D. New Jersey
Jonathan Mark Kuller, Esq. GOLDBERG SEGALLA LLP, Attorney for
Plaintiff
Mark
Damian Hoerrner, Esq. BUDD LARNER PC, Attorney for Defendant
OPINION
JEROME
B. SIMANDLE Chief U.S. District Judge
I.
INTRODUCTION
Plaintiff
LM Insurance Corporation (hereinafter,
“Plaintiff” or “LMIC”) initiated this
diversity action against Defendant Vitaliy Kobys d/b/a LADA
II Express Co. (hereinafter, “Defendant” or
“LADA II”) seeking (1) a declaratory judgment
that Defendant agreed that Plaintiff's premium
calculation would include remuneration Defendant paid to its
owner-operators, and (2) the recovery of a retrospective
premium adjustment allegedly owed by Defendant. Defendant
seeks dismissal of Plaintiff's Complaint pursuant to
Fed.R.Civ.P. 12(b)(6), and Plaintiff has filed a cross-motion
for partial summary judgment pursuant to Fed.R.Civ.P. 56.
For the
reasons that follow, Defendant's motion to dismiss will
be denied, and Plaintiff's cross-motion for partial
summary judgment will also be denied.
II.
BACKGROUND
A.
Factual Background[1]
On June
20, 2011, Defendant submitted an application to the New
Jersey Compensation Rating and Inspection Bureau
(“CRIB”) requesting CRIB to designate an
insurance company to provide it with workers'
compensation insurance in accordance with the New Jersey
Workers' Compensation Insurance Plan (“the New
Jersey Plan”). (Compl. at ¶ 12; Ex. B to
Compl.)[2]Defendant could not purchase workers'
compensation insurance on its own through the voluntary
market, so it applied for insurance via the involuntary
market through the Plan. In submitting the Plan Application,
LADA II agreed with respect to any insurance provided to it
by a carrier assigned by CRIB that (1) the provisions of the
New Jersey Plan would be applicable, (2) the provisions of
the New Jersey Workers Compensation and Employers Liability
Manual (“Manual”) would be applicable,
[3] (3)
that it would provide true and correct information, (4) that
it would cooperate fully with any assigned carrier, and (5)
that it would inform any assigned carrier promptly of any
changes in the underwriting information provided.
(Id. at ¶ 19.) Defendant also submitted a
Truckers Supplemental Application with its main Plan
Application, and in response to a question asking to describe
its business, Defendant replied, “Trucking company/long
haul transportation for hire.” (Id. at
¶¶ 20, 23; Pl.'s SMF at ¶ 12.)
Furthermore, when asked if it used any owner-operators,
Defendant checked “No.” (Compl. at ¶ 22.)
Plaintiff
alleges that Defendant agreed to the “Hired Vehicle
Rule” portion of the Manual when it applied for
coverage pursuant to the New Jersey Plan. (Id. at
¶¶ 27, 30.)[4] As a result, the Hired Vehicle Rule was
applicable to insurance applied for and obtained by Defendant
through the New Jersey Plan. (Id. at ¶ 28.)
According to the records of the Federal Motor Carrier Safety
Administration, Defendant has been a U.S. Department of
Transportation (“USDOT”) authorized interstate
common carrier, USDOT No. 851399, with eight power units and
ten drivers. (Id. at ¶ 40.)
Initially,
in 2011, CRIB designated other insurers to provide coverage
to Defendant under the Plan. (Pl. SMF ¶ 21.) On April 2,
2014, CRIB directed Plaintiff via a Notice of Re-Designation
to provide coverage for Defendant effective June 24, 2014.
(Id. at ¶ 34; Ex. F. to Compl.) Defendant had
two policies with Plaintiff - WC5-33S-364619-014 (the
“014 Policy”), which was effective from June 24,
2014 to June 22, 2015, and WC5-33S-364619-015 (the “015
Policy”), which was effective from June 22, 2015 to
June 22, 2016. (Id. at ¶¶ 35-37.) Coverage
has been renewed for the period of June 22, 2016 to June 22,
2017. (Pl.'s SMF at ¶ 24.)
The
policies described the process for calculating the
workers' compensation insurance premiums due, which
involved multiplying a rate by a “premium basis.”
(Id. at ¶ 38.) Plaintiff explains that
“premium basis” included payroll “and all
other remuneration paid or payable during the policy period
for the services of . . . [a]ll your officers and employees
engaged in work covered by this policy” and [a]ll other
persons engaged in work that could make us liable under [the
workers' compensation insurance portion] of this
policy.” (Id.) The policies further explained
that each contract year, Defendant would pay estimated
premiums in advance for the policies as the final premium was
determined “by using the actual, not the estimated,
premium basis and the proper classifications and rates that
applied to [Defendant].” (Id.) The policies
also stated that “You will let us examine and audit all
your records that relate to this policy. These records
include ledgers, journals, registers, vouchers, contracts,
tax reports, payroll and disbursement records, and programs
for storing and retrieving data.” (Id.)
Relatedly, each policy contained a New Jersey Workers'
Compensation Insurance Plan Eligibility endorsement, which
provided that Plaintiff could “audit and examine
[Defendant's] records and otherwise fully cooperate with
[their] attempts to conduct premium audits or inspect the
workplaces.” (Id. at ¶ 39; Exs. B & C
to Kobys Cert.)
On
October 2, 2015 and November 24, 2015, Plaintiff conduced an
audit of Defendant's 014 Policy, and Plaintiff's
audit representative found that Defendant had over $700, 000
of Class 7219 Truckmen exposure, yet maintained no
workers' compensation coverage in accordance with the
provisions of Title 34 of the New Jersey Statutes. (Compl. at
¶ 42.) Plaintiff calculated the appropriate final
premium and tendered a bill to Defendant, but Defendant has
“failed and refused” to pay any of the adjusted
premium amounts. (Id. at ¶¶ 43-44, 51.)
B.
Procedural History
Plaintiff
filed its Complaint on April 21, 2016. [Docket Item 1.] Count
I requests a declaratory judgment that pursuant to the
Application, the New Jersey Plan, the Manual, and the two
policies between Plaintiff and Defendant, LADA II agreed to
the inclusion in premium base of remuneration paid to various
trucking concerns, who did not maintain workers'
compensation coverage that complied with New Jersey law.
(Id. at ¶¶ 45-47.)
Count
II is a breach of contract claim based on Defendant's
failure to pay premiums. (Id. at ¶¶
48-51.) Defendant filed its Motion to Dismiss on July 11,
2016, and attached a forty-four page affidavit of Vitaliy
Kobys. [Docket Item 8.][5] Then, on August 23, 2016, Plaintiff
filed its opposition to Defendant's Motion to Dismiss,
while also filing a cross-motion for partial summary judgment
on Count II. [Docket Item 15.] Defendant filed opposition to
Plaintiff's motion for partial summary judgment on
September 13, 2016. [Docket Item 19.] The Court has
considered the papers filed by the parties and rules on the
written submissions and without oral argument, pursuant to
Rule 78, Fed. R. Civ. P.
III.
STANDARD OF REVIEW
A.
Motion to Dismiss Standard
Pursuant
to Rule 8(a)(2), Fed. R. Civ. P., a complaint need only
contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Specific facts are not required, and “the statement
need only ‘give the defendant fair notice of what the .
. . claim is and the grounds upon which it rests.'”
Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(citations omitted). While a complaint is not required to
contain detailed factual allegations, the plaintiff must
provide the “grounds” of his “entitle[ment]
to relief”, which requires more than mere labels and
conclusions. Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555 (2007).
A
motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., may
be granted only if, accepting all well-pleaded allegations in
the complaint as true and viewing them in the light most
favorable to the plaintiff, a court concludes that the
plaintiff failed to set forth fair notice of what the claim
is and the grounds upon which it rests. Id. A
complaint will survive a motion to dismiss if it contains
sufficient factual matter to “state a claim to relief
that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009). Although a court must
accept as true all factual allegations in a complaint, that
tenet is “inapplicable to legal conclusions, ”
and “[a] pleading that offers labels and conclusions or
a formulaic recitation of the elements of a cause of action
will not do.” Id. at 678. The Court must
construe the complaint in the light most favorable to the
plaintiff. In re Ins. Brokerage Antitrust Litig.,
618 F.3d 300, 314 (3d Cir. 2010) (quoting Gelman v. State
Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir.
2009)).
In
considering a motion to dismiss, the Court only considers
“the complaint, exhibits attached to the complaint,
matters of public record, as well as undisputedly authentic
documents if the complainant's claims are based upon
these documents.” Buck v. Hampton Twp. Sch.
Dist., 452 F.3d 256, 260 (3d Cir. 2006). If matters
outside of the pleadings are considered, then the motion is
treated as a motion for summary judgment. See
Fed.R.Civ.P. 12(d).
C.
Summary Judgment Standard
Summary
judgment is appropriate if “there is no genuine issue
as to any material fact and the moving party is entitled to
judgment as a matter of law.” Alabama v. North
Carolina, 560 U.S. 330, 344 (2010) (citations and
internal quotation marks omitted); see also
Fed.R.Civ.P. 56(a). In evaluating Defendant's motion for
summary judgment, the Court must view the material facts in
the light most favorable to the non-moving party, Defendant,
and make every reasonable inference in that party's
favor. See Scott v. Harris, 550 U.S. 372, 378
(2007); Halsey v. Pfeiffer, 750 F.3d 273, 287 (3d
Cir. 2014). An inference based upon “‘speculation
or conjecture, '” however, “‘does not
create a material factual dispute sufficient to defeat
summary judgment.'” Halsey, 750 F.3d at
287 (citations omitted). Rather, the non-moving party must
support each essential element with concrete record evidence.
See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). “Where the record taken as a whole could not
lead a rational trier of fact to find for the non-moving
party, ” the Court may grant summary judgment.
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986).
IV.
DISCUSSION
A.
Defendant's Motion to Dismiss
Defendant
argues that Plaintiff's Complaint should be dismissed
under Rule 12(b)(6) because its policies do not cover most of
the truckers that Defendants use, as the company is
“really a dispatcher/agent for a group of independent
truck drivers.” (Def. Br. at 3.) More specifically,
Defendant claims that Plaintiff's 2015 audit was
“little more than a pretext” because Defendant
received a bill for a premium adjustment of $261, 816 for the
014 policy, which was over 22 times the premium that
Defendant initially paid under the policy. (Id. at
12.) Plaintiff replies that Defendant “agreed to
precisely the treatment that LMIC employed with regard to the
remuneration [Defendant] paid to the alleged
owner-operators.” (Opp'n at 2.)
1.
Count I (Declaratory Judgment)
Plaintiff
first seeks relief pursuant to the Declaratory Judgment Act,
28 U.S.C. § 2201. The DJA provides that a court
“may declare the rights and other legal
relations of any interested party seeking such
declaration.” 28 U.S.C. § 2201(a) (emphasis
added). “The Supreme Court has long held that this
confers discretionary, rather than compulsory, jurisdiction
upon federal courts.” Reifer v. Westport Ins.
Corp., 751 F.3d 129, 134 (3d Cir. 2014)(quoting
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491,
494 (1942)). This is in stark contrast to the general rule
that “federal courts have a strict duty to exercise the
jurisdiction that is conferred upon them by Congress.”
Reifer, 751 F.3d at 134 (quoting Quackenbush v.
Allstate Ins. Co., 517 U.S. 706, 716 (1996)).
Nonetheless, although the DJA confers on district courts a
“unique and substantial discretion, ” the
exercise of that discretion must be “sound and
reasoned.” Reifer, 751 F.3d at 139. The DJA is
commonly invoked by insurance companies “to seek a
declaratory judgment on a purely state law matter” in
federal court based on diversity subject matter jurisdiction.
Id. at 141. In response to such cases, the Third
Circuit has previously observed that “[t]he desire of
insurance companies and their insureds to receive
declarations in federal court on matters of purely state law
has no special call on the federal forum.” State
Auto Ins. Cos. v. Summy, 234 F.3d 131, 136 (3d Cir.
2000). Consequently, it became common practice for district
courts “to decline to exercise jurisdiction over
declaratory judgment actions, involving an insurance company,
that are solely brought on diversity, and have no federal
question or interest.” Reifer, 751 F.3d at
142. This principle is especially relevant because the
interest of a state “in resolving its own law must not
be given short shrift simply because one party or, indeed,
both parties, perceive some advantage in the federal
forum.” Summy, 234 F.3d at 136. Where state
law is uncertain or undetermined, the proper relationship
between federal and state courts requires district courts to
“step back” and be “particularly
reluctant” to exercise DJA jurisdiction. Id.
at 136. The fact that district courts are limited to
predicting-rather than establishing-state law requires
“serious consideration” and is “especially
important in insurance coverage cases.” Id. at
135.
In
Reifer, however, the Third Circuit cautioned against
“declining jurisdiction per se” in such
cases, because a “wholesale, ‘revolving door'
dismissal of such cases” would evidence neither sound
nor reasoned discretion. Id. at 147 (citing
Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)
and Bituminous Coal Operators' Assoc., Inc. v.
Int'l Union, United Mine Workers of Am.,
585 F.2d 586, 596 (3d Cir. 1978)) (additional citations
omitted). Instead, the Third Circuit instructed district
courts to consider a non-exhaustive list of factors when
determining whether to exercise jurisdiction over such
declaratory judgment actions, including:
(1) the
likelihood that a federal court declaration will resolve the
uncertainty of obligation which gave rise to the controversy;
(2) the
convenience of the parties;
(3) the
public interest in settlement of the ...