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Trusted Transportation Solutions, LLC. v. Guarantee Insurance Co.

United States District Court, D. New Jersey, Camden Vicinage

May 11, 2018




         This matter is before the Court on the request to stay the entire case filed by defendants Brown & Brown of New Jersey, LLC and John F. Corbett. (Hereinafter collectively referred to as B & B unless otherwise noted.) The Court received extensive briefing [Doc. Nos. 74, 75, 76, 77, 80, 81] and held oral argument via telephone conference call. For the reasons to be discussed, B & B's request to stay the case is DENIED.[1]


         Plaintiff's complaint was originally filed in New Jersey State Court on September 15, 2016 and was removed to federal court on February 13, 2016. The complaint named as defendants Guarantee Insurance Company (“Guarantee”), Patriot Underwriters, Inc. (“Patriot”) and Douglas Cook (“Cook”). (Hereinafter collectively referred to as “Insurer Defendants”). Cook was employed by Patriot and worked as its Marketing Representative. Complaint ¶4. Plaintiff's complaint alleges that in or about March 2015, the Insurer Defendants offered it the opportunity to participate in a “Large Deductible” Worker's Compensation Insurance Program. Id. ¶¶5-7. Plaintiff was allegedly told the deductible amount for the program was $250, 000, a Loss Fund would be set up with a contribution of $650, 000, and that no administrative fees would be taken out of the Loss Fund. Id. ¶¶8-11. The effective date of the Program was April 3, 2015. Id. ¶16. Plaintiff signed a Term Sheet and was told the premium would be $303, 228.00. Id. ¶¶17-18. Plaintiff claims the Insurer Defendants made unauthorized deductions from the Loss Fund, its premium payment was higher than represented, and some claims may have been improperly paid. In addition, plaintiff claims it did not execute or receive the Program Agreement that was referenced in the Term Sheet. Plaintiff's six-count complaint asserts claims under the Consumer Fraud Act, common law fraud, breach of contract, violation of the covenant of good faith and fair dealing, breach of fiduciary duty and conversion. The Insurer Defendants answered the complaint on October 19, 2016 [Doc. No. 5] and denied all liability allegations.

         Plaintiff filed an amended complaint on May 8, 2017 [Doc. No. 38] adding B & B and Corbett as defendants. Corbett was employed by B & B. Plaintiff alleges B & B assisted plaintiff in obtaining worker's compensation insurance. Am. Cpt. ¶¶84-85. Plaintiff alleges B & B and Corbett failed to exercise reasonable care when they obtained worker's compensation insurance and they failed to fully investigate the proposal provided by Guarantee and Patriot. Id. ¶¶88-89. Plaintiff contends “[the] policy which was procured by B & B and Corbett was materially deficient, void, and did not provide the terms requested by plaintiff.” Id. ¶90. As a result, plaintiff contends it suffered and continues to suffer damages. Id. ¶91. Plaintiff alleges B & B breached its fiduciary duty, breached a special relationship and committed common law fraud. Plaintiff clarified at oral argument it will claim the Insurer Defendants sent the Program Agreement to Corbett who failed to give it to plaintiff. If true, this is a critical fact in the case because the Program Agreement apparently contains the payment terms by which Patriot administered plaintiff's insurance. Plaintiff is challenging the terms in the Program Agreement on the ground it did not sign the Agreement when it agreed to its insurance program. Indeed, plaintiff alleges it did not even see a copy of the Agreement. Plaintiff further clarified at oral argument it will argue B & B misstated or misrepresented the premium it would pay and B & B did not obtain the policy B & B told plaintiff it would get.

         The Insurer Defendants answered the amended complaint on May 19, 2017 [Doc. No. 41] and asserted cross-claims for common law contribution and indemnity. They also asserted contractual indemnity claims against B & B and Corbett. B & B's motion to dismiss Counts 1 - 4 and 8 - 10 of plaintiff's amended complaint [Doc. No. 46] remain to be decided.

         On November 27, 2017, a “Consent Order Appointing the Florida Department of Financial Services as Receiver of Guarantee Insurance Company for Purposes of Liquidation, Injunction and Notice of Automatic Stay” was filed in the Circuit Court of the Second Judicial Circuit, in and for Leon County, Florida [Doc. No. 68]. Pursuant to paragraph 43 of the Order, all judicial actions against Guarantee are stayed.[2] On January 30, 2018, Patriot filed a Voluntary Petition for Chapter 11 Bankruptcy. [Doc. No. 77]. As a result of these developments, the parties agree that at present plaintiff's claims against all defendants are stayed except for B & B.[3] Before B & B was named in the case the depositions of Cook, Patriot's head of claims (Hoen), and plaintiff' principal (Davis) were taken. Corbett has not been deposed.

         B & B requests the entire case be stayed until the Insurer Defendants are no longer subject to the stay in their liquidation and bankruptcy proceedings. B & B argues it is prejudiced unless the case is stayed because it “cannot depose Defendants Patriot, Guarantee, or their employees, including Defendant Cook, nor can it call them to testify at trial.” December 20, 2017 Letter Brief (“LB”) at 2, Doc. No. 75.[4] The root of B & B's concern is that plaintiff's claims against B & B are “inextricability intertwined with [plaintiff's] claims against the Insurer Defendants.” Id. B & B argues, therefore, it “cannot adequately prepare a defense to Plaintiff's claims or the Insurer Defendants' crossclaims without the participation of the Insurer Defendants.” Id. at 4. B & B also argues it will suffer undue burden and expense if the case is not stayed because it will then have to participate in “three or more separate and duplicative actions as a litigant or subpoenaed third-party.” Id. at 3.[5]

         In sum, B & B argues the interests of fairness and justice will be served by granting a stay, plaintiff will not be prejudiced by a stay, B & B and third parties will be prejudiced if the case is not stayed, staying the case will promote the efficient use of judicial resources, and the public interest will be served by staying the case.

         Plaintiff opposes B & B's stay request. The crux of plaintiff's argument is that the claims against B & B and Corbett are separate and independent from the claims against the Insurer Defendants. Plaintiff argues the primary claim against B & B is based on broker malpractice, breach of fiduciary duty, breach of special relationship and fraud, while the claims against the Insurer Defendants arise under the New Jersey Consumer Fraud Act and breach of contract. Plaintiff argues, therefore, B & B is not prejudiced because it can take relevant discovery from the Insurer Defendants. In addition, plaintiff argues the automatic bankruptcy stay does not apply to B & B. Not surprisingly, plaintiff also argues it will be prejudiced by a stay and B & B will not be prejudiced by a stay.


         1. The Automatic Bankruptcy Stay Does Not Apply to B & B

         To the extent the argument is made, the Court finds the automatic bankruptcy stay does not apply to B & B. Absent “unusual circumstances” Section 362(a)(1) only stays actions against the debtor and may not be invoked by solvent codefendants, even if they are in a similar legal or factual nexus with the debtor. Travelodge Hotels, Inc. v. Patel, C.A. No. 13-03719 (WHW), 2013 WL 4537906, at *5 (D.N.J. Aug. 27, 2013) (citing McCartney v. Integra Nat. Bank N., 106 F.3d 506, 509-10 (3d Cir. 1997)); see also Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1205 (3d Cir. 1991). The Third Circuit has identified two “unusual circumstances” in which an automatic stay may be extended to non-debtor parties: (1) where the debtor is the real party in interest such that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor and (2) where stay protection is essential to the debtor's reorganization efforts. McCartney, 106 F.3d at 510. These two recognized exceptions accomplish the same goal as the automatic stay protecting the debtor during pendent bankruptcy proceedings. Stanford v. Foamex L.P., C.A. No. 07-4225, 2009 WL 1033607, at *4 (E.D. Pa. Apr. 15, 2009) (“[T]he ‘unusual circumstances' exception is geared toward protecting the debtor during the pendency of the debtor's bankruptcy proceeding”)(emphasis in original). Absent unusual circumstances “[m]ultiple claim and multiple party litigation must be disaggregated so that particular claims, counterclaims, cross-claims and third-party claims are treated independently when determining which of their respective proceedings are subject to the bankruptcy stay.” Maritime Elec. Co., 959 F.2d at 1204-05.

         “Unusual circumstances” do not exist here to warrant staying the case against B & B pursuant to Section 362 (a)(1). B & B and Patriot are separate legal entities and plaintiff asserts separate theories of liability against them. Plaintiff's claims against B & B are grounded in malpractice while the claims against Patriot are grounded in fraud and breach of contract. Thus, Patriot is not the real party in interest insofar as plaintiff's claim against B & B is concerned. Further, as will be touched on infra, the Court ...

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