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American Southern Home Insurance Co. v. Unity Bank

United States District Court, D. New Jersey

February 14, 2019

UNITY BANK, Defendant. UNITY BANK, Third-Party Plaintiff,


          DOUGLAS E. ARPERT United States Magistrate Judge.

         This matter comes before the Court on a Motion by Third-Party Defendant Van Wagenen Financial Services, Inc. for Attorney Fees. ECF No. 61; see Reply Br. at ECF No. 65. Unity Bank, Defendant/Third-Party Plaintiff, opposes the Motion. See ECF No. 64. The Court has fully reviewed the submissions of the parties and considers same without oral argument pursuant to Fed.R.Civ.P. 78. For the reasons set forth below, Van Wagenen's Motion is GRANTED.

         I. BACKGROUND [1]

         The facts and procedural history of this matter are well known to the parties and need not be recited at length. Briefly, the facts pertinent and necessary to disposition of this Motion are as follows:

         On or about October 22, 2013, Plaintiff American Southern Home Insurance Co. (“American Southern”) sold an insurance policy to Defendant Unity Bank (“Unity”), of New Jersey, covering property at 856 Landis Avenue in Elmer, New Jersey[2] on which Unity held a mortgage lien. ECF No. 1 at ¶6; ECF No. 1-2 at p.2. Plaintiff alleges the policy covers damage to the property caused by vandalism but not damage “caused by or resulting from theft.” Id. at ¶15; see also Exhibit A at ECF No. 1-3. Prior to July 2015 the property was occupied by a business called Eatmor Supermarket that was either a Unity Borrower or a tenant of a Unity Borrower. Third-Party Complaint, ECF No. 18 at ¶25. After that business ceased operations in late 2015 the property became vacant. Id. at ¶26. In January 2016, the property sustained significant damage, including water damage, throughout the building. Id. at ¶30-31. Since 2009, Unity had engaged Third-Party Defendant Van Wagenen Financial Services Inc. (“Van Wagenen”), of Minnesota, to track and evaluate insurance coverage on properties in which Unity had an interest. Id. at ¶4. The damage was reported to American Southern and a claim was filed. Counter-Complaint at ECF No. 7 at ¶9. On February 25, 2016, the property was inspected for American Southern by Jake Mello, of JS Held Construction Consulting. ECF No. 1 at ¶9. Mr. Mello reported that the building had been occupied by a retail grocery store but was vacant. Id. at ¶10. Mr. Mello further reported that: 1) refrigeration equipment had been dismantled for intended resale; 2) auction stickers had been placed on refrigeration equipment; 3) there was copper pipe stored on the property from the dismantled refrigeration gear; 4) ceiling-mounted heaters were missing; and 5) “missing/displaced/damaged finishes associated” with the removal of the copper piping and the dismantling of the equipment. Id. at ¶11. Mr. Mello concluded both that the damage was caused by theft and that there was no evidence of “willful or malicious damage or destruction of the building, ” or vandalism. Id. at ¶¶12-13. By letter dated May 27, 2019, Plaintiff advised Unity that the claim was denied, citing Mr. Mello's conclusions. Counter-Complaint at ECF No. 7 at ¶11. That same day, Plaintiff filed the instant one-count Complaint, seeking a Declaratory Judgment that the policy's theft exclusion provision was triggered and, thus, that Plaintiff was “not obligated to provide coverage for Defendant's loss.” ECF No. 1 at ¶24. On August 30, 2016, Unity filed an Amended Answer stating that the damage arose out of vandalism and denying that a recovery under the policy was precluded by the theft clause. See ECF No. 7, Answer to Count I at ¶16-25. In addition to nineteen defenses, Defendant's filing included a Counter-Complaint alleging breach of contract (Count I) and breach of duty of good faith and fair dealing (Count III) against American Southern. Counter-Complaint at ECF No. 7. It also sought a declaratory judgment that American Southern was obligated to pay the claim. Id. Plaintiff filed a Motion to Dismiss the Counter-Complaint as to Count III and to strike Unity's request for attorney's fees on September 16, 2016. ECF No. 10. On March 3, 2017, Unity filed a two-count, Third-Party Complaint against Van Wagenen, alleging negligence (Count I) and breach of fiduciary duty (Count II). ECF No. 18. Essentially, Unity claimed Van Wagenen was obligated to advise Unity of gaps in insurance coverage on properties in which Unity had an interest and, as its insurance broker, to then procure insurance to fill those gaps. Id. at ¶¶6-10. Unity alleges Van Wagenen “endeavored to procure a master forced-placed insurance policy for Unity” around 2009 and that American Southern did issue a forced-placed insurance policy to Unity in December 2009. Id. at ¶¶11-12. But, that policy contained a theft-exclusion clause, “notwithstanding the need for such coverage” for Unity's portfolio of properties, which included “vacant and abandoned commercial properties that were exposed to risk of theft.” Id. at ¶¶16, 19. Though Van Wagenen allegedly never advised Unity of this gap in coverage, near the end of 2013 American Southern “amended the Policy to provide an optional ‘all-risk' endorsement which would have provided coverage for Unity in the event of a loss resulting from theft.” Id. at ¶17-18. Unity alleges Van Wagenen did not perform annual or regular reviews of Unity's properties and associated insurance and thus did not identify gaps in insurance coverage on those properties, “Unity never obtained the optional ‘all-risk' coverage.” Id. at ¶¶20-21, 23.

         Van Wagenen filed a Motion to Dismiss the Third-Party Complaint on April 3, 2017. ECF No. 27. On April 25, 2017, U.S. District Judge Freda L. Wolfson granted American Southern's Motion to Dismiss the Counterclaim. ECF No. 33. As to Count III's bad faith claim, Judge Wolfson ruled that Unity “failed to adequately allege a counterclaim for bad faith denial of coverage.” Id. at p.7. Judge Wolfson also denied Unity's request for attorney's fees, stating that “the Court rejects Unity's attempts to expand the scope” of New Jersey Court Rules allowing a grant of attorney's fees in certain insurance actions. Id. at p.11. An Amended Complaint was filed September 27, 2017; Unity filed an Amended Answer the following day. ECF Nos. 47, 48.

         On September 28, 2017, Judge Wolfson granted Van Wagenen's Motion to Dismiss the Third-Party Complaint. ECF No. 50; see also Transcript of Hearing at ECF No. 51. Judge Wolfson's decision was based on a written so-called Tracking Agreement between the parties that, absent any other contract, defined Van Wagenen's obligations to Unity, obligations that expressly did not include “issu[ing] any policies or form of insurance by reason of any absence or deficiency in the insurance coverage on any real estate mortgage unless requested.” ECF No. 51 at p.13, l.19-23. Furthermore, Judge Wolfson stated, the Tracking Agreement expressly “relieves [Van Wagenen] of any obligation for their basic negligence, but not for gross negligence or willful misconduct.” Id. at p.13-14. Though Unity argued that there was an oral agreement between the parties providing that Van Wagenen was required to purchase insurance on Unity's behalf, Judge Wolfson determined that, because the Tracking Agreement was determinative in the absence of proof of another expression of the two parties' relationship, Unity would have to replead the Complaint to provide a basis for both Unity's negligence and breach of fiduciary duty claims. Id. Judge Wolfson granted the Motion to Dismiss, but allowed Unity 15 days to amend its Complaint. Id. Unity did not amend its Complaint. On November 1, 2017, Van Wagenen filed a Motion for the Entry of Judgment under Rule 54(b). ECF No. 53. Judge Wolfson granted that Motion on September 11, 2018. ECF No. 60. Van Wagenen filed the instant motion on October 10, 2018, pursuant to Fed.R.Civ.P. 54, L.Civ.R. 54.2 and Judge Wolfson's Order. ECF No. 61. The underlying litigation between American Southern and Unity was referred to arbitration by Order dated April 26, 2018 and then terminated. ECF No. 58; see also Docket Entry dated June 1, 2018.


         As the Third Circuit has stated, “[u]nder the ‘American rule, '” parties ordinarily are responsible for their own attorney's fees. Truesdell v. Philadelphia Hous. Auth., 290 F.3d 159, 163 (3d Cir. 2002); see also Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). However, an award of such fees and costs may be authorized by statute, contract, or other exceptional circumstances. Flamini v. Valez, No. CIV. 12-7304 RMB/JS, 2015 WL 333300, at *2 (D.N.J. Jan. 23, 2015) (citing Polonski v. Trump Taj Mahal Ass'n, 137 F.3d 139, 145 (3d Cir.1998).

         Fed. R. Civ. P. 54(d)(1) provides in relevant part: “[u]nless a federal statute, these rules, or a court order provides otherwise, costs-other than attorney's fees-should be allowed to the prevailing party.” New Jersey Manufacturers Ins. Grp. v. Electrolux, Inc., 2013 WL 5817161, at *1-2 (D.N.J. Oct. 21, 2013). A prevailing party is “one in whose favor a judgment is rendered, regardless of whether the party has recovered its entire claim or a portion thereof.” Garonzik v. Whitman Diner, 910 F.Supp. 167, 168 (D.N.J.1995) (citing Fahey v. Carty, 102 F.R.D. 751 (D.N.J.1983)). As the Supreme Court of the United States has stated, “plaintiffs may be considered ‘prevailing parties' for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.” Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983). There is such a strong presumption that costs should be awarded to the prevailing party that, “ ‘[o]nly if the losing party can introduce evidence, and the district court can articulate reasons within the bounds of its equitable power, should costs be reduced or denied to the prevailing party.'” Reger v. Nemours Found., Inc., 599 F.3d 285, 288 (3d Cir. 2010) (quoting In re Paoli R.R.Yard PCB Litig., 221 F.3d 449, 468 (3d Cir.2000)). The rationale behind this presumption is that the denial of costs is tantamount to a penalty. Id. at 288-89 (citing ADM Corp. v. Speedmaster Packaging Corp., 525 F.2d 662, 665 (3d Cir.1975)).


         A. Van Wagenen's Arguments in Support of the Motion

         Van Wagenen makes three points in support of its motion to recover attorney's fees expended in defending itself against Unity's Third-Party Complaint. First, it points to Rule 54(d), though that merely sets the process by which a party may seek from a court an award of attorney's fees. Third-Party Def.'s Br. in Support of Mot. for Attorney's Fees, ECF No. 61-1 at p.6. Second, it points to Wingate Inns Intern., Inc. v. PGS, LLC for the proposition that under New Jersey law “attorney's fees may be recovered pursuant to an express term in a contract.” Id. (citing Wingate, 20112 WL 3550764, at *7 (D.N.J. Aug. 16, 2012). Finally, Van Wagenen points to the Tracking Agreement that was the only evidence before Judge Wolfson that defined the relationship between Unity and Van Wagenen. Id. at p.6. That Tracking Agreement contains a “Hold Harmless” clause, which provides: “Unity Bank shall hold van Wagenen harmless from any claim, including its reasonable attorney's fees and court costs, resulting from van Wagenen's negligence in the performance of its duties herein.” Id. Van Wagenen emphasizes that the contract indemnifies Van Wagenen from “any claim, ” language that “is not limited to third party claims or in any other way.” Id. at p.7. Furthermore, Van Wagenen says, this Hold-Harmless Clause expressly calls for Unity to indemnify Van Wagenen for its “reasonable attorney's fees and court costs.” Id. at p.8. To that end, Van Wagenen contends the billable hours claimed and the hourly rate stated in the certifications of its attorneys supporting the Motion represent work required for the litigation and hourly rates that are reasonable based on the experience of each of the attorneys and paralegals that worked on this matter. Id. at pp.8-12.

         B. Unity's Arguments in Opposition to the Motion

          Unity counters that Van Wagenen is not entitled to attorney's fees because the Tracking Agreement was not implicated in the underlying litigation. See Unity Br. in Opp. to Mot. for Attorney's Fees; ECF No. 64 at p.3. Unity contends here, as it did in the Motion to Dismiss hearing before Judge Wolfson, that the Tracking Agreement applied only to Van Wagenen's “obligations as a tracker of Unity's insurance policies, ” but was inapplicable to Van Wagenen's obligations to Unity “as its insurance broker.” Id. Unity contends that, “In ruling for dismissal, [Judge Wolfson] did not make any final determination as to whether the Tracking Agreement governed both VW's obligations as both an insurance tracker, and as a broker.” Id. at p.3. Rather, Unity continues, “the Court found that Unity's Third-Party Complaint did not adequately plead a cause of action for broker negligence.” Id. As a result, Unity states, its position as to the instant motion is “that the Third-Party Complaint properly pled a common-law cause of action for broker negligence, and that this cause of action is beyond the scope of the Tracking Agreement.” Id. at p.5. Because this is beyond the scope of the Tracking Agreement, Unity contends, the Hold-Harmless Clause in which Van Wagenen grounds its Motion is not implicated.

         In the alternative, Unity contends the $53, 282.28 of attorney's fees and costs sought by Van Wagenen should be reduced because it represents an unreasonable number of hours worked for litigation that spanned nine months and resulted in just three filed pleadings: the Motion to Dismiss, ECF No. 27, the Motion for Judgment, ECF No. 53, and the instant Motion for Fees, ECF No. 60. More specifically, Unity objects to the inclusion of $2, 871.57 of travel costs and expenses associated with the attendance of Florida counsel for Van Wagenen at a deposition in New Jersey and at the hearing in New Jersey for the Motion to Dismiss. Id. at p.10. Unity cites Interfaith Cmty. Org. v. Honeywell Int'l, Inc. for the proposition that in the Third Circuit “[o]ur Courts have consistently held that ‘a party that hires counsel from ...

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