COLONY INSURANCE COMPANY v. KWASNIK, KANOWITZ & ASSOCIATES, P.C. et al
Filing
40
OPINION. Signed by Judge Noel L. Hillman on 12/04/2012. (tf, n.m.)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
COLONY INSURANCE COMPANY,
Plaintiff/
Counter-defendant,
v.
CIVIL NO. 12-722(NLH)(AMD)
OPINION
KWASNIK, KANOWITZ &
ASSOCIATES, P.C., MICHAEL W.
KWASNIK, ROBERT J. KELTOS,
and HOWARD Z. KANOWITZ,
Defendants/
Counter-claimants/
Crossclaimants.
Appearances:
ROBERT F. WALSH
MICHAEL E. DI FEBBO
WHITE AND WILLIAMS LLP
1650 MARKET STREET
ONE LIBERTY PLACE
SUITE 1800
PHILADELPHIA, PA 19103
On behalf of plaintiff
MICHAEL W. KWASNIK
623 KATER STREET
PHILADELPHIA, PA 19147
On behalf of defendant KWASNIK, KANOWITZ & ASSOCIATES, P.C.
and himself pro se1
ROBERT J. KELTOS
LAW OFFICES OF LYNDA L. HINKLE LLC
1 EVES DRIVE
SUITE 169
MARLTON, NJ 08053
1
See note 2.
On behalf of himself pro se
HOWARD ZELIG KANOWITZ
Howard Z. Kanowitz, Attorney at Law
4 Gettysburg Drive
Voorhees, NJ 08043
On behalf of himself pro se
HILLMAN, District Judge
This matter has come before the Court on the motions of
plaintiff to dismiss the counterclaims, crossclaims, and thirdparty complaint brought by defendants Michael W. Kwasnik and
Kwasnik, Kanowitz & Associates, P.C.
For the reasons expressed
below, plaintiff’s motions will be granted in part and denied in
part.
BACKGROUND
Plaintiff, Colony Insurance Company, issued a lawyers
professional liability insurance policy to defendant Kwasnik,
Kanowitz & Associates, P.C. (“KKA”), and that policy purportedly
insured defendants Michael W. Kwasnik, Robert J. Keltos, and
Howard Z. Kanowitz, who were attorneys at the firm.
Colony filed
the instant suit against the defendants seeking a rescission of
the policy, a declaration that the policy is void ab initio, and
damages under the New Jersey Insurance Fraud Prevention Act,
N.J.S.A. 17:33A et seq., as a result of Kwasnik’s alleged fraud in
the application process.
Specifically, Colony claims that Kwasnik
fraudulently and intentionally misrepresented that neither he nor
2
anyone else in the firm had been the subject of an ethics
complaint, when Kwasnik was actually the subject of a pending
disciplinary proceeding for misappropriation of client funds at
that time.2
Kwasnik and KKA filed four counterclaims against Colony for
deceptive trade practices, fraud, breach of contract, and breach
of duty to defend.
They seek compensatory and punitive damages.
In addition, Kwasnik and KKA filed crossclaims against Keltos and
Kanowitz for “intentional acts,” negligence, false witness, and
false light.
Kwasnik and KKA also filed a third-party complaint
against the controller of the firm and the office manager of the
firm, claiming that they misused Kwasnik’s signature stamp and
misappropriated client funds.3
Keltos and Kanowitz answered
Colony’s complaint and filed crossclaims against Kwasnik and KKA.
2
Kwasnik has since been suspended from the practice of law
in New Jersey and Pennsylvania. This is relevant to this case
because Kwasnik entered his appearance as defense counsel for
Kwasnik, Kanowitz & Associates, P.C. prior to his suspension in
Pennsylvania. The entity of Kwasnik, Kanowitz & Associates, P.C.
may not appear pro se, and it may not be represented by anyone
not licensed to practice law. U.S. v. Cocivera, 104 F.3d 566,
572 (3d Cir. 1996)(“‘It has been the law for the better part of
two centuries . . . that a corporation may appear in the federal
courts only through licensed counsel.’”)(quoting Rowland v.
California Men's Colony, 506 U.S. 194, 201-02 (1993)). As
discussed more fully below, the Court will issue an Order
directing KKA to show cause why its claims should not be
dismissed for its failure to have legal counsel.
3
It does not appear that these two individuals have been
served with the third-party complaint, and they have not appeared
in the action.
3
Colony has moved to dismiss Kwasnik and KKA’s request for
punitive damages, as well as their counterclaims, except for
breach of contract.
Colony has also moved to dismiss Kwasnik and
KKA’s third-party complaint and four of their five crossclaims,
arguing that they are outside the scope of Colony’s claims against
them.4
Kwasnik has opposed the motions, but, as previously noted,
see note 2, because KKA is no longer represented by Kwasnik or any
other counsel, it has not filed any opposition.
DISCUSSION
A.
Jurisdiction
This Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1332 because there is complete diversity of citizenship
between the parties and the amount in controversy exceeds $75,000.
B.
Standard for Motion to Dismiss
When considering a motion to dismiss a complaint for failure
to state a claim upon which relief can be granted pursuant to Fed.
R. Civ. P. 12(b)(6), a court must accept all well-pleaded
allegations in the complaint as true and view them in the light
most favorable to the plaintiff.
347, 351 (3d Cir. 2005).
Evancho v. Fisher, 423 F.3d
It is well settled that a pleading is
4
The other two individual defendants, Keltos and Kanowitz,
have not expressed any opinion as to whether Kwasnik and KKA’s
crossclaims against them should be dismissed. The fact that
Colony - and not Keltos or Kanowitz - has moved to dismiss
Kwasnik and KKA’s crossclaims against Keltos and Kanowitz is
discussed below.
4
sufficient if it contains “a short and plain statement of the
claim showing that the pleader is entitled to relief.”
Civ. P. 8(a)(2).
Fed. R.
Under the liberal federal pleading rules, it is
not necessary to plead evidence, and it is not necessary to plead
all the facts that serve as a basis for the claim.
Gulf Oil Corp., 562 F.2d 434, 446 (3d Cir. 1977).
Bogosian v.
However,
“[a]lthough the Federal Rules of Civil Procedure do not require a
claimant to set forth an intricately detailed description of the
asserted basis for relief, they do require that the pleadings give
defendant fair notice of what the plaintiff’s claim is and the
grounds upon which it rests.”
Baldwin County Welcome Ctr. v.
Brown, 466 U.S. 147, 149-50 n.3 (1984) (quotation and citation
omitted).
A district court, in weighing a motion to dismiss, asks “‘not
whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claim.’”
Bell Atlantic v. Twombly, 127 S. Ct. 1955, 1969 n.8 (2007)
(quoting Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see also
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (“Our decision in
Twombly expounded the pleading standard for ‘all civil actions’ .
. . .”); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.
2009) (“Iqbal . . . provides the final nail-in-the-coffin for the
‘no set of facts’ standard that applied to federal complaints
before Twombly.”).
5
Following the Twombly/Iqbal standard, the Third Circuit has
instructed a two-part analysis in reviewing a complaint under Rule
12(b)(6).
First, the factual and legal elements of a claim should
be separated; a district court must accept all of the complaint's
well-pleaded facts as true, but may disregard any legal
conclusions.
1950).
Fowler, 578 F.3d at 210 (citing Iqbal, 129 S. Ct. at
Second, a district court must then determine whether the
facts alleged in the complaint are sufficient to show that the
plaintiff has a “‘plausible claim for relief.’”
Iqbal, 129 S. Ct. at 1950).
Id. (quoting
A complaint must do more than allege
the plaintiff's entitlement to relief.
Id.; see also Phillips v.
County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating
that the “Supreme Court's Twombly formulation of the pleading
standard can be summed up thus: ‘stating . . . a claim requires a
complaint with enough factual matter (taken as true) to suggest’
the required element.
This ‘does not impose a probability
requirement at the pleading stage,’ but instead ‘simply calls for
enough facts to raise a reasonable expectation that discovery will
reveal evidence of’ the necessary element”).
A court need not
credit either “bald assertions” or “legal conclusions” in a
complaint when deciding a motion to dismiss.
In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997).
The defendant bears the burden of showing that no claim has been
presented.
Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005)
6
(citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409
(3d Cir. 1991)).
Finally, a court in reviewing a Rule 12(b)(6) motion must
only consider the facts alleged in the pleadings, the documents
attached thereto as exhibits, and matters of judicial notice.
Southern Cross Overseas Agencies, Inc. v. Kwong Shipping Group
Ltd., 181 F.3d 410, 426 (3d Cir. 1999).
A court may consider,
however, “an undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the plaintiff’s
claims are based on the document.”
Pension Benefit Guar. Corp. v.
White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
If any other matters outside the pleadings are presented to the
court, and the court does not exclude those matters, a Rule
12(b)(6) motion will be treated as a summary judgment motion
pursuant to Rule 56.
C.
Fed. R. Civ. P. 12(b).
Analysis
1.
Plaintiff’s motion to dismiss Kwasnik and KKA’s
counterclaims
As noted above, Kwasnik and KKA have asserted counterclaims
against Colony for deceptive trade practices, fraud, breach of
contract, and breach of duty to defend.
damages.
They also seek punitive
Colony has moved to dismiss those claims, except for
breach of contract, arguing that the pleadings are deficient and
the claims are not viable.
The Court agrees with Colony that
7
those counterclaims should be dismissed.5
The whole of Kwasnik and KKA’s counterclaims and basis for
punitive damages is as follows:
Kwasnik and KKA paid for
insurance coverage, Colony has now claimed that they have no
coverage, and this action by Colony is “willful, wanton, and
reckless,” and constitutes deceptive trade practices, fraud, and
beach of duty to defend.
These allegations are simply
impermissible “bald assertions” and “legal conclusions” that fail
to comply with the minimum pleading requirements.6
In his opposition to Colony’s motion, Kwasnik argues against
the merits of Colony’s claims against him - namely, how he did not
provide a false response to question 13(c) on the Colony
professional liability policy application.
Based on his
explanation of how he truthfully answered that question, Kwasnik
claims that Colony’s attempt to rescind the policy and declare it
void supports his counterclaims.
5
It is not clear whether New Jersey or Pennsylvania law
applies to this case. A choice-of-law analysis does not need to
be performed, however, in order to resolve Colony’s motions since
the claims fail to meet even the most basic of pleading
standards.
6
Moreover, Federal Rule of Civil Procedure 9(b) requires
that fraud be plead with particularity. See Fed. R .Civ. P.
9(b); see also Kanter v. Barella, 489 F.3d 170 (3d Cir. 2007)
(stating that the heightened pleading requirements for fraud
require that facts be plead with particularity such as the “who,
what, when, where, and how” of the events at issue). Even if the
claims had survived application of the Twombly/Iqbal standard,
Kwasnik and KKA have not met this heightened pleading standard.
8
Kwasnik’s attempt to add factual support to his deficient
claims is impermissible.
Insufficiencies in Kwasnik’s claims as
pled cannot be cured by a brief or other documents submitted in
opposition to Colony’s motion.
Rather, the mechanism for curing
pleading deficiencies is to follow Fed. R. Civ. P. 15(a).
See
Ranke v. Sanofi-Synthelabo, Inc., 436 F.3d 197, 206 (3d Cir.
2006)(upholding the district court’s dismissal of plaintiffs’
complaint because plaintiffs did not file a formal motion for
leave to amend and stating that if plaintiffs “had been in
possession of facts that would have augmented their complaint and
possibly avoided dismissal, they should have pled those facts in
the first instance”).
Consequently, because of their failure to sufficiently plead
viable claims, all of Kwasnik and KKA’s counterclaims, except for
the breach of contract claim, and their request for punitive
damages7 must be dismissed.8
7
Because punitive damages are not available for breach of
contract, Kwasnik and KKA’s request for punitive damages must be
dismissed as well. See Lightning Lube, Inc. v. Witco Corp., 4
F.3d 1153, 1194 (3d Cir.1993) (punitive damages are not
recoverable under New Jersey law for breach of contract); Smith
v. Harleysville Ins. Co., 418 A.2d 705, 706 (Pa. 1980) (“The law
in Pennsylvania has always been that punitive damages cannot be
recovered for breach of contract.”), aff'd, 431 A.2d 974 (1981).
8
KKA’s breach of contract counterclaim against Colony
therefore also remains pending. KKA, however, cannot pursue a
breach of contract counterclaim without counsel, as noted in note
2. This issue is addressed below.
9
2.
Colony’s motion to dismiss Kwasnik and KKA’s third-party
complaint and crossclaims
Colony has moved to dismiss the crossclaims Kwasnik and KKA
have lodged against co-defendants Kanowitz and Keltos, as well as
the third-party complaint Kwasnik and KKA have filed against the
firm’s former office manager and controller.
Colony argues that
those claims are not within the scope of Colony’s claims, and they
therefore do not belong in this case.
In their cross and third-party claims, Kwasnik and KKA
contend that Kanowitz, Keltos, the officer manager, and the
controller misappropriated client funds, and this misappropriation
of funds spawned ethics investigations and state court suits
against them.
Kwasnik and KKA also claim that Kanowitz improperly
prepared the application for the Colony insurance policy,9 and he
gave false information and testimony in the state ethics and state
court proceedings.
Federal Civil Procedure Rule 14 governs third-party
complaints.
It provides, “A defending party may, as third-party
plaintiff, serve a summons and complaint on a nonparty who is or
may be liable to it for all or part of the claim against it.”
Fed. R. Civ. P. 14(a)(1).
“A third-party claim may be asserted
under Rule 14(a) only when the third party’s liability is in some
9
This allegation forms the basis of cross-claim Count III
(Negligent Preparation of Liability Policy Application).
10
way dependent on the outcome of the main claim or when the third
party is secondarily liable to defendant.
If the claim is
separate or independent from the main action, impleader will be
denied.”
F.D.I.C. v. Bathgate, 27 F.3d 850, 873 (3d Cir. 1994)
(citing C.A. Wright, A. Miller, M.K. Kane, Federal Practice and
Procedure, Vol. 6, § 1446, at 355–58 (1990)).
Federal Civil Procedure Rule 13(g) governs crossclaims.
It
provides, “A pleading may state as a crossclaim any claim by one
party against a coparty if the claim arises out of the transaction
or occurrence that is the subject matter of the original action or
of a counterclaim . . . . The crossclaim may include a claim that
the coparty is or may be liable to the cross-claimant for all or
part of a claim asserted in the action against the
cross-claimant.”
Fed. R. Civ. P. 13(g).
“[T]he general policy
behind allowing crossclaims is to avoid multiple suits and to
encourage the determination of the entire controversy among the
parties before the court with a minimum of procedural steps.”
C.A. Wright, A. Miller, M.K. Kane, Federal Practice and Procedure,
Vol. 6, § 1431 (3d ed.).
Rule 13(g) “does not authorize the
assertion of every claim that might exist between coparties,” and
the decision whether to allow a crossclaim is a matter of judicial
discretion.
Id.
As a primary matter, it is unclear whether Colony has
standing to move for the dismissal of claims that are not asserted
11
against it.
Even though Colony argues that these cross and third-
party claims are unrelated to its claims, and they will only serve
to exceed the scope of its case and bog down the entire matter,
the targets of the cross and third-party claims have not moved for
the dismissal of those claims against them.
The Court questions
whether the effect of the cross and third-party claims on the
scope of the case instituted by Colony gives Colony the ability to
argue for their dismissal.
Regardless, however, of the propriety of Colony’s motion, the
Court has discretion to independently review the sufficiency of
these claims and otherwise determine whether they are proper.
See
Bryson v. Brand Insulations, Inc., 621 F.2d 556, 559 (3d Cir.
1980) (holding that a “district court may on its own initiative
enter an order dismissing the action provided that the complaint
affords a sufficient basis for the court’s action”); National Fire
Ins. Co. of Hartford v. Universal Janitorial Supply Corp., 2006 WL
892291, *4-5
(D.N.J. 2006) (citing Bryson) (noting the
defendants’ argument that the plaintiff may not move to dismiss
their third-party complaint against third-party defendants, and
proceeding instead on the notion that a court may, sua sponte,
dismiss the complaint where the inadequacy of the complaint is
clear).
The Court finds that Kwasnik and KKA’s third-party complaint
must be dismissed, and all but one of their crossclaims must be
12
dismissed as well.
First, with regard to the third-party
complaint, Kwasnik and KKA contend that the firm’s former office
manager and controller misappropriated client funds and wrongfully
used Kwasnik’s signature stamp, and this caused Kwasnik and KKA to
be damaged.
Even assuming that this allegation complies with the
Iqbal/Twombly pleading standard, it is not derivative of Colony’s
claims against Kwasnik and KKA.
Colony seeks a rescission of the
professional liability insurance policy because Kwasnik was
allegedly untruthful in answering an application question
regarding whether any ethics complaints had been filed against
him.
Whether the former office manager or controller were
responsible for the misappropriation of client funds, which
purportedly served as the basis for the ethics complaint, is
immaterial to whether Kwasnik knew of a pending ethics complaint
when he completed the application.
Stated another way, the former
office manager and controller could be found liable to Kwasnik if
Kwasnik (1) is found liable for misappropriation of client funds,
and (2) he proves that they, not he, stole those funds.
The
outcome of those issues has no bearing, however, on Kwasnik’s
obligations to Colony under the insurance contract.
As a result,
the third-party complaint does not comply with Fed. R. Civ. P.
14(a)(1), and it therefore must be dismissed.10
10
Although federal courts generally exercise supplemental
jurisdiction over a properly brought third-party complaint, where
a third-party complaint is not properly brought, this Court has
no subject matter jurisdiction, and the complaint must be
13
With regard to Kwasnik and KKA’s crossclaims against codefendants Kanowitz and Keltos, four of the five crossclaims must
be dismissed.
Kwasnik and KKA claim that Kanowitz and Keltos
intentionally and negligently misrepresented the firm’s clients,
ostensibly resulting in ethics and state court suits against
Kwasnik and KKA.
They also claim that Kanowitz provided false
information to investigators and the state court regarding
Kwasnik’s actions.
The Court finds that the conduct of the firm and its
attorneys that forms the basis for the ethics complaints and state
court actions goes beyond the subject matter of what is
essentially a breach of contract case.
Colony seeks to have the
professional liability insurance policy issued to Kwasnik,
Kanowitz, Keltos and KKA declared void and rescinded because of an
allegedly fraudulent statement on the application.
Kwasnik has
asserted a counterclaim against Colony for breach of contract,
arguing that Colony owes him coverage under the policy.
Kanowitz
and Keltos have asserted crossclaims against Kwasnik contending
that Kwasnik is solely liable for the fraudulent statement on the
insurance application form.
Kwasnik crossclaims that Kanowitz is
dismissed. Tactix Real Estate Advisors LLC v. Taub, 2011 WL
830265, *2 (D.N.J. 2011) (citing Santana Prod., Inc. v. Bobrick
Washroom Equip., Inc., 69 F. Supp. 2d 678, 690 (M.D. Pa. 1999) (a
third-party complaint that does not set forth a basis for
derivative or secondary liability “is not proper under Rule 14
and thus falls outside of this Court's ancillary jurisdiction”)
(other citations omitted)).
14
responsible.
The resolution of who is responsible for the actions
that served the basis for the ethics complaints and state court
actions is not necessary to the resolution of whether an answer to
a question on an insurance policy application results in the
rescission of the policy.
Consequently, counts one, two, four and
five11 of Kwasnik and KKA’s crossclaims against Kanowitz and
Keltos must be dismissed.12
CONCLUSION
For the reasons expressed above, Colony’s motion to dismiss
Kwasnik and KKA’s request for punitive damages, and their
counterclaims, except for breach of contract, will be granted.
The Court, sua sponte, will dismiss without prejudice Kwasnik and
KKA’s third-party complaint.
The Court, sua sponte, will also
dismiss without prejudice Kwasnik and KKA’s crossclaims, except
for “count three” against Kanowitz.13
Colony’s motion to dismiss
11
The same can not be said for the claims centering on
which attorney may have made, or been responsible for, any false
statements made on the policy. As noted previously, see Note 9,
this allegation forms the basis for cross-claim Count III which
will remain in the case.
12
As with KKA’s counterclaims, the viability of KKA’s
remaining crossclaim is uncertain due to KKA’s lack of legal
representation.
13
The dismissal of the third-party complaint and
crossclaims does not necessarily preclude Kwasnik from pursuing
these claims in an independent action. See C.A. Wright, A.
Miller, M.K. Kane, Federal Practice and Procedure, Vol. 6, § 1431
(3d ed.) (“A party who decides not to bring a claim under Rule
13(g) will not be barred by res judicata, waiver, or estoppel
from asserting it in a later action. . . .”); Kelley v. Edison
15
Kwasnik and KKA’s third-party complaint and crossclaims will be
denied as moot.
The claims remaining in the case are as follows:
(1) All of Colony’s claims against Kwasnik, Kanowitz, Keltos
and KKA;
(2) Kwasnik’s counterclaim against Colony for breach of
contract;
(3) KKA’s counterclaim against Colony for breach of contract;
(4) Kwasnik’s crossclaim (“count three”) against Kanowitz;
(5) KKA’s crossclaim (“count three”) against Kanowitz;
(6) Kanowitz’s crossclaims against Kwasnik and KKA; and
(7) Keltos’ crossclaims against Kwasnik and KKA.
As noted above, because KKA is not represented by counsel, it
does not currently have the ability to pursue its counterclaim and
crossclaim.14
Even though counsel for Colony presents a
declaration that indicates that KKA has no intention of retaining
a lawyer and pursuing its claims, this Court will order KKA to
show cause why its claims should not be dismissed for its failure
Twp., 377 F. Supp. 2d 478, 484-85 (D.N.J. 2005) (dismissing
third-party complaint without prejudice so that the defendant
could refile his claims in state court and pursue any of the
state law remedies available to him in state court).
14
The Court will allow counsel for Colony to proceed as it
deems proper on its claims against KKA should it remain
unrepresented.
16
to obtain a lawyer to represent it.
An appropriate Order will be entered.
Date: December 4, 2012
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
17
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?