TRANSPORTATION INSURANCE COMPANY v. AMERICAN HARVEST BAKING COMPANY, INC.
Filing
44
OPINION filed. Signed by Judge Noel L. Hillman on 12/16/2015. (drw)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
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TRANSPORTATION INSUANCE
COMPANY,
Plaintiff and
Counterclaim
Defendant,
v.
AMERICAN HARVEST BAKING
COMPANY, INC.,
Defendant,
Counterclaim Plaintiff,
and Third Party
Plaintiff,
v.
CNA FINANCIAL CORPORATION,
LOEWS CORPORATION, and
CONTINENTAL CASUALTY CORP.,
Third Party
Defendants.
Civ. No. 15-663 (NLH/AMD)
OPINION
APPEARANCES:
BRESSLER, AMERY & ROSS, P.C.
By: Samuel J. Thomas, Esq.
325 Columbia Turnpike
Florham Park, New Jersey 07932
Counsel for Plaintiff and Counterclaim Defendant Transportation Insurance Company
and Third Party Defendant Continental Casualty Corporation
ELENIUS, FROST & WALSH
By: Edward Delsesky, Esq.
1249 South River Road, Suite 300A
Cranbury, New Jersey 08512
Counsel for Third Party Defendant CNA Financial Corporation
1
LIGHTMAN & MANOCHI
By: Gary P. Lightman, Esq.
Glenn A. Manochi, Esq.
W. Lyle Stamps, Esq.
1520 Locust Street, 12th Floor
Philadelphia, Pennsylvania 19102
Counsel for Defendant, Counterclaim Plaintiff, and Third Party Plaintiff American
Harvest Baking Company, Inc.
HILLMAN, United States District Judge:
This contract dispute began as an action for recovery of unpaid premiums by insurer
Transportation Insurance Company (“TIC”) against American Harvest Baking Company, Inc.
(“AHBC”). AHBC proceeded to counterclaim against TIC and make a third party complaint
against CNA Financial Corporation (“CNAF”), Loews Corporation (“Loews”), and Continental
Casualty Corporation (“CCC”) (collectively, the “Third Party Defendants”) alleging a conspiracy
to defraud amongst TIC and the Third Party Defendants (collectively, the “Counterclaim/Third
Party Defendants”). This matter comes before the Court on TIC and CCC’s Motion to Dismiss
for Failure to State a Claim (“TIC’s Motion” or “TIC Mot.”) [Dkt. No. 23], CNAF’s Motion to
Dismiss for Lack of Personal Jurisdiction (“CNAF’s Motion” or “CNAF Mot.”) [Dkt. No. 29];
and CNAF’s Motion for Joinder in TIC and CCC’s Motion (“CNAF’s Joinder Mot.”) [Dkt. No.
31]. For the reasons that follow, CNAF’s Motion will be DENIED WITHOUT PREJUDICE,
TIC’s Motion will be GRANTED-IN-PART, and CNAF’s Joinder will be DISMISSED.
2
I.
BACKGROUND
The following facts are admitted by AHBC in its Answer1 or otherwise alleged in the
Counterclaim and Third Party Complaint. AHBC was issued an insurance policy in 2013 and
2014 by an entity AHBC believed to be “CNA.” “CNA” offered a low premium amount on its
insurance policy, and AHBC decided to select “CNA” as its insurance provider for worker’s
compensation insurance. The insurance policy was subsequently issued to AHBC by TIC.
Premiums paid by AHBC were billed by and paid to “CNA.”
Some time after signing for both the 2013 and 2014 policies, audits were performed on
AHBC’s policies. The audits reclassified certain employees, which resulted in a determination
that AHBC owed additional premiums under the policies in the amount of $88,053.02. Invoices
for the additional premiums were sent by “CNA.” AHBC made an initial payment of $977.15
toward this, but then ceased making any additional payments as AHBC does not believe it owes
TIC the additional $87,075.87.2 TIC filed suit in this Court against AHBC to recover what it
believes are additional monies owed to TIC.
AHBC then counterclaimed against TIC and filed a third party complaint against CCC,
CNAF, and Loews, alleging, among other counts, a conspiracy to defraud amongst all four
entities. The instant motions followed. During the pendency of these motions, AHBC
voluntarily dismissed the Third Party Complaint against Loews. (June 9, 2015 Notice [Dkt. No.
35].)
1
The admissions of AHBC in its Answer to TIC’s Complaint are incorporated by reference in
the Counterclaim. (Counterclaim ¶ 61.)
2
AHBC does not deny that it does owe the money; it denies that it owes any money to TIC as
opposed to “CNA.” (See Answer ¶¶ 16, 18.)
3
II.
JURISDICTION
The original case as filed by TIC, an Illinois company with principal place of business in
Illinois, against AHBC, a Delaware corporation3 with principal place of business in New Jersey,
was properly brought under this Court’s diversity jurisdiction pursuant to 28 U.S.C. § 1332.
This Court has jurisdiction over AHBC’s Counterclaim and Third Party Complaint pursuant to
28 U.S.C. § 1367.
III.
MOTIONS TO DISMISS
This Court will turn first to CNAF’s Motion regarding lack of personal jurisdiction, and
then TIC’s Motion regarding failure to adequately plead and failure to state a claim.
A.
MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
CNAF moves to dismiss the Third Party Complaint against it, arguing that this Court
does not have personal jurisdiction over CNAF, a Delaware corporation with principal place of
business in Illinois. This Court finds the arguments persuasive that personal jurisdiction may not
exist, but also finds that AHBC has presented sufficient evidence to permit them to pursue
limited jurisdictional discovery. Accordingly, this Court will deny CNAF’s motion without
prejudice to permit AHBC to undertake the limited jurisdictional discovery for the reasons that
follow here.
1.
LEGAL STANDARD
AHBC, as third-party plaintiff in the action against CNAF, bears the burden of
demonstrating the facts that establish personal jurisdiction, and in deciding a motion brought
3
The Complaint alleges that AHBC is a New Jersey corporation. (Compl. [Dkt. No. 1] ¶ 2.)
AHBC’s Answer indicates that it is a Delaware corporation. (Answer ¶ 2.) This does not affect
this Court’s analysis of its diversity jurisdiction, but to the extent it is relevant, AHBC’s response
will control here.
4
under Rule 12(b)(2) the Court “must accept all of the plaintiff’s allegations as true and construe
disputed facts in favor of the plaintiff.” Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d
Cir. 2002) (citations omitted). Once a defendant raises a jurisdictional defense, the plaintiff must
prove the jurisdictional facts by affidavits or other competent evidence. Metcalfe v. Renaissance
Marine, Inc., 566 F.3d 324, 330 (3d Cir. 2009) (citing Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d
1287, 1302 (3d Cir. 1996)). “[A]t no point may a plaintiff rely on the bare pleadings alone in
order to withstand a defendant’s Rule 12(b)(2) motion to dismiss for lack of in personam
jurisdiction.” Patterson ex rel. Patterson v. F.B.I., 893 F.3d 595, 603–04 (3d Cir. 1990) (quoting
Time Share Vacation Club v. Atl. Resorts, Ltd., 735 F.3d 61, 67 n.9 (3d Cir. 1984)). Thus a court
must look beyond the pleadings and consider the affidavits and other proofs submitted by the
parties. Accordingly, facts recited in this section that come from outside the pleadings are
inappropriate to be considered infra in any discussion of the sufficiency of the pleadings.
Personal jurisdiction over a defendant in federal court is established when the defendant
“is subject to the jurisdiction of a court of general jurisdiction in the state where the district court
is located.” Fed. R. Civ. P. 4(k)(1)(A); see also Daimler AG v. Bauman, 134 S. Ct. 746, 753
(2014). Accordingly, “[a] federal court sitting in New Jersey has jurisdiction over parties to the
extent provided under New Jersey state law.” Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 86
(3d Cir. 2004). New Jersey “permits the exercise of personal jurisdiction to the fullest limits of
due process.” IMO Industries, Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998); see also
N.J. Ct. R. 4:4–4(b)(1). “Due process requirements are satisfied when in personam jurisdiction
is asserted over a nonresident corporate defendant that has certain minimum contacts with the
forum such that the maintenance of the suit does not offend traditional notions of fair play and
substantial justice.” Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414
5
(1984) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)) (internal quotation
marks and alterations omitted).
Personal jurisdiction may be asserted in one of two ways—general jurisdiction or specific
jurisdiction. As the Supreme Court has explained:
A court may assert general jurisdiction over foreign (sister-state or foreign-country)
corporations to hear any and all claims against them when their affiliations with the
State are so “continuous and systematic” as to render them essentially at home in
the forum State. Specific jurisdiction, on the other hand, depends on an affiliation
between the forum and the underlying controversy, principally, activity or an
occurrence that takes place in the forum State and is therefore subject to the State’s
regulation.
Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011) (citations and
internal quotations omitted). The Supreme Court has also recognized that as its jurisprudence
“has increasingly trained on the relationship among ‘the defendant, the forum, and the litigation,’
i.e., specific jurisdiction, general jurisdiction has come to occupy a less dominant place in the
contemporary scheme.” Daimler, 134 S. Ct. at 758 (quoting Shaffer v. Heitner, 433 U.S. 186,
204 (1977)) (footnotes omitted). This Court will analyze both bases of jurisdiction in turn.
2.
GENERAL JURISDICTION
AHBC alleges that this Court has general jurisdiction over CNAF based on the fact that
TIC and CCC, which are subsidiaries of CNAF, are subject to the general jurisdiction of this
Court and are alter egos of CNAF. (AHBC Opp. at 20–24.)4 The Supreme Court in Daimler
rejected using an agency theory for general jurisdiction, but the Court appears to have left intact
the alter ego theory for general jurisdiction when dealing with parents and subsidiaries. See
4
CNAF is admitted by AHBC to be a Delaware corporation with a principal place of business in
Illinois. (Answer and Counterclaim ¶ 64.) Therefore, no general jurisdiction in New Jersey
exists based on the “paradigm bases” for the exercise of general jurisdiction for a corporation.
See Daimler, 134 S. Ct. at 760 (2014).
6
Daimler, 134 S. Ct. at 759 (noting the use of the alter ego theory by several Courts of Appeals
without opining on its validity). The Third Circuit has not yet had chance to opine on this issue,5
but the Second and Ninth Circuits have, concluding that the alter ego theory as a basis for
general jurisdiction survived the decision in Daimler. See Ranza v. Nike, Inc., 793 F.3d 1059,
1071 (9th Cir. 2015) (“The alter ego test is designed to determine whether the parent and
subsidiary are not really separate entities, such that one entity’s contacts with the forum state can
be fairly attributed to the other.”) (internal quotations omitted); Sonera Holding B.V. v. Cukurova
Holding A.S., 750 F.3d 221, 225–26 (2d Cir. 2014) (assuming contacts can be imputed and then
finding no general jurisdiction). This Court agrees and will apply the alter ego test in this matter.
The alter ego theory is a derivation of the “piercing the corporate veil,” and the alter ego
test for personal jurisdiction is less stringent than the one for liability. In re Enterprise Rent-ACar Wage & Hour Emp’t Practices Litig., 735 F. Supp. 2d 277, 319 (W.D. Pa. 2010) (citing
Stuart v. Spademan, 772 F.2d 1185, 1198 n.12 (5th Cir. 1985)). The determination of
jurisdiction over a nonresident parent corporation by means of the acts of the subsidiary is a
matter of state law. Alexander v. CIGNA Corp., 991 F. Supp. 427, 443 n.25 (D.N.J. 1998). “In
New Jersey, a subsidiary will be deemed to be the alter ego or ‘mere instrumentality’ of its
parent if ‘the parent so dominated the subsidiary that it had no separate existence but was merely
a conduit for the parent.’” Seltzer v. I.C. Optics, Ltd., 339 F. Supp. 2d 601, 610 (D.N.J. 2004)
(quoting State, Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500–01 (N.J. 1983)).
5
The only Third Circuit opinion to address the effect of Daimler and the issues of general
jurisdiction over a foreign corporation has been vacated upon order of the Circuit to hear the case
in front of the en banc court. See Chavez v. Dole Food Co., Inc., 796 F.3d 261, 269–70 (3d Cir.
2015), vacated pending reh’g en banc. Regardless, the panel decision in Chavez was not directly
applicable to the issue of corporate alter ego as a basis for general jurisdiction.
7
“Whether the exercise of jurisdiction over a parent corporation is proper under the alterego theory depends upon the details of the unique relationship between the parent corporation
and its subsidiary. The parent-subsidiary relationship itself is not sufficient to establish in
personam jurisdiction over the parent entity.” In re Enterprise, 735 F. Supp. 2d at 317–18
(citation omitted); see also Lucas v. Gulf & W. Indus., Inc., 666 F.2d 800, 805–06 (3d Cir. 1981)
(remarking on factors relevant for jurisdictional analysis between a parent and a subsidiary),
abrogated on other grounds, EF Operating Corp. v. Am. Bldgs., 993 F.2d 1046 (3d Cir. 1993);
Carfagno v. Ace, Ltd., Civ. No. 04-6184 (JBS), 2005 WL 1523530, at *6 (D.N.J. June 28, 2005)
(same). A court “should examine all relevant factors that relate to the intimacy of the
relationship between the parent and subsidiary to assess whether the contacts of the subsidiary
with a particular state should be imputed to the parent.” Arch v. Am. Tobacco Co., Inc., 984 F.
Supp. 830, 837 (E.D. Pa. 1997). In New Jersey, the factors to consider include “(1) whether the
subsidiary is doing business in the forum that would otherwise be performed by the parent; (2)
whether there is common ownership of the parent and a subsidiary; (3) whether there is financial
dependency; and (4) whether the parent interferes with the subsidiary’s personnel, disregards the
corporate formalities, and/or controls the subsidiary’s marketing and operational policies.”
Dewey v. Volkswagen AG, 558 F. Supp. 2d 505, 513 (D.N.J. 2008) (citations omitted).6
AHBC’s primary argument is toward the second and fourth factors regarding common
ownership, disregard of corporate formalities, and control of the subsidiary’s marketing policies.
AHBC argues the fact that “CNA [Financial]’s officers and directors overlap 100% [with TIC
6
AHBC directs this Court to the ten-factor test used in the Eastern District of Pennsylvania, as
explained in Simeone ex rel. Simeone v. Bombardier-Rotax GmbH, 360 F. Supp. 2d 665, 675
(E.D. Pa. 2005). While potentially instructive, to the knowledge of this Court, this ten-factor test
has never been cited to by a court in New Jersey, and primarily cited by courts in Pennsylvania.
The test from Dewey is far more appropriate, being grounded in New Jersey state law.
8
and CCC], even if they do hold ‘separate’ meetings and keep ‘separate books.’” (AHBC Opp. at
22 (citing Lehman Decl. ¶¶ 18–19).) This ignores the “well established principle of corporate
law that directors and officers holding positions with a parent and its subsidiary can and do
‘change hats’ to represent the two corporations separately, despite their common ownership.”
United States v. Bestfoods, 524 U.S. 1, 69 (1998) (internal quotations and alterations omitted).
The declaration submitted by CNAF makes clear that each of the corporate entities involved here
maintains its own corporate records and holds its meetings separately from the others. (Lehman
Decl. ¶¶ 18–20.)
Construing disputed facts in favor of AHBC, the third-party plaintiff, as this Court must
do, it seems that this may not actually be the case. The terms of use for CNAF’s website—as
submitted by CNAF—appear to conflate CCC and CNAF, stating “Continental Casualty
Company (‘CNA’, ‘we’, ‘our’, ‘us’) provides this Web site and the materials located at and
under the domain name cna.com (collectively, this ‘Site’) and any CNA services available on
this Site . . . to you, the user . . . .” (Ex. A to Lehman Decl.) Similarly, CNAF does appear to
control the subsidiary’s marketing policies, when disputed facts are construed in favor of AHBC.
CNAF, TIC, and CCC all use the common “CNA” mark. (Lehman Decl. ¶ 4.) Despite this, as
other courts have reasoned, “[p]romotional statements made on a public website do not precisely
convey the operative corporate structure.” LaSalle Nat’l Bank v. Vitro, SA, 85 F. Supp. 2d 857,
865 (N.D. Ill. 2000). Also in favor of AHBC’s position is the fact that the single payment it did
make toward the additional premiums was debited by an entity only called “CNA” and not
“Travelers Insurance Company” or anything similar. (See Ex. A to Roseman Aff.)
However, the full weight of the evidence present does not support a finding that CNAF
“so dominates” either CCC or TIC in such a manner that the subsidiaries are “mere conduits” for
9
CNAF. With respect to the first factor to be considered, CNAF could not perform the functions
of TIC or CCC. CNAF as the parent company is purely a holding company, does not engage in
any insurance activities itself, and is not licensed to issue policies in this forum, or any other
forum. (Lehman Decl. ¶¶ 6–13.) As other courts have noted, a “holding company could simply
hold another type of subsidiary.” In re Enterprise, 735 F. Supp. 2d at 324 (quoting Action Mfg.
Co., Inc. v. Simon Wrecking Co., 375 F. Supp. 2d 411, 422 (E.D. Pa. 2011)). As to the third
factor, no evidence has been submitted regarding financial dependency of either TIC or CCC on
CNAF. Further, regarding parent control over the subsidiary’s operational policies, CNAF has
explained that CNAF does not hire anyone involved with the underwriting or premium auditing
that TIC or CCC engage in, and that CNAF is not involved in the decision even as to which
subsidiary will issue the insurance policy. (Lehman Decl. ¶ 9.) Additionally, at least one other
court in this circuit, when analyzing multiple factors in a similar situation involving a holding
company, has concluded that in “an ordinary holding company/subsidiary relationship, not one
of undue domination and control,” there is no alter ego relationship. Arch, 984 F. Supp. at 837–
38. This Court agrees with that conclusion, based on the facts and affidavits presented, with all
disputed facts construed in favor of AHBC. There is no undue domination and control here, and
thus neither TIC nor CCC is functioning as an alter ego of CNAF. Accordingly, this court does
not have general jurisdiction over CNAF.
3.
SPECIFIC JURISDICTION
AHBC’s arguments for why this court has specific jurisdiction over CNAF all appear to
stem from the same alter ego argument, which this Court has already rejected as a theory for
general jurisdiction. “The inquiry whether a forum State may assert specific jurisdiction over a
nonresident defendant ‘focuses on the relationship among the defendant, the forum, and the
10
litigation.’” Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (quoting Keeton v. Hustler
Magazine, Inc., 465 U.S. 770, 775 (1984)). “For a State to exercise jurisdiction consistent with
due process, the defendant’s suit related conduct must create a substantial connection with the
forum State.” Id. The contacts must be created by CNAF itself, not a third party, and the
contacts must be with New Jersey itself, and not merely with one entity who resides here in New
Jersey. Id. at 1122.
AHBC explains that it sought a quote from “CNA,” submitted information to “CNA,”
and decided to obtain a “CNA insurance policy.” (AHBC Opp. at 25; Rosenberg Aff. (Ex. A to
AHBC Opp.) ¶¶ 5–9.) The argument relies in large part on the insurance policy cover stating
“Your Workers Compensation and Employers Liability Policy from CNA” and speaking to Ms.
Connie Monroe, allegedly a CNA collections agent. (AHBC Opp. at 25–26; Rosenberg Aff.
¶¶ 11–13.) AHBC even explains it was “surprised” to have been sued by TIC rather than any
company named “CNA.” (AHBC Opp. at 26; Rosenberg Aff. ¶ 15.)
When the policy documents themselves are reviewed, the policy issuer is clear. The
cover page does indeed state “Your Workers Compensation and Employers Liability Policy from
CNA” in large print, but in normal sized print also states, “the company designated on the
Information Page has caused this policy to be signed.” (Ex. A to Rosenberg Aff.) Turning to the
Information Page of the policies issued to AHBC, both state plainly at the top, “Coverage is
Provided By NCCI Carrier Code No: 12408, Transportation Insurance Co.” (Ex. C & D to
CNAF Reply (emphasis added).) While the “CNA” mark is used on the cover, this is insufficient
to overcome the plain language of the policy, clearly indicating TIC as the insurance provider,
and not any company with “CNA” in the name.
11
AHBC was required to prove jurisdiction by bringing forth affidavits or other competent
evidence, Metcalfe, 566 F.3d at 330, and AHBC’s submissions fail to overcome the issues
presented in the affidavits and exhibits presented by CNAF. CNAF, by its own affidavit, has no
employees, agents, or representatives that act on its behalf regarding insurance products.
(Lehman Decl. ¶¶ 8–9.) AHBC has provided no evidence to controvert that assertion aside from
its own misunderstanding of who issued its policy. Further, AHBC has provided no evidence to
satisfy either of the two requirements for “a substantial connect with the forum State” as
explained in the Supreme Court’s recent Walden decision—contacts that are (1) created by
CNAF and (2) directed toward New Jersey. AHBC’s own misconceptions as to their own
insurance policy are not sufficient reasons for this foreign corporation to be haled into a New
Jersey court. Accordingly, this Court also does not have a specific jurisdiction basis for personal
jurisdiction over CNAF.
4.
JURISDICTIONAL DISCOVERY
In the absence of finding jurisdiction based on the affidavits presented, AHBC requests
leave for jurisdictional discovery to “uncover evidence of additional activities conducted by
CNA[F] such that CNA[F] should be subjected to general jurisdiction in New Jersey.” (AHBC
Opp. at 20 n.2.) “[C]ourts are to assist the plaintiff by allowing jurisdictional discovery unless
the plaintiff’s claim is ‘clearly frivolous.’” Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446,
456 (3d Cir. 2003) (citing Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass’n, 107 F.3d 1026,
1042 (3d Cir. 1997)). “If a plaintiff presents factual allegations that suggest with reasonable
particularity the possible existence of the requisite contacts between the party and the forum
state, the plaintiff’s right to conduct jurisdictional discovery should be sustained.” Id. (quoting
12
Mellon Bank (E.) PSFS, Nat’l Ass’n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992)) (internal
quotations omitted).
This case is a close call, as this Court has found that one of the issues may tip slightly in
AHBC’s favor. Accordingly, AHBC has not presented a “clearly frivolous” claim of
jurisdiction. AHBC will be permitted to pursue discovery only for the limited purpose of
discovering information germane to satisfying the factors as delineated in Dewey. This Court
will exert personal jurisdiction over CNAF to the extent necessary to require it to provide this
limited jurisdictional discovery. The period for this discovery shall be thirty (30) days from the
entry of this opinion and accompanying order. Within seven (7) days, AHBC may file a
supplemental brief to demonstrate jurisdiction, and CNAF’s supplemental opposition will be due
seven (7) days thereafter. If AHBC does not file a supplemental brief within the specified time,
CNAF may make an application to renew its motion to dismiss for lack of personal jurisdiction,
based on AHBC’s failure to supplement.
B.
MOTION TO DISMISS FOR FAILURE TO ADEQUATELY PLEAD OR
FAILURE TO STATE CLAIM
All of the Counterclaim/Third Party Defendants move this Court to dismiss AHBC’s
Counterclaim and Third Party Complaint. As an initial matter, TIC’s Motion was joined by
CNAF in a filing styled as a “Motion for Joinder.” (CNAF Joinder Mot. at 1.) As this is not
actually a Motion for Joinder under Federal Rules of Civil Procedure 19 or 20, but rather a
motion to join in the arguments being made by TIC and CCC, CNAF’s Joinder Motion will be
dismissed. The Court agrees with the Counterclaim/Third Party Defendants and will dismiss the
complaint for failure to comply with the heightened pleading standards of Rule 9(b) and grant
AHBC leave to file an amended Counterclaim and Third Party Complaint.
13
1.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint
“for failure to state a claim upon which relief can be granted.” In order to survive a motion to
dismiss, a complaint must allege facts that make a right to relief more than speculative. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Fed. R. Civ. P. 8(a)(2).
While a court must accept all allegations in the complaint as true, viewing them in the
light most favorable to the non-moving party, Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231
(3d Cir. 2008), a court is not required to accept sweeping legal conclusions cast as factual
allegations. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). The complaint
must state sufficient facts to show that the legal allegations are not simply possible, but plausible.
Phillips, 515 F.3d at 234. “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
All four counts of AHBC’s Counterclaim and Third Party Complaint sound in fraud,
which also implicates Federal Rule of Civil Procedure 9(b). Rule 9(b) imposes a heightened
pleading standard on fraud-based claims, and provides that “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ.
P. 9(b) (emphasis added). The standard of Rule 9(b) is independent of the standard applicable to
Rule 12(b)(6) motions. Cal. Pub. Emp.’s Ret. Sys. v. Chubb Corp., 394 F.3d 126, 144 (3d Cir.
2004). “Although Rule 9(b) falls short of requiring every material detail of the fraud, such as
date, location, and time, plaintiffs must use alternative means of injecting precision and some
measure of substantiation into their allegations of fraud.” Id. (quoting In re Rockefeller Ctr.
Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002)) (internal quotation marks omitted).
This requirement is intended to “place the defendant on notice of the precise misconduct with
14
which it is charged.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (internal
quotations omitted). The result is that plaintiffs may not benefit from the inferences they may
get under a traditional Rule 12(b)(6) analysis if they cannot comply with the heightened pleading
requirements of Rule 9(b). Cal. Pub., 394 F.3d at 145, 156.
Courts are required to be “sensitive to situations in which sophisticated defrauders may
successfully conceal the details of their fraud” and relax the rigid requirements of Rule 9(b). In
re Rockefeller, 311 F.3d at 216 (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1417 (3d Cir. 1997)). “Nevertheless, even when the defendant retains control over the flow of
information, ‘boilerplate and conclusory allegations will not suffice. Plaintiffs must accompany
their legal theory with factual allegations that make their theoretically viable claim plausible.’”
Id. (quoting In re Burlington, 114 F.3d at 1418).
2.
PLEADING FRAUD UNDER RULE 9(B)
The Counterclaim/Third Party Defendants seek dismissal of the Answer and
Counterclaim and the Third Party Complaint (collectively, the “Counterclaim”)7 in its entirety as
a “shotgun pleading” with improper allegations of fraud made without the specificity required by
Rule 9(b). The entire Counterclaim refers to actions undertaken by the “Counterclaim/Third
Party Defendants” without stating which of the four named entities—of which only three now
remain8—committed which acts of wrongful conduct. Throughout the “Factual Background”
7
As the Third Party Complaint [Dkt. No. 9] solely incorporates by reference allegations
contained within the Answer and Counterclaim [Dkt. No. 8] and contains no independent
allegations, for simplicity the documents will be referred to jointly as “the Counterclaim” and
citations will be to the Answer and Counterclaim [Dkt. No. 8].
8
AHBC voluntarily dismissed its claims against Loews. (See June 9, 2015 Notice [Dkt. No.
35].)
15
section, the “Preliminary Statement,” and in each of the four counts of the Counterclaim, the
conduct of the Counterclaim/Third Party Defendants parties is generally grouped together.
The only allegations in the entire pleading that provides any specificity for which entity
engaged in any conduct are directed toward “CNA,” 9 alleging: (1) CNA never intended to issue
an insurance policy to AHBC, instead causing TIC to issue the policy; (2) all of AHBC’s
negotiations and communications were with CNA; (3) payments were made to and bills were
sent by CNA; and (4) “AHBC was induced to purchase the workers compensation policy from
CNA because the initial premium it was quoted was a very competitive premium.”
(Counterclaim ¶¶ 69, 71–73.) AHBC also alleges that it never interacted with TIC.
(Counterclaim ¶ 70.) It is on these few paragraphs that AHBC stakes its entire claim that it has
plead sufficient facts to satisfy its pleading obligations of factual particularity under Rule 8
generally and Rule 9(b) more specifically as to claims of fraud. (See AHBC Opp. at 8.)
Courts in this district have held that pleadings that fail to explain who has committed
what actions are impermissibly vague and fail to comport with the pleading standards set out by
the Supreme Court in Twombly. See, e.g., K.J. & T.J. ex rel. K.J., Jr. v. Greater Egg Harbor
Reg’l High Sch. Dist. Bd. of Educ., Civ. No. 14-145 (RBK/JS), 2015 WL 5039460, at *6 (D.N.J.
Aug. 26, 2015); Japhet v. Francis E. Parker Mem’l Home, Inc., Civ. No. 14-01206 (SRC), 2014
WL 3809173, at *2–3 (D.N.J. July 31, 2014); Falat v. Cnty. of Hunterdon, Civ. No. 12-6804
(SRC), 2013 WL 1163751, at *3 (D.N.J. Mar. 19, 2013). In K.J. the court dismissed the
complaints as “impermissibly vague” due to being over 100 pages and containing allegations
9
Presumably, “CNA” in the Counterclaim refers to CNA Financial Corporation. The confusion
between “CNA” as a service mark and “CNA Financial Corporation” as a juridical entity is
addressed in the discussions regarding personal jurisdiction, supra, and something AHBC would
do well to address in an amended pleading.
16
against seventeen individual defendants. K.J., 2015 WL 5039460, at *6. Similarly, the court in
Falat dismissed a 57-page complaint against sixteen defendants for being “impermissibly
vague.” Falat, 2013 WL 1163751, at *3. However, a lengthy complaint and excessive number
of defendants are not requirements for this type of impermissible vagueness. In Japhet, the court
dismissed a complaint where the plaintiff “seem[ed] to confuse her bald legal conclusions and
threadbare allegations against ‘Defendants’ generally with factually allegations of misconduct
sufficient to plausibly give rise to [the movant’s] liability specifically.” Japhet, 2014 WL
3809173, at *2. The court found “it [was] impossible for this Court to read the Complaint and
have any idea what [the movant] did to get named in this lawsuit, let alone what she did that
would make her plausibly liable for the misconduct alleged.” Id. (internal quotations omitted).
AHBC’s Counterclaim is not a lengthy complaint against an excessive number of
defendants as in K.J. and Falat, but neither is it completely devoid of facts as in Japhet. That
being said, this Court can only deduce from the Counterclaim that AHBC is complaining of
misconduct on the part of TIC and CNAF. The Counterclaim contains absolutely no mention of
CCC aside from the required recitation of CCC’s state of incorporation and principal place of
business. (See Counterclaim ¶ 65.) CCC is only mentioned in passing in the “Preliminary
Statement” with its actions never separately delineated from those of “CNA” or TIC, and never
mentioned in the “Factual Background” of the Counterclaim. The closest the Counterclaim
comes to naming specific conduct of CCC is in legal conclusions that CCC acted in an unlawful
conspiracy with every other Counterclaim/Third Party Defendant without any support. (See
Counterclaim, Prelim. Statement ¶¶ 1–4.) Thus, it is impossible to determine what conduct CCC
engaged in that would make CCC plausibly liable for the misconduct alleged.
17
On these grounds, the motion will be granted with respect to CCC. However, the
“shotgun pleading” theory is insufficient to dismiss the Counterclaim against TIC and CNAF.
ABHC’s failure to sufficiently plead fraud under Rule 9(b), on the other hand, does provide
sufficient grounds to dismiss the Counterclaim against all of the Counterclaim/Third Party
Defendants.
AHBC seeks to avail itself of the modified Rule 9(b) standard available in certain
instances when the answering party is a corporation. (AHBC Opp. at 4–5, 8.) However, this
modified standard is only appropriate when the plaintiff—or counterclaimant/third party plaintiff
as here—can show “that the requisite factual information is peculiarly within the defendant’s
knowledge or control.” In re Rockefeller, 311 F.3d at 216 (citing In re Burlington, 114 F.3d at
1418). Here, AHBC in its Counterclaim fails to allege that there is any factual information it
does not have, aside from prefacing many allegations with the phrase “AHBC believes and thus
avers,” which is merely a reordered version of pleading “on information and belief.” In the
context of Rule 9(b), a party is permitted to “allege, on information and belief, the specific facts
which give rise to the necessary inference of fraud if the information lies within the defendant’s
exclusive possession and control, and [the party has] made diligent efforts to obtain such
information.” In re Am. Travellers Corp. Sec. Litig., 806 F. Supp. 547, 554 (E.D. Pa. 1992)
(citing Shapiro v. UJB Fin. Corp., 964 F.2d 272, 285 (3d Cir. 1991)) (emphases added). The
Counterclaim is devoid of any such allegations on behalf of AHBC. Even where “AHBC
believes and thus avers,” there is neither an assertion that the information is within the
Counterclaim/Third Party Defendants’ exclusive possession and control, nor any detailing of how
AHBC made diligent efforts to obtain any missing information it would need to plead fraud
under Rule 9(b).
18
Only in AHBC’s Opposition does AHBC begin to explain what information it is missing
in order to plead fraud with specificity. (AHBC Opp. at 10.) However, it is well settled that a
complaint may not be amended in briefs filed in opposition to a motion for failure to state a
claim. Frederico, 507 F.3d at 201–02. Accordingly, the factual arguments made in AHBC’s
Opposition regarding this issue must be disregarded. Even if this Court could consider this,
AHBC still fails to explain what diligent efforts it has undertaken to attempt to obtain the
information in anticipation of filing its Counterclaim. Accordingly, the modified Rule 9(b)
standard is inappropriate here. However, even applying the relaxed standard under Rule 9(b),
the Counterclaim still fails to adequately plead fraud with particularity as required.
As explained supra, Rule 9(b) is a standard separate and apart from Rule 12(b)(6), and
provides an independent basis for dismissal of a complaint. Even a relaxed standard requires
“injecting precision and some measure of substantiation” into allegations of fraud. Cal. Pub.,
294 F.3d at 144. AHBC has failed to do this. As an example, AHBC alleges without any factual
support that “AHBC suspects and believes and thus avers that in over 90% of the ‘audits’
conducted by Counterclaim/Third Party Defendants, the result was a premium increase over the
initial, artificially low premium quoted to consumers (such as AHBC), to induce them to
purchase in the first instance.” (Counterclaim ¶ 81.) Nowhere in the Counterclaim does AHBC
offer any “substantiation” of this allegation, despite it being an essential part of its allegations
regarding fraud.
The heightened pleading standards of Rule 9(b) have been said to require a plaintiff to
identify the “who, what, where, when, and how” of the fraud. See In re Burlington, 114 F.3d at
1422. Reading AHBC’s Counterclaim, their allegations of misconduct seem to condense down
to two major issues: (1) the initial offer of the policy and (2) the eventual audits of the policy.
19
AHBC does not identify who offered it the policy, who at any of the various entities it has sued
performed the audit, or who contacted AHBC regarding the increased in premiums following the
audit. Accordingly, AHBC also fails to demonstrate the “who” in the alleged fraud. AHBC
further alleges that the information regarding its employees did not change between the time the
policy was signed for and the time of the audits, but provides no information regarding what
AHBC told its insurance broker about its employees, or what was actually wrong with the audits.
(See Counterclaim ¶ 77.) Thus, AHBC fails to demonstrate the “what” element of fraud.
The “where,” “when,” and “how” elements of fraud can be plausibly inferred from the
Counterclaim. The “where” is generally at the corporate offices of the Counterclaim/Third Party
Defendants, the “when” is in 2014 when the audits were performed, and the “how” is by offering
a low initial insurance cost, and subsequently performing an audit that raised the price
significantly. But three out of five is insufficient. Therefore, the Court will grant the motion to
dismiss for failure to plead with specificity under Rule 9(b). The remainder of the arguments
under Rule 12(b)(6) and the specifics of how each individual count fails under Rule 9(b) need
not be addressed.
C.
DISMISSAL WITH LEAVE TO AMEND IS APPROPRIATE HERE
Having determined that the Counterclaim fails plead fraud with particularity under Rule
9(b), it will be dismissed without prejudice, and AHBC will be granted leave to file an amended
Counterclaim and Third Party Complaint. See In re Burlington, 114 F.3d at 1435 (“Ordinarily
where a complaint is dismissed on Rule 9(b) ‘failure to plead with particularity’ grounds alone,
leave to amend is granted.”). Due to the fact that this Court will also grant jurisdictional
discovery to AHBC for a period to conclude within thirty (30) days of this opinion and
accompanying order, AHBC must file its amended Counterclaim and Third Party Complaint
20
within sixty (60) days of this opinion and accompanying order. If no amendment is timely filed,
TIC, CCC, and CNAF may make an application for dismissal based on AHBC’s failure to
amend. See Phillips, 515 F.3d at 234.
IV.
CONCLUSION
For the foregoing reasons, CNAF’s Motion to Dismiss for Lack of Personal Jurisdiction
will be denied without prejudice, TIC’s Motion to Dismiss for Failure to Sufficiently Plead or
State a Claim will be granted-in-part as failing to sufficiently plead fraud under Rule 9(b), and
CNAF’s Motion for Joinder will be dismissed.
Jurisdictional discovery is permitted to determine whether TIC or CCC is an alter ego of
CNAF according to the factors as explained in Dewey v. Volkswagen AG, 558 F. Supp. 2d 505,
513 (D.N.J. 2008). The period for this discovery is 30 days. Within 7 days thereafter, the parties
may file supplemental briefs on the issue of personal jurisdiction. If no supplemental briefs are
filed, CNAF may make an appropriate application to this Court.
The Counterclaim and Third Party Complaint are dismissed without prejudice, and
AHBC is given leave to file an amended Counterclaim and Third Party Complaint within sixty
(60) days. If no amended pleading is filed, the Counterclaim/Third Party Defendants may make
an appropriate application to this Court.
An appropriate order accompanies this opinion.
Date: December 16th , 2015
s/ Noel. L. Hillman
NOEL L. HILLMAN, U.S.D.J.
21
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