LEGENDS MANAGEMENT CO., LLC v. AFFILIATED FM INSURANCE COMPANY

Filing 95

LETTER ORDER-OPINION GRANTING Affiliated FM's motion to sever and stay the bad faith claims pending the adjudication of the insurance claims, etc. Signed by Magistrate Judge Steven C. Mannion on 9/26/17. (cm, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

Chambers of

Martin Luther King Jr, Federal Bldg.
& U.S. Courthouse
50 Walnut Street
Newark, NJ 07102
[phone]

STEVEN C. MANNION
United States Magistrate Judge

September 26, 2017

LETTER ORDER-OPINION
Re:

Legends Management Co., v. Affiliated FM Ins., et al.
Civil Action No. 16-cv-1608 (SDW)(SCM)

Dear Counsel:
Before this Court is an informal motion by Defendant/Third-Party Plaintiff Affiliated FM
Insurance Company (“Affiliated FM”) against Plaintiff Legends Management Company, LLC
(“Legends”) and Third-Party Defendant/Counterclaimant Metairie Corporation (“Metaire”)
(collectively, the “Legends Parties”) to sever and stay bad faith claims alleged by the Legends
Parties.1 Upon consideration of the parties’ respective submissions, oral arguments heard on March
8, 2017 and July 13, 2017, and for the reasons set forth below, the Court GRANTS Affiliated
FM’s motion to sever and stay the bad faith claims.

(ECF Docket Entry No. (“D.E.”) 47, 48, 49, 50). Unless stated otherwise, the Court will refer to
documents by their docket entry number and the page numbers assigned by the Electronic Case
Filing System.
1

BACKGROUND AND PROCEDURAL HISTORY2

I.

The relevant facts of this case have been set out in this Court’s September 22, 2017,
Opinion,3 therefore, this Opinion will only discuss those facts necessary to adjudicate the present
informal motion. At issue here is Affiliated FM’s request to sever and stay the Legends Parties’
bad faith claims.4
On June 2, 2016, at their initial conference, Affiliated FM requested that the Legends
Parties agree to sever the bad faith claims in this matter.5 Affiliated FM maintains that the Legends
Parties would only be able to pursue their bad faith claims if they first prevail on their coverage
claims.6 Consequently, Affiliated FM argues that severing and staying the bad faith claims until
after resolving the coverage issue would avoid the expenditure of substantial judicial and party
resources.7
On June 21, 2016, the Legends Parties advised that they would not agree to sever and stay
the bad faith claims.8 Thereafter, according to Affiliated FM, Metaire served a number of
interrogatories and document requests, “requesting an enormous amount of information and
documents relating solely to the bad faith allegations.”9 In particular, the interrogatories sought
2

The allegations set forth within the pleadings and motion record are relied upon for purposes of
this motion only. The Court has made no findings as to the veracity of the parties’ allegations.
3

(D.E. 94, Op. on Mot. to Compel).

4

(D.E. 47, Joint Dispute Letter; D.E. 48, Def. Br.).

5

(D.E. 48-1, Catenacci Decl., at ¶3).

6

(D.E. 48, Def. Br. at 5).

7

(D.E. 48, Def. Br. at 5-6).

8

(D.E. 48-1, Catenacci Decl. at ¶ 5).

9

(D.E. 48-1, Catenacci Decl., at ¶6).
2

information for claimed “losses resulting from the September and October storms, the percentage
of claims which Affiliated FM accepted coverage, and the total dollar amount paid for such
claims.” 10
Similarly, Affiliated FM contends that Metaire requested a substantial number of
documents “irrelevant” to the issue of coverage, such as the:
(1) policies, practices and/or procedures used by Affiliated FM
concerning the employment of experts, consultants, engineers,
adjusters, representatives and/or claims handlers; (2) policies,
practices and/or procedures of Affiliated FM relating to its claims
handling under a property insurance policy and claims manuals,
guidelines, protocol, emails, memoranda and other documents to be
used or followed by a representative in adjusting, handling,
processing, evaluating, analyzing, paying and/or responding to a
claim under a property policy; and (3) “the geographic scope,
severity, timing, and/or consequences of the September” or October
storms, including any documents “prepared, transmitted, or received
in connection with the processing, handling, evaluating, analyzing,
adjusting, or responding to other policyholders' claims resulting
from the September” or October storms.11

Affiliated FM objected to those discovery requests “on the grounds that they: seek
information that is irrelevant and not reasonably calculated to the discovery of admissible
evidence; are overly broad and unduly burdensome; and seek confidential, proprietary and trade
secret information and competitively sensitive data and material.”12
On October 25, 2016, the parties met and conferred regarding the bad faith related
discovery, but were unable to reach an agreement.13 Consequently, on January 23, 2017, Affiliated

10

(D.E. 48, Def. Br. at 7).

11

(D.E. 48, Def. Br. at 8).

12

(D.E. 48-1, Catenacci Decl., at ¶3).

13

(D.E. 48-1, Catenacci Decl., at ¶7).
3

FM, filed an informal request to sever and stay the bad faith claims in this matter,14 and on February
8, 2017, the Legends Parties filed their opposition.15 In arguing whether severance is appropriate,
the parties respectively maintain that the bad faith and coverage claims are “separate and distinct”
and “wholly intertwined.”16

II.

MAGISTRATE JUDGE AUTHORITY
Magistrate judges are authorized to decide any non-dispositive motion designated by the
Court.17 This District specifies that magistrate judges may determine all non-dispositive pre-trial
motions which includes discovery motions.18 Decisions by magistrate judges must be upheld
unless “clearly erroneous or contrary to law.”19

III.

DISCUSSION & ANALYSIS
Courts haves discretion in deciding to sever any claim.20 Severing breach of insurance
contract claims from bad faith claims, and then proceeding with the bad faith claims if necessary
following the adjudication of the contract claim, is the prevailing practice in both state and federal

14

(D.E. 48, Def. Br.).

15

(D.E. 53, Pls.’ Opp’n Br.).

16

(D.E. 48, Def’s Br. at 10; D.E. 53, Pls.’ Opp’n Br. at 9–10).

17

28 U.S.C. § 636(b)(1)(A).

18

L. Civ. R. 72.1(a)(1); 37.1.

19

28 U.S.C. § 636(b)(1)(A).

20

Fed. R. Civ. P. 21; see Rodin Properties-Shore Mall v. Cushman & Wakefield, 49 F. Supp. 2d
709, 721 (D.N.J. 1999).
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courts.21 The practice “is appropriate where the claims to be severed are 'discrete and separate' in
that one claim is 'capable of resolution despite the outcome of the other claim.’”22 In making its
determination, a court may consider the following factors: "(1) whether the issues sought to be
tried separately are significantly different from one another, (2) whether the separable issues
require the testimony of different witnesses and different documentary proof, (3) whether the party
opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting
severance will be prejudiced if it is not granted."23
While the Legends Parties maintain that the breach of contract and bad faith claims are
wholly intertwined and incapable of separation, the Court cannot agree.24 Here, Affiliated FM’s
alleged bad faith is premised upon “(a) refusing to reimburse all of Legends’ covered losses; (b)
acting in its own self-interest…(c) refusing to accept its coverage obligations…(d) failing to
effectuate a prompt, fair, and equitable resolution of Legends’ claims…(e) engaging in efforts to

21

Abiona v. GEICO Indem. Co., No. CV 15-6013, 2016 WL 1046791, at *4 (D.N.J. Mar. 16,
2016) (citing Beachfront N. Condo. Ass'n, Inc., No. CIV. 14-6706 RBK/JS, 2015 WL 3879665
(D.N.J. June 24, 2015)); Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mut. Ins.
Co., No. CV 14-3684, 2015 WL 6737021, at *1 (D.N.J. Nov. 2, 2015); Wacker-Ciocco v.
GEICO, 439 N.J. Super. 603 (App. Div. 2015) (holding that the trial court abused its discretion
when it did not sever bad faith claim from underinsured motorist claim); Procopio v. GEICO,
433 N.J. Super. 377, 383 (App. Div. 2013) (“Preserving the insured's ability to pursue his or her
bad faith claim while deferring discovery thereon until the resolution of the UM or UIM claim
best accommodates the varying interests involved.”); Taddei v. State Farm Indemnity Co., 401
N.J. Super. 449, 465-66 (App. Div. 2008).
22

Bridgewater Wholesalers, Inc., 2015 WL 6737021, at *1 (quoting Turner Const. Co. v. Brian
Trematore Plumbing & Heating, Inc., C.A. No. 07–666(WHW), 2009 WL 3233533, at *3 (D.N.J.
Oct. 5, 2009) (citations omitted)).
23

Riverview Towers Apartment Corp. v. QBE Ins. Corp., No. CIV. 14-6744 JBS/JS, 2015 WL
1886007, at *1 (D.N.J. Apr. 17, 2015).
(D.E. 53, Pls.’ Opp’n Br. at 9–10). The Court notes that the Legends Parties’ argument fails to
cite relevant New Jersey law, nor do they address the proper standard for severing claims,
instead relying almost entirely on foreign precedent surrounding bifurcation.
24

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avoid or delay its obligations; (f) compelling Legends’ to instate litigation . . . (g) seeking to
intimidate it[s] policyholder; and (h) failing to promptly provide a fair and reasonable explanation
of its positions.”25 A review of the claims demonstrates that the contract claim concerns coverage
under the Policy while the bad faith claims concern Affiliated FM’s general claims handling
procedures, its claims conduct in this case, and its knowledge and state of mind about the grounds
for denial of coverage. Viewing these claims as separate and distinct actions “promotes judicial
efficiency and economy” and as result, the Court finds that the first factor weighs in favor of
severance.26
Second, the contract and bad faith claims require the testimony of different witnesses and
different documentary proof. In pertinent part, Metairie seeks information relating to the number
of policyholders who submitted claims to Affiliated FM for losses resulting from the September
and October storms, the percentage of claims which Affiliated FM accepted coverage, the total
dollar amount paid for such claims, and other information not directly relevant to the first-party
claim.27 Metairie’s Document Requests seek all documents concerning, in part, “policies, practices
and/or procedures used by Affiliated FM concerning the employment of experts, adjusters and/or
claims handlers; as well as Affiliated FM’s practices relating to its claims handling protocol.” 28 On
balance, the Court concludes that “this discovery distracts from the primary focus of the case;

25

(D.E. 1) (Ex. A).

26

Wadeer v. New Jersey Mfrs. Ins. Co., 220 N.J. 591, 610 (2015); Nelson v. State Farm Mut.
Auto. Ins. Co., 988 F.Supp. 527, 532 (E.D. Pa. 1997).
27

(D.E. 48, Ex. D, Pls.’ Doc. Req.).

28

(D.E. 48, Ex. C, Pls.’ Interrog.).
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whether plaintiff's first-party claim should be paid and if so the amount of the payment.”29 As such,
the second factor weighs in favor of severance.
Third, the Legends Parties will not be prejudiced if the bad faith claims are severed and
stayed. Here, relatively little discovery has been exchanged and it is therefore uncertain whether
the initial coverage claim will be denied. If so, the bad faith claims would similarly fail. On the
other hand, should the Legends Parties prevail on the breach of contract claim; they will have the
ability to pursue the bad faith claims at that time. Accordingly, severing the bad faith claims will
not prejudice the Legends Parties and the Court finds the third relevant factor weighs in favor of
severance.
Lastly, the Court finds that Affiliated FM will be prejudiced if it is forced to litigate the
bad faith claims prior to resolving the breach of contract issue. Since there is uncertainty as to
whether the Legends Parties will prevail on their breach of contract claims it is also unclear
whether the Legends Parties will in fact be allowed to reach the merits of their bad faith claims.
As such, permitting discovery on the latter issue is premature. If Affiliated FM must litigate the
bad faith claim now it will suffer “significant expenditure of time and money, generally rendered
needless if the insurer prevails.”30 The Court agrees with Affiliated FM that judicial economy and
efficiency for all parties will be promoted by avoiding expensive and time-consuming discovery
on the bad faith claim.31 Therefore, , the fourth and final relevant factor favors severance.

29

Riverview Towers, 2015 WL 1886007, at *2.

30

Procopio, 433 N.J. Super. at 383.

31

(D.E. 48, Def.’s Br. at 9–13).
7

For the foregoing reasons, the Court concludes that the interests of judicial economy favors
severing the bad faith claims. Affiliated FM’s motion to sever and stay the bad faith claims pending
the adjudication of the insurance claims is GRANTED.
IT IS SO ORDERED.

9/26/2017 12:33:51 PM

Original: Clerk of the Court
Hon. Susan D. Wigenton, U.S.D.J.
cc: All parties

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