SPECTRUM DATA SYSTEMS, LLC v. STATE FARM INSURANCE CO.

Filing 19

OPINION & ORDER, that State Farm's 12 Letter from Jordan Brewster, Esq. and Robert Pindulic, Esq. to Judge Mannion - RE: Joint Dispute Letter to sever Count III of Spectrum's Complaint and stay the severed action pending resolution of Count II is GRANTED.. Signed by Magistrate Judge Steven C. Mannion on 1/18/2019. (JB, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

SPECTRUM DATA SYSTEMS, LLC,
Plaintiff,

Civil Action No.
2: 1$-C V-103 18-ES-SCM
OPINION AND ORDER GRANTING
DEFENDANT’S MOTION TO SEVER

v.
STATE FARM INSURANCE CO.,

LD.E. 121
Defendant.

MANNION, Magistrate Judge:
Now before the Court is Defendant State Farm Insurance Co.’s (“State farm”)
motion to sever the bad faith claim of Plaintiff Spectrum Data Systems, LLC (“Spectrum”)
and stay that claim pending resolution of Spectrum’s breach of contract claim.’ Spectrum
opposes the motion.2 Counsel informally conferenced the motion with the Court on January
7, 2019. For the reasons stated below, State farm’s motion to sever is GRANTED.

I.

BACKGROUND AND PROCEDURAL HISTORY
Spectrum, whose primary business is providing information technology support

services for hardware and software applications, is a New Jersey limited liability
company.”3 State Farm is authorized to sell insurance policies to businesses located in New
Jersey.4 “State Farm issued Spectrum a commercial general liability insurance policy for

(ECF Docket Entry (“D.E.”) 12, Joint Dispute Letter). The Court will refer to
documents by their document entry number and page numbers assigned by the Electronic
Case filing System.
2

(D.E. 1-1, Notice of Removal, at 2,5).

41d. at2.

the policy period [of] April 5, 2011 to April 5, 2012.” This dispute arises out of State
Farm’s alleged breach of that insurance contract.
Spectrum alleges that State Farm acted contrary to the terms of the insurance
contract when it failed to cover Spectrum’s defense and indemnification costs in a breach
of loyalty lawsuit in which Spectrum was the Defendant.6 On May 14, 201$, Spectrum
filed its complaint in New Jersey Superior Court.7 The action was removed to this Court
on June 8, 2018.8 Spectrum’s complaint consists of three counts: (Count I) “Declaratory
Judgment;” (Count II) “Breach of Contract;” and (Count III) “Breach of Good Faith and
Fair Dealing/Bad Faith.”9

II.

MAGISTRATE JUDGE AUTHORITY
Magistrate judges are authorized to decide any non-dispositive motion designated

by the Court.1° This District specifies that magistrate judges may determine all non

Id. at 3.
61d at6.
71d. at2.
8

(D.E. 1, Notice of Removal, at 1)
(D.E. 1-1, Notice of Removal, at 9-1 1).

10

8 U.S.C.

§

636(b)(1)(A).

dispositive pre-trial motions, which includes discovery motions.

Decisions by magistrate

judges must be upheld unless “clearly erroneous or contrary to law.”2

III.

DISCUSSION & ANALYSIS
Under Rule 21, the Court has discretion to sever and stay any

i3 “Severing

claims under Rule 21 is appropriate where the claims to be severed are discrete and separate
so that one claim is capable of resolution despite the outcome of the other

14

“The

factors courts consider in determining whether severance is warranted include: (1) whether
the issues sought to be tried separately are significantly different from one another[;J (2)
whether the separable issues require the testimony of different witnesses and different
documentary proofl;] (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.1D
It is common practice in both state and federal court to sever “breach of insurance
contract claims from bad faith claims

‘‘

28 U.S.C.

and

...

[to] proceed{] with the bad faith claims

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

12

...

§ 636(b)(1)(A).

See 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).
‘-‘

Id.

‘

Id.
3

[only] if necessary following the adjudication of the contract claim.”16 This Court did just
that in the case of Legends Ivianagement Co.

V.

Affiliated FM Ins., et al.’7 Because breach

of insurance contract claims concern “[pJolicy [coverage] while

...

bad faith claims

concern [the insurer’s] general claims handling procedures, its claims conduct in [the] case
[at issue], and its knowledge and state of mind about the grounds for denial of coverage,”
the Court found the first factor to weigh in favor of severance.’8 The Court also found the
second factor to weigh in favor of severance due to the fact that bad faith claims, unlike
breach of insurance contract claims, require witness testimony and documentary proof
regarding facts “not directly relevant to the first-party claim.”9 The Court explained that
such “discovery distracts from the primary focus of the case[, which is] whether [the
insured’s] first-party claim should be paid and if so the amount of payment.”2°
The Court found the third factor to weigh in favor of severance as well when, as in
that case, “relatively little discovery has been exchanged.”2’ In such a case, the Court noted,
severance does not prejudice the insured because as long as it prevails “on [its] breach of
contract claim[, it is not denied the opportunity]

...

to pursue [a] bad faith claim[],” albeit

16

See Legends Mgmt. Co. v. Affiliated FM Ins., No. 16CV160$SDWSCM, 2017 WL
4284491, at *2 (D.N.J. Sept. 26, 2017).
‘

Id. at *4

8Id. at *3
“

Id.

20

Id.

21

Id.
4

at a later time.22 finally, the Court found the fourth factor to weigh in favor of severance
due to the fact that, if required to litigate the bad faith claim prior to the resolution of the
breach of insurance contract claim, the insurer would “suffer significant expenditure of
time and money, [which would be] rendered needless if’ it were to prevail on the breach
of insurance contract claim.23
Because this case is analogous to the Legends Management Co. case, State farm’s
motion to sever is GRANTED. The Court first considers “whether the issues sought to be
tried separately are significantly different from one another.”24 As the Court explained in
Legends Management Co., in this instance, they are. Spectrum’s breach of insurance

contract claim concerns coverage under the policy. 23 Its bad faith claim, on the other hand,
concerns State farm’s “general claims handling procedures, its claims conduct in [the] case
[at issue], and its knowledge and state of mind about the grounds for denial of coverage.”26
Accordingly, the first relevant factor weighs in favor of severance.
Secondly, Spectrum’s breach of insurance contract and bad faith claims require the
testimony of different witnesses and different documentary proof. As the Court explained
in Legends Management Co., Spectrum’s bad faith claim, unlike its breach of insurance

22

Id

241d at *1.

at *3

25

26

Id
5

contract claim, requires witness testimony and documentary proof regarding facts “not
directly relevant to [its] first-party claim.”27 This is evidenced by Spectrum’s
interrogatories and document requests, which seek, for example: (1) “the written
procedures or policies

...

[State farm] maintained for [its] internal or third-party adjusters

to use in connection with handling commercial general liability claims;”28 (2) “the number
of commercial general liability claims reviewed by Brian Matarese for State Farm from
January 2012

...

to January 2017;29 (3) “documents

...

relating to any communications

between [State Farm] and the State of New Jersey or its agencies and employees regarding
commercial general liability policies intended to be sold, marketed or underwritten by State
Farm in the State of New Jersey;”3° (4) “all documents ever prepared by Brian Matarese
[and Richard MarksJ with respect to any task assigned to”31 them; (5) the “[p]ersonnel
file[s] of Brian Matarese [and Richard Marks,]

...

including [their] application[s] for

employment, resume[s], evaluations performed by supervisors, evidence of bonuses
received, [and] evidence of awards given;”32 and (6) “[a]ll underwriting files, documents
and guidelines including underwriting handbooks and manuals relating

27

generally to

Id.

2$

...

(D.E. 13, Pl.’s Letter, at 10).

291d at 10.
301d. at 13.
Id. at 14.
32

Id.
6

[State farm’s] underwriting department, and or relating to [State Farm’s] business.”33 As
the Court noted in Legends Management Co., this “discovery distracts from the primary
focus of the case[, which is] whether [the insured’s] first-party claim should be paid and if
so the amount of payment.”34 As a result, the second relevant factor also favors severance.
Thirdly, Spectrum will not be prejudiced if its bad faith claim is severed and stayed.
In Legends Mctnagement Co., the Court explained that the third factor weighs in favor of
severance when “relatively little discovery has been exchanged.”3’ In this case, as State
farm noted in the parties’ joint dispute letter, “no discovery has been exchanged to date
other than Rule 26 disclosures.”36 Additionally, as the Court noted in Legends Management
Co., even if its bad faith claim is severed and stayed, as long as Spectrum prevails on its
breach of contract claim, it will not lose the ability to pursue its bad faith claim at a later
time.37 Accordingly, the third relevant factor favors severance.
Lastly, the Court considers whether State Farm will be prejudiced if severance is
not granted. The Court finds that it will be. As the Court explained in Legends Management
Co., if State Farm is required to litigate Spectrum’s bad faith claim prior to the resolution

of the breach of insurance contract claim, it will be forced to expend “time and money” on
the bad faith claim even though the expenditure could be rendered needless if it prevails

331d. at 15.

See Legends Mgmt. Co., No. Y6CV16O8SDWSCM at *3
351a.
36

(D.E. 12, Joint Dispute Letter, at 5).
See Legends Mgmt. Co., No. 16CV160$SDWSCM at *3
7

on the breach of insurance contract claim.38 Accordingly, the fourth and final relevant
factor favors severance.

III.

CONCLUSION
This Court concludes that Count III should be severed and the bad faith issues

stayed pending the adjudication of the breach of insurance contract claim as pled in Count
For the foregoing reasons,
IT IS on this Friday, January 18, 2019,
ORDERED that State Farm’s motion to sever Count III of Spectrum’s complaint and stay
the severed action pending resolution of Count II (D.E. 12) is GRANTED.

*

*

Honorable Steve Mannion, U.S.MJ,
United States District Court,
for the District of New ]ersey
phone: 97364S3827
1/18,201911:18:15 AM

Original: Clerk of the Court
Hon. Esther Salas, U.S.D.J.
cc: All parties
File

381d.
8