U.S. SEWER & DRAIN, INC. v. EARLE ASPHALT COMPANY et al

Filing 19

OPINION filed. Signed by Judge Anne E. Thompson on 6/1/2015. (kas, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
U.S. SEWER & DRAIN, INC.,
Plaintiff,
Civ. No. 15-1461
v.
OPINION
EARLE ASPHALT CO. and FEDERAL
INSURANCE CO.,
Defendants.

THOMPSON, U.S.D.J.
This matter is before the Court upon the Motions to Dismiss of Defendant Federal
Insurance Company (“Federal”) (Doc. No. 6) and Defendant Earle Asphalt Company (“Earle”)
(Doc. No. 7). Plaintiff U.S. Sewer & Drain, Inc. (“U.S. Sewer”) opposes. (Doc. Nos. 9, 12).
The Court has decided the Motions after considering the parties’ written submissions and
without oral argument pursuant to Local Civil Rule 78.1(b). For the following reasons, Federal’s
Motion will be granted in full and Earle’s Motion will be granted in part and denied in part.

BACKGROUND
This dispute arises out of a construction project on the New Jersey Garden State
Parkway. In August 2011, Earle was awarded a contract by the New Jersey Turnpike Authority
(“NJTA”) to widen and improve a section of the Parkway. As per the requirements of the New
Jersey Bond Act, Earle provided the NJTA with a payment bond issued by Federal.

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Earle arranged for U.S. Sewer to provide materials and services for the installation of
pipelining as part of the project. However, a dispute arose regarding U.S. Sewer’s performance,
and Earle refused to pay U.S. Sewer. U.S. Sewer then made a claim to the payment bond, which
Federal has thus far refused to pay. On February 23, 2015, U.S. Sewer, a Pennsylvania
company, filed its Complaint against Earle and Federal in this Court, seeking payment for the
work it performed and other remedies. Federal filed a motion to dismiss all claims against it on
March 27, 2015, and Earle filed a partial motion to dismiss on March 31, 2015.

LEGAL STANDARD
On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure
12(b)(6), a “defendant bears the burden of showing that no claim has been presented.” Hedges v.
United States, 404 F.3d 744, 750 (3d Cir. 2005). When considering a Rule 12(b)(6) motion, a
district court should conduct a three-part analysis. Malleus v. George, 641 F.3d 560, 563 (3d
Cir. 2011). “First, the court must ‘take note of the elements a plaintiff must plead to state a
claim.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009)). Second, the court must accept
as true all of a plaintiff’s well-pleaded factual allegations and construe the complaint in the light
most favorable to the plaintiff. Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir.
2009). But, the court should disregard any conclusory allegations proffered in the complaint. Id.
Finally, once the well-pleaded facts have been identified and the conclusory allegations ignored,
a court must next determine whether the “facts alleged in the complaint are sufficient to show
that the plaintiff has a ‘plausible claim for relief.’” Id. at 211 (quoting Iqbal, 556 U.S. at 679).
This requires more than a mere allegation of an entitlement to relief. Id. “A complaint has to
‘show’ such an entitlement with its facts.” Id. A claim is only plausible if the facts pleaded

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allow a court reasonably to infer that the defendant is liable for the misconduct alleged. Id. at
210 (quoting Iqbal, 556 U.S. at 678). Facts suggesting the “mere possibility of misconduct” fail
to show that the plaintiff is entitled to relief. Id. at 211 (quoting Iqbal, 556 U.S. at 679).

ANALYSIS
Federal seeks to dismiss U.S. Sewer’s claims for bad faith breach of a surety bond and
civil conspiracy. Earle seeks to dismiss U.S. Sewer’s claims for unjust enrichment, quantum
meruit, and civil conspiracy, as well as U.S. Sewer’s request for punitive damages.

Bad Faith Breach of a Surety Bond
Federal contends that there is no cause of action in New Jersey for bad faith breach of a
surety bond. U.S. Sewer argues first that the case In re Midland Ins. Co., 400 A.2d 813 (N.J.
Super. Ct. App. Div. 1979) establishes that there is such a cause of action. There, the Midland
Insurance Company (“Midland”) appealed an order of the Commissioner of Insurance finding
that Midland, by failing to promptly pay the state on bail bonds, had violated N.J.S.A. 17:29B-4,
which is part of New Jersey’s Unfair Claims Settlement Practices Act (“UCSPA”). In re
Midland Ins. Co., 400 A.2d at 815. In upholding the order of the Commissioner of Insurance,
the Appellate Division rejected Midland’s argument that bail bond issuers were exempt from the
UCSPA, stating:
A violation under [N.J.S.A. 17:B-4(9)(f)] occurs where an insurance company as
a general business practice fails to attempt in good faith a prompt and fair
settlement of claims in which liability is reasonably clear. The provision places
an obligation on these companies to engage in affirmative good faith conduct in
settling claims. Such an obligation appears warranted in the case of all insurers,
including bail bond companies. The provision applies generally to all insurance
companies except those authorized to do business in life insurance, health
insurance or annuities, which have been explicitly exempted therefrom by
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N.J.S.A. 17B:36-3(c). See also, N.J.S.A. 17:31-1 to 17:31-5 relating to surety
companies. There is no specific exemption relating to sureties generally or to bail
bond sureties specifically.
Id. at 821.
The holding in Midland is irrelevant here, however, because the statutory provision that
Midland was found to have violated does not create a private cause of action. As was the case in
Midland, the method of enforcement for violations of N.J.S.A. 17:B-4 is investigation by the
Commissioner of Insurance. N.J.S.A. 17:B-5; see also Weiss v. First Unum Life Ins. Co., 482
F.3d 254, 263–64 (“In sum, the New Jersey system [of regulating insurance, including N.J.S.A.
17:B-4] is best seen as limited, regulating without setting forth private remedies . . . .”); North
Plainfield Bd. of Educ. v. Zurich American Ins. Co., 2008 WL 2074013, at *15, n.11 (D.N.J.
May 15, 2008) (noting there is no private right of action under the UCSPA); Heumann v.
Selective Ins. Co. of America, 2006 WL 2417286, at *4 (D.N.J. Aug. 21, 2006) (noting same);
Milcarek v. Nationwide Ins. Co., 463 A.2d 950, 956 (N.J. Super. Ct. App. Div. 1983) (“Of
course, such alleged violations [of the UCSPA] are resolved before the Commissioner of
Insurance and the monetary penalty provided would not go to the parties aggrieved by the
insurer’s actions.”). Accordingly, even if surety bond issuers were subject to the UCSPA, there
would be no private right of action under that statute against a surety.
Additionally, as Federal points out, the holding in In re Midland with regards to the
applicability of the UCSPA to sureties was overruled by N.J.A.C. 11:2-17.2, a regulation
promulgated in 1982, several years after the ruling in In re Midland. That regulation states “This
subchapter [interpreting N.J.S.A. 17:29B-4(9) and 17B:30-13.1] applies to all persons and all
policies except the following: ocean marine, fidelity and surety, boiler and machinery and
workers’ compensation.”

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Finally, the only other case finding a cause of action for bad faith breach of a surety bond
in New Jersey is U.S. ex rel Don Siegel Constr. Co. v. Atul Constr. Co., 85 F. Supp. 2d 414
(D.N.J. 2000). The Atul court first noted that the New Jersey Supreme Court had recognized the
bad faith cause of action against insurers in Pickett v. Lloyd, 621 A.2d 445 (1993), and then it
held “This Court concludes that the New Jersey Supreme Court would apply the same rationale
to a claim for bad faith damages brought by an oblige against a surety.” 85 F. Supp. 2d at 418.
However, in twenty-two years since the ruling in Pickett, and in fifteen years since the ruling in
Atul, neither the New Jersey Supreme Court nor any other state court in New Jersey has followed
the holding of Atul. In fact, in two more recent decisions, SBW, Inc. v. Ernest Bock & Sons, Inc.,
Civ. No. 07-4199(MLC) (D.N.J. March 17, 2009) (see Doc. No. 46, transcript of oral argument
in which court granted motion to dismiss from the bench) and Deluxe Building Sys., Inc. v.
Constructamax, Inc., 2011 WL 322385 (D.N.J. Jan. 31, 2011), other courts in the District of New
Jersey have declined to follow the ruling in Atul. As Chief Judge Brown wrote in Deluxe
Building:
Nearly eleven years after Atul was decided, however, this Court must agree with
Judge Cooper’s recent conclusion on the record that New Jersey law has not
evolved in accord with Atul because a cause of action for bad faith breach of a
surety bond has not been recognized. SBW, Inc. v. Ernest Bock & Sons, Inc., (Civ.
No. 07-4199(MLC)) (D.N.J. March 17, 2009). Indeed, the Court notes that nearly
eighteen years after Pickett was decided, and with New Jersey law applied with
frequency in complex construction litigation, neither [plaintiff], nor [defendant],
nor the Court’s own research has been able to identify a precedential post-Pickett
case that suggests, let alone establishes, that the Atul court’s prediction has
materialized or is likely to in the future.
As such, this Court concludes that, at this time, New Jersey law does not currently
recognize a cause of action for “bad faith” breach of a surety bond, and further,
that the New Jersey Supreme Court is unlikely to recognize such a cause of action
in the future.

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Deluxe Building Sys., Inc. v. Constructamax, Inc., 2011 WL 322385, at *3. This Court agrees
with Chief Judge Brown’s reasoning and finds that there is no cause of action for bad faith
breach of a surety bond in New Jersey, and so Plaintiff’s claim in Count XI will be dismissed.

Conspiracy
As U.S. Sewer admits in its brief opposing Federal’s motion to dismiss, its conspiracy
claim in Count XII cannot stand without the bad faith claim in Count XI because the claim for
conspiracy is that Federal and Earle conspired to commit bad faith in the breach of a surety bond.
Without a cause of action for bad faith breach of a surety bond, the conspiracy claim in Count
XII must be dismissed as well. See District 1199P Health & Welfare Plan v. Janssen, L.P., 784
F. Supp. 2d 508, 533 (D.N.J. 2011) (“Under New Jersey law, a claim for civil conspiracy cannot
survive without a viable underlying tort, and because all of Plaintiff’s tort claims fail as a matter
of law, Plaintiff’s civil conspiracy claim must be dismissed.”)

Unjust Enrichment and Quantum Meruit
Earle moves to dismiss U.S. Sewer’s claims for unjust enrichment and quantum meruit
on the grounds that U.S. Sewer has also stated a claim for breach of contract, and claims for
unjust enrichment and quantum meruit cannot be sustained if the parties’ relationship was
governed by contract. See Van Orman v. Am. Ins. Co., 680 F.2d 301, 311 (3d Cir. 1982).
Though U.S. Sewer admits that this statement of the law is correct, it argues that by stating
claims for unjust enrichment and quantum meruit, it was pleading in the alternative in the case
that there was no valid contract between U.S. Sewer and Earle. Federal Rule of Civil Procedure
8(d)(2) states, “A party may set out 2 or more statements of a claim or defense alternatively or

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hypothetically, either in a single count or defense or in separate ones. If a party makes
alternative statements, the pleading is sufficient if any one of them is sufficient.” As the court
explained in Dewey v. Volkswagen AG, 558 F. Supp. 2d 505 (D.N.J. 2008) the pre-discovery
stage is too early to dismiss unjust enrichment claims or quantum meruit claims where those
claims are plead in the alternative to claims for breach of contract. 558 F. Supp. 2d at 528–29
(citing Titan Stone, Tile & Masonry, Inc. v. Hunt Const. Group, Inc., 2006 WL 2788369, at *5
(D.N.J. Sept. 27, 2006). Accordingly, Earle’s motion to dismiss these claims will be denied.

Punitive Damages
Earle also seeks to dismiss U.S. Sewer’s claim for punitive damages because, it argues,
U.S. Sewer’s claims are for breach of contract, and punitive damages may not be awarded for
breach of contract. See W.A. Wright, Inc. v. KDI Sylvan Pools, Inc., 746 F.2d 215, 217 (3d Cir.
1984) (noting that there is a general rule under New Jersey law that punitive damages may not be
awarded for breach of contract actions except in limited circumstances). However, in Counts
VIII and IX of the Complaint, U.S. Sewer states claims for breach of fiduciary duty and
conversion against Earle. Punitive damages may be awarded for both of those causes of actions.
See Vibra-Tech Eng’rs, Inc. v. Kavalek, 849 F. Supp. 2d 462, 499 (D.N.J. 2012) (noting that
punitive damages are available under the New Jersey Punitive Damages Act, N.J.S.A 2A:15-5.09
et seq., for breach of fiduciary duty and conversion, among other tort claims). Thus, Earle’s
motion will be denied on this issue.

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CONCLUSION
For the reasons discussed above, Federal’s motion is granted in full and Earle’s motion is
granted in part and denied in part. An appropriate order will follow.

/s/ Anne E. Thompson
ANNE E. THOMPSON, U.S.D.J.

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