Opinion
[Case No. 94-13602], [Adversary No. 94-1312], CIVIL NO. 99-3930 (JBS)
July 30, 1999
Samuel Mandel, Esq., Moorestown, N.J., and Michael A. Zindler, Esq., Markowitz Zindler, PC, Lawrenceville, N.J., Attorneys for Plaintiff/Appellee Professional Insurance Management.
Charles X. Gormally, Esq., Carl J. Soranno, Esq., Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer, Gladstone, P.C., Roseland, N.J., Attorneys for Defendant/Appellant Ohio Casualty Group of Insurance Companies.
OPINION
This matter comes before the Court upon a motion by Ohio Casualty Group of Insurance Companies, et al. ("Ohio"), seeking leave to appeal from a July 30, 1999 Order of the United States Bankruptcy Court for the District of New Jersey, the Honorable Judith H. Wizmur presiding. PIM, the debtor, is an insurance broker and former agent of Ohio which filed this adversary action seeking relief for breach of contract and breach of the covenant of good faith and fair dealing by Ohio arising from Ohio's termination of PIM as its insurance agent. PIM's two causes of action against Ohio are based on alleged violations of provisions of the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), N.J.S.A. 17:33B-1, et seq. According to the plaintiff, these violations evidence Ohio's bad faith, and that bad faith is the basis of the breach of contract and breach of the covenant of good faith and fair dealing claims.
Ohio now seeks leave to appeal an Order entered on July 30, 1999 in which the Bankruptcy Court denied Ohio's cross-motion for an order declaring N.J.S.A. 17:22-6.14a(e) applicable to the debtor, PIM. For the reasons stated herein, such leave will be denied.
I. BACKGROUND
The facts underlying this dispute are clearly set out in this Court's March 2, 1999 Opinion as well as in the Bankruptcy Court's 69 page July 12, 1999 Opinion (further memorialized in an Order of July 30, 1999), and they need not be repeated here. An explanation of the procedural background and the Bankruptcy Court's July 12 opinion, however, is appropriate.
On November 15, 1993, Ohio sent a letter to PIM terminating the agency contract effective March 1, 1994 and prohibiting PIM from writing new business or binding coverage after November 19, 1993. PIM filed suit against Ohio in this Court, alleging that the termination of the contract was in retaliation for refusing to violate provisions of FAIRA. The suit was later withdrawn and refiled in the Superior Court of New Jersey, but after August 5, 1994, when PIM filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, the matter was handled by the Bankruptcy Court. The Bankruptcy Court has handled a large number of disputes between these two parties and additional parties to the litigation in the intervening time.
In a March 7, 1996 opinion, the Bankruptcy Court determined that Ohio held an unperfected security interest in PIM's book of business and that PIM was entitled to turnover of the accounts that were serviced through Ohio since the filing of the petition. In Re Professional Ins. Mgmt., Adversary No. 94-1312, Opinion at 24 (March 7, 1996). The Bankruptcy Court left open the issue of post-petition renewal commissions or expirations. On March 29, 1996, PIM raised that very issue by filing a motion for the turnover of commissions and for other relief, asking the Bankruptcy Court to order Ohio to disburse commissions allegedly due it on policies that were renewed or due to be renewed after April 1, 1996.
On April 24, 1996, the Bankruptcy Court entered an order directing the turnover of PIM's expirations effective April 1, 1996, but also noted "that issues of commissions hereinafter earned on the book of business to be remitted to [PIM] must be resolved." In Re Professional Ins. Mgmt., Adversary No. 94-1312, Order (April 24, 1996). On May 28, 1996, Ohio filed an appeal from that order. On April 19, 1996, the Bankruptcy Court delivered its decision with respect to PIM's motion for turnover of renewal commissions, and additionally dealt with Ohio's cross-motion that PIM is not entitled to statutory benefits (renewals and commissions) provided by N.J.S.A. 17:22-6.14a(d) ("subsection (d)") because PIM failed to pay premiums due Ohio, thus violating one of the conditions of N.J.S.A. 17:22-6.14a(e) ("subsection (e)"). The Bankruptcy Court found that subsection (d) controlled and, noting that there was substantial factual dispute as to whether any of the conditions of subsection (e) were violated but that such dispute would be resolved a later time. In Re Professional Ins. Mgmt., Adversary No. 94-1312, Opinion at 12 (April 19, 1996). In an April 26, 1996 order, the Bankruptcy Court directed Ohio to pay renewal commissions on policies renewed by PIM on or after April 1, 1996.
N.J.S.A. 17:22-6.14a(d) provides in part that:
[t]he company shall, during a period of 12 months from the effective date of such termination, provided the former agent has not been replaced as the broker of record by the insured and upon request in writing of the terminated agent, renew all contracts of insurance for such agent for said company as may be in accordance with said company's then current underwriting standards and pay to the terminated agent a commission in accordance with the agency contract in effect at the time notice of termination was issued.
As discussed later in this Opinion N.J.S.A. 17:22-6.14a(e)names a number of "for cause" reasons for termination which would preclude the application of subsection (d). These include "gross and willful misconduct" and "failure to pay over to the company moneys due to the company after his receipt of a written demand therefor." Id .
On May 1, 1996, Ohio filed an appeal, as well as a motion for a stay pending appeal, of the Bankruptcy Court's April 26, 1996 order. The District Court granted the stay, In Re Professional Ins. Mgmt., Civil No. 96-2251 (D.N.J. May 2, 1996), and ultimately reversed that portion of the order which directed the payment of renewal commissions to PIM because it was in error to order renewals under subsection (d) without first determining that the termination was not for cause under subsection (e). In Re Professional Ins. Mgmt., Civil No. 96-2499, Slip Op. at 14-15 (D.N.J. July 8, 1996).
In December of 1997, PIM again moved for the turnover of post-petition commissions from the expirations renewing through Ohio. In the preliminary statement in its opposition brief, Ohio inserted three sentences objecting to the Bankruptcy Court's jurisdiction, arguing that the determination should be before the New Jersey Department of Insurance and Banking. Ohio then cross-moved for a determination that subsection (e) should govern and bar the entitlement to renewals and commissions. The Bankruptcy Court considered the briefs and closing summaries, thousands of pages in exhibits, and testimony from hearings conducted on June 30, July 1 and 2, July 29 and 30, August 27, and October 18, 1998. The Bankruptcy Court issued its decision on July 12, 1999, commemorated in the July 30, 1999 order from which Ohio seeks leave to appeal.
In the underlying opinion, the Bankruptcy Court held that subsection (d) would govern PIM's entitlement to renewals and the commissions generated thereupon. In Re Professional Ins. Mmgt., Adversary No. 94-1312, Slip Op. (July 12, 1999). The Bankruptcy Court discussed at length the applicability of subsection (e), noting that only two of the conditions listed in that subsection could possibly apply in the instant case, and that neither of those was met by the facts here. The July 30, 1999 Order denied Ohio's cross-motion, and Ohio now seeks leave to file an interlocutory appeal of that determination.
II. DISCUSSION
A. Granting Leave to Appeal an Interlocutory Order
Pursuant to 28 U.S.C. § 158(a)(3), the District Court may grant leave to appeal interlocutory orders of the Bankruptcy Court, and certification of the appeal by the Bankruptcy Court is not required.Bertoli v. D'Avella, 812 F.2d 136, 138-140 (3d Cir. 1987). Appeals are taken in the same manner as appeals from the district courts to the courts of appeal. Fed.R.Bankr.P. 8001. As neither 28 U.S.C. § 158(a)(3) nor Rule 8001 set out the standards to be utilized by the district court sitting in its appellate capacity, courts typically look to the standards set out in 28 U.S.C. § 1292(b), which governs interlocutory appeals from the district court to the courts of appeal. Section 1292(b) provides:
When a district judge, in making a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such an order. . . .Id.
Bankruptcy rules do not require certification by the bankruptcy court, but rather would have the district court, acting in its appellate capacity, consider the standards set out by § 1292(b).
Leave to appeal an interlocutory order will not necessarily be granted in all cases presenting "controlling question[s] of law as to which there is a substantial ground for difference of opinion" and in which an interlocutory appeal would "materially advance the ultimate termination of the litigation." Whether to grant leave to appeal is a discretionary decision. Moreover, as this Court stated in its November 4, 1998 Order Denying Leave to Appeal a different ruling by the Bankruptcy Court, leave to appeal an interlocutory order is "extraordinary relief;" to get it, the movant must show that they will suffer irreparable harm if the determinations await review. In Re Professional Ins. Mgmt., Civil No. 98-4496, Order at ¶ 3 (D.N.J. Nov. 4, 1998). There is a "well-established judicial policy of discouraging interlocutory appeals and avoiding the delay and disruption which results from such piecemeal" litigation. In Re Ionosphere Clubs, Inc., 179 B.R. 24, 28 (S.D.N.Y. 1995).
B. Whether There are Controlling Questions of Law as to Which There are Substantial Grounds for Difference of Opinion
Ohio argues that this appeal would present three controlling questions of law as to which there are substantial grounds for difference of opinion. First, Ohio argues that the Bankruptcy Court incorrectly interpreted N.J.S.A. 17:22-6.14a(e) as a matter of law. Second, Ohio argues that even under the Bankruptcy Court's interpretation of subsection (e), the overwhelming weight of the evidence compelled a determination that PIM was not entitled to renewals. Finally, Ohio argues that the Commissioner of Banking has primary jurisdiction over this matter such that the Bankruptcy Court should have deferred to the Commissioner's determination of PIM's entitlement to commissions. This Court finds that while these may be controlling questions of law, there are not substantial grounds for difference of opinion on them.
1. An Interpretation of N.J.S.A. 17:22-6.14a(e)
Subsection (e) of N.J.S.A. 17:22-6.14a provides:
The agency termination provisions of this act shall not apply to those contracts in which the agent is paid on a salary basis without commission or where he agrees to represent exclusively one company or to the termination of an agent's contract for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the company moneys due to the company after his receipt of a written demand therefor, or after revocation of the agent's license by the Commissioner of Insurance; and in any such case the company shall, upon request of the insured, provided he meets the then current underwriting standards of the company, renew any contract of insurance formerly processed by the terminated agent, through an active agent, or directly pursuant to such rules and regulations as may be promulgated by the Commissioner of Insurance.Id.
The Bankruptcy Court found that subsection (e) lists "for cause" reasons for termination and directs that if any one of those "for cause" conditions is met (for the conditions are listed in the disjunctive), the insured is entitled to have his or her policy renewed, but the renewal does not come through the terminated agent and that agent is therefore not entitled to collect commissions on it. In Re Professional Ins. Mgmt., Adversary No. 94-1312, Opinion at 65 (July 12, 1999).
Ohio argues that there is substantial ground to disagree with the Bankruptcy Court's interpretation of subsection (e). Recognizing that neither the New Jersey courts nor the Commissioner of Insurance has interpreted the relevant language of subsection (e), Ohio suggests, correctly, that under New Jersey law "[i]t is a cardinal rule of statutory construction that the language of the statute should be given its ordinary meaning and construed in a common sense manner to accomplish the legislative purpose." N.E.R.I. Corp. v. New Jersey Highway Authority, 147 N.J. 223 (1996). Ohio then argues that the common sense reading of subsection (e) means that the agent loses its right to renewal commissions if it fails to pay the insurer, whether or not the failure to pay occurs before or after the termination, pointing to a myriad of commentaries and cases from other jurisdictions. See, e.g., In re Murphy, 9 B.R. 167 (E.D.Va. 1981) (agent forfeits renewal commissions after termination of agency agreement where premium funds were withheld); 4 Couch on Insurance § 57:50 (3d Ed.) ("If insurer terminates the agency because of the agent's misconduct, the latter will, in most cases, forfeit his or her right to renewal commissions . . ."); 29 Am Jur., Insurance § 179 (1969) (agent forfeits renewal commissions if discharged for "misconduct or other adequate cause"). Ohio also cites Department of Insurance v. Universal Brokerage Corp., 303 N.J. Super. 405 (App.Div. 1997), in which the Appellate Division agreed with the Commissioner that an agent whose license the Commissioner revoked had to repay commissions it had earned to the insurer because a fiduciary who fraudulently converts premiums has no right to commissions (the commissions are not considered earned). Id. at 409.
The cases that Ohio cites, however, appear to be inapposite. First, with the exception of the Universal Brokerage case, none of them interpret New Jersey law, and none of them, including the Universal Brokerage case, discuss subsection (e). Second, each of the sources except the Universal Brokerage case discusses forfeiture of renewal commissions when failure to remit premiums is the cause of termination; none of them support an interpretation of subsection (e) which would deny commissions after the termination if the termination was not based upon failure to remit premiums.
In In re Murphy , 9 B.R. 167 (E.D.Va. 1981), for example, termination was found be a result of the failure to pay premiums.
This Court agrees with Ohio that the general policy concern as a matter of equity seems to follow from Universal Brokerage, such that a terminated agent cannot profit from failure to remit premiums after demand therefor even when it occurs after the termination date. However, as Ohio itself points out, the Bankruptcy Court could not ignore the plain and unambiguous reading of the statute: "Although a statute should be interpreted in a fashion that does not defeat the congressional purpose . . . a court may not rewrite an unambiguous law." Friedrich v. United States Computer Services, 974 F.2d 409, 419 (3d Cir. 1992). The plain language of subsection (e) appears unambiguous, reading, in pertinent part, that "[t]he agency termination provisions of this act shall not apply . . . to the termination of an agent's contract for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the company moneys due to the company after his receipt of a written demand therefor, or after revocation of the agent's license by the Commissioner of Insurance. . . ." N.J.S.A. 17:22-6.14a(e).
Though the application of this rule alone, without resort to equity, might result, as here, in a terminated agent's right to receive commissions even where it has failed to remit premiums after the date of termination, this Court is not free to rewrite the statute to preclude that result where the unambiguous language of subsection (e) does not. This Court does not agree with Ohio that there is substantial ground for difference of opinion on the meaning of subsection (e). This is not a basis for granting leave to appeal.
2. The Weight of the Evidence
Ohio argues that even if the Bankruptcy Court correctly interpreted subsection (e), the Bankruptcy Court ignored overwhelming evidence that Ohio did terminate PIM's agency because of gross misconduct and because of the failure to remit payments after demand therefor was made. Therefore, Ohio argues that there is substantial ground for difference of opinion with the Bankruptcy Court's ultimate finding that subsection (d) applied because of the Bankruptcy Court's factual finding that none of the conditions of subsection (e) were met.
Factual findings by the Bankruptcy Court are reviewed on a "clearly erroneous" basis. The Bankruptcy Court here reviewed thousands of pages of documentation and made detailed findings in a 69-page opinion. Based on the evidence and argument, as well as the Bankruptcy Judge's credibility determinations of the various witnesses, the Bankruptcy Court found that though PIM failed to remit all premiums, PIM did not engage in gross misconduct and Ohio did not terminate the agency relationship as a result of the failure to pay premiums. There is no evidence before the Court upon which this Court can say that there is substantial ground for difference of opinion on this. Moreover, this is a factual determination, not a controlling question of law. This is not a basis for granting leave to appeal.
3. Primary Jurisdiction
Finally, Ohio argues that there is substantial ground for difference of opinion on the controlling question of whether the Bankruptcy Court properly exercised jurisdiction in this case. Ohio correctly points out that the Bankruptcy Court must interpret the meaning of subsection (e) before applying it to the facts of the case. It contends that the Commissioner of Banking and Insurance has primary jurisdiction over the interpretation of subsection (e), and that the Bankruptcy Court thus should have deferred to the Commissioner for an interpretation of subsection (e), for there is no case law or administrative interpretation of subsection (e). According to Ohio, only after the Commissioner interprets the statute can the Bankruptcy Court make factual findings and apply the law to the facts.
There is substantial doubt that Ohio raised this issue before the Bankruptcy Court to preserve it for possible review upon appeal. Ohio devoted three lines of its preliminary statement in its brief to the Bankruptcy Court to its argument that the Bankruptcy Court should defer to the Commissioner's primary jurisdiction; Ohio apparently made no further arguments in that regard, either in its brief or in the numerous days of hearings. If the contention was not initially presented to the Bankruptcy Court for its determination, it is inappropriate for this Court to hear the issue. Cf . In re City of Philadelphia Litigation, Africa v. City of Philadelphia , 158 F.3d 723 (3d Cir. 1998). Nonetheless, this issue has been considered in an abundance of caution.
Ohio relies heavily upon this Court's opinion in In Re Professional Ins. Mgmt., No. 98-3617 (D.N.J. March 2, 1999). In that opinion, this Court held that primary jurisdiction applies where a claim is originally cognizable in the courts, but comes into play whenever enforcement of the claim requires resolution of issues that require the special competence of an administrative body. Id. at 16 (citing Greate Bay Hotel Casino v. Tose, 34 F.3d 1227, 1230 (3d Cir. 1994)). As this Court explained in that opinion, primary jurisdiction "does not limit the court's jurisdiction but rather counsels the court to defer ultimate resolution of claims until underlying issues within those claims within the special knowledge of the administrative body have been resolved." In Re Professional Ins. Mgmt., No. 98-3617 at 17. Based on Campione v. Adamar of New Jersey, Inc., 155 N.J. 245, 248-49 (1998), New Jersey law holds that deferral by a court in favor of administrative expertise turns on whether there is an elaborate regulatory scheme, the need to preserve and promote relationships between courts and agencies, the presence of an issue within a claim that is within an administrative agency's special expertise, and the need to preserve uniformity in the interpretation of regulations and administrative rules. In Re Professional Ins. Mgmt., No. 98-3617 at 19 (citing as authority Campione, 155 N.J. at 263-64).
In the earlier dispute between the current parties embodied in this Court's March 2, 1999 Opinion in In Re Professional Ins. Mgmt., No. 98-3617, this Court found that the Bankruptcy Court should have deferred to the Commissioner because all of the factors present in Campione were present there, including:
• a pervasive regulatory scheme over the automobile insurance industry (FAIRA, N.J.S.A. 17:33B-1, et seq.)
• a need to preserve the proper relationships between the courts and the Commissioner, who had those parties before her on related matters
• the underlying issues there, whether defendants/appellants violated the "take all comers" provisions of FAIRA and whether defendants/appellants withdrew from the market, were uniquely within the expertise of the Commissioner
• actual risk of inconsistent rulings.
In Re Professional Ins. Mgmt., No. 98-3617 at 21-22.
Ohio contends the factors present in Campione are present here as well. This Court disagrees for three main reasons. First, while the fact that FAIRA exists and regulates the industry is obviously unchanged, whereas the older dispute between the parties embodied in this Court's March 2, 1999 Opinion involved interpretation of provisions of FAIRA, the instant matter does not involve interpretation of a section of FAIRA.
Second, to the extent that this case requires the Bankruptcy Court to interpret a provision of New Jersey law regarding insurance agents, that interpretation does not require the special expertise of the Commissioner. As discussed above, there is not substantial ground for difference of opinion with the Bankruptcy Court's reading of N.J.S.A. 17:22-6.14a(e). Though there is no case law or administrative opinion interpreting subsection (e), the plain language of the statute is unambiguous in its listing of terminations for cause; though public policy may give good reason to deny renewals and commissions after an agent fails to pay premiums post-termination, the unambiguous statute does not do just that. In light of the Bankruptcy Court's cogent reading of this statute, there is even less reason to believe that the doctrine of primary jurisdiction should have been recognized in that court's discretion. Certainly there is no abuse of discretion in the Bankruptcy Court's determination to address this issue of statutory interpretation. As the statute is clear on its face, it is an ordinary instance of statutory interpretation that does not require the Commissioner's expertise, and one which the Bankruptcy Court is certainly qualified to handle.
Third, the risk of inconsistent rulings was not so at the time that the Bankruptcy Court ruled on this issue. Though the issue of the meaning of subsection (e) is potentially before the Commissioner, that is only so because Ohio, for the first time after the Bankruptcy Court issued its opinion, filed a counterclaim for declaratory relief seeking a determination from the Commissioner with respect to her interpretation of subsection (e). The Commissioner has apparently taken no steps in this matter; no decisions have been made.
Further, it must be recognized that invocation of primary jurisdiction by deferring a claim to an administrative agency can be costly in terms of time. At oral argument herein on September 17, 1999, the court learned that the Commissioner of Banking and Insurance has still given no indication that an administrative hearing will be scheduled on the FAIRA claim which this court deferred to the Commissioner more than six months ago on March 2, 1999, supra . Needless to say, at some point in time leaving such an important issue in administrative limbo can impair the Bankruptcy Court's ability to conclude the administration of the debtor's estate. The prospect of further delay counsels against deferring the present issue to the Commissioner.
Therefore, this situation differs in decisive ways from that presented to the Court earlier and that present in Campione. The issue of primary jurisdiction is not a controlling issue over which there is substantial room for difference of opinion.
C. Whether Granting Leave Will Materially Advance the End of the Litigation and Whether Exceptional Circumstances Exist
It is not clear that granting leave to appeal would materially advance the end of the litigation. Ohio argues that even if PIM is entitled to renewal commissions as a result of N.J.S.A. 17:22-6.14a(d), there are numerous other issues that must be decided by the Bankruptcy Court before PIM actually gets those commissions. If an appeal taken now reveals that PIM is not entitled to those commissions at all as a result of N.J.S.A. 17:22-6.14a(e), then resolution of those remaining issues would be unnecessary.
However, the time that would be saved in not having to resolve the side issues later if Ohio is correct must be balanced against the probability of Ohio's success and time that would be expended in other arenas. As stated above, there does not appear to be substantial ground for difference of opinion on a controlling question of law that would make Ohio's success likely. Reviewing these issues, including whether the Bankruptcy Court was clearly erroneous in its factual findings that there was no gross misconduct and that failure to remit premiums was not the cause of the termination, would require a great expenditure of time by the parties and this Court. If Ohio does not succeed on appeal, then that great expenditure of time would only hold up the ultimate resolution of the issue of whether PIM is entitled to renewal commissions. Moreover, a resolution of whether PIM is entitled to renewal commissions would not itself end the litigation between the parties.
Moreover, Ohio has not presented any evidence that exceptional circumstances exist here that would require appeal now. Though PIM cannot guarantee that it could return Ohio's money if it is later discovered in the Bankruptcy Court or on appeal that PIM was terminated for cause and was thus not entitled to the commissions, that alone cannot be a basis for granting leave to appeal, especially where the odds of Ohio's success on the merits do not appear to be strong.
This is not to say that all meaningful review of the issue is foregone. When this case is subject to a final judgment of the Bankruptcy Court and if it then comes to the District Court on appeal, all of these issues may be addressed. Under these circumstances, this Court will not grant the extraordinary remedy of leave to appeal an interlocutory order; this case would be better decided as a whole than piecemeal.
III. CONCLUSION
For the foregoing reasons, this Court will deny Ohio Casualty's motion for leave to appeal the Bankruptcy Court's interlocutory opinion of July 12, 1999 and order of July 30, 1999. The accompanying Order is entered.
ORDER
This matter having come before the Court upon the motion of defendant-appellant Ohio Casualty Group of Insurance Companies, et al., for leave to appeal a July 30, 1999 interlocutory order of the United States Bankruptcy Court for the District of New Jersey; and this Court having considered the parties' submissions; and for the reasons expressed in the Opinion of today's date;
IT IS this day of September 1999 hereby
ORDERED that the motion for leave to appeal the Bankruptcy Court's Order of July 30, 1999 be, and hereby is, DENIED.