Edward Reid, Jr. v. Transp Ins Co ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 11-4297
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EDWARD L. REID, JR.,
Appellant
v.
TRANSPORTATION INSURANCE COMPANY;
JOHN/JANE DOES (1-10) (FICTITIOUS NAMES);
ABC CORPORATIONS (1-100) (FICTITIOUS ENTITIES)
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On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 1-10-cv-06246)
District Judge: Honorable Robert B. Kugler
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Submitted Pursuant to Third Circuit LAR 34.1(a)
October 5, 2012
Before: FUENTES, FISHER and COWEN, Circuit Judges.
(Filed: October 19, 2012)
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OPINION OF THE COURT
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FISHER, Circuit Judge.
Edward L. Reid, Jr. (“Reid”) appeals from an order granting summary judgment to
Transportation Insurance Company (“Transportation”)1 in Reid‟s action alleging bad
faith based on Transportation‟s failure to negotiate a settlement in Reid‟s underinsured
motorist action. We will affirm.
I.
Because we write principally for the parties, who are familiar with the factual
context and legal history of this case, we will set forth only those facts that are necessary
to our analysis.
On October 1, 1999, in the course of his employment, Reid was involved in a
serious automobile accident with a vehicle driven by a third party. Transportation had
issued an insurance policy to Reid‟s employer that contained “Business Auto” coverage
for the period during which Reid was injured. The policy included $1,000,000 of
underinsured motorists (“UIM”) coverage.
Following the parties‟ dispute over assignment of subrogation rights, the parties
engaged in seven years of litigation in the New Jersey courts regarding Transportation‟s
UIM liability. Reid ultimately succeeded in his action and secured a judgment totaling
$1,036,650.56, which included $186,650.56 in prejudgment interest. Two years later,
1
On January 31, 2011, the District Court entered a stipulation in which the parties
agreed to amend and replace all references to CNA Insurance Company in the caption
and body of Reid‟s Complaint to Transportation Insurance Company. No. 10-6246, ECF
No. 12 (D.N.J. Jan. 31, 2011).
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Reid sued Transportation again, this time alleging bad faith failure to negotiate a
settlement, bad faith denial of UIM benefits, and bad faith continuation of vexatious
litigation. Specifically, Reid contended that Transportation acted in bad faith by
(1) filing for a declaratory judgment to invoke its policy step-down clause, which would
have lowered its own policy limits to $100,000; (2) appealing the denial of that judgment;
(3) initially consenting to arbitration and then requesting trial; (4) withdrawing that
request and agreeing to reschedule arbitration; (5) filing yet another motion to vacate the
order to arbitrate under the theory that Reid was disqualified from UIM benefits for
failing to investigate potential contributory tortfeasors; (6) filing a motion for
reconsideration of the Superior Court‟s refusal to vacate the arbitration order; and
(7) appealing the denial of the motion for reconsideration.
On May 27, 2011, Transportation filed a motion for summary judgment in which
it argued that Reid‟s bad faith claim was res judicata under New Jersey‟s Entire
Controversy Doctrine (“ECD”). The District Court granted that motion on November 3,
2011. Reid timely appealed.
II.
The District Court had jurisdiction over this case under 28 U.S.C. § 1332. We
have jurisdiction under 28 U.S.C. § 1291. We review a district court‟s grant of summary
judgment de novo. Fields v. Thompson Printing Co. Inc., 363 F.3d 259, 265 (3d Cir.
2004). Summary judgment is proper where no genuine issue of material fact exists, and
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the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986).
III.
Under the Full Faith and Credit Act, 28 U.S.C. § 1738, “a federal court must give
the same preclusive effect to a state-court judgment as another court of that State would
give.” Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523 (1986). New Jersey‟s
ECD “requires the assertion of all claims arising from a single controversy in a single
action at the risk of being precluded from asserting them in the future.” In re Estate of
Gabrellian, 859 A.2d 700, 707 (N.J. Super. Ct. App. Div. 2004). The doctrine “seeks to
assure that all aspects of a legal dispute occur in a single lawsuit.” Olds v. Donnelly, 696
A.2d 633, 637 (N.J. 1997). We have observed that under the ECD, “a party cannot
withhold part of a controversy for separate later litigation even when the withheld
component is a separate and independently cognizable cause of action.” Paramount
Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999).
Reid argues that the District Court erred when it concluded that his bad faith claim
was precluded by the ECD. Reid asserts that (1) his claim did not accrue until the
arbitration panel issued a binding award in his favor and (2) by barring his claim, the
District Court contradicted the fairness principle embodied within the ECD, a doctrine of
equity. We address each of these arguments in turn.
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A.
First, Reid argues that until the UIM arbitration panel found Transportation liable,
he could not have asserted his bad faith claim, because “a bad faith claim is contingent
upon the success of the underlying claim for breach of the insurance contract.” Pl. Br. at
23. But while Reid is correct that the success of a bad faith claim may depend upon the
success of the underlying litigation, the assertion of a bad faith claim does not. And
under the ECD, all claims arising out of the underlying controversy, potentially
successful or otherwise, must be brought. Agusta, 178 F.3d at 137.
Throughout the course of the UIM litigation, Reid demonstrated that he should
have been aware that Transportation‟s actions could have constituted bad faith.
Specifically, on February 8, 2002, Reid raised two affirmative defenses:
“By virtue of [Transportation‟s] failure to timely pay the UIM benefits [to]
which [Reid] is entitled, they have willfully breached their contract and
obligations pursuant to the terms and conditions of [the insurance contract]
. . .”
and
“[Reid] is entitled to all remedies available to him pursuant to N.J.S.A.
39:6A and N.J.S.A. 17:28-1.1, et seq. and applicable case law, including
UIM benefits, interest, counsel fees, and consequential damages due to
[Transportation‟s] failure to timely pay to him those benefits to which he is
entitled.”
Def.‟s Mot. Summ. J., Ex. F, at 2-3, Reid v. Trans. Ins. Co., No. 10-06246 (D.N.J.
May 27, 2011), ECF No. 16-4. Reid‟s assertion of these defenses shows that he should
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have known, and may in fact have known, that Transportation‟s actions could have
amounted to bad faith.
Moreover, New Jersey courts have held that where, as here, a bad faith claim is
based on first-party UIM litigation, in which “the insurer is in the litigation from the
outset, any claims of bad faith can be asserted in the same litigation.” See Taddei v. State
Farm Indem. Co., No. L-6655-07, 2010 WL 183900, at *3 (N.J. Super. Ct. App. Div.
Jan. 21, 2010) (internal citations omitted).2 Because Reid should have been aware of his
bad faith claim, and the claim could have been asserted in his initial litigation, the District
Court was correct to apply the ECD and bar Reid‟s claim.
B.
Next, Reid argues that a New Jersey state court in our position would decline to
apply the ECD because doing so would be unfair and would run counter to the doctrine‟s
purpose. In Agusta, we stated that the ECD has three purposes: “(1) complete and final
disposition of cases through avoidance of piecemeal decisions; (2) fairness to parties to
2
Reid argues that Taddei is unpublished, that unpublished opinions cannot be used
as mandatory authority in New Jersey, see New Jersey Court Rule 1:36-3, and that the
District Court therefore erred in relying on the Taddei case. But the District Court never
considered Taddei to be mandatory authority; indeed, it explicitly acknowledged that
Taddei was an unpublished decision but noted that in New Jersey, “unpublished opinions
are not binding authority, though they can constitute persuasive authority.” Reid v.
Trans. Ins. Co., No 10-06246, 2011 WL 5325546, at *5 n.2 (D.N.J. Nov. 3, 2011). See
also Craig v. Lake Asbestos of Quebec, Ltd., 843 F.2d 145, 152 & n.6 (3d Cir. 1988)
(citing an unpublished New Jersey Superior Court decision, recognizing that “we are not
bound by that decision,” but noting that “[t]he New Jersey rules are, of course, binding
only on the New Jersey courts, and we would be remiss in our duty to apply New Jersey
law were we to ignore a New Jersey case where the relevant issue is identical”).
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an action and to others with a material interest in it; and (3) efficiency and avoidance of
waste and delay.” 178 F.3d at 137; see also DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J.
1995) (“The fundamental principle behind the inclusion policy of the entire controversy
doctrine is that the adjudication of a legal controversy should occur in one litigation in
only one court; accordingly, all parties involved in a litigation should at the very least
present in that proceeding all of their claims and defenses that are related to the
underlying controversy.” (internal quotation marks omitted)). Because the ECD is an
equitable doctrine, its application is flexible, “with a case-by-case appreciation for
fairness to the parties.” Agusta, 178 F.3d at 137.
New Jersey courts have emphasized that the guiding principle in applying the
ECD is fairness. See K-Land Corp. No. 28 v. Landis Sewerage Auth., 800 A.2d 861, 871
(N.J. 2002) (“[T]he polestar for the application of the [ECD] is judicial fairness.”
(internal citations omitted)). The New Jersey Supreme Court has held that “[i]n
considering fairness to the party whose claim is sought to be barred, a court must
consider whether the claimant „had a fair and reasonable opportunity to have fully
litigated that claim in the original action.‟” Id. at 870 (quoting Gelber v. Zito P’ship, 688
A.2d 1044, 1046 (N.J. 1997)). New Jersey courts then weigh that opportunity against the
second of the “twin pillars” of the ECD, which is “fairness to the system of judicial
administration.” Id.
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As we have explained above, Reid demonstrated that he should have known that
Transportation‟s actions may have constituted a bad faith claim. He raised two
affirmative defenses, which indicated his belief that Transportation “willfully breached
their contract” pursuant to its terms and conditions, and that Transportation failed to
“timely pay [Reid‟s] UIM benefits” to which “[he was] entitled.” Because Reid should
have known that he had a potential bad faith claim against Transportation, Reid had a fair
and reasonable opportunity to have fully litigated that claim in the original action.
On the issue of fairness to the system of judicial administration, we agree with the
District Court that where, as here, a plaintiff‟s bad faith claim is based on first-party UIM
litigation, it is more efficient to require a plaintiff to raise his bad faith claim in the same
lawsuit in which he seeks insurance benefits. Such a requirement conserves judicial
resources while ensuring fairness to plaintiffs.
IV.
For the reasons set forth above, we will affirm the order of the District Court.
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