Guardian Life Ins Co of Americ v. The Estate of Joseph A. Cernig

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 10-4545
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THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
v.
THE ESTATE OF JOSEPH A. CERNIGLIA;
CWB1, LLC; COMPANIA HOLDINGS CORPORATION;
MELISSA CERNIGLIA; VALLEY NATIONAL BANK;
RICCARDO BOTTI; KEVIN WYNN
CWB1, LLC.,
Appellant
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-10-cv-05597)
District Judge: Honorable William H. Walls
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Argued July 12, 2011
Before: RENDELL, SMITH and FISHER, Circuit Judges.
(Filed: July 28, 2011 )
Edward Griffith (Argued)
Bolatti & Griffith
45 Broadway, Suite 2200
New York, NY 10006
Counsel for Appellant, CWB1, LLC
Anthony J. Fusco, Jr.1
Fusco & Macaluso
150 Passaic Avenue
P.O. Box 838
Passaic, NJ 07055
Counsel for Appellees, Riccardo Botti
and Kevin Wynn
Steven P. Del Mauro
McElroy, Deutsch, Mulvaney & Carpenter
100 Mulberry Street
Three Gateway Center
Newark, NJ 07102
Counsel for Guardian Life Insurance
Company of America
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OPINION OF THE COURT
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FISHER, Circuit Judge.
CWB1, LLC (“CWB1”) appeals from an order of the District Court denying its
request for a preliminary injunction. For the reasons stated herein, we will reverse the
District Court‟s order and direct that the injunction be issued in CWB1‟s favor.
I.
1
The Court notes that Counsel for Botti and Wynn, Anthony J. Fusco, Jr., failed to
appear for the scheduled oral argument in this matter, despite his acknowledged receipt of
the notification of oral argument. Although we decline to take further action in this
regard, his absence and subsequent correspondence with the Court demonstrates a lack of
professionalism rarely seen and hopefully not repeated before the Court. We also note
that Mr. Fusco‟s absence had no bearing on the outcome of this appeal.
2
We write exclusively for the parties, who are familiar with the factual context and
legal history of this case. Therefore, we will set forth only those facts necessary to our
analysis.
Joseph A. Cerniglia was a renowned chef and partial owner of Campania, a
restaurant in Fairlawn, New Jersey. CWB1, a New Jersey limited liability company,
owned Campania. Riccardo Botti, Kevin Wynn, and Cerniglia held ownership interests
in CWB1 as members. On October 25, 2005, CWB1 purchased a life insurance policy
(the “Policy”) from The Guardian Life Insurance Company of America (“Guardian”).
The Policy named Cerniglia as the insured, and listed CWB1 as the owner and
beneficiary. On September 16, 2010, Cerniglia, Botti, and Wynn sold their interests in
CWB1 to Campania Holdings Corporation (“CHC”) pursuant to a transfer agreement.
Philip Neuman is the managing director of CHC. On September 24, 2010, Cerniglia
died. In the months following, Campania‟s business declined significantly, and it was
eventually closed.
After Cerniglia‟s death, Guardian faced competing claims to the Policy death
benefit, and filed an interpleader complaint against CWB1, CHC, Cerniglia‟s estate,
Melissa Cerniglia (Cerniglia‟s widow), Botti, Wynn, and Valley National Bank.2 CWB1
and CHC filed an answer and a cross-claim against the estate, Melissa Cerniglia, Botti,
and Wynn seeking a declaratory judgment that those parties had no rights under the
2
Guardian subsequently released Valley National Bank from the lawsuit.
3
Policy and moved for a preliminary injunction directing payment of the Policy death
benefit. Neuman submitted a declaration describing the negative impact of Cerniglia‟s
death on Campania‟s business. In response, Botti and Wynn disputed payment of the
Policy death benefit to CWB1 based on their belief that ownership of CWB1 had reverted
to them because Neuman breached the transfer agreement. Botti and Wynn suggested
that a breach of contract action would be filed, but no such claims were before the
District Court.3 In the meantime, the estate and Melissa Cerniglia withdrew their claims
to the Policy death benefit.
At the preliminary injunction hearing before the District Court, CWB1 argued that
all parties agreed that CWB1 was the beneficiary of the policy and, notwithstanding any
breach of contract litigation, the Policy death benefit should be paid to the company.
Counsel for Botti and Wynn stated that “[o]bviously we all agree that the money is to be
paid to the corporation,” meaning, to CWB1. (App. at 199.) But, Botti and Wynn argued
that it should not be paid because of the uncertainty as to the proper ownership of CWB1.
The District Court rejected CWB1‟s arguments, ruling that the company failed to
establish a likelihood of success on the merits or irreparable harm. The District Court
reasoned that ownership of CWB1 would have to be resolved before the company
received the Policy death benefit. The District Court also concluded that CWB1‟s
allegations of irreparable harm were insufficient and unsupported. In doing so, the
3
The parties have represented to the Court that a breach of contract claim is
pending in New Jersey state court.
4
District Court refused to allow Neuman to testify regarding the statements set forth in his
declaration. On November 30, 2010, the District Court granted Guardian interpleader
relief and released it from any liability. The sum of the Policy death benefit, plus
interest, was deposited with the clerk of court. CWB1 filed a timely notice of appeal.4
II.
“[W]e use a three-part standard to review a District Court‟s decision to grant or
deny a preliminary injunction.” Rogers v. Corbett, 468 F.3d 188, 192 (3d Cir. 2006).
“The District Court‟s findings of fact are reviewed for clear error, the District Court‟s
conclusions of law are evaluated under a plenary standard, and the ultimate decision to
grant [or deny a] preliminary injunction is reviewed for abuse of discretion.” Id.III.
Federal Rule of Civil Procedure 22 provides that “[p]ersons with claims that may
expose a plaintiff to double or multiple liability may be joined as defendants and required
to interplead.” Fed. R. Civ. P. 22(a)(1). In an interpleader action, “the court determines
whether the interpleader complaint was properly brought and whether to discharge the
stakeholder from further liability to the claimants.” Prudential Ins. Co. of Am. v. Hovis,
4
The District Court had jurisdiction over Guardian‟s interpleader complaint and
CWB1‟s counterclaim against Guardian pursuant to 28 U.S.C. § 1332 based on diversity
jurisdiction. The District Court had supplemental jurisdiction over CWB1‟s cross-claim
against Botti and Wynn pursuant to 28 U.S.C. § 1367(a). Our source of jurisdiction is 28
U.S.C. § 1292(a)(1).
5
553 F.3d 258, 262 (3d Cir. 2009).5 Then, “the court determines the respective rights of
the claimants to the interpleaded funds.” Id. In evaluating whether a preliminary
injunction should issue, we consider “(1) the likelihood that the moving party will
succeed on the merits; (2) the extent to which the moving party will suffer irreparable
harm without injunctive relief; (3) the extent to which the nonmoving party will suffer
irreparable harm if the injunction is issued; and (4) the public interest.” Liberty Lincoln-
Mercury, Inc. v. Ford Motor Co., 562 F.3d 553, 556 (3d Cir. 2009).
A. Likelihood of CWB1‟s Success on the Merits
With respect to the likelihood of success on the merits, CWB1 argues that the
District Court erred in concluding that the litigation regarding ownership of the company
had to be resolved before the Policy death benefit could be paid. We agree. The
litigation over ownership of CWB1 is irrelevant to CWB1‟s claim. Indeed, the Policy is
explicit on this point – CWB1 is the named beneficiary. (App. at 60 (“Guardian will pay
the death proceeds to the beneficiary[.]”)) Moreover, New Jersey law makes clear that
members of a limited liability company are distinct from the LLC itself. The New Jersey
Limited Liability Company Act, 42 N.J.S.A. § 42:2B et seq., describes the limited
liability company as a distinct legal entity, separate and apart from its member owners.
New Jersey courts also have emphasized that a life insurance policy is a company asset
5
The threshold requirements for rule interpleader were satisfied. Diversity of
citizenship was present between Guardian (a citizen of New York) and the Estate,
Melissa Cerniglia, CWB1, Botti, and Wynn (citizens of New Jersey). The amount in
controversy exceeded $75,000.
6
where, as here, the policy names an employee as an insured, the policy lists the company
as the beneficiary, and the company pays for the policy. See, e.g., Equitable Life Assur.
Soc’y. of U.S. v. New Horizons, Inc., 146 A.2d 466, 467 (N.J. 1959) (“Although the
employee is the „insured,‟ the employer is the applicant for, and owner and beneficiary
of, the policy.”); Mitzner v. Lights 18, Inc., 660 A.2d 512, 514 (N.J. Super. Ct. App. Div.
1994) aff’d 660 A.2d 480 (N.J. 1995) (“[K]ey man insurance, which reimburses an
employer upon the death of a key employee or principal, is owned by the employer who
also applies for and is the beneficiary of the policy.”). CWB1, Botti, and Wynn agree
that the company is, indeed, the lawful beneficiary. The argument advanced by Botti and
Wynn focuses on their belief that the Policy death benefit should not be paid to CWB1
because they assert Neuman is no longer the lawful owner. This contention ignores the
formalities of the limited liability company and incorrectly equates Neuman with CWB1.
Even if CHC, with Neuman as managing director, is not the lawful owner of CWB1, that
does not change the fact that CWB1 is the beneficiary. Because CWB1 demonstrated a
likelihood of success on the merits in that it is the beneficiary of the Policy death benefit,
the District Court erred in concluding otherwise.
B. Likelihood of Irreparable Harm to CWB1
“The irreparable harm requirement is met if a plaintiff demonstrates a significant
risk that he or she will experience harm that cannot adequately be compensated after the
fact by monetary damages.” Adams v. Freedom Forge Corp., 204 F.3d 475, 484-85 (3d
Cir. 2000). Mere economic harm is insufficient; rather, “the plaintiff must demonstrate
7
potential harm which cannot be redressed by a legal or an equitable remedy following a
trial.” Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989).
“Grounds for irreparable injury include loss of control of reputation, loss of trade, and
loss of good will.” Kos Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 726 (3d Cir. 2004)
(internal quotation marks omitted).
At the preliminary injunction hearing and in its submissions to the District Court,
CWB1 maintained that it would suffer irreparable harm because Campania would be
forced to shut down, employees would be laid off, and the restaurant would lose its
growing customer base. CWB1 argues that the District Court erred in rejecting its
evidence of impending harm and refusing to allow Neuman to testify regarding the
company‟s financial status. We agree. Although CWB1 essentially seeks a monetary
payment, its posture as a claimant to an interpleader stake distinguishes this case from the
traditional notion of economic harm. CWB1 may recover only the Policy death benefit;
monetary damages in the traditional sense are not available to it in this instance.
Moreover, its allegations – amply supported in Neuman‟s declaration – of the impending
loss of key employees, as well as a decline in its customer base, sufficiently demonstrates
a likelihood of irreparable harm to CWB1.6 See id. at 726. Without the payment of the
Policy death benefit, CWB1 cannot be made whole. See Brenntag Int’l. Chems., Inc. v.
Bank of India, 175 F.3d 245, 249 (2d Cir. 1999) (irreparable harm is found “where, but
6
Because CWB1 properly supported its allegations of irreparable harm, the
District Court abused its discretion in prohibiting Neuman from testifying to that effect.
8
for the grant of equitable relief, there is a substantial chance that upon final resolution of
the action the parties cannot be returned to the positions they previously occupied”). This
is due to the fact that CWB1‟s main asset was Cerniglia‟s talent as a chef, which the
Policy was designed to protect and allow the company to continue operating upon his
death. The Policy death benefit is a necessary financial resource that must be paid
without delay if the company has any possibility of rehabilitating its business. Because
CWB1 has no other remedy at law, the District Court clearly erred in finding that
CWB1‟s harm was compensable by monetary damages. Given that the issuance of a
preliminary injunction is “the only way of protecting [the company] from harm,” Instant
Air Freight, 882 F.2d at 801, CWB1 established a likelihood of irreparable injury.
C. Potential Harm to Botti and Wynn
Although the District Court did not address the remaining two requirements, we
may nonetheless evaluate them where, as here, the record provides a sufficient factual
basis to do so. See Kos Pharm., 369 F.3d at 712. Before the District Court, CWB1
argued that Botti and Wynn would suffer no harm if the injunction was issued. Botti and
Wynn did not articulate any allegations of harm on their behalf. Their focus on alleged
breaches of the transfer agreement was misplaced, as these claims were not before the
District Court. “We have recognized that [t]he more likely the plaintiff is to win, the less
heavily need the balance of harms weigh in his favor.” Id. at 729. Considering that
CWB1 established a strong likelihood of success, any harm Botti and Wynn might suffer
9
is outweighed by the harm to CWB1 absent an injunction. CWB1 met its burden to
establish this factor.
D. Public Interest
Finally, CWB1 maintains that the public interest favors the grant of a preliminary
injunction. “[I]f a plaintiff demonstrates both a likelihood of success on the merits and
irreparable injury, it almost always will be the case that the public interest will favor the
plaintiff.” Am. Tel. & Tel. Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421,
1427 n.8 (3d Cir. 1994). Such is the case here. As CWB1 alleged, directing payment of
the Policy death benefit to CWB1 furthers the public interest by facilitating the
company‟s ability to continue operations and enforceing the plain language of the Policy.
Because CWB1 met its burden to establish each element required to obtain a preliminary
injunction, the District Court abused its discretion in rejecting its request. Going forward,
the District Court should order the release of the Policy death benefit to CWB1 without
delay.
IV.
For the foregoing reasons, we will reverse the order of the District Court and
remand so that the District Court may direct payment of the Policy death benefit to
CWB1.
10