MAROLDA FARMS, INC v. MARYLAND CASUALTY INSURANCE CO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1299-11T2

MAROLDA FARMS, INC., RIGI

HOLDINGS, LLC, SHERRY MAROLDA

AND RICHARD MAROLDA, SR.,

Plaintiffs-Appellants,

v.

MARYLAND CASUALTY INSURANCE CO.,

INSURANCE COMPANY OF THE STATE

OF PENNSYLVANIA, ZURICH

AMERICAN INSURANCE CO., NORTH

RIVER INSURANCE CO., CONTINENTAL

INSURANCE CO.,

Defendants-Respondents.

_______________________________________

November 29, 2012

ArguedMay 22,2012 Decided

Before Judges Messano and Kennedy.

On appeal from Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-0861-11.

Louis Giansante argued the cause for appellants (Giansante & Cobb, attorneys; Mr. Giansante, of counsel and on the brief).

Suzanne C. Midlige argued the cause for respondents Maryland Casualty Co., Zurich American Insurance Co. and Continental Insurance Co. (Coughlin Duffy LLP, attorneys; Ms. Midlige, ofcounsel and on the brief; Michael E. Hrinewski, on the brief).

Michael H. Cohen argued the cause for respondent Insurance Company of the State of Pennsylvania (Saiber LLC, attorneys; Mr. Cohen, of counsel and on the brief; Jason Pozner, on the brief).

John S. Favate argued the cause for respondent The North River Insurance Co. (Hardin, Kundla, McKeon & Poletto, P.A., attorneys; Mr. Favate, of counsel; Gary M. Sarno, on the brief).

PER CURIAM

Plaintiffs appeal from a Law Division order entered October 26, 2011, dismissing without prejudice their complaint against several insurance companies. Invoking the "doctrine of stare decisis," the motion judge determined that because the action required him to rule on the fairness and scope of a "consent decree" entered years earlier in the United States District Court, plaintiffs were required to litigate their claim in that forum.

We discern the facts from the record provided by the parties.

I.

South Jersey Clothing Company (SJCC) is a New Jersey partnership that had been located for many years in Atlantic County. During the course of its operations, it allegedly released hazardous substances onto its property. Garden State Cleaners (GSC) is a New Jersey partnership that was situated adjacent to the SJCC property and it, too, allegedly released hazardous substances onto its property.1

In the early 1980s, the State of New Jersey, Department of Environmental Protection (DEP), began administrative proceedings against both SJCC and GSC arising from their release of the hazardous substances. In 1988, the United States Environmental Protection Agency (EPA) notified SJCC and GSC that they were potentially liable for the release of proscribed hazardous substances.

In 1991, SJCC filed a complaint in the Law Division against Continental Insurance Company and "others"2 seeking a declaration that SJCC had insurance coverage for the environmental claims asserted against it. Thereafter, in 1996, the EPA filed a complaint against SJCC in the United States District Court for the District of New Jersey seeking reimbursement of its costs incurred and to be incurred in responding to the release of hazardous substances. SJCC filed a third party complaint against GSC and its owners for contribution and indemnity.

In 1997, GSC and its owners filed a complaint in the Law Division against the "C.N.A. Insurance Companies" and others3 for insurance coverage for the environmental claims. Then, in 2001, the DEP filed suit in the United States District Court for the District of New Jersey against SJCC and GSC to recover its past and future response costs.

It appears that SJCC and GSC subsequently obtained stays of the coverage suits so they could pursue mediation of the claims brought against them by the EPA and the DEP, as well as their claims against the insurance companies. These efforts were successful and on September 5, 2002, Jerome B. Simandle, U.S.D.J., executed a lengthy "Consent Decree" that had been signed by the EPA, the DEP, SJCC, GSC, Maryland Casualty Insurance Co. (Maryland), the Insurance Company of the State of Pennsylvania (ISOP), Zurich American Insurance Co. (as the successor to Zurich Insurance Co.) (Zurich), North River Insurance Co. (North River), and Continental Insurance Co. (Continental).

The insurance companies paid, in total, $4,150,440, with respect to the claims asserted by the EPA and the DEP. In turn, the insurance companies received covenants not to sue from both the United States and the State of New Jersey "with respect to known or unknown environmental claims, existing now or arising in the future, relating to the" properties. SJCC also released Maryland, ISOP, Zurich, and North River from "all obligations
whatsoever arising under any and all [p]olicies with respect to Environmental Claims at or arising from the SJCC site, whether past, present or future, known or unknown, or asserted or unasserted[.]" The releases noted that the insurance companies disputed coverage and that the agreements represented "a compromise and settlement" achieved through "arms-length negotiations." Also, the release required SJCC to dismiss the coverage action with prejudice. GSC similarly released Continental. The various releases were expressly incorporated into the consent decree.

The consent decree signed by the Judge Simandle contained an explicit representation that the court "finds that this consent decree has been negotiated by the parties in good faith, and that this consent decree is fair, reasonable, and in the public interest." Further, the decree provided that the court "shall retain jurisdiction of this matter for the purpose of enforcing the terms of this consent decree." The decree was "lodged" with the court for thirty days for "public notice and comment."

II.

Plaintiffs are owners of a farm, a stable and two homes in Atlantic County. On May 12, 2006, plaintiffs filed a complaint in Atlantic County against SJCC, GSC, and the DEP. The complaint alleged that SJCC and GSC had discharged pollutants onto their properties, and that these pollutants migrated to and damaged plaintiffs' properties. Plaintiffs asserted various common law and statutory causes of action against SJCC and GSC, and asserted a claim against the DEP under 42 U.S.C.A. 1983 for its denial of a well permit and its limitation of another well permit on their properties.

On May 9, 2008, the court entered final judgment by default against SJCC and GSC, jointly and severally, for $9,170,600. The record provided to us does not disclose the disposition of plaintiffs' claim against the DEP.

On February 7, 2011, plaintiffs filed an action in Atlantic County against Maryland, ISOP, Zurich, North River, Continental (hereinafter sometimes referred to as the "insurance company defendants"), and several "John Doe" defendants. The complaint alleged that Continental had issued liability insurance policies to GSC during its relevant "operating period" and that the other insurance company defendants had issued such policies to SJCC during its relevant "operating period."

The complaint adverted to the consent decree and claimed that the releases effected a "buy back" of the insurance policies constituting an "unearned windfall to the insurance carriers." In count one, plaintiffs alleged the insurance company defendants were responsible to satisfy plaintiffs' judgment; in count two, plaintiffs alleged the settlement agreements incorporated into the consent decree were "unconscionable" and constituted "legal and equitable fraud upon SJCC, GSC and the creditors" of both SJCC and GSC; count three asserted the settlement agreements constituted a "fraudulent conveyance" of assets; count four asserted a claim that by their agreements, the defendants were "unjustly enriched at the expense of the creditors of" both SJCC and GSC; and the fifth count sought a declaration that the agreements are "void as against public policy."

The insurance company defendants moved to dismiss the complaint under Rule 4:6-2, arguing that the averments in the complaint are unsupported by facts, and that plaintiffs cannot attack a consent decree of the United States District Court by filing a complaint in a state court that alleges agreements incorporated into the decree are unconscionable, fraudulent and violative of public policy.

In a written opinion, the motion judge determined that "[p]laintiffs are asking this [c]ourt to make a determination that the agreement violates public policy when this issue was already ruled upon by the District Court." Relying on the doctrine of stare decisis, the motion judge explained that because plaintiffs are seeking "reconsideration of the District Court's finding that the agreement does not violate public policy," they must seek that relief in the "proper forum" and he thereupon dismissed the complaint without prejudice.

III.

The motion court, as noted, dismissed plaintiffs' complaint pursuant to the doctrine of stare decisis, finding that the United States District Court "already ruled" that the settlement agreements incorporated into the consent decree do not violate public policy. While we agree with the result reached by the motion court, we determine that the analysis of the issue requires consideration of the principle of comity. Moreover, we review a motion court's determination to grant a comity stay or dismissal under an abuse of discretion standard. Sensient Colors Inc. v. Allstate Ins. Co., 193 N.J. 373, 390 (2008).

The power to bar a litigant from prosecuting a suit pertaining to a claim pending or adjudicated, in part, in another jurisdiction is "a delicate one" that should be conscientiously exercised only when the "true interests of justice so require." Trustees of Princeton Univ. v. Trust Co. of N.J., 22 N.J. 587, 598 (1956). "New Jersey has long adhered to 'the general rule that the court which first acquires jurisdiction has precedence in the absence of special equities.'" Sensient Colors, supra, 193 N.J. at 386 (quoting Yancoskie v. Del. River Port Auth., 78 N.J. 321, 324 (1978)).

This first-filed rule counsels that our courts should "ordinarily . . . stay or dismiss a civil action in deference to an already pending, substantially similar lawsuit in another state, unless compelling reasons dictate that it retain jurisdiction." Sensient Colors, supra, 193 N.J. at 386; see also Continental Ins. Co. v. Honeywell Int'l, Inc., 406 N.J. Super. 156, 173-75 (App. Div. 2009). "The question is not whether a state court has the power to exercise jurisdiction over a case filed within its jurisdiction, but whether the court should restrain itself and not exercise that power." Sensient Colors, supra, at 386-87. As the Court explained:

If we are to have harmonious relations with our sister states, absent extenuating circumstances sufficient to qualify as special equities, comity and common sense counsel that a New Jersey court should not interfere with a similar, earlier-filed case in another jurisdiction that is "capable of affording adequate relief and doing complete justice." The litigation of substantially similar lawsuits in multiple jurisdictions with opposing parties racing to acquire the first judgment is not only wasteful of judicial resources, but anathema in a federal system that contemplates cooperation among the states.

[Id. at 387 (citations and footnote omitted).]

In Thompson v. City of Atlantic City, 190 N.J. 359, 379 (2007), the Court explained that where a federal court has explicitly retained jurisdiction over the enforcement of a settlement agreement, any claimant seeking to invalidate the agreement must seek that relief in the federal court that has retained jurisdiction. However, "[w]hen a federal district court has not retained jurisdiction after entering an order dismissing a lawsuit, a state court has the power not only to enforce a settlement agreement, but also to invalidate an agreement that is contrary to public policy . . . ." Id. at 380.

The United States Supreme Court indicated in Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 380-81, 114 S. Ct. 1673, 1676-77, 128 L. Ed. 2d 391, 397 (1994), that it is appropriate for a federal court to validly exercise jurisdiction when there is a post-settlement controversy to "protect its proceedings and vindicate its authority" provided the order contains the terms of the parties' settlement or contains a provision "retaining jurisdiction" over the settlement agreement. "[A]bsent" a clear retention of jurisdiction in this setting, "enforcement of the settlement agreement is for state courts." Id. at 382, 114 S. Ct. at 1677, 128 L. Ed. 2d at 398.

In Thompson, the Office of Government Integrity (OGI) commenced an action in state court to set aside a settlement reached in a federal action on the basis that the settlement was fraught with conflicts of interest involving the parties to the settlement agreement. Thompson, supra, 190 N.J. at 363. The trial court agreed that the settlement was rife with conflicts of interest but reasoned that to grant the relief OGI sought would be "'tantamount to the state court vacating a federal court order,'" and therefore held that "it did not have the power to 'invade the jurisdiction of the federal court by vacating a settlement which resulted in the dismissal of the federal litigation pursuant to an order entered by the United States District Court.'" Id. at 370.

On appeal, we agreed that there were "inherent and actual" conflicts that rendered the settlement agreement untenable. 386 N.J. Super. 359, 369 (App. Div. 2006), aff'd as modified, 190 N.J. 359 (2007). We disagreed, however, that the trial court was without a remedy. First, we found that setting aside a contract that violated state law did not impermissibly tread upon federal jurisdiction. Id. at 380. Next, we noted that the federal district court order expressed an intent to exercise continuing jurisdiction over the parties to the settlement, which did not include OGI. We therefore concluded that the trial court had jurisdiction to fashion an appropriate equitable remedy. Id. at 378.

The Supreme Court granted certification and first undertook to review "the precise language of the dismissal order." Thompson, supra, 190 N.J. at 381. The pertinent language provided:

IT IS on this 31st day of January, 2002, ORDERED THAT:

(1) This action is hereby DISMISSED without cost and without prejudice to the right, upon motion and good cause shown, within 60 days, to reopen this action if the settlement is not consummated; and

(2) If any party shall move to set aside this Order of Dismissal as provided in the first decretal paragraph or pursuant to the provisions of Fed.R.Civ.P. 60(b), in deciding such motion the Court retains jurisdiction of the matter to the extent necessary to enforce the terms and conditions of any settlement entered into between the parties.

[Ibid.]

The Court next acknowledged "that federal courts generally do not find ancillary jurisdiction over a settlement agreement unless the order expressly retains jurisdiction." Ibid. (citing In re Phar-Mor Secs. Litig., 172 F.3d 270, 275 (3d Cir. 1999)).

In reviewing the "precise language" of the order, the Court noted that the terms of the settlement were not incorporated into the order but that it allowed "'any party,' presumably limited to the lawsuit, to bring a motion before the federal district court 'to enforce the terms and conditions of [the] settlement.'" Thompson, supra, 190 N.J. at 381. The Court held:

We do not find that the federal district court intended to retain jurisdiction over a non-party to the original suit seeking to void the settlement agreement on public policy grounds. We conclude that the Superior Court had jurisdiction to decide the validity of the settlement agreement under state law.

[Id. at 382].

Of significance to our discussion in the present matter, however, is the language of the Court that immediately followed:

Nonetheless, we must acknowledge at least the possibility that Judge Irenas might have read his dismissal order differently. For that reason, out of an abundance of caution and as a matter of comity, the better course might have been for the Superior Court to decline to hear the matter until OGI first exhausted its potential federal remedies. Then, if the federal court concluded it had no jurisdiction, the Superior Court could have proceeded to render a decision on the

validity of the settlement agreement.

[Ibid.]

Here, the terms of the releases were incorporated into the consent decree. The consent decree, as noted, expressly provided that the United States District Court "shall retain jurisdiction of this matter for the purpose of enforcing the terms of this consent decree." It is therefore evident, not only by the court's language in the decree expressly reserving to itself continuing jurisdiction to enforce the terms of the decree, but also by the extent of the terms of the settlement incorporated in the decree, that the court intended to retain jurisdiction to enforce the decree.

While plaintiffs were not parties to the action, the issues they raised in their complaint in the Law Division explicitly challenged the lawfulness of the terms embodied in the consent decree. Consequently, even assuming the United States District Court decree was not intended to bind plaintiffs, we adopt the approach encouraged by our Court in Thompson that, "out of an abundance of caution and as a matter of comity, the better course [was] for the Superior Court to decline to hear the matter until [plaintiffs] first exhausted [their] potential federal remedies." Ibid. "Comity is grounded in notions of accommodation and good-neighborliness, and is a necessary expedient to preserve the delicate balance of power and harmonious relations among the various sovereigns of our federalist system." Ibid. (citing City of Philadelphia v. Austin, 86 N.J. 55, 64 (1981)). The Law Division's dismissal of plaintiffs' complaint furthers this objective. In the event the United States District Court determines that it lacks jurisdiction or declines to exercise jurisdiction over plaintiffs' claims, plaintiffs are not foreclosed from reinstituting their cause of action in the Law Division.4

Affirmed.

1 The record does not reveal whether SJCC and GSC are still in existence or have any assets. We note, however, that plaintiffs issued a writ of execution against them on a judgment, but the writ was "returned unsatisfied."

2 The record does not identify any of the other parties named in that litigation.

3 The record does not identify the other parties.

4 Plaintiffs' complaint asserts claims only against the insurance company defendants. The parties have neither briefed nor argued the issue of whether the failure of plaintiffs to name in their complaint, SJCC, GSC, the DEP, the EPA or other known creditors of SJCC or GSC, violates the Uniform Declaratory Judgments Act, N.J.S.A. 2A:16-50 to -62, which requires a plaintiff to name as parties all persons having or claiming any interest which would be affected by the declaration. N.J.S.A. 2A:16-56. Because the issue was neither briefed nor argued before us, and because the issue was not presented to the trial court, we will not consider the issue here. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234-35 (1973).