CHRISTOPHER BRETT LAWLESS v. TA ASSOCIATES, L.P.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

CHRISTOPHER BRETT LAWLESS

AND ILLINOIS NATIONAL INSURANCE

COMPANY,

Plaintiffs-Appellants,

v.

TA ASSOCIATES, L.P., INVESTMENT

RESEARCH HOLDINGS, INC., CFRA

HOLDINGS, LLC, CENTER FOR FINANCIAL

RESEARCH AND ANALYSIS, LLC, MSCI, INC.,

RMG-IRH, INC. f/d/b/a INVESTMENT

RESEARCH HOLDINGS, INC. AND/OR

INDEPENDENT RESEARCH HOLDINGS, INC.,

RMG-CFRA, LLC, INSTRITUTIONAL

SHAREHOLDER SERVICES, INC. AND

RISKMETRICS GROUP, LLC,

Defendants-Respondents.

______________________________________

December 21, 2015

Argued October 21, 2015 Decided

Before Judges Ostrer, Haas and Manahan.

On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-3265-13.

Lawrence Lambert argued the cause for appellants (Frenkel, Lambert, Weiss, Weisman & Gordon, LLP, attorneys; Mr. Lambert, on the brief).

Anthony J. Marchetta argued the cause for respondents (Day Pitney, LLP; attorneys; Mr. Marchetta, Jennifer Gorga Capone and Sarah Sakson Langstedt, on the brief).

PER CURIAM

Christopher Lawless (Lawless) and Illinois National Insurance Company (Illinois National) (collectively, plaintiffs) appeal from a Law Division order granting a motion to dismiss in favor of MSCI Inc. (MSCI), RiskMetrics Group, LLC (RiskMetrics) and Institutional Shareholders Services, Inc. (ISS) (collectively, MSCI defendants) and from an order granting the MSCI defendants' motion for summary judgment and dismissal of plaintiffs' second amended complaint. We affirm.

From our review of the record, we discern the following facts. Plaintiffs commenced this action against the MSCI defendants for indemnification with respect to attorneys' fees, expenses and settlement costs incurred on behalf of Lawless in connection with the action entitled Fairfax Fin. Holdings Ltd. v. S.A.C. Capital Mgmt., LLC, No. MRS-L-2032-06. In the underlying Fairfax action, Lawless was named a defendant and Illinois National provided a defense and indemnification after settlement. Fairfax Financial Holdings Limited (Fairfax) and Crum & Forster Holdings Corporation (Crum & Forster) (collectively, Fairfax) averred that Lawless, in the course of his employment with the Center for Financial Research and Analysis, LLC and CFRA Holdings, LLC (collectively, CFRA1) and Fitch Ratings (Fitch), disseminated false information concerning Fairfax.

Prior to the Fairfax action, Lawless was employed by Fitch, a credit ratings agency, from 2000 to 2005. Lawless was the primary analyst covering various insurance companies, including Fairfax. In June 2005, Lawless began working at CFRA, which provided services in risk management and investment decisions, as a senior insurance analyst. All senior analysts served as members of a committee referred to as the "sounding board" which determined the appropriate and approved rating for companies, including Fairfax. These ratings would then be reviewed and authorized by CFRA prior to publishing and distributing the information to its clientele.

CFRA's second amended and restated operating agreement provided in pertinent part

To the fullest extent permitted by law, [CFRA] shall indemnify each of the Members and Directors against all liabilities and expenses . . . reasonably incurred by any of them in connection with the investigation, defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which such Member or Director may be involved . . . .

. . . .

The Board may provide for [CFRA] to indemnify any Person who serves as an officer, employee or agent of [CFRA] or any of its subsidiaries against liabilities, costs, damages and expenses incurred in connection with the Person's performance of services for [CFRA] or its subsidiaries on such terms as the Board may designate.

In April 2006, Lawless was terminated from his employment with CFRA. In July 2006, Fairfax commenced the Fairfax action against Lawless and several other defendants. Neither CFRA, nor Fitch, were named as defendants in the action.2 In or around October 2009, Lawless submitted a request that Fitch defend and indemnify him in connection with the Fairfax action. Through its insurer, Illinois National, Fitch provided Lawless with the requested defense and indemnification. It was not until August 2012, that Lawless made a request to the MSCI defendants seeking their participation in the Fairfax action. The Fairfax action had been pending for over six years at that point in time, and plaintiffs had accrued more than $10 million in attorneys' fees, costs and expenses. The request letter also advised the MSCI defendants that a mediation was to occur the following day and trial was scheduled to begin in approximately one month. Several days later, the MSCI defendants denied Lawless's request to participate in his defense or provide indemnification. Thereafter, Lawless requested that the MSCI defendants participate and contribute to the settlement. It is unclear whether the MSCI defendants responded to this request. In September 2012, Lawless and Fairfax agreed to settle the Fairfax action without contribution from the MSCI defendants.

Plaintiffs commenced an action in September 2013 against the MSCI defendants to recover the attorneys' fees, costs and settlement expenses incurred as a result of the underlying Fairfax action. In November 2013, MSCI filed a motion in lieu of an answer to dismiss plaintiffs' complaint. In response to MSCI's motion, plaintiffs amended their complaint, adding ISS and RiskMetrics as defendants. In March 2014, MSCI amended its motion to dismiss to include ISS and RiskMetrics, and to seek dismissal of plaintiffs' amended complaint.

The trial judge converted the MSCI defendants' motion to dismiss into a motion for summary judgment and, after oral argument, entered an order dated April 4, 2014, granting the motion, in part, and dismissing plaintiffs' claims "for indemnification and contribution with respect to the attorneys' fees, costs and expenses incurred by [p]laintiffs" in connection with the Fairfax action.

In August 2014, the MSCI defendants filed a motion for summary judgment, seeking dismissal of plaintiffs' second amended complaint in its entirety, which included plaintiffs' remaining claim for indemnification as to the settlement amount paid by plaintiffs to resolve the Fairfax action. In October 2014, the MSCI defendants' motion for summary judgment was granted. Plaintiffs' motion for leave to amend the complaint and a motion for entry of default judgment was denied. This appeal follows.

Plaintiffs raise the following points on appeal

POINT I

THE TRIAL COURT ERRED AS A MATTER OF LAW BY DISMISSING APPELLANTS' COMMON-LAW INDEMNITY CLAIMS FOR DEFENSE COSTS AND EXPENSES AND FOR THE AMOUNT PAID IN SETTLEMENT OF THE FAIRFAX CLAIMS AGAINST DEFENDANTS' FORMER EMPLOYEE-LAWLESS.

point ii

THE TRIAL COURT ERRED AS A MATTER OF LAW BY DISMISSING, ON STATUTE OF LIMITATIONS GROUNDS, APPELLANTS' COMMON-LAW INDEMNIFICATION CLAIM FOR DEFENSE COSTS INCURRED ON BEHALF OF APPELLANT, LAWLESS, IN THE [FAIRFAX] ACTION, AS THE DEFENSE COSTS AT ISSUE WERE FIRST INCURRED IN 2009, AND APPELLANTS' CLAIM FOR INDEMNIFICATION DID NOT ACCRUE UNTIL THE [FAIRFAX] ACTION WAS DISPOSED OF IN 2012, OR AT THE VERY EARLIEST, IN 2009.

point iii

PURSUANT TO THE 2007 MERGER AGREEMENT, THE RESPONDENTS ARE CONTRACTUALLY OBLIGATED TO INDEMNIFY (NOT DEFEND) LAWLESS FOR THE DEFENSE COSTS INCURRED AND THE AMOUNT PAID IN SETTLEMENT IN THE [FAIRFAX] ACTION AND THE COURT ERRED IN NOT GRANTING PLAINTIFFS' MOTION TO AMEND THE COMPLAINT TO ADD A CONTRACTUAL CAUSE OF ACTION AS PER THE TERMS OF THE 2007 MERGER AGREEMENT.

point iv

LATE NOTICE BY ITSELF IS NOT MATERIAL PREJUDICE AND THE RESPONDENTS FAILED TO DEMONSTRATE THAT THEY SUSTAINED ANY MATERIAL PREJUDICE IN CONNECTION WITH THE NOTICE IT RECEIVED FROM PLAINTIFFS AND THEREFORE THE TRIAL COURT ERRED IN GRANTING THE MSCI DEFENDANTS' SUMMARY JUDGMENT DISMISSING PLAINTIFFS' COMPLAINT AND DENYING APPELLANTS' MOTION TO AMEND THE COMPLAINT TO ADD A CONTRACTUAL CAUSE OF ACTION FOR INDEMNITY.

point v

THE TRIAL COURT ERRED AS A MATTER OF LAW BY DISMISSING APPELLANTS' COMMON[-]LAW INDEMNIFICATION CLAIM FOR FAILURE TO GIVE PRIOR NOTICE TO HIS EMPLOYER AT THE TIME THE [FAIRFAX] ACTION WAS FILED AS THERE IS NO PRIOR NOTICE REQUIREMENT AND NOTICE IS NOT A CONDITION PRECEDENT TO PROSECUTE A CLAIM FOR INDEMNIFICATION.

point vi

THE TRIAL COURT ERRED AS A MATTER OF LAW BY RULING THAT THE DISMISSAL OF APPELLANTS' CONTRACTUAL INDEMNITY CLAIM ALSO COMPELS THE DISMISSAL OF THE COMMON-LAW INDEMNITY CLAIM.

point vii

THE TRIAL COURT ERRED BY FAILING TO ENTER JUDGMENT AGAINST THE DEFAULTING DEFENDANTS.

point viii

THE TRIAL COURT ERRED BY GRANTING RESPONDENTS' MOTION FOR SUMMARY JUDGMENT BEFORE THE COMPLETION OF DISCOVERY AND BY WEIGHING ALLEGED EVIDENCE TO MAKE FINDINGS OF FACT ON THE ISSUE OF THE ALLEGED FAULT OF APPELLANT, LAWLESS.

In reviewing a grant of summary judgment, an appellate court applies the same standard under Rule 4:46-2(c) that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). The court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). The court's function is not to weigh the evidence, but rather to determine whether there is a genuine issue requiring trial. Ibid.

We first address plaintiffs' claim for indemnification for attorneys' fees, costs and expenses incurred in connection with the Fairfax action. "Indemnity arises from contract, express or implied." George M. Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 28 (1954). Under the equitable doctrine of common law indemnity, however, "the right to [] indemnity arises without agreement, and by operation of law to prevent a result which is regarded as unjust or unsatisfactory." Promaulayko v. Johns Manville Sales Corp., 116 N.J. 505, 511 (1989) (quoting W. Keeton, D. Dobbs, R. Keeton, & D. Owens, Prosser & Keeton on The Law of Torts 51 at 341 (5th ed. 1984)).

Recovery on express or implied contractual claims of liability is governed by N.J.S.A. 2A:14-1, which provides that such actions must be commenced within six years "after the cause of any such action shall have accrued." We have held that a cause of action accrues on "'the date upon which the right to institute and maintain a suit first arises.'" Holmin v. T.R.W., Inc., 330 N.J. Super. 30, 34 (App. Div. 2000) (quoting Hartford Accident & Indem. Co. v. Baker, 208 N.J. Super. 131, 135-36 (Law Div. 1985)), aff'd, 167 N.J. 205 (2001). "Where the agreement indemnifies for loss, the cause of action accrues at the point that liability is discharged by payment and the indemnitee suffers an actual loss." First Indem. of Am. Ins. Co. v. Kemenash, 328 N.J. Super. 64, 72 (App. Div. 2000) (citing Bernstein v. Palmer Chevrolet & Oldsmobile, Inc., 86 N.J. Super. 117, 122 (App. Div. 1965)). "Where the agreement provides indemnification for liability, the cause of action arises with liability and the plaintiff is entitled to recover the amount necessary to enable it to discharge the liability itself." Id. at 72-73. Traditionally, a cause of action for indemnification has been considered to accrue when an indemnitee becomes responsible to pay on a claim. Holloway v. State, 125 N.J. 386, 399 (1991); see also McGlone v. Corbi, 59 N.J. 86, 95 (1971).

A party seeking indemnification must also provide notice "so shortly after the institution of suit as to permit a complete control of pretrial proceeding by the indemnitor." U.S. Wire & Cable Corp. v. Ascher Corp., 34 N.J. 121, 127 (1961). This notice, "whether written or oral, must contain full and fair information concerning the pending action and an unequivocal, certain and explicit demand to undertake the defense thereof . . . ." Ibid. When a party fails to provide notice, it cannot then "demand reimbursement" for defense costs the indemnitor "had no opportunity to control." SL Indus. v. Am. Motorists Ins. Co., 128 N.J. 188 (1992).

In dismissing plaintiffs' claim for indemnification in connection with the attorneys' fees, costs and expenses incurred in the Fairfax action, the Law Division judge stated,

In this case[,] plaintiff[s'] claims with regard to any contract that there might have been to defend, they're subject to a six-year statute of limitations. It is inexplicable to me that this suit would have been sitting with these very serious allegations raised, so serious that $11 million in legal fees were accrued on behalf of one defendant alone, and never a claim for a defense being made to CFRA or its insurer.

Apparently, [p]laintiff Lawless seemed content to take the defense that its previous employer, Fitch, was giving through its insurer. Fitch never saw fit to notify [CFRA], [] although it had to have been aware that plaintiff was working for CFRA. And since Fitch's insurer was defending, it had to have been aware what the complaint said, that these bad acts occurred during a period of time that Lawless was working for both Fitch and CFRA. He was on notice. Whether it's true or not that he did these bad things, whether it's true or not that he was working for one or both of these companies, in any event, Illinois [National] was on notice. And at that point the claim for defending should have been made to . . . CFRA, the request should have been made. More than six years has passed. To say that plaintiff's argument is really without merit.

. . . .

And second, they say, "Well, we did tell them a month before the settlement." At that point in time[,] six years and [one] month had passed since the suit had been filed by the time they were told and it was really too late in terms of the duty to defend, for which, as I understand it, this complaint seeks a sharing of those $11 million in costs. I mean, there's a whole separate issue of whatever the settlement is and whether or not there's a duty to indemnify for that, but MSCI was totally deprived of its right to involve itself in the litigation, to direct the litigation, to control the costs of that litigation. And to now say [six years and one month] later, "Oh, by the way, there's a suit. You have a duty to defend and we've already spent $11 million doing so," is not going to . . . be able to survive this motion purely on the statute of limitations. And there is a notice requirement. When you want defense and you want indemnification, you have to notify somebody. They can't do it if you don't tell them. And somehow Lawless did not tell CFRA or any of its successor corporations that it was seeking . . . a defense from it.

. . . .

I think it would be the height of unfairness and violative of the statute of limitations to order the defendants here to be responsible for those litigations costs when they were not timely notified and they very well could have been.

We agree. Plaintiffs' first claim for indemnification related to the attorneys' fees, costs and expenses incurred in the Fairfax matter. As such, the cause of action accrued when the complaint was filed in July 2006. See N.J.S.A. 2A:14-1. Here, plaintiffs did not provide the MSCI defendants with notice of the Fairfax action until August 2012, one month after the expiration of the six-year statute of limitations. This failure to provide notice precluded the MSCI defendants from participating in the pre-trial proceedings, which were so extensive as to generate millions of dollars in attorneys' fees and trial expenses. Due to plaintiffs' failure to provide timely notice to the MSCI defendants of the underlying Fairfax action, we conclude, as did the Law Division judge, that both considerations of fairness and the applicable statute of limitations bar the plaintiffs' claim for attorneys' fees and litigation costs. See U.S. Wire & Cable Corp., supra, 34 N.J. at 127.

We next turn to whether the MSCI defendants had a duty to indemnify plaintiffs for the settlement of the Fairfax action. As we noted above, a cause of action for indemnification accrues when an indemnitee becomes responsible to pay on a claim. See Holloway, supra, 125 N.J. at 399; see also McGlone, supra, 59 N.J. at 95. Since the settlement here occurred in September 2012, we find plaintiffs' indemnification claim concerning the settlement falls within the six-year statute of limitations. See N.J.S.A. 2A:14-1.

Nonetheless, we find no merit, as a matter of law, in plaintiffs' arguments that the MSCI defendants, as successors of CFRA, were required to indemnify plaintiffs for the settlement costs incurred in connection with the Fairfax action under either contract or common law principles. The 2007 Merger Agreement, whereby CFRA was acquired by RiskMetrics, reads in pertinent part

[N]one of the Company or the Company Surviving Corporation or the CFRA Holdings Surviving Company, shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld)[.] . . . Any [Director and Officer (D&O)] Indemnified Party wishing to claim indemnification under this Section 7.5, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Company and, . . . the Company Surviving Corporation or the CFRA Holdings Surviving Company, as the case may be, and Parent, thereof; provided that the failure to so notify shall not affect the obligations of the Company and the Company Surviving Corporation or the CFRA Holdings Surviving Company, as the case may be, except to the extent such failure to notify materially prejudices such party.

When analyzing plaintiffs' argument that the MSCI defendants were contractually obligated to indemnify plaintiffs for the settlement costs incurred in the Fairfax action, the Law Division judge held

Section 7.5A of the 2007 Merger Agreement says, "Successor companies are not liable for any settlement effected without its prior consent." And [the MSCI defendants] were not given prior . . . written consent.

. . . .

The delay in . . . asking the CFRA defendants and . . . its successors to participate, was so great that it was effectively no notification. [There] was basically . . . no way for [the MSCI defendants] to effectively participate at that point in time. . . .

It seems that Lawless and/or Illinois, if they had any rights, sat on them for such a period of time that it resulted in material prejudice to . . . the CFRA defendants and to MSCI, because they had no way of participating, and they're allowed to do that upon notice.

. . . .

I'm satisfied that the one month's notice was not sufficient. I'm satisfied that the delay materially prejudiced the [MSCI] defendants in that it effectively precluded them from participating in the settlement, in the choosing of . . . attorneys, [and] in . . . controlling [] litigation costs. . . . There's a reason for these notice provisions, so that they can get involved.

Plaintiffs did not provide the MSCI defendants with notice of the six-year-old Fairfax action until one month before the action settled. While failure to provide timely notice was not necessarily fatal to a claim of indemnification by the terms of the 2007 Merger Agreement, here the judge held that the lateness of the notice "materially prejudiced" the MSCI defendants and was therefore fatal. Again, we agree.

Further, the settlement required consent which, given the timing of the notice of the proposed settlement and the MSCI defendants' preclusion from participation in the litigation, was not "unreasonably withheld." Accordingly, predicated upon plaintiffs' failure to comply with the conditions of the 2007 Merger Agreement, the MSCI defendants were not contractually obligated to indemnify plaintiffs with respect to the settlement.

Finally, in light of our review of the record and in consideration of controlling law, we conclude that plaintiffs' remaining arguments as to common law indemnification, the denial of the entry of default and the timing of the motion for summary judgment, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

1 Center for Financial Research and Analysis, LLC and CFRA Holdings, LLC were both formed as Delaware Limited Liability Companies on or about October 17, 2003.

2 In June 2007, RiskMetrics acquired CFRA, Lawless's former employer, pursuant to a merger agreement (2007 Merger Agreement). RiskMetrics then merged into CFRA, whereby CFRA changed its name to RMG-CFRA, LLC (RMG-CFRA). RMG-CFRA was later merged into ISS. In 2010, as a result of another merger agreement (2010 Merger Agreement), MSCI acquired RiskMetrics, along with its subsidiaries RMG-CFRA and ISS. Accordingly, MSCI, RiskMetrics and ISS are collectively referred to as the "MSCI defendants" in this opinion.