MARIO DELUCA v. ALLSTATE NEW JERSEY INSURANCE COMPANY
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(NOTE: The status of this decision is Unpublished.)
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0
MARIO DELUCA,
Plaintiff-Appellant,
v.
ALLSTATE NEW JERSEY
INSURANCE COMPANY,
Defendant-Respondent.
___________________________
AUBURN INSURANCE AGENCY, LLC,
Plaintiff-Appellant,
v.
ALLSTATE NEW JERSEY
INSURANCE COMPANY,
Defendant-Respondent.
___________________________
RICHARD SORGE,
Plaintiff-Appellant,
v.
ALLSTATE NEW JERSEY
INSURANCE COMPANY,
Defendant-Respondent.
___________________________
May 13, 2014
Before Judges Simonelli, Fasciale and Haas.
On appeal from the Superior Court of New Jersey, Chancery Division, General Equity Part, Bergen County,
Docket Nos. C-185-11, C-291-11, C-299-11.
W. Michael Garner argued the cause for appellants.
David J. D'Aloia argued the cause for respondents (Saiber LLC, attorneys; Mr. D'Aloia, of counsel; Joan M.
Schwab and Rina G. Tamburro, on the brief).
Jason N. Silberberg, Deputy Attorney General, argued the cause for amicus curiae New Jersey Department of
Banking and Insurance (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney
General, of counsel; Mr. Silberberg, on the brief).
PER CURIAM
In these consolidated cases, Mario DeLuca ("DeLuca"), Richard Sorge ("Sorge"), and Auburn
Insurance Agency, LLC. ("Auburn") (collectively "plaintiffs") appeal from a December 28, 2011 order
dismissing their complaints and granting summary judgment to defendant Allstate New Jersey Insurance
Company ("Allstate"). We affirm.
Plaintiffs acted as independent insurance agents for
Allstate under Exclusive Agency Agreements ("EAs"). Plaintiffs sought damages contending that Allstate
wrongfully terminated their EAs and breached the implied covenant of good faith and fair dealing. The
parties cross-moved for summary judgment before Judge Robert P. Contillo. Before disposing of the
motion, the judge invited the New Jersey Department of Banking and Insurance (the "Department") to file
an amicus brief. The judge conducted oral argument, issued a comprehensive written decision, and
concluded that (1) applying the New Jersey Franchise Practices Act ("the Act"),
N.J.S.A. 56:10-1 to -31,
to insurer-agent relationships would interfere with the regulatory framework set out in New Jersey's
insurance code; (2) the relationship between Allstate and plaintiffs did not constitute a franchise under the
Act; and (3) Allstate's termination of the EAs did not contravene the implied covenant.
On appeal, plaintiffs argue primarily that the judge erred by concluding that the Act was
inapplicable to their insurer-agent relationship with Allstate. Plaintiffs contend that they have established
the existence of a franchise relationship with Allstate. They maintain that the judge therefore erroneously
concluded that plaintiffs failed to establish a "community of interest" and a "place of business" as those
terms are used within the meaning of the Act. Finally, plaintiffs argue that the judge erred by dismissing
their common law claims of good faith and fair dealing.
When reviewing a ruling on summary judgment, "we apply the same standard governing the trial
court -- we view the evidence in the light most favorable to the non-moving party." Nicholas v. Mynster,
213 N.J. 463, 477-78 (2013). If there is no genuine issue of material fact, like here, we must then "decide
whether the trial court correctly interpreted the law." Massachi v. AHL Servs., Inc.,
396 N.J. Super. 486,
494 (App. Div. 2007), certif. denied,
195 N.J. 419 (2008). We review issues of law de novo and accord no
deference to the trial judge's conclusions on issues of law. Nicholas, supra,
213 N.J. at 478. After a
thorough review of the record and consideration of the controlling legal principles, we conclude that
plaintiffs' arguments are without sufficient merit to warrant discussion in a written opinion, R. 2:11-
3(e)(1)(E), and we affirm substantially for the reasons thoroughly expressed by Judge Contillo in his
comprehensive written decision. We add the following remarks.
I.
We reject plaintiffs' contention that the Act applies to their EAs, primarily because of conflicts between
the Act and the highly regulated insurance industry. Applying additional regulation is not appropriate
where a regulatory scheme "deal[s] specifically, concretely, and pervasively with [a] particular activity,
implying a legislative intent not to subject parties to multiple regulations that, as applied, will work at
cross-purposes." Lemelledo v. Beneficial Mgmt. Corp. of Am.,
150 N.J. 255, 270 (1997). A court must be
satisfied that a direct and unavoidable conflict exists between two regulatory schemes before it is
compelled to determine which of those regulatory schemes is applicable in the case before it. Ibid. The
conflict "must be patent and sharp, and must not simply constitute a mere possibility of incompatibility."
Ibid. Such is the case here.
One example of the conflict relates to termination of an agent's services.
N.J.S.A. 17:22-6.14a(d) of the
insurance laws provides that the termination of a contract between an insurer and an agent "for any reason
other than one excluded herein shall become effective after not less than [ninety] days' notice in writing
given by the [insurance] company to the agent" and the Department. This statute protects the agent
against the immediate termination of the agreement by the insurer in all circumstances except those
specific ones set out in
N.J.S.A. 17:22-6.14a(e).1 However, if any of the circumstances set out in
N.J.S.A.
17:22-6.14a(e) are present, then the agent forfeits such protection and the agreement may be terminated
immediately.
A franchisee, however, enjoys at least a sixty-day period of protection from the franchisor's immediate
termination of the franchise in all circumstances except the franchisee's conviction of certain indictable
offenses or voluntary abandonment of the franchise.
N.J.S.A. 56:10-5 provides that
[i]t shall be a violation of this act for
any franchisor directly or indirectly
through any officer, agent, or employee
to terminate, cancel, or fail to renew a
franchise without having first given
written notice setting forth all the
reasons for such termination,
cancellation, or intent not to renew to
the franchisee at least [sixty] days in
advance of such termination,
cancellation, or failure to renew, except
(1) where the alleged grounds are
voluntary abandonment by the
franchisee of the franchise relationship
in which event the aforementioned
written notice may be given [fifteen]
days in advance of such termination,
cancellation, or failure to renew; and (2)
where the alleged grounds are the
conviction of the franchisee in a court of
competent jurisdiction of an indictable
offense directly related to the business
conducted pursuant to the franchise in
which event the aforementioned
termination, cancellation or failure to
renew may be effective immediately
upon the delivery and receipt of written
notice of same at any time following the
aforementioned conviction. It shall be a
violation of this act for a franchisor to
terminate, cancel or fail to renew a
franchise without good cause. For the
purposes of this act, good cause for
terminating, canceling, or failing to
renew a franchise shall be limited to
failure by the franchisee to substantially
comply with those requirements
imposed upon him by the franchise.
[(Emphasis added).]
Also, under this statute, a franchisee can only be terminated by the franchisor for "good cause"
involving the franchisee's failure to substantially comply with the requirements of the franchise. Ibid. The
judge observed that
[i]f the [Act] is deemed applicable to
insurance company-agent relations, an
insurance agent[-franchisee] could not
be terminated by the [insurance
company-] franchisor unless he or she
has violated the terms of a given
franchise agreement. This conflicts
directly with
N.J.S.A. 17:22-6.14a.e,
which gives the insurance company the
right to terminate -- immediately -- an
insurance agent for, among other
reasons, "insolvency, abandonment,
gross and willful misconduct, or failure
to pay" premiums. Agents violating their
individual contracts - - or not violating
any specific provision of their contracts
but say, having become insolvent,
abandoned the agency, been guilty of
gross or willful misconduct, or failed to
pay premiums, could not, if the [Act]
applies, be terminated by the insurer for
[sixty] days (
N.J.S.A. 56:10-5), unless
the insurer had received written notice
that the agent has been convicted of an
indictable offense. Ibid. This is in
conflict with
N.J.S.A. 17:22-6.14a,
which permits immediate termination in
certain circumstances and termination
[on notice of ninety days] in others.
These conflicts, as well as the numerous other examples cited in the judge's decision, pertain to direct,
unavoidable, patent, sharp, and real differences between the Act and the heavily regulated insurance
scheme. As a result, we agree with the judge that the Act is inapplicable to plaintiffs' insurer-agent
relationship with Allstate.
II.
Even if there were no conflicts between the Act and the regulated insurance industry, which is not the
case, the relationship between Allstate and plaintiffs did not constitute a franchise under the Act because
there was no "community of interest," and plaintiffs did not maintain a "place of business," as those terms
are used under the Act.
A.
Regarding the concept of "community of interest," pursuant to
N.J.S.A. 56:10-3a, the Act defines a
franchise as
a written arrangement for a definite or
indefinite period, in which a person
grants to another person a license to use
a trade name, trade mark, service mark,
or related characteristics, and in which
there is a community of interest in the
marketing of goods or services at
wholesale, retail, by lease, agreement, or
otherwise.
[(Emphasis added).]
A "'[c]ommunity of interest exists when the terms of the agreement between the parties or the nature of
the franchise business requires the licensee, in the interest of the licensed business's success, to make a
substantial investment in goods or skill that will be of minimal utility outside the franchise.'" Instructional
Sys., Inc. v. Computer Curriculum Corp.,
130 N.J. 324, 359 (1992) (quoting Cassidy Podell Lynch, Inc.
v. SnyderGeneral Corp.,
944 F.2d 1131, 1143 (3d Cir. 1991)). The investments are usually "tangible
capital investments, such as 'a building designed to meet the style of the franchise, special equipment
useful only to produce the franchise product, and franchise signs.'" Id. at 356 (citation omitted). As the
judge stated, plaintiffs made no such investments.
Plaintiffs suggest that their investment of good will by promoting Allstate's good name constitutes a
"community of interest" under the Act. We need not resolve whether such a non-tangible investment
amounts to a "community of interest" under the Act because plaintiffs have not shown that they have
maintained a "place of business" as that term is used in the Act.
B.
Pursuant to
N.J.S.A. 56:10-4a, the Act applies only to franchises "the performance of which
contemplates or requires the franchisee to establish or maintain a place of business within the State of
New Jersey." A "place of business" means
a fixed geographical location at
which the franchisee displays for sale
and sells the franchisor's goods or offers
for sale and sells the franchisor's
services. Place of business shall not
mean an office, a warehouse, a place of
storage, a residence or a vehicle, except
that with respect to persons who do not
make a majority of their sales directly to
consumers, "place of business" means a
fixed geographical location at which the
franchisee displays for sale and sells the
franchisor's goods or offers for sale and
sells the franchisor's services, or an
office or a warehouse from which
franchisee personnel visit or call upon
customers or from which the
franchisor's goods are delivered to
customers.
[
N.J.S.A. 56:10-3f (emphasis
added).]
Plaintiffs are not insurers; they are insurance agents. As correctly noted by the judge, "[i]n New Jersey,
only an insurer authorized to do business in New Jersey may sell insurance." See
N.J.S.A. 17:17-10
(stating, among other things, that the commissioner shall issue certificates authorizing insurance
companies to commence business and setting forth grounds on which the commissioner may refuse to
issue such certificates);
N.J.S.A. 17:17-12 (providing that it is a misdemeanor to "solicit, negotiate or
effect any contract of insurance of any kind" unless authorized);
N.J.S.A. 17:32-18 (indicating that out-of-
state insurers may only transact business if they meet certain conditions). Plaintiffs are not so authorized
and, thus, cannot sell Allstate's insurance. Consequently, plaintiffs have not maintained a "place of
business" within the meaning of
N.J.S.A. 56:10-3f.
III.
Finally, we reject plaintiffs' argument that the judge erred by dismissing plaintiffs' common law claims
for breach of the implied covenant of good faith and fair dealing based on Allstate's termination of their
EAs. "[E]very contract in New Jersey contains an implied covenant of good faith and fair dealing." Sons
of Thunder, Inc. v. Borden, Inc.,
148 N.J. 396, 420 (1997). The implied covenant applies to "both the
performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping
Ctr. Assocs.,
182 N.J. 210, 224 (2005). Under this "implied covenant . . . 'neither party shall do anything
which will have the effect of destroying or injuring the right of the other party to receive the fruits of the
contract.'" Palisades Props., Inc. v. Brunetti,
44 N.J. 117, 130 (1965) (quoting 5 Williston on Contracts §
670, at 159-60 (3d ed. 1961)).
Thus, "[a] plaintiff may be entitled to relief under the covenant if its reasonable expectations are
destroyed when a defendant acts with ill motives and without any legitimate purpose." Brunswick, supra,
182 N.J. at 226. However, "[w]ithout bad motive or intention, discretionary decisions that happen to
result in economic disadvantage to the other party are of no legal significance." Wilson v. Amerada Hess
Corp.,
168 N.J. 236, 251 (2001). "The party claiming a breach of the covenant of good faith and fair
dealing 'must provide evidence sufficient to support a conclusion that the party alleged to have acted in
bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the
parties.'" Brunswick, supra,
182 N.J. at 225 (quoting 23 Williston on Contracts, § 63.22, at 513-14 (Lord
ed. 2002)).
Here, plaintiffs alleged that Allstate breached the implied covenant by terminating their EAs in an
unreasonable and arbitrary manner. Pursuant to the EAs, either party could terminate the relationship
without cause, upon providing ninety days written notice to the other party.2 Plaintiffs assert that
Allstate's lack of good faith was evident in its "concealing from Appellants [both] the consequences of
failing to meet Expected Results and the conditions under which termination [of the EAs] would ensue."
The record shows, however, that Allstate adequately informed plaintiffs about the consequences of
their failure to meet their Expected Results. The EAs required plaintiffs to "meet certain business
objectives established by the Company in the areas of profitability, growth, retention, customer
satisfaction and customer service." Allstate conducted annual reviews to determine whether plaintiffs
were achieving Expected Results. At their annual reviews for the year 2007, Allstate advised plaintiffs
that they had not met their Expected Results in some areas, and Allstate stated that "[f]ailure to meet the
requirements as defined may put the agency relationship in jeopardy. It is expected that all agencies
perform at the expected level."
Thereafter, plaintiffs failed by wide margins to meet their minimum Expected Results for the
years 2008, 2009, and 2010, positioning them among the "worst performing" agencies in Allstate. From
March through July 2010, Allstate contacted plaintiffs and informed them that their performances were
deficient and that their continued failure to meet Expected Results could jeopardize their agency
relationships with Allstate. Allstate informed DeLuca that he would be terminated if he did not meet his
Expected Results for the year 2010. Plaintiffs did not meet their Expected Results for 2010, and in early
2011, Allstate informed plaintiffs that they had three months to show that they were on track to meet their
Expected Results for 2011. Plaintiffs failed to show improvement, resulting in their termination under the
EA's "without cause" provision. Allstate's warnings were patent, timely, and unmistakable.
Finally, Allstate's termination of the agencies has not plainly denied plaintiffs either the "benefit of the
bargain originally intended," Brunswick, supra,
182 N.J. at 225 (citation omitted), or the "fruits of the
contract." Palisades Props., Inc., supra,
44 N.J. at 130. Pursuant to the EAs, Allstate was required to pay
plaintiffs considerable sums for their economic interests in their agencies, even though Allstate essentially
gave those interests to plaintiffs at no charge when the agencies were formed. Allstate's payments to
plaintiffs do not bespeak a bad motive or intention on its part. Without proof of such bad motive or
intention, plaintiffs do not have viable claims for breach of the implied covenant. Brunswick, supra,
182 N.J. at 225; Wilson, supra,
168 N.J. at 251.
Affirmed.
1 Such circumstances include when an agent is paid a salary and not a commission, when the agent
represents only one company, when a contract is terminated due to insolvency, abandonment, gross and
willful misconduct, or the agent's failure to pay moneys due to the insurance company, when an agent's
license is revoked, when a company renews a contract that had been processed by a terminated agent, and
when insurers and certain agents enter into contracts.
2 The EAs also allowed Allstate to terminate the agreements "for cause." The judge declined to make
findings regarding whether Allstate could lawfully terminate the EAs under this provision, determining
instead that the "dispute need not be resolved, as [Allstate] properly implemented termination under the
provision allowing for unilateral termination, without cause." We note that "[t]he obligation to perform in
good faith exists in every contract, including those contracts that contain express and unambiguous
provisions permitting either party to terminate the contract without cause." Sons of Thunder, supra,
148 N.J. at 421.
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