THE TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA v. HES TRANS INC v. DISTRIBUTION COOPERATIVE NETWORK OF NEW YORK and TRUCKING SUPPORT SERVICES LLC
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APPROVAL OF THE APPELLATE DIVISION
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5284-18T2
THE TRAVELERS PROPERTY
CASUALTY COMPANY OF
AMERICA,
Plaintiff-Respondent,
v.
HES TRANS INC.,
Defendant/Third-Party
Plaintiff-Respondent,
v.
DISTRIBUTION COOPERATIVE
NETWORK OF NEW YORK and
TRUCKING SUPPORT SERVICES,
LLC,
Third-Party Defendants-
Appellants.
______________________________
Argued November 18, 2019 – Decided December 23, 2019
Before Judges Sabatino, Sumners and Geiger.
On appeal from an interlocutory order of the Superior
Court of New Jersey, Law Division, Monmouth
County, Docket No. L-0178-17.
Joseph Patrick Horan, II, argued the cause for appellant
(Jasinksi, PC, attorneys; Peter P. Perla, Jr., and Joseph
Patick Horan, on the brief).
Robert Scott Cosgrove argued the cause for respondent
HES Trans Inc. (Durkin & Durkin, LLC, attorneys;
Robert Scott Cosgrove, of counsel and on the brief).
Anthony Joseph Golowski, II, argued the cause for
respondent The Travelers Property Casualty Company
of America (Goldberg Segalla LLP, attorneys; Anthony
Joseph Golowski, II, and H. Lockwood Miller, III, on
the brief).
PER CURIAM
This interlocutory appeal concerns whether the Law Division is properly
exercising jurisdiction over this case involving disputed workers' compensation
premium obligations. On leave granted, third-party defendants Distribution
Cooperative Network of New York ("DCN") and Trucking Support Services,
LLC ("TSS") (collectively, "DCN/TSS") appeal the trial court's denial of their
motions to dismiss this matter and require the dispute to be litigated in New
York or, alternatively, in an administrative forum.
The underlying dispute concerns the employment status of truck drivers.
Plaintiff, the Travelers Property Casualty Company of America ("Travelers")
A-5284-18T2
2
contends the drivers are employees of defendant, HES Trans, Inc. ("HES").
Under New Jersey's mandatory workers' compensation coverage laws, Travelers
contends it was required to issue coverage for the drivers. However, HES did
not name most of the drivers as employees in its policy application with
Travelers and therefore, according to Travelers, substantially underpaid its
workers' compensation premiums. Travelers now seeks to recover the unpaid
premiums from HES.
HES, meanwhile, contends the drivers were independent contractors, not
employees, and therefore it was not required to pay for their workers'
compensation insurance. HES alleges it procured these independent contractors
through a contract with DCN/TSS. According to HES, DCN/TSS were supposed
to ensure the drivers had all required insurance, including workers'
compensation coverage.
DCN/TSS agree with HES that the drivers are independent contractors and
that they were supposed to provide those drivers with workers' compensation
insurance. DCN/TSS claim they attempted to do so, and they are currently
litigating in New York state court a dispute about the workers' compensation
premiums it allegedly paid to two other insurance providers for the drivers.
A-5284-18T2
3
Centrally at issue here is whether DCN/TSS were properly joined as third-
party defendants to this New Jersey action by HES, despite a forum selection
clause in their contracts with HES declaring that any disputes between the
parties must be resolved in New York State and under New York law. In the
alternative to enforcing that clause, DCN/TSS argue, this entire case should be
dismissed on summary judgment or referred to a State administrative
proceeding.
For the reasons that follow, we affirm.
I.
We derive the following pertinent background from the record.
1. Travelers' Issuance of an Insurance Policy to HES through the New
Jersey CRIB
In February 2012, HES, a trucking company, applied to the New Jersey
Compensation Rating and Inspection Bureau ("CRIB") seeking workers’
compensation insurance through the New Jersey Workers’ Compensation Plan
("the Plan").1 According to the contract between HES and DCN/TSS, "[HES] is
1
"CRIB is . . . a quasi-independent, privatized instrumentality of the State of
New Jersey created by the legislature and supervised by the Commissioner of
Insurance." 38 N.J. Prac., Workers' Compensation Law § 6.1 (Jon L. Gelman)
(3d ed. 2000); N.J.S.A. 34:15-90.1. Only insurers who are members of CRIB
may write workers' compensation or employers' liability insurance. N.J.S.A.
34:15-90.1. CRIB administers the Plan, which is the means by which an
A-5284-18T2
4
engaged in the business of trucking operations provided in part through
operating agreements with fleet operators and owner operators in order for the
fleet operators and owner operators to use their vehicles and drivers to provide
transportation services in interstate and/or intrastate commerce for [HES 's]
customers."
In March 2015, CRIB designated Travelers to provide workers’
compensation insurance to HES upon the expiration of HES’s then-current
policy on May 24, 2015.
In its application to CRIB, HES identified its covered employees as "two
owners with clerical duties (Class Code 8810) and one trucking employee (Class
Code 7219)." HES estimated its expected total payroll as $220,000. HES
estimated its expected payroll for its sole trucking employee as $22,000.
According to Travelers, HES's February 2015 application did not mention any
insurance procured through DCN/TSS.
2. HES Contracts with DCN/TSS
Between July and August 2015, HES entered into two separate contracts
with TSS and DCN. Although there were separate contracts, DCN/TSS appear
employer who cannot obtain workers' compensation insurance in the voluntary
market may satisfy its statutory obligation to secure coverage or self-insure.
A-5284-18T2
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to work in tandem as a trucking cooperative and third-party administrator,
respectively. They are represented by the same counsel in this litigation.
Robert Lefebvre, the General Manager of DCN and the President of TSS,
certified that HES entered into the contracts with DCN/TSS to provide HES with
truckers who would operate as "independent contractors" and who would not
need to be treated as employees for workers’ compensation purposes . Each
contract included language declaring that the truckers provided to HES would
not be considered employees of HES.
Notably for this jurisdictional appeal, the agreements between HES and
DCN/TSS each included a combined choice of law and forum selection clause:
Choice of Law. This Agreement shall be deemed to
have been drawn in accordance with the statutes and
laws of New York and in the event of any disagreement
or litigation, the laws of this state shall apply and suit
must be brought in this state.
[(Emphasis added).]
Each contract also specified that either DCN or TSS would provide certain
insurance coverage to the truckers hired under the agreement. HES's contract
with DCN specified that: "DCN shall also make available to such Members, 2
2
The contract states that Members are "Independent transportation vendors . . .
who operate owned and leased vehicles available to the general public to
A-5284-18T2
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insurance coverage that may include, but is not limited to, workers’
compensation insurance. . . ." Similarly, HES's contract with TSS states that
TSS "shall make available to those OWNER OPERATORS3 provided to [HES],
insurance coverage that may include, but is not limited to, workers’
compensation insurance . . . ."
DCN/TSS claim they paid a separate corporate entity in New York State
to provide coverage for the drivers. According to Lefebvre's certification, TSS
contracted with an entity known as "HR Connect Employment Solutions, Inc."
("HR Connect") to find insurance for the hired truckers. A company called
"Midwest Risk" was designated as "HR Connect's WC claims administrator." In
their appendix on appeal, DCN/TSS provide three certificates of insurance, each
of which names HES as the "certificate holder" of the insurance policy.
In January 2019, DCN/TSS filed a lawsuit against HR Connect and
Midwest Risk in New York State arising out of these insurance arrangements.
According to the New York complaint, DCN/TSS contracted with HR Connect
transport goods on a for hire basis." DCN states that its purpose is to provide
Members to other parties, like HES.
3
The contract states that TSS is a "third party administrator for the Equipment
and driver services" under the contract, and that owner operators are not
employees of either HES or TSS.
A-5284-18T2
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and Midwest Risk to provider workers' compensation insurance for truckers
("Members") in New York and New Jersey, paying a total of $534,337.45 in
premiums. They allege HR Connect and Midwest Risk failed to provide
insurance for certain "Members of TSS," and DCN/TSS learned of the issue
when they "submitted certificates of insurance that had been provided by [HR
Connect] in the State of New Jersey [that] were rejected as invalid." That New
York litigation is apparently still ongoing.
3. Travelers' Audit of HES and This Ensuing Litigation
Beginning in July 2015, Travelers discovered that HES' operations
appeared to be much greater than suggested in their application and payroll
materials provided to CRIB. Travelers conducted a preliminary audit,
apparently using documentation provided by HES, and determined HES's
estimated payroll was $2,796,072 for employees classified as "Truckmen" and
4
$470,253 for employees classified as "clerical." This payroll was
4
The auditing process is formally part of CRIB workers' compensati on
regulations. See New Jersey Workers' Compensation and Employers Liability
Insurance Manual ("Workers' Compensation Manual"), § 3:3-13,
https://www.njcrib.com/Search/ViewPDFByName?documentTitle=Manual&sh
are=Manual&extension=pdf (describing the audit requirement and process).
Travelers also notes the auditing process was described in the policy contract
issued to HES. There do not appear to be any equivalent or additional
regulations governing the calculation of workers' compensation insurance
codified in the New Jersey Administrative Code, and none are cited to us.
A-5284-18T2
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approximately one hundred times the payroll that HES had disclosed on its
policy application.
At the request of HES, its coverage with Travelers was cancelled,
effective March 17, 2016. Thereafter, Travelers conducted a final audit and
determined the actual payroll during the policy period was $2,454,354 for
"Truckmen" and $417,938 for "clerical" employees. Travelers' determined HES
owed an additional premium for the covered year totaling $532,198. HES
apparently paid revised premiums for certain clerical employees and certain
truckers under the "Hired Vehicle Rule," but contested insurance premiums for
drivers they contend were allegedly supplied (and insured) by DCN/TSS.
In February 2017, Travelers filed the present case in the Law Division
against HES seeking payment of the contested premium. HES, in turn, named
DCN/TSS as third-party defendants.
DCN/TSS moved to dismiss the third-party complaint for lack of
jurisdiction. DCN/TSS argued that the forum selection clause contained in their
contracts with HES required their dispute to be litigated in New York, not New
Jersey. Alternatively, DCN/TSS argued that if the matter remained in New
Jersey, it should be referred to CRIB under the doctrine of primary jurisdiction.
A-5284-18T2
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The trial court denied the dismissal motion of DCN/TSS on two grounds.
First, it ruled that strong public policies underlying New Jersey's entire
controversy doctrine and workers' compensation scheme weighed against
allowing parallel litigation in New York. The court also declined to refer the
case to CRIB. In addition, the court denied motions for summary judgment
made by several of the parties.
This court then granted DCN/TSS leave to appeal, but "limited to the trial
court's forum selection and jurisdictional rulings."
II.
A reviewing court "'appl[ies] a plenary standard of review from a trial
court's decision to grant a motion to dismiss.'" Gonzalez v. State Apportionment
Comm'n, 428 N.J. Super. 333, 349 (App. Div. 2012) (quoting Rezem Family
Assocs., LP v. Borough of Millstone, 423 N.J. Super. 103, 114 (App. Div.
2011)). The applicability of a forum selection clause, like any other question of
law under a motion to dismiss, is reviewed de novo. See Hoffman v.
Supplements Togo Mgmt., LLC, 419 N.J. Super. 596, 605 (App. Div. 2011).
DCN/TSS argue the trial court erred in denying the motion to dismiss on
the grounds that application of the forum selection clause would violate New
Jersey public policy under its workers’ compensation laws and the entire
A-5284-18T2
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controversy doctrine. They contend there are no valid public policy grounds on
which to invalidate the validly-executed forum selection clause reached by the
third-party defendants and HES.
Under both New Jersey and federal law, jurisdictional clauses in
contractual agreements are considered presumptively valid and enforceable. In
New Jersey, such provisions are enforceable absent fraud, strong countervailing
public policy, or if it would "seriously inconvenience trial." Danka Funding
Co., LLC v. Sky City Casino, 329 N.J. Super. 357, 363 (Law. Div. 1999); see
also Caspi v. Microsoft Network L.L.C., 323 N.J. Super. 118, 122 (App. Div.
1999).
There is no allegation nor evidence of fraud or duress in the creation of
the contracts between HES and DCN/TSS, including the inclusion of the forum
selection clause.
Moreover, to find a forum selection clause unenforceable on the basis of
unequal bargaining power, "[a] court's focus must be whether such an imbalance
in size resulted in an inequality of bargaining power that was unfairly exploited
by the more powerful party." Caspi, 323 N.J. Super. at 123. In the present case,
HES, DCN, and TSS are all apparently sophisticated businesses that regularly
A-5284-18T2
11
enter into similar contracts. Hence, there is no apparent disparity of bargaining
power.
There is also no threat of "serious inconvenience" to trial. This exception
is "reserved for the situation where trial in the contractual forum will be so
gravely difficult and inconvenient that [the party] will for all practical purposes
be deprived of his day in court." Copelco Capital, Inc. v. Shapiro, 331 N.J.
Super. 1, 4 (App. Div. 2000) (citation omitted). The inconvenience in litigating
in New York instead of New Jersey is negligible, particularly where, as here, all
the parties involved are sophisticated commercial actors.
With these concerns aside, the key question before us is whether the forum
selection clause requires this case to be litigated in New York, or whether such
action would be contrary to New Jersey public policy.
In the initial hearing denying the motion to dismiss, the trial court rested
its decision in part on the "the public policy that effectuates the legislative
scheme of insuring Workers' Compensation benefits" and on N.J.S.A. 34:15-87.
Travelers contends this public policy rationale was appropriate. It argues the
forum selection clause was properly not enforced by the trial court, in order to
"effectuate[] the legislative scheme of insuring Workmen's Compensation
benefits." HES concurs with this reasoning.
A-5284-18T2
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In opposition, DCN/TSS assert this is a simple contractual dispute and
does not implicate or "imperil[]" the workers' compensation scheme. Hence,
DCN/TSS maintain there are no public policy grounds to invalidate the forum
selection clause.
The statutory scheme provides important context. With limited
exceptions, every New Jersey employer must "make sufficient provision for the
complete payment of any obligation which he may incur to an injured employee"
or the employee's dependents. N.J.S.A. 34:15-71. An employer must make
"sufficient provision" for any liabilities arising under the act. N.J.S.A. 34:15- -
72. However, mandatory coverage only applies to employees, not "those who
perform work as independent contractors." 20 N.J. Prac., Skills And Methods §
11:22 (rev. 3d ed. 2005)
N.J.S.A. 34:15–87, the pertinent statutory provision cited by Travelers
and the trial court, states:
No policy of insurance against liability arising
under this chapter shall contain any limitation of the
liability of the insurer to an amount less than that
payable by the assured on account of his entire liability
under this chapter, and no provision of such policy shall
be construed to restrict the liability of the insurer to any
stated business, plant, location, or employment carried
on by an assured unless the business, plant, location, or
employment excluded by such restriction shall be
A-5284-18T2
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concurrently separately insured or exempted as
provided for in this article.
No such policy of insurance or any indorsement
thereon shall insure against any liability whatsoever
other than the liability of the employer for
compensation under this chapter and for damages
imposed by law because of personal injuries, including
death at any time resulting therefrom, sustained by his
employees.
No action shall be maintained for the collection
of premiums on any policy violating any provision of
this article. Any policy issued contrary to the provisions
of this section shall be construed as incorporating the
provisions herein contained. No insurer shall, in action
brought upon such policy, plead in defense of such
action any provision of such policy which violates any
provision of this section.
[ N.J.S.A. 34:15-87 (emphasis added).]
The purpose of this statutory provision is to codify "mandatory" and
comprehensive workers' compensation insurance for New Jersey employers,
and, with limited exceptions, to reject any workers' compensation insurance
policy that would limit an employer's liability under the workers' compensation
scheme. See Lohmeyer v. Frontier Ins. Co., 294 N.J. Super. 547, 555-56 (App.
Div. 1996) (describing the "mandatory coverage requirement of N.J.S.A. 34:15–
87" and noting "[an insurance] policy which purports to provide workers'
A-5284-18T2
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compensation coverage is governed by the workers' compensation laws and must
conform with its regulatory policy").
The statute requires an employer to insure all of its workers' compensation
liabilities and invalidates any insurance policies that fail to do so. A failure to
provide workers' compensation protections under the statutory scheme, or a
deliberate misrepresentation of employees as independent contractors to avoid
providing coverage, can subject an employer to criminal liability. N.J.S.A.
34:15-79(a).
The trial court properly concluded these facets of our State's workers '
compensation laws embody a strong public policy preference to litigate disputes
over workers compensation coverage and premiums in this jurisdiction. As we
were advised by counsel at oral argument on appeal, the terminal of HES is
located in Passaic County. In addition, a number of the truck drivers engaged
by HES are apparently residents of this State. There is a significant nexus to
this State that justifies keeping the lawsuit here, including the third-party
complaint.
We therefore affirm the court's decision on public policy grounds. Having
done so, we need not rely on entire controversy principles to achieve the same
result, although we note in passing that the trial court rightly expressed concerns
A-5284-18T2
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about duplicative litigation in New Jersey and New York and the possibility of
inconsistent factual or legal determinations respecting these parties.
Lastly, we reject the alternate argument of DCN/TSS that this matter
should be referred to CRIB and somehow adjudicated as a contested
administrative case. We recognize CRIB has an informal dispute resolution
process. However, that process only applies to an appeal from determinations
or rulings made by a Division of the Ratings Bureau. Workers' Compensation
Manual, § 3:1-2; see also N.J.S.A. 34:15-90.2(k) (authorizing CRIB to
"[r]esolve disputes concerning the application of its rating system to specifi c
cases, in accordance with the workers' compensation and employers' liability
insurance policy and the bureau's rules of procedure, subject to appeal to the
commissioner."). There was no determination or ruling made by the Ratings
Bureau in this case. Travelers has filed suit based upon its own audit of HES
and is not relying upon a CRIB "determination or ruling." In addition, Rule 11
of Part Three, Section One of the New Jersey Workers Compensation and
Employers Liability Manual specifies that the CRIB informal settlement process
is only available before litigation has been commenced. Workers' Compensation
A-5284-18T2
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Manual, § 3:1-2. Here, Travelers already has filed suit in the Superior Court,
where jurisdiction now properly lies. 5
For these reasons, the trial court's denial of the motion to dismiss the third-
party complaint against DCN/TSS is affirmed. The matter is remanded to the
Law Division. On remand, DCN/TSS are free to move before the trial court to
sever or stay the third-party complaint, pending the outcome of Travelers' main
claims against HES, and the issuance of a final judgment that presumptively
would be entitled to full faith and credit elsewhere. The trial court has the
discretion to decide whether such action would be appropriate, taking into
account discovery needs, the need for witness testimony, and other practical
considerations. We intimate no views on whether a stay or severance would be
warranted and, if so, upon what terms and conditions. 6
Affirmed and remanded for further proceedings. We do not retain
jurisdiction.
5
Because we uphold the trial court's exercise of jurisdiction, we need not
address on this appeal issues concerning whether CRIB has the status of an
administrative agency or whether its manual or guidelines have been
appropriately promulgated.
6
After oral argument on the appeal, the parties submitted supplemental letters
with suggestions about such terms and conditions but did not agree on all
aspects. Counsel shall furnish those letters to the trial court for its background
and consideration.
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