Royal Indem. Co. v. Petrozzino

• Decision Date: 14 May 1979
• Docket Number: No. 78-2145,78-2145
• Citation: 598 F.2d 816
• Parties: ROYAL INDEMNITY CO., Appellant, v. Michael PETROZZINO, Jr., Patrick Murano and Terrill H. Hallman.
• Court: U.S. Court of Appeals — Third Circuit

Page 816

598 F.2d 816

ROYAL INDEMNITY CO., Appellant, v. Michael PETROZZINO, Jr., Patrick Murano and Terrill H. Hallman.

No. 78-2145.

United States Court of Appeals, Third Circuit.

Argued March 22, 1979.

Decided May 2, 1979.

As Amended May 14, 1979.

David G. Crocco (argued), Royal Indemnity Company, Ridgewood, N. J., for appellant.

Louis C. Esposito (argued), Michael A. Querques, P. A., Orange, N. J., for appellee Michael Petrozzino, Jr.

Before SEITZ, Chief Judge, and ALDISERT and ROSENN, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Circuit Judge.

In this diversity action we are to determine whether the insurer of a bank is barred by the New Jersey statute of limitations from proceeding against a bank robber. The district court held that the insurer failed to commence its action within the applicable six-year period and dismissed the claim. Although there is no New Jersey decision precisely on point, we believe the New Jersey Supreme Court would hold that the action was timely. We therefore reverse the judgment of the district court.

I.

On September 4, 1964, the Citizens National Bank in Inglewood, New Jersey was robbed. Within hours of the robbery, Michael Petrozzino, Jr. was arrested for the crime, and his arrest was reported in the press. Four days later the Royal Indemnity Company paid Citizens National Bank the sum of $28,433.84, representing the net loss of the bank. A criminal information was filed against Petrozzino and two others on March 29, 1966, charging them with conspiracy to rob the bank, and on May 18, 1966, Petrozzino pleaded guilty. On December 22, 1970, more than six years after the robbery, appellant commenced this civil action under its right of subrogation to the bank. A default judgment was entered against Petrozzino on November 8, 1971. In 1978 the judgment was vacated solely to permit Petrozzino to interpose the defense of the statute of limitations; he has admitted all of the substantive allegations in the complaint.

The district court found that the bank employees who witnessed the robbery were, and are to this day, unable to identify Petrozzino as one of the robbers, that the bank knew of Petrozzino's arrest within a few days after the robbery, and that the insurance company made no effort to discover whether Petrozzino was in fact one of the robbers. In addition, the court found that the bank failed to verify the accuracy of various newspaper reports relating to Petrozzino and imputed knowledge of the reports to the appellant. ¹

In support of his limitations defense, Petrozzino relied on New Jersey's fictitious name practice. When a plaintiff is aware of an actionable claim but does not know the identity of a defendant, an action may be commenced against John Doe. When the plaintiff, acting with reasonable diligence, later ascertains the identity of the defendant, he may amend the complaint to specify the defendant's name. The amended complaint then relates back to the date of the filing of the original complaint so that the action is not barred by the statute of limitations. Farrell v. Votator Division of Chemetron Corp., 62 N.J. 111, 299 A.2d 394 (1973); Rules of Court R. 4:26-4. Petrozzino argued that appellant could have filed a John Doe complaint immediately after the robbery, before it knew who had robbed the bank.

Appellant relied on New Jersey's "discovery principle" under which the statute of limitations does not begin to run until a plaintiff discovers, or in the exercise of reasonable diligence, should discover, that he has an actionable claim. Fernandi v. Strully, 35 N.J. 434, 173 A.2d 277 (1961). The insurer argued that until Petrozzino pleaded guilty in 1966, it could not reasonably have known against whom to bring an action, so that the limitations period should have been tolled. Its position was that the complaint filed in 1970 was timely because it was within six years of the discovery that Petrozzino robbed the bank.

The district court held that appellant should have commenced its action within six years of the robbery. If Petrozzino's identity was uncertain, a John Doe complaint would have permitted the bringing of a timely action. The court believed that the discovery principle was not applicable when the existence of the claim was known and the insurer merely lacked the name of the proper defendant. In the alternative, the district court held that if the discovery principle applied, appellant did not meet its burden of showing that the exercise of reasonable diligence would have failed to disclose the identity of the bank robber until six years prior to the filing of the complaint. Concluding that the action was barred by the statute of limitations, the court dismissed the complaint and entered judgment for the appellee. We disagree with both determinations of the district court.

II.

Whether the New Jersey fictitious name practice precludes application of the discovery principle in this case is a difficult question. The district court dismissed the complaint on the basis of this reasoning: "Neither party has pointed to any New Jersey case which holds that the discovery rule of Strully and its progeny is applicable where the plaintiff knows he has a cause of action but does not know the identity of the person against whom the cause of action exists. As I perceive the law of New Jersey, the discovery rule has no such application." Appendix at 13a-14a. We cannot accept the court's rationale for two reasons: (1) we do not think the New Jersey Supreme Court would hold that the discovery principle does not apply when the John Doe practice is available, and (2) even if that were the law of New Jersey, the John Doe practice was not available to the appellant in this federal diversity action.

A.

In Farrell, supra, the leading case on the John Doe practice, the Supreme Court of New Jersey addressed the situation in which a John Doe complaint had been filed within the limitations period and amended after its expiration to name the actual defendant. Citing New Jersey Rule of Court 4:9-3, ² the court held that "(t)he amendment related back to commencement of the action." 62 N.J. at 120, 299 A.2d at 399. In the case before us, however, the district court did not apply the narrow rule announced in Farrell, but relied on the holding of the state's intermediate appellate court in Lawrence v. Bauer Publishing & Printing Ltd., 154 N.J.Super. 271, 381 A.2d 358 (1977), in which the Superior Court interpreted Farrell as indicating that the John Doe practice and the discovery principle are mutually exclusive:

Nonetheless, we are satisfied that our court of last resort has not yet abrogated the necessity for "John Doe" complaints where an ascribable defendant (and the cause of action against him, her or it) is known, although a precise name is not known. We concur generally with the trial judge that Farrell commands:

Our fictitious name practice requires that when a claimant is in a position to describe a defendant in terms of what he did or failed to do which gave rise to the claim, an action against that defendant must be commenced within the limitations period even though the claimant does not then know defendant's name.

154 N.J.Super. at 274, 381 A.2d at 360. Subsequent to the district court's decision, the Supreme Court of New Jersey reversed Lawrence on other grounds. 78 N.J. 371, 396 A.2d 569 (1979). Clearly, a federal court in a diversity action is not bound to follow a decision of an intermediate state appellate court when the state's highest court has reversed that decision. See National Surety Corp. v. Midland Bank, 551 F.2d 21, 28-32 (3d Cir. 1977). Although the Supreme Court did not specifically repudiate the Superior Court's interpretation of Farrell, we need not adhere to that interpretation. Farrell in no way necessitated the conclusion that filing a John Doe complaint is the only means to avoid the bar of the statute of limitations. It merely held that this is an acceptable means of avoiding injustice in certain cases where "the plaintiff does not know or have reason to know that he had a cause of action against an identifiable defendant until after the normal period of limitations has expired." 62 N.J. at 115, 299 A.2d at 396. Thus we do not believe that Farrell precludes the application of the discovery principle enunciated in Strully and its progeny.

B.

Even if our interpretation of New Jersey law is incorrect, the district court's disposition was based on the erroneous assumption that the fictitious name practice was available in 1964 to the appellant in this case.

New Jersey Rule of Court 4:26-4, ³ which sets forth the John Doe procedure, was promulgated in 1969. It is therefore apparent that appellant could not have taken advantage of it in 1964. Also, it is not clear whether the common law fictitious name practice predating the rule would have applied. In Farrell, supra, the Supreme Court stated:

Rule 7:4-5, originally adopted in 1948 with respect to civil practice in district and municipal courts, expressly provided that where the defendant's true name is unknown to the plaintiff, process may issue against the defendant under a fictitious name, with appropriate amendment after his true name is ascertained. While no similarly worded rule was originally adopted with respect to the upper courts, the practice was undoubtedly known in those courts (Cf. R.R. 4:30-4(d)) and the omission was presumably inadvertent; in any event, on February 25, 1969 a pertinent rule was promulgated, effective September 8, 1969 and applicable to civil practice in the superior, county and surrogate's courts. It specifically provided that if the defendant's true name is unknown to the plaintiff "process may issue against the defendant under a fictitious name" and directed that, prior to judgment, the plaintiff shall on motion "amend his complaint to state defendant's true name." R. 4:26-4. The rule, being procedural, is in general to be deemed applicable to...