Bleumer v. Parkway Ins. Co.

• Decision Date: 22 July 1994
• Citation: 277 N.J.Super. 378,649 A.2d 913
• Parties: , 10 IER Cases 31 Chris E. BLEUMER, Plaintiff, v. PARKWAY INSURANCE COMPANY, Fireman's Fund Insurance Company and Raymond Barrette, Defendants.
• Court: New Jersey Superior Court

Page 378

277 N.J.Super. 378

649 A.2d 913, 10 IER Cases 31

Chris E. BLEUMER, Plaintiff, v. PARKWAY INSURANCE COMPANY, Fireman's Fund Insurance Company and Raymond Barrette, Defendants.

Superior Court of New Jersey, Law Division Essex County.

Decided July 22, 1994.

Bruce P. McMoran, Newark, for plaintiff (Clapp & Eisenberg, P.A., attorneys).

David W. Garland, Roseland, for defendants (Grotta, Glassman & Hoffman, P.A., attorneys).

SCHWARTZ, J.S.C.

This case raises for the first time since the decision of the Supreme Court in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) whether a claim under the Conscientious Employee Protection Act. (CEPA), N.J.S.A. 34:19-1 to 34:19-8, commonly known as the whistleblower statute, is subject to arbitration under an arbitration clause in a private employment agreement and if so, whether the arbitration clause in this case is broad enough to require arbitration under the Federal Arbitration Act, 9 U.S.C.A. §§ 1 to 15, of plaintiff's CEPA claim. Defendants have moved to stay this action and to compel arbitration of the CEPA claim.

I. THE FACTS

Based on the allegations of the complaint, the certification of John A. Ricca, assistant vice president and assistant general counsel of defendant, Fireman's Fund Insurance Company (FFIC), and the exhibits attached to Mr. Ricca's certification, with all inferences being drawn most favorably to plaintiff as must be done on a motion of this nature, the facts appear to be as set forth below.

A. Background

FFIC is a national property, liability and accident insurer headquartered in California with offices across the country. Defendant, Parkway Insurance Company (Parkway) was originally established as of New Jersey (FFNJ) in 1983 and changed its name to Parkway in 1992.

Pursuant to a consent order between FFIC and the New Jersey Commissioner of Insurance (the Commissioner) dated July 29, 1991 and consented by various subsidiaries of FFIC licensed in New Jersey, FFIC and each of its subsidiaries were authorized to transfer their private passenger automobile business in New Jersey to FFNJ and to withdraw from that line of insurance subject to certain conditions. These conditions included, among others, requirements that Fireman's Fund transfer to FFNJ assets sufficient to bring the total capital and surplus of FFNJ to $25 million and that FFIC deposit $6 million into an escrow account for a two year period, at the conclusion of which FFIC would be permitted to withdraw that part of the sum held in escrow which would not cause the net premium-to-surplus ratio of FFNJ to exceed 3 to 1. The consent order imposes certain maximum ratios of acquisition expenses, general expenses and variable expenses to earned premium of FFNJ in each calendar year through 1996 as a condition for FFIC not being required by the New Jersey Department of Insurance (NJDOI) to make additional capital contributions to FFNJ. The consent order defines each such category of expense and establishes a formula for additional capital contributions by FFIC to FFNJ should any of the categories of expense exceed earned premium of FFNJ in any calendar year between 1991 and 1996.

The consent order authorized FFIC and each of its subsidiaries then selling private passenger automobile insurance in New Jersey to mail notices to their policyholders informing them that they would not be renewing their policies on expiration and that FFNJ would be offering to renew such policies. FFNJ was required to renew all currently written private passenger automobile policies on their anniversary dates except to the extent that non-renewal was permitted by statute, regulation or the terms of the consent order.

FFIC and each of its subsidiaries were required to deposit $500,000 with the Commissioner to guarantee that they would satisfy their liabilities to New Jersey policyholders, claimants and creditors, but the Commissioner is required to return those deposits if satisfied that the companies have complied with all the provisions of the consent order.

B. Plaintiff's Hiring and Termination

On or about May 30, 1991, about two months before execution of the aforesaid consent order, defendant, Raymond Barrette ("Barrette"), who was then chief financial officer of FFIC and president of its Personnel Insurance Division, contacted plaintiff and recruited him to become president and chief executive officer of FFNJ under a five year employment contract. Plaintiff informed Barrette he would not take the position with FFNJ unless he could get FFIC's support to make FFNJ a successful independent entity for later sale, and Barrette agreed.

A written employment agreement (hereinafter "the contract") between FFIC and plaintiff was executed on August 2, 1991 pursuant to which plaintiff agreed to serve approximately 5- 1/2 years from July 15, 1991 to December 31, 1996 as president and chief executive officer of FFNJ. A copy of the consent order was provided to plaintiff and its general purpose summarized in the contract. In that connection the contract stated that the goal of FFIC was the consolidation of all its New Jersey private passenger automobile insurance business into FFNJ by April 1992. FFIC committed itself to provide any services required by FFNJ to meet operating needs. The contract further stated that the mission of FFNJ was to operate as a regional company within New Jersey so as to preserve FFIC's investment and to ultimately extract FFIC and its subsidiaries from the New Jersey private passenger automobile insurance market through an approved withdrawal plan or the sale of FFNJ. The contract also provided that FFNJ would change its name to Parkway.

Plaintiff's duties are detailed in the contract and include setting up the New Jersey office of FFNJ, hiring staff, creating benefit plans, contracting with outside vendors, developing and implementing a marketing plan and developing a good working relationship with the NJDOI. Although the contract provides that plaintiff is to have significant autonomy in managing the day to day operations of FFNJ, he was required by its terms to report to FFNJ's board chairman, whose approval was required for all major decisions. The only major decisions for which such approval was specifically required under the contract were creation of benefit plans, employment of senior executives and the terms and conditions of their employment.

The contract fixes plaintiff's annual salary, describes his benefit package and sets forth a detailed procedure for calculating and paying plaintiff a bonus and an additional bonus upon the sale of FFNJ or its withdrawal from the New Jersey private passenger automobile insurance market on or before December 31, 1996.

The contract contains detailed provisions for termination of plaintiff's employment with FFNJ for cause, for disability and without cause. The contract defines the three types of termination and describes the severance pay to which plaintiff will be entitled in the event of termination for cause, for disability or without cause. The contract provides for substantially less severance pay if plaintiff is terminated for cause than if he is terminated without cause. Section 13 of the contract contains a number of miscellaneous provisions, among which are a clause providing for arbitration of any disputes between the parties "regarding the agreement," and a provision allowing FFIC to assign the employment contract to any of its affiliates or their successors so long as FFIC agrees to also remain obligated to plaintiff under the agreement. On or about December 31, 1991 FFIC assigned this contract to FFNJ.

In order to perform his duties plaintiff was required to relocate to New Jersey from California, where he resided when the contract was signed. Plaintiff asserts that by August 1992 he had succeeded in establishing a New Jersey presence for Parkway, had improved relations with the NJDOI, had largely corrected past violations of the Fair Act ¹ by FFIC, had brought Parkway into compliance with the Fair Act, had improved the financial position of Parkway and had created a foundation for Parkway to succeed as an independent entity.

On January 13, 1993 plaintiff was suspended when Barrette initiated a "confidential investigation" of Parkway. On January 15, 1993 Barrette removed the investigators and reinstated plaintiff. On January 28, 1993 plaintiff was again suspended. On February 2, 1993 Barrette terminated plaintiff without cause. On February 3, 1993 Barrette asked plaintiff to perform consulting services for Parkway, which plaintiff agreed to do until April 1993. By letter dated March 19, 1993, signed by both Barrette as chairman of the board of directors of Parkway and by John E. Meyer as executive vice president and chief financial officer of FFIC, plaintiff was formally notified that his employment with Parkway was terminated without cause effective April 1, 1993; that effective immediately, he was no longer authorized to act on behalf of Parkway, and that he was no longer to report to his office; that he would be employed at his current salary and benefits through March 31, 1993 and that he would thereafter be paid one year's salary, less applicable withholdings and deductions. The one year's salary represented the severance pay required pursuant to the termination without cause provisions of the contract.

C. Summary of CEPA Allegations

Plaintiff alleges that, from the outset, Barrette and FFIC engaged in a pattern of wrongful and fraudulent conduct, pursuant to a scheme to defraud the NJDOI, by seeking to avoid compliance with the requirements of the consent order regarding additional capital funding of Parkway by FFIC and by extracting the maximum dividend from Parkway based upon submitting knowingly false financial information to the NJDOI. Plaintiff contends that in furtherance of the scheme to defraud the NJDOI, defendants instructed plaintiff to falsely...