Highlands Insurance Group v. Perini/Nugent Joint Venture, Civil No. 98-cv-1725 (SSB) (D. N.J. 6/29/1998)

• Decision Date: 29 June 1998
• Docket Number: Civil No. 98-cv-1725 (SSB)
• Parties: HIGHLANDS INSURANCE GROUP, as successor-in-interest to LMI INSURANCE COMPANY, Plaintiff, v. PERINI/NUGENT JOINT VENTURE; J.J. NUGENT COMPANY; JOHN NUGENT; CLARIDGE AT PARK PLACE, INCORPORATED; THOMAS WELLER; STEEL ERECTION, INC.; MICHAEL DEMLING ASSOCIATES; MICHAEL DEMLING; PERINI CORPORATION; JAMES SIMPKINS; TIM CARROL ASSOCIATES; TIM CARROL; ERNA M. MARTIN, individually, deceased, and CLARENCE F. MARTIN, administrator and administrator ad prosequendum of the Estate of ERNA M. MARTIN; GERTRUDE MARTIN, individually, deceased, and CLARENCE F. MARTIN, administrator ad prosequendum of the Estate of GERTRUDE MARTIN; NEWARK INSURANCE COMPANY; THE MARYLAND INSURANCE GROUP; JOHN DOES 1-20 (fictitious names); et al., Defendants.
• Court: U.S. District Court — District of New Jersey

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HIGHLANDS INSURANCE GROUP, as successor-in-interest to LMI INSURANCE COMPANY, Plaintiff, v. PERINI/NUGENT JOINT VENTURE; J.J. NUGENT COMPANY; JOHN NUGENT; CLARIDGE AT PARK PLACE, INCORPORATED; THOMAS WELLER; STEEL ERECTION, INC.; MICHAEL DEMLING ASSOCIATES; MICHAEL DEMLING; PERINI CORPORATION; JAMES SIMPKINS; TIM CARROL ASSOCIATES; TIM CARROL; ERNA M. MARTIN, individually, deceased, and CLARENCE F. MARTIN, administrator and administrator ad prosequendum of the Estate of ERNA M. MARTIN; GERTRUDE MARTIN, individually, deceased, and CLARENCE F. MARTIN, administrator ad prosequendum of the Estate of GERTRUDE MARTIN; NEWARK INSURANCE COMPANY; THE MARYLAND INSURANCE GROUP; JOHN DOES 1-20 (fictitious names); et al., Defendants.

Civil No. 98-cv-1725 (SSB)

United States District Court, D. New Jersey.

June 29, 1998.

HARWOOD LLOYD, LLP, Hackensack, New Jersey, By: Victor C. Harwood, III, Esquire Attorney for Plaintiff Highlands Insurance Group.

OBERMAYER, REBMAN, MAXWELL & HIPPEL, LLP, Haddonfield, New Jersey, By: Stephen D. Schrier, Esquire, Lori A. Andreosky, Esquire, Attorneys for Defendant Claridge.

PECKAR & ABRAMSON, River Edge, New Jersey, By: Bruce Meller, Esquire, Attorney for Defendants Perini Corp., J.J. Nugent Corp., Perini/Nugent Joint Venture, John Nugent, and James Simpkins.

WOLF, BLOCK, SCHORR AND SOLIS-COHEN, LLP, Philadelphia, Pennsylvania, By: William G. Frey, Esquire, Attorney for Defendants Perini Corp., J.J. Nugent Corp., Perini/Nugent Joint Venture, John Nugent, and James Simpkins.

ZELLE & LARSON, L.L.P., Dallas, Texas, By: Thomas Cook, Esquire, Attorney for Defendants Claridge and Thomas Weller.

OPINION ON APPEAL OF ORDER DENYING STAY OF ARBITRATION

STANLEY S. BROTMAN, District Judge.

The question presented by this appeal is whether the order of a United States Magistrate Judge denying a stay of ongoing arbitration should be affirmed where an insurer files a declaratory judgment action concerning coverage of one of the arbitrating parties. The answer to this question requires the Court to delve into a complex and multifaceted action and the underlying federal and state policies which have long favored arbitration as an alternative to dispute resolution.

I. Facts and Procedural Background

The present action arises out of a most unfortunate accident in Atlantic City, New Jersey. On July 10, 1996, Erna and Gertrude Martin died when the automobile driven and owned by Erna Martin fell from the fourth floor of Claridge Hotel & Casino's (hereinafter "Claridge") mostly completed parking garage. The general contractor on the project was the joint venture known as Perini/Nugent Joint Venture (hereinafter "the Joint Venture") formed by J.J. Nugent Company and the Perini Corporation.¹ The Joint Venture, as well as the two companies, have been named as defendants in the actions by the Martins currently pending before this Court.² Claridge, another defendant in the above proceedings, filed an action with the American Arbitration Association against the Joint Venture which was consolidated with an arbitration action between the Joint Venture and Central Metals, Inc./Roma Steel (hereinafter "Central Metals"), the subcontractors responsible for installing the barriers through which the decedents broke through in falling from the parking garage.³

The Joint Venture's contract with Claridge contains an arbitration clause and a provision stating that the contract shall be governed by the law of the place where the project is located. In this case, the location is New Jersey. Central Metals agreed to be bound by the terms of this contract. Claridge seeks damages from the Joint Venture for losses, including the lost profits stemming from the incident and the consequential closure of the garage. It also seeks indemnification from the Joint Venture in case it is found liable to the Martins.

Unsuccessful attempts already have been made to stay or alter the arbitrations pending the outcome of the Martins' case. Central Metals filed a motion before Magistrate Judge Joel B. Rosen to consolidate the arbitration with the Martins' lawsuits. The Joint Venture also submitted a cross-motion to stay arbitration until the resolution of the litigation. Claridge filed a cross-motion to stay the litigation pending the outcome of arbitration. On March 23, 1998, the Magistrate Judge denied all motions. Arbitration hearings commenced on April 7, 1998, and the parties are scheduled to continue arbitrating in July and August.

Highlands Insurance Group (hereinafter "Highlands"), a company incorporated and with its principal place of business in Texas, is the successor-in-interest to LMI Insurance Company (hereinafter "LMI"). It thereby has assumed responsibility for LMI's policies. LMI issued both general liability and excess liability policies to J.J. Nugent Company with the Joint Venture included as an additional insured. Highlands filed the within action seeking a declaratory judgment that it is not required to provide liability insurance coverage in the Martins' civil action and arbitrations.⁴

Highlands filed an Order to Show Cause on April 14, 1998 to stay the underlying arbitrations and sought a preliminary injunction restraining the parties from further arbitration until after the declaratory judgment action is resolved. Claridge, the Joint Venture, and Central Metals challenged this motion during a telephone hearing on April 20, 1998. Magistrate Judge Rosen denied the application for a preliminary injunction on April 24, 1998 and allowed the arbitrations to continue. He stated that his decision was dictated by federal and New Jersey policies in favor of arbitration, the existence of a contractual agreement between the parties in the arbitration, the potential length of delays if these kinds of stays were granted, the fact that the arbitrations are ongoing, and the balance of prejudice to the arbitrating parties if the arbitrations were stopped. See Tr. of Hr'g, April 20, 1998, at 12. On May 5, 1998, Highlands filed an appeal with this Court of the Magistrate Judge's order.⁵

II. The Parties' Positions

(A) Highlands

Highlands makes two arguments in favor of reversing the Magistrate Judge's order denying a stay. Highlands first contends under New Jersey law that all other actions, including arbitrations, must be stayed until an insurance coverage action is resolved. It relies primarily on the New Jersey Supreme Court's decision in Sussex Mutual Ins. Co. v. Hala Cleaners, Inc., 75 N.J. 117 (1977). In addition, it cites a New Jersey trial court decision where arbitration was stayed in favor of a declaratory judgment action in the context of allegations of a massive insurance fraud conspiracy. Allstate Ins. Co. v. Idabells Lopez, No. MRS-L-1736-97 (N.J. Super. Ct. Law. Div. February 6, 1998, approved for publication May 12, 1998).

Second, Highlands advances policy arguments based on federal precedent for the proposition that allowing the arbitration to continue would be inefficient, inequitable, or otherwise inadvisable. It admits that the Magistrate Judge rejected many of these arguments in the earlier proceeding, but it still believes they are persuasive here. Highlands also cites a number of non-Third Circuit decisions granting a stay of arbitration.⁶ It further argues that permitting the arbitration to continue would harm it, the insurer, because an arbitration award cannot typically be overturned⁷, and arbitrators are given a great deal of discretion. Further, given the uncertainty of coverage, the insured would be less likely to settle the disputes, and this would result in greater administrative costs. By granting the stay, Highlands asserts, the dispute resolution system could handle these proceedings in a more efficient manner by avoiding duplicative efforts and inconsistent results. In addition, there may be difficulties in using the arbitration result because arbitrators are not required to make specific factual findings. Finally, Highlands voices its concern that the resulting factual findings from the arbitration could be made binding on the declaratory judgment action.

(2) Claridge

According to Claridge's litigation counsel, the Magistrate Judge's denial of a stay should be affirmed because the decision is neither clearly erroneous nor contrary to law. L. Civ. R. 72.1(c)(1)(A). The casino sees Highlands' present action as an attempt to re-litigate issues presented earlier to the Magistrate Judge by Central Metals and the Joint Venture. It argues that both federal and New Jersey law supports the denial of the stay.⁸ Next, Claridge distinguishes the Sussex line of cases by pointing out that these cases did not involve arbitration. Finally, it argues that Highlands would not suffer irreparable harm from the continuing of the arbitration, but that Claridge would be harmed by a stay because it would deprive it of the swift arbitration for which it bargained.

(3) Claridge's Arbitration Counsel

In its letter brief, Claridge's arbitration counsel argues (1) that Sussex does not require a stay of the arbitration; (2) that the resolution of the declaratory judgment action requires factual determinations that properly belong in the underlying action; and (3) that a stay would seriously hinder the ongoing arbitration proceedings. It points out that Sussex itself recognized that an insurance coverage action may be brought after the connected trial. 75 N.J. at 124 (quoting Burd v. Sussex Mutual Ins. Co., 56 N.J. 383, 392 (1970)). In addition, the declaratory judgment action should not be resolved until the crucial facts that form its basis are ascertained in the underlying arbitration and litigation. Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 511-13 (1965). As such, Highlands' action should wait until the arbitration or the tort suits are resolved because they involve issues vital to the action, such as whether the defendants were negligent, whether their conduct was intended, and whether non-covered...