KEVIN McNULTY, District Judge.
This matter comes before the Court on the unopposed motion of the plaintiffs, Torus U.S. Services, Inc. ("Torus US"), Torus Specialty Insurance Company ("Torus Specialty"), and Torus National Insurance Company ("Torus National") for default judgment against the defendants, Hybrid Insurance Agency, LLC d/b/a Hybrid Insurance Group ("Hybrid") and Earl O. O'Garro, Jr., pursuant to FED. R. CIV. P. 55(b)(2). The complaint asserts three counts: negligence (Count I); breach of contract (Count II); and conversion (Count III). For the reasons set forth below, I will enter a default judgment against Hybrid only—not O'Garro—as to the claim of breach of contract (Count II). The motion is otherwise denied.
Plaintiff Torus US is a servicing agent for insurance companies with its principal place of business and place of incorporation in New Jersey. (Dkt. No. 1 ¶¶ 5, 7) Plaintiff Torus Specialty, a U.S. excess and surplus line insurer serviced by Torus US, is domiciled in Delaware and maintains its principal place of business in New Jersey. (Dkt. No. 1 ¶¶ 5, 8) Plaintiff Torus National, a U.S. admitted markets insurer serviced by Torus US, is domiciled in Delaware and has its principal place of business in New Jersey. (Dkt. No. 1 ¶¶ 5, 9) Defendant Hybrid, an insurance broker, is a Connecticut limited liability company ("LLC") with its principal place of business in Connecticut.
On or about January 18, 2012, Torus US, as servicing agent for Torus Specialty and Torus National, entered into a contract with Hybrid (the "Broker Agreement"). (Dkt. No. 1 ¶ 12) The agreement stated that it was "between Torus US . . . and the Broker, identified below," Hybrid. (Dkt. No. 1-3 p. 1) O'Garro signed on behalf of Hybrid. (Dkt. No. 1-3 p. 8) Under the agreement, Hybrid was permitted to submit accounts or risks to Torus US for the purpose of placing and procuring insurance coverage with either Torus Specialty or Torus National. (Dkt. No. 1 ¶ 13) The agreement required that Hybrid "hold all premium funds" in a fiduciary account and "remit to Torus US all premiums" Hybrid received, less certain commissions to which Hybrid was entitled.
Around the same time, Torus US entered into a second agreement (the "Portal Agreement") with Hybrid, again as servicing agent for Torus Specialty and Torus National. (Dkt. No. 1 ¶ 24) Again, the agreement stated that it was between Torus US and Hybrid, and O'Garro signed on behalf of Hybrid. (Dkt. No. 1 pp. 1, 6) The agreement authorized Hybrid to utilize an online insurance portal "to quote, rate, bind, submit, invoice, and issue insurance policies through Torus Specialty and Torus National." (Dkt. No. 11 p. 4; Dkt. No. 1-2 § I) Under the agreement, Hybrid agreed that the information it provided plaintiffs through the portal would be accurate and that it would not engage in behavior that would "violate any applicable law or regulation." (Dkt. No. 1 ¶¶ 27-28; Dkt. No. 1-2 § VI.A) The Portal Agreement incorporated the terms and conditions of the Broker Agreement "except as expressly modified" by the Portal Agreement.
On November 14, 2013, the Connecticut Insurance Department revoked Hybrid's insurance licenses, which automatically terminated the Broker agreement, and in turn the Portal Agreement. (Dkt. No. 1 ¶¶ 21-23, 31; Dkt. No. 1-4) By letter dated November 25, 2013, the plaintiffs notified Hybrid of the termination of the agreements. (Dkt. No. 1 ¶ 23; Dkt. No. 1-5)
The plaintiffs allege that since January 2012, the defendants have received and retained $265,836 in premiums for insurance policies issued by Torus Specialty and Torus National. (Dkt. No. 1 ¶ 32) The "Defendants also have failed to provide an accounting sufficient for Plaintiffs to identify and confirm which of the insureds have paid insurance premiums to Defendants."
"[T]he entry of a default judgment is left primarily to the discretion of the district court." Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984) (citing Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir. 1951)). Because the entry of a default judgment prevents the resolution of claims on the merits, "this court does not favor entry of defaults or default judgments." United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984). Thus, before entering default judgment, the Court must determine whether the "unchallenged facts constitute a legitimate cause of action" so that default judgment would be permissible. DirecTV, Inc. v. Asher, No. 03-1969, 2006 WL 680533, at *1 (D.N.J. Mar. 14, 2006) (citing Wright, Miller, Kane, 10A Federal Practice and Procedure: Civil 3d § 2688, at 58-59, 63).
"[D]efendants are deemed to have admitted the factual allegations of the Complaint by virtue of their default, except those factual allegations related to the amount of damages." Doe v. Simone, No. 12-5825, 2013 WL 3772532, at *2 (D.N.J. July 17, 2013). While "courts must accept the plaintiffs well-pleaded factual allegations as true," they "need not accept the plaintiffs factual allegations regarding damages as true." Id. (citing Chanel, Inc. v. Gordashevsky, 558 F.Supp.2d 532, 536 (D.N.J. 2008)). Moreover, if a court finds support to be lacking, it may order or permit a plaintiff seeking default judgment to provide additional evidence in support of the allegations. Id.
Before a court may enter default judgment against a defendant, the plaintiff must have properly served the summons and complaint, and the defendant must have failed to file an answer or otherwise respond to the complaint within the time provided by the Federal Rules, which is ordinarily twenty-one days. See Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 18-19 (3d Cir. 1985); FED. R. CIV. P. 12(a).
The complaint, alleging negligence, breach of contract, and conversion arising from violations of the Broker Agreement and Portal Agreement, was filed on March 13, 2014, and the clerk issued a summons. (Dkt. No. 1). The plaintiffs have filed proofs of proper service of the summons and complaint upon Hybrid and O'Garro on May 20, 2014.
Accordingly, I am satisfied that the prerequisites to a motion for default judgment are met. See Gold Kist, 756 F.2d at 18-19.
In deciding whether to enter a default judgment, a court must consider the following three factors: (1) whether the party subject to default has a meritorious defense, (2) the prejudice suffered by the party seeking default, and (3) the culpability of the party subject to default. Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F.R.D. 171, 177 (D.N.J. 2008) (citing Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d Cir. 1987)). Those factors, considered in light of the record of this case, weigh in favor of entry of a default judgment against Hybrid as to the breach of contract claim (Count II). I do not see any sufficient basis for entering judgment against O'Garro, who was not personally a contracting party. I find that the plaintiffs' tort claims, negligence and conversion (Counts I and III), would be barred by the "economic loss doctrine." I therefore decline to enter a default judgment as to either defendant on those counts.
I first consider breach of contract, the claim most clearly applicable to the facts. As to the first factor—whether the defendants have a meritorious defense to plaintiffs' claims—I am disadvantaged of course by the lack of any submission by the defendants. However, based on my independent review of the record before me, I see no suggestion that the plaintiffs' breach of contract claim is legally flawed as to Hybrid, the other party to the contracts at issue. See Doe, 2013 WL 3772532, at *5. Accepting the factual allegations as true, I find that the plaintiffs have properly pled a cause of action for breach of contract against Hybrid under both New Jersey and New York law.
To establish a breach of contract claim under New Jersey law, a plaintiff must allege "(1) a contract between the parties; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that the party stating the claim performed its own contractual obligations." Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007) (internal citation omitted). New York law is similar. See Swan Media Group, Inc. v. Staub, 841 F.Supp.2d 804, 807 (S.D.N.Y. 2012)("[T]he elements of a breach of contract claim are (1) the existence of an agreement; (2) adequate performance of the contract by the plaintiff; (3) breach of contract by the defendant; and (4) damages.") (citations omitted).
I am satisfied that the plaintiffs have set forth a legally sufficient claim of breach of contract against Hybrid. I cannot, from the materials before me, discern any meritorious defense. The plaintiffs have alleged specific facts showing that Torus US and Hybrid entered into two valid, enforceable contracts: the Broker Agreement and the Portal Agreement. They plausibly allege that Hybrid breached its explicit contractual obligations by failing to hold funds in a fiduciary capacity and to remit the insurance premiums in accordance with the agreements. (Dkt. No. 1 ¶¶ 34-36) The plaintiffs allege that they "fully performed" their own contractual duties, and I have no facts before me to the contrary. (Dkt. No. 1 ¶ 50) The plaintiffs allege that they were financially damaged as a result of Hybrid's breach and that they are entitled to receive an estimated $265,836, plus interest, for insurance premiums that Hybrid collected but did not pass along to Torus US (Dkt. No. 1 ¶¶ 52-54) That theory of damages is straightforward and uncontroversial. The plaintiffs also claim costs and reasonable attorneys' fees under the contracts, which both provide for such awards. (Dkt. No. 1 ¶ 54)
The second and third factors also weigh in favor of default judgment as to Hybrid. Hybrid was properly served on May 20, 2014, well over a year ago, but has failed to appear and defend itself in any manner. It is clear that the plaintiffs have been prejudiced by this dereliction because it has "prevented [plaintiffs] from prosecuting [their] case, engaging in discovery, and seeking relief in the normal fashion." Teamsters Pension Fund of Philadelphia & Vicinity v. Am. Helper, Inc., No. 11-624, 2011 WL 4729023, at *4 (D.N.J. Oct. 5, 2011). Absent evidence to the contrary, a properly served defendant's failure to answer is sufficient to establish its culpability for the default. Id. In this case, there is nothing before the Court to show that Hybrid's "failure to file an answer was not willfully negligent." Id. (citing Prudential Ins. Co. of America v. Taylor, No. 08-2108, 2009 WL 536403 at *1 (D.N.J. February 27, 2009)(finding that when there is nothing before the court to suggest anything other than that the defendant's willful negligence caused the defendant to fail to file an answer, the defendant's conduct is culpable and warrants default judgment)).
The only possible conclusion based on the record before me is that Hybrid is liable for breach of contract. Accordingly, I find that the entry of a default judgment against Hybrid as to Count II is appropriate.
As to O'Garro's liability in his personal capacity, the picture is different.
The plaintiffs also allege two causes of action based in tort: negligence (Count I) and conversion (Count III). Because these tort claims flow directly from the breach of contract, they are barred by the economic loss doctrine.
To establish a claim of negligence under New Jersey law, a plaintiff must allege "a duty of care owed by the defendant to the plaintiff; (2) a breach of that duty; (3) proximate cause; and (4) actual damages." In re Paulsboro, No. 12-7648, 2013 WL 5530047, at *2 (D.N.J. October 4, 2013) (citation omitted). New York law is similar. See Caronia v. Philip Morris USA, Inc., 715 F.3d 417, 428 (2d Cir. 2013) (plaintiff must allege "(1) the existence of a duty on the defendant's part as to plaintiff; (2) a breach of this duty; and (3) injury to the plaintiff as a result thereof") (citation omitted).
To establish a claim of conversion under the law of New Jersey, a plaintiff must allege "the wrongful exercise of dominion and control over property owned by another in a manner inconsistent with the owner's rights." D & D Technology, Inc. v. CytoCore, Inc., No. 14-4217, 2014 WL 4367314, at *4 (D.N.J. 2014). Again, New York law is similar. See Pacific M. Intern. Corp. v. Raman Intern. Gems, Ltd., 888 F.Supp.2d 385, 396 (S.D.N.Y. 2012)("[c]onversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights.") (citations omitted).
While on first glance the plaintiffs seem to have set forth the essential elements of these torts, their allegations are in reality just the breach-of-contract allegations repackaged. Under the economic loss doctrine (applicable in both New Jersey and New York), "parties to a contract are not entitled to supplemental protection by negligence principles." D & D Technology, 2014 WL 4367314, at *3-4 (citations omitted). Where a plaintiff recasts a claim of breach of contract in tort, the tort claim will not stand. See Hanover Architecture Service P.A. v. Christian Testimony-Morris, N.P., No. 10-5455, 2014 WL 884778, at *7 (D.N.J. March 6, 2014)(the economic loss doctrine "preclud[es] a party's negligence action, in addition to a contract action, unless the plaintiff can establish an independent duty of care" external to the contract) (internal quotations and citations omitted); DiAntonio v. Vanguard Funding, LLC, No. 14-4526, 2015 WL 3629539, at *7 (D.N.J. June 10, 2015)("[T]o the extent the negligence claim is based upon Defendants' failure to comply with contractual obligations, the claim is subject to dismissal"); D & D Technology, 2014 WL 4367314, at *3-4 ("New Jersey courts have expressly restricted application of the doctrine of conversion when it seeks to turn a claim based on breach of contract into a tort claim."); Kalimantano GmbH v. Motion in Time, Inc., 939 F.Supp.2d 393, 416 (S.D.N.Y.)(under New York law, "[a] conversion claim must be dismissed when it does not stem from a wrong independent of the alleged breach of contract.") (citation omitted).
To support an independent tort claim, then, the complaint's allegations must arise from a wrong independent of the alleged breach of contract. The allegations of this complaint do not. The plaintiffs rely solely on their contracts with Hybrid. With respect to their negligence claim, they allege that the defendants violated their duty to hold the collected insurance premiums in a "fiduciary capacity," which arises only from the Broker Agreement (and by incorporation, the Portal Agreement). (Dkt. No. 1 ¶ 42; see Dkt. No. 1-3 § IV) As to the plaintiffs' conversion claim, the property they allege was wrongfully withheld consists of the payments they were entitled to receive under the agreements. (See Dkt. No. 1 ¶ 61; Dkt. No. 1-3 Section III.B.) These allegations boil down to a claim of breach of contract, as to which I have entered default judgment against Hybrid. I decline to enter a default judgment on the tort claims as to either defendant.
The plaintiffs assert that they are owed an estimated $265,836 in insurance premiums, as well as interest, costs, and attorneys' fees. In support of their estimate of actual damages, they attach to the affidavit of Jason Simmons, Head of Compliance for Torus US, a chart listing the premiums plaintiffs believe Hybrid was paid and failed to remit. (Dkt. No. 11-2 Exhibit E) The plaintiffs do not submit any underlying documentation regarding their calculation of outstanding premiums or any documents regarding other sources of damages (e.g., interest, costs, attorneys' fees). Instead, the plaintiffs request an inquest on damages pursuant to FED. R. CIV. P. 55(b)(2).
To order an inquest now—where only one page of material regarding damages is before the Court—would be premature. If the plaintiffs have any additional proofs the Court should consider regarding damages, including documentation relating to (1) the basis for the estimated amount of outstanding insurance premiums, (2) calculation of interest on those premiums, and (3) attorneys' fees and costs, they should file it with the Court in the form of an affidavit or certification. Upon reviewing any such materials, I will enter either enter final judgment or revisit the request for an inquest.
For the foregoing reasons, I will enter a separate order granting the plaintiffs' motion for a default judgment against Hybrid on Count II of the complaint. The motion is otherwise denied. The plaintiffs are ordered to file with the Court any proof documenting actual or estimated damages, as well as costs and fees.
