STAR INSURANCE COMPANY v. IRVINGTON BOARD OF EDUCATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

STAR INSURANCE COMPANY,

Plaintiff/Counterclaim Civ. No. 19-8677 (KM)(JBC)

Defendant,

ve OPINION

IRVINGTON BOARD OF EDUCATION,

Defendant-Counterclaimant.

KEVIN MCNULTY, U.S.D.J.:

Now before the Court is the motion (DE 21) of the plaintiff, Star

Insurance Company (“Star”), to dismiss Count IV of the Counterclaim of

defendant Irvington Board of Education (the “Board”), for failure to state a

claim. See Fed. R. Civ. P. 12(b)(6). For the reasons stated herein, I will grant

Star’s motion to dismiss Count IV of the Counterclaim.

Star is the Board’s liability insurer. Star’s complaint seeks to recover

funds Star expended to settle a personal injury lawsuit, Destiny Dickens, an

infant, by her guardian ad litem Yvone Smith, and Yvone Smith, individually v.

Irvington Board of Education, et al., docket number ESX-L-4698-13 (N.J. Super.

Ct. Essex Co.) (the “Dickens Action”). The Board’s Counterclaim (DE 16) asserts

four causes of action. The gist of all is that Star, because of its misfeasance in

relation to the Dickens Action or its settlement, should be required to pay

virtually all of the settlement, which amounted to $1 million (following a $6

million jury verdict). Count I seeks a declaratory judgment to that effect. Count

II asserts a claim of breach of contract, ie., Star’s failure to meet its obligations

under the policy of insurance. Count III asserts a claim of breach of the

covenant of good faith and fair dealing, or insurance carrier bad faith. Count

IV, the one at issue on this motion, asserts a claim that Star’s actions

constitute “unlawful discrimination” with the meaning of the New Jersey Law

Against Discrimination (““NJLAD”}, N.J. Stat. Ann. § 10:5-12(l).!

I. Legal Standard on Motion to Dismiss

A counterclaim is a “claim for relief” for purposes of a motion to dismiss.

See Fed. R. Civ. P. 12(b)(6); Smith v. Dir.’s Choice, LLP, Civ. No. 15-00081, 2017

WL 2955347, at *3 (D.N.J. July 11, 2017) (“Courts apply the same standard to

counterclaims as they do to complaints in ruling on a Rule 12(b)(6) motion.).

Federal Rule of Civil Procedure 8(a) does not require that a complaint

contain detailed factual allegations. Nevertheless, “a plaintiff's obligation to

provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will

not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); see Phillips v.

Cnty. of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008) (Rule 8 “requires a

‘showing’ rather than a blanket assertion of an entitlement to relief.” (citation

omitted)). Thus, the complaint’s factual allegations must be sufficient to raise a

plaintiffs right to relief above a speculative level, so that a claim is “plausible

on its face.” Twombly, 550 U.S. at 570; see also West Run Student Hous.

Assocs., LLC v. Huntington Nat. Bank, 712 F.3d 165, 169 (3d Cir. 2013).

That facial-plausibility standard is met “when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009) (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard

is not akin to a ‘probability requirement’... it asks for more than a sheer

possibility.” Id.

Rule 12(b)(6) provides for the dismissal of a complaint if it fails to state a

claim upon which relief can be granted. The defendant, as the moving party,

bears the burden of showing that no claim has been stated. Animal Science

Products, Inc. v. China Minmetals Corp., 654 F.3d 462, 469 n.9 (3d Cir. 2011).

1 Further background may be found in another Opinion I recently filed in this

case. (See DE 29).

For the purposes of a motion to dismiss, the facts alleged in the complaint are

accepted as true and all reasonable inferences are drawn in favor of the

plaintiff. New Jersey Carpenters & the Trustees Thereof v, Tishman Const. Corp.

of New Jersey, 760 F.3d 297, 302 (3d Cir. 2014),

II. Discussion

The Board alleges that Star neglected the Dickens Action, failed to abide

by its obligations under the contract of insurance, and took a tough negotiating

position with the Board. In Counts I, II, and III, these are alleged to be a breach

of Star’s duties as an insurer. What Count IV (NULAD) adds is that Star

allegedly did so secure in the “knowledge that the residents of the Township of

Irvington are for the most part poor and black, and that the Irvington school

district is a poor district-and its belief that the Board would not (as would a

school board in a wealthy, non-minority town) have the resources or will to

fight with a big, powerful insurance company with limitless resources.”

(Counterclaim Count IV q 20).

Star, in its motion to dismiss, argues that

(a) Count IV fails to state a claim as a matter of law, because the NJLAD

covers a party’s discriminatory refusal to deal with another party, but does not

cover a discriminatory breach of those parties’ existing contract; and

(b) even assuming such a NULAD cause of action exists, the facts pled in

the complaint fail to meet the Iqbal/ Twombly standard.

a. Viability of Section 12(1) claim

I start, of course, with the words of the statute on which Count IV is

based:

It shall be an unlawful employment practice, or, as the case

may be, an unlawful discrimination: ....

l. For any person to refuse to buy from, sell to, lease from or to,

license, contract with, or trade with, provide goods, services or

information to, or otherwise do business with any other person on

the basis of the race, creed, color, national origin, ancestry, age,

sex, gender identity or expression, affectional or sexual orientation,

marital status, civil union status, domestic partnership status,

liability for service in the Armed Forces of the United States,

disability, nationality, or source of lawful income used for rental or

mortgage payments of such other person or of such other person’s

spouse, partners, members, stockholders, directors, officers,

managers, superintendents, agents, employees, business

associates, suppliers, or customers. This subsection shall not

prohibit refusals or other actions (1) pertaining to employee-

employer collective bargaining, labor disputes, or unfair labor

practices, or (2) made or taken in connection with a protest of

unlawful discrimination or unlawful employment practices.

NJLAD, N.J. Stat. Ann. § 10:5-12(1) (“Section 12(1)”).

NJLAD, as the Board points out, is a remedial statute, aimed at

eradicating discrimination, and by its own terms is to be “liberally construed.”

N.J. Stat. Ann. § 10:5-3. Still, “the LAD’s reach, although broad, is not without

limitation,” Raspa v. Office of Sheriff of Cty. of Gloucester, 191 N.J. 323, 336

(2007). I cannot read into the NJLAD a cause of action that is simply not to be

found in the statute’s language.

Section 12(l) makes it unlawful “to refuse to ... contract with ... any

other person on the basis of the race . . . of such other person.” Thus an

insurer might be liable for, e.g., denying a qualified minority member’s

application for insurance on the basis of race. But the statute does not, by its

terms, cover discrimination in the performance, or a discriminatory breach, of

an existing contract. For that, the law of contracts supplies a remedy, and

indeed the Board has invoked that remedy.

In support of its motion, Star cites one state Appellate Division case,

Rowan v. Hartford Plaza Ltd., 2013 WL 1350095, at *10 (N.J. Super. Ct. App.

Div. 2013) (Section 12(l) “does not apply to discrimination during the ongoing

execution of a contract.”). Star also cites three opinions of this district court,

Axakowsky v. NFL Productions, LLC, 2018 WL 5961923, at *8 (D.N.J. 2018)

(“the statute expressly covers only refusals to do business with a person based

on a protected characteristic.”); 7-Eleven, Inc. v. Sodhi, 2016 WL 3085897

(D.N.J. 2016} (dismissing claim by franchisee of discrimination in the course of

the ongoing contractual relationship); Naik v. 7-Eleven, Inc., 2014 WL 3844792

(D.N.J. 2014)( “Plaintiffs conflate a refusal to continue to contract with alleged

discrimination during the ongoing execution of a contract, discrimination

which [Rowan, supra] makes clear is outside of the protections of N.J.S.A.

10:5-12(I).”).

I find Star’s citations persuasive. The cases cited by the Board do not

detract from the force of these holdings.

McMahon v. UMDNJ, 2011 WL 5082246 (D.N.J. 2011), involved, inter alia,

an allegedly discriminatory dismissal of a student from an academic program

based on his military service. The case dealt primarily with other issues, but

noted that “the [Section 12(l)] goods and services subsection of the LAD

protects individuals from discriminatory refusals to deal—it does not address

hostile work or educational environments.” Id. at *6. McMahon’s context, then,

is far removed from that of this case, and it does not contradict the holdings

cited above.

Bubbles N’ Bows, LLC v. Fey Publishing Co., 2007 WL 2406980 (D.N.J.

2007), involved dismissal of a Section 12(l) claim against a publication that

refused to honor its agreement to print an “Alternative Lifestyle” product

catalogue. The court, per Judge Wolfson, dismissed the claim because it failed

to “identify any individual or group of individuals within the protected class

who have been discriminated against,” and therefore did not allege causation or

damages in the form of, e.g., damage to plaintiff's business. Id. at *6. The case

did not discuss the issue of whether a breach of contract is actionable under

Section 12(l). Moreover, it was decided years before any of the four cases cited

by Star.

Hudson Environmental Services, Inc. v. New Jersey Property-Liability

Insurance Guaranty Association, 372 N.J. Super. 284, 302, 858 A.2d 39 (Law

Div. 2004), in the court of interpreting another statute, compared it to NJLAD

thus:

[I]t is hard to conclude, for example, that the Legislature intended

section 17 to supersede the Law Against Discrimination, which

would bar discrimination in the payment of insurance claims. See

N.J.S.A. 10:5-12(1) (making it unlawful for any person to

discriminate in the sale or provision of services, goods and

information).

Id. at 302. This is pure dictum—a hypothetical comparison which does not

represent the trial court’s considered analysis of the scope of Section 12(l).

And, like Bubbles N’ Bows, it long preceded the authoritative case law cited by

Star.

Klein v. Oregon Bureau of Labor and Industries, 139 8. Ct, 2713

(2019), cited by the Board, requires little comment. It is a one-sentence order

remanding a case to the Court of Appeals of Oregon for further consideration in

light of Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Comm’n, 584 U.S.

_, 138 S. Ct. 1719 (2018). It involved an Oregon baker’s denial of service to a

same-sex couple who wished to purchase a wedding cake. It has nothing to do

with NJLAD or a claim based on breach of an ongoing contract.

The rule adopted here is not, as the Board implies, arbitrary or

nonsensical. Section 12(l) addresses the reality that minorities cannot get in

the game if others refuse to contract with them. The legislature could

legitimately conclude that where the parties are in a contractual relationship

and one of them fails to live up to its obligations, ordinary remedies (like those

invoked in Counterclaim Counts I, II, and III) are available and adequate.

Count IV of the Counterclaim is therefore dismissed, because it fails to

state a NJLAD claim under Section 12(l), as a matter of law.

b. Adequacy of pleading

That being the case, I deal only briefly with Star’s alternative contention

that Count IV fails to meet the pleading standards of Twombly and Iqbal. Even

assuming the viability of the Board’s NJLAD theory, I would dismiss Count IV

of the Counterclaim on this alternative basis.

For present purposes, I adopt the Board’s summary of the allegations of

Count IV:

.... Star was given an opportunity to participate in the

defense of the Dickens action. Star was provided with notice and

consistent updates regarding the litigation. (ECF 16, J] 18-33.)

Nonetheless, Star waited until after a second arbitration to even

acknowledge receipt of the claim. (Id., § 33.) Even after Star

responded, it did not request a litigation update or analysis from

the Board, nor did it question the defense being provided or

demand that the Board settle the case and not proceed to trial.

(Id., | 34.) Star was provided with another update regarding the

case proceeding to trial, but it did not respond or make any

requests with regard to trial or settlement. (Id., ]] 35-36.) Star did

not raise any objections about the way that the Dickens action was

handled until after a $6 million verdict had been entered against

the Board. (Id., | 37-38.) It is plain that Star’s after-the-fact

objections to what occurred in connection with the Dickens action

were a pretext to avoid having to pay under the policy. In reality,

Star acted in a discriminatory manner in an effort to avoid its

obligations.

Star was aware of the racial makeup of Irvington and the

Board at the time it asserted its objections with regard to the

Dickens action, (Id., Counterclaim, Facts Common to All Counts,

8-9.) Specifically, Star was aware that the Board is comprised of all

non-Caucasian and/or African American members. (Id.,

Counterclaim, Facts Common to All Counts, q 2.) Star was aware

that 85% of Irvington residents who responded to the 2010 United

States Census self-identified as Black or African American. (Id.,

Counterclaim, Facts Common to All Counts, 7 3.) Star was also

aware that majority of students who attend the Irvington public

schools are also black or African American. {Id., Counterclaim,

Facts Common to All Counts, { 4.) Furthermore, Star was aware

that the residents of the Township of Irvington, relative to the

residents of other townships in the State of New Jersey, are poor.

(Id., Counterclaim, Facts Common to All Counts, 5.)

The Board alleges that based on this knowledge, Star took

unreasonable and aggressive positions because it believed that the

Board would not have the ability to fight back against Star. (Id.,

Counterclaim, Count IV, J 20.) Star’s discriminatory animus can

be plainly seen it its proposal at mediation to pay only 25% of any

settlement above the Board’s self-insured retention, despite Star’s

clear obligation to pay 100% above the Board’s self-insured

retention. (Id., Counterclaim, Count IV, 7 21.) Star’s position is

that this offer was based upon the Board’s failure to provide Star

with adequate notice of the Dickens action, failure to provide an

adequate defense, and failure to settle within the self-insured

retention. These positions are unsupported by the evidence and

are simply an effort to hide Star’s true motivations.

(Brief filed by the Board (DE 21-1) in support of motion to dismiss, pp. 14-15).

This is an ordinary allegation of breach by an insurer. The only addition

is the insurer’s “knowledge” that Irvington is a cash-poor municipality and that

many of its residents and students are African-American. The mere knowledge

of a party’s race is not enough to convert an ordinary commercial claim into

one of racial discrimination under the NULAD. See Collick v. William Paterson

Univ., No. 16-471 (KM) (JBC), 2016 WL 6824374, at *13 (D.N.J. Nov. 17, 2016)

(“Voicing a grievance and identifying the participants by race is not enough,

standing alone, to support an inference of racial discrimination”)?; Coulton v.

Univ. of Pennsylvania, 237 F. App’x 741, 747 (3d Cir. 2007} (allegation that

supervisor was of a different race was insufficient by itself to permit an

inference of discrimination).

The alleged circumstances here, however liberally read, do not suggest

discrimination. These are not actions that would not ordinarily occur but for a

discriminatory motive—such as, for example, the denial of insurance to a

minority applicant whose qualifications were equal to those of an accepted non-

minority applicant. Here, the insurer’s commercial interests are sufficient

explanation for its actions, even should they ultimately be proven to be

wrongful. No discriminatory history is cited. No suggestive bigoted language is

quoted. No relevant factual comparisons are drawn. In short, no facts or

circumstances are pled to suggest that Star’s motivations were racially

discriminatory.

For this additional and alternative reason, then, Count IV would be

dismissed for failure to meet federal pleading standards.

2 Collick, my own decision, was adhered to on denial of reconsideration, No. CV

16-471 (KM) (JBC), 2017 WL 1508177 (D.N.J. Apr. 25, 2017), and affd in part,

remanded in part, 699 F. App’x 129 (3d Cir. 2017). The subsequent history was

unrelated to the proposition quoted.

HI. Conclusion

For the reasons set forth above, Star’s motion (DE 21) to dismiss Count

IV of the Board’s Counterclaim is GRANTED. In an abundance of caution, and

because this is an initial dismissal, it is entered without prejudice to the filing

of a properly supported motion to amend the Counterclaim within 30 days.

An appropriate order follows.

Dated: December 17, 2019

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Kevin McNulty .

United States District Judge