Opinion
DOCKET NO. A-0964-12T4
03-11-2019
ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, ALLSTATE NEW JERSEY INSURANCE COMPANY, Plaintiffs-Respondents, v. NORTHFIELD MEDICAL CENTER, PC; ROBBAN ARIEL SICA, M.D.; SCOTT DAVID, D.O.; J. SCOTT NEUNER, D.C.; JSM MANAGEMENT COMPANY, INC.; TILTON CHIROPRACTIC CENTER, PC; TILTON CHIROPRACTIC CENTERS, SOUTH DIVISION, PC; ARNOLD BACARRO, M.D.; PANKAJ ANAND AGRAWAL, M.D. a/k/a "PANKAJ ANAND"; ALAN CARR, D.O.; VORRIE MACOM, M.D.; ALONSO V. CORREA, M.D.; ALONSO V. CORREA, M.D., PC; CORREA MEDICAL DIAGNOSTICS, PC; and MEDICAL INNOVATIONS, INC., Defendants, and DANIEL H. DAHAN, D.C.; PRACTICE PERFECT; and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., Defendants-Appellants, and ROBERT P. BORSODY, ESQ., Defendant-Respondent, and AMERICAN ARBITRATION ASSOCIATION, Defendant in Interest.
Christopher B. Turcotte argued the cause for appellants. Thomas J. Hall argued the cause for respondents Allstate Insurance Company, Allstate Indemnity Company, and Allstate New Jersey Insurance Company (McGill and Hall, LLC, and Pashman Stein Walder Hayden, PC, attorneys; Thomas J. Hall and Michael S. Stein, on the briefs). Shaji M. Eapen argued the cause for respondent Robert P. Borsody (Morgan Melhuish Abrutyn, attorneys; Shaji M. Eapen, on the briefs).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3. Before Judges Alvarez and Reisner. On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3228-99. Christopher B. Turcotte argued the cause for appellants. Thomas J. Hall argued the cause for respondents Allstate Insurance Company, Allstate Indemnity Company, and Allstate New Jersey Insurance Company (McGill and Hall, LLC, and Pashman Stein Walder Hayden, PC, attorneys; Thomas J. Hall and Michael S. Stein, on the briefs). Shaji M. Eapen argued the cause for respondent Robert P. Borsody (Morgan Melhuish Abrutyn, attorneys; Shaji M. Eapen, on the briefs). PER CURIAM
The Supreme Court reversed our prior decision, concluding that Allstate had established that defendants had actual knowledge that their medical practice model violated regulatory requirements contrary to the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. Allstate Ins. Co. v. Northfield Med. Ctr., PC, 228 N.J. 596, 624-27 (2017). The Court therefore remanded the matter in order that we consider issues not previously addressed. Id. at 600. Defendants, Daniel Dahan, a California chiropractor, and two of his companies, Practice Perfect and Medical Neurological Diagnostics, Inc. (MNDI) (collectively Dahan), as well as Robert Borsody, Esq., a lecturer for Practice Perfect, were found liable under IFPA for significant damages after a bench trial completed in 2012. We now vacate that judgment and return the case to the Law Division for a jury trial in accord with Allstate New Jersey Ins. Co. v. Lajara, 222 N.J. 129, 134 (2015) (holding a jury trial is constitutionally required for "claims seeking compensatory and punitive damages under the IFPA.").
The relevant facts are as follows. In the 1990s, Dahan marketed lectures advancing a corporate structure that would enable chiropractors to create and own multi-disciplinary medical practices. Medical practices owned by non-physicians are prohibited in New Jersey. John Scott Neuner, a New Jersey chiropractor, set up a medical practice following Dahan's model. After an investigation, Allstate rejected Neuner's invoices for payment of patient medical treatment on the basis of the allegedly unlawful management structure of the medical practice. Allstate also sought to be reimbursed for payments previously made. Allstate prevailed on its claims in the trial court, and was awarded nearly $4 million in damages—twelve years of counsel fees—which under IFPA's terms had been trebled. Neuner settled early in the litigation, leaving only Dahan and Borsody responsible.
Borsody has settled his dispute with Allstate, and other than a cross-claim Dahan makes against him, takes no position on this appeal. --------
Post-remand, Dahan sought by way of motion to have the matter returned to the Law Division for a jury trial in conformity with Lajara. We denied that application. Allstate also filed for interim relief, seeking to expand the appeal record. We reserved decision pending review by the merits panel.
Dahan now raises the following points for our consideration:
I. ALLSTATE ACKNOWLEDGES THE DAHAN APPELLANTS ARE ENTITLED TO A JURY TRIAL BASED ON THE SUPREME COURT'S LAJARA DECISION
II. THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN FAILING TO EXCLUDE A VIDEOTAPE OF BORSODY AT A NON-DAHAN SPONSORED EVENT AS TRIAL EVIDENCE, BASED ON ITS LACK OF RELEVANCY AND PREJUDICE TO THE DAHAN APPELLANTS
III. THE TRIAL COURT ERRED IN ITS DISMISSAL OF THE DAHAN APPELLANTS' CROSS-CLAIM FOR INDEMNIFICATION AGAINST BORSODY
IV. THE DAHAN APPELLANTS SEEK APPELLATE REVIEW ON THE BALANCE OF LEGAL ISSUES THAT WILL BE IMPACTED BY ANY RETRIAL OF THIS MATTER
I.
The Court's discussion regarding the constitutional necessity of a jury trial in IFPA matters compels the retrial of this case, which was in the "pipeline" at the time of the decision in Lajara. When a new rule of law is created, courts may grant limited retroactivity, applying it to cases where the parties have not exhausted all avenues of direct review. In re Board's Main Extension Rules N.J.A.C. 14:3-8.1 et seq., 426 N.J. Super. 538, 549 (App. Div. 2012) (citing Fischer v. Canario, 143 N.J. 235, 244 (1996)). "Pipeline retroactivity" applies to cases still on appeal, such as this one. Id. at 550. The analysis regarding pipeline retroactivity requires consideration of whether the litigants reasonably relied on the prior law, whether retroactive application will advance the purposes of the new rule, and whether retroactive application will produce inequitable results and adversely affect the administration of justice. Olds v. Donnelly, 150 N.J. 424, 449 (1997) (citing Crespo v. Stapf, 128 N.J. 351, 367-71 (1992)).
Given that the right to a jury trial has been held to be constitutionally required, it cannot be said that either side "reasonably relied" on the outcome of the bench trial. Retroactive application of the right to a jury trial will advance the purposes of the Lajara decision, and a jury trial would neither prejudice the result nor adversely affect the administration of justice. Moreover, the Lajara Court stated that a jury trial in an IFPA action was "not a recent advent or a break from a long-accepted practice" since such claims had been tried before juries over the prior twenty years. 222 N.J. at 153. In Lajara, the Court analogized IFPA to the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -210, and cases brought under IFPA to causes of action alleging common-law fraud. Id. at 147-49. Both types of cases require jury trials "despite the lack of complete symmetry[.]" Id. at 148-49. Therefore, pipeline retroactivity is appropriate in this IFPA matter.
A number of the issues raised by Dahan, and Allstate's motion, are now moot in light of our conclusion that Lajara mandates a new trial. We begin with the well-established principle that, as the Court recently reiterated, trial judges are vested with great discretion in exercising control over their courtrooms, and have "the ultimate responsibility of conducting adjudicative proceedings in a manner that complies with required formality in the taking of evidence and the rendering of findings." N.J. Div. of Child Prot. & Permanency v. A.B., 231 N.J. 354, 366 (2017) (citing N.J. Div. of Youth & Family Servs. v. J.Y., 352 N.J. Super. 245, 264 (App. Div. 2002)). Hence we reserve to the judge who tries the matter the decision-making authority to determine the admissibility of evidence based on the proofs then before the court. Allstate's motion to supplement the record is now moot; Allstate can move for the admission of the evidence at trial.
Dahan's arguments regarding the alleged inadmissibility of a videotape of a 1995 Borsody lecture are all highly fact-sensitive, best left to the trial court's exercise of discretion as to the admission of evidence. See N.J.R.E. 801(e); State v. Wilson, 135 N.J. 4, 16-17 (1994). Dahan's arguments include the alleged lack of authentication, gaps in the chain of custody, gaps in the tapes themselves, and lack of relevance because of the chronology of events.
We only comment on one aspect of Dahan's thesis—that being his claim that he was substantially prejudiced by the admission of the videotape. We do not agree. Dahan does not point to any specific prejudice—much less identify the manner in which the admission of the videotape is unduly or unfairly prejudicial. See Stigliano v. Connaught Labs., Inc., 140 N.J. 305, 317 (1995).
II.
Dahan also contends that the trial court erred in dismissing the crossclaim against Borsody. We see no error in the dismissal, and no basis for it to survive either in the relevant law or the facts available on this record. The judge did not err in deciding the matter by way of summary judgment, as opposed to rendering a decision at the close of the trial. In dismissing the cross-claim by way of summary judgment, Judge Stephan C. Hansbury stated:
There is no establishment of an agency relationship. . . . I reject the argument that one must wait until the end of trial before you do this.
There's . . . no such case. The rule . . . [4:7-5] does talk in terms of if. It doesn't say you have to. And it flies in the face of logic to think that if [the] indemnification provision is there that the party against whom that is sought just simply can't leave the case until the case is over.
. . . It just flies against logic to think that that party must stay in until the bitter end if there's no basis for it.
The simple fact is there's no basis upon which the Court could find that there's a relationship. . . . [T]here is no attorney/client relationship, there is no other relationship.
[Borsody] did speak. That's quite true. But there's no evidence upon which a jury could find or a court that there was such a relationship.
And as I said . . . there's no case which says it must come at the end of trial.
A cause of action for indemnity arises when the event fixing liability occurs. Florham Park Bd. of Educ. v. Utica Mut. Ins. Co., 172 N.J. 300, 307 (2002). No New Jersey law prohibits a court from deciding a motion to dismiss a cross-claim for indemnification at the summary judgment stage. The issue has not been separately raised and addressed in the case law, although pre-trial dismissals have been upheld for other reasons. See Estate of Spencer v. Gavin, 400 N.J. Super. 220, 257 (App. Div. 2008) (cross-claim for indemnification against settling defendants properly dismissed by motion judge where the claimant had no contractual or common law right of indemnification); Kentopp v. Franklin Mut. Ins. Co., 293 N.J. Super. 66, 71 (App. Div. 1996) (noting without comment that cross-claim for indemnification had been dismissed on summary judgment); Abel Holding Co. v. Am. Dist. Tel. Co., 138 N.J. Super. 137, 161 (Law Div. 1975) (granting motion to dismiss cross-claim by way of summary judgment), aff'd, 147 N.J. Super. 263 (App. Div. 1977). Thus, that the right to indemnification may accrue after trial has not been held to bar a New Jersey trial court from ruling on its legal basis prior to trial.
Dahan cites Judge Hansbury's trial decision itself in support of the assertion that dismissal of the cross-claim at the summary judgment stage was premature. We do not agree. Clearly, the court concluded that Borsody created a manipulated corporate model, presented at Practice Perfect seminars, which superficially complied with applicable regulations while in actuality enabling chiropractors to own medical practices. However, nowhere in the decision did the court impute liability to Dahan based on Borsody's presentations. Rather, the court held Dahan liable for his own role in advancing the model and in encouraging Neuner to use it.
Generally, common law indemnification shifts the cost of liability from one who is constructively or vicariously liable to the tortfeasor who is primarily liable. Harley Davidson Motor Co., Inc. v. Advance Die Casting, Inc., 150 N.J. 489, 497-98 (1997). Here, the court made no determination that either Dahan or Borsody were primarily liable. Each was found to be liable based on his own conduct; neither was found to be constructively or vicariously liable.
Moreover, it is settled that a party who has been at fault, as Dahan was held to be, may not ordinarily be granted indemnity. Cartel Capital Corp. v. Fireco of N.J., 81 N.J. 548, 566 (1980). "It would be inequitable to permit an active wrongdoer in the absence of a contractual understanding between the parties to obtain indemnity from another wrongdoer and thus escape any responsibility." Ibid.
Finally, Dahan failed to establish a legal relationship with Borsody such that indemnity is available. Generally, a third party may recover indemnification from an employer where there is a special relationship, such as principal and agent, bailor and bailee and lessor and lessee. Ramos v. Browning Ferris Indus. of South Jersey, Inc., 103 N.J. 177, 189 (1986). If anything, Dahan, not Borsody, was the employer. Moreover, in a trial brief, Dahan has argued that Borsody was not his agent and, therefore, Dahan could not be held vicariously liable for what Borsody had said in his lectures.
In addition, the third party's liability must be vicarious. Pingaro v. Rossi, 322 N.J. Super. 494, 509 (App. Div. 1999). Dahan's liability arose from "his own independent breach of a duty, not from the application of principles of vicarious responsibility." Estate of Spencer, 400 N.J. Super. at 257. Dahan failed to satisfy the requirements for indemnification. Thus, the court made neither a procedural nor substantive error in the dismissal of the counterclaim.
III.
In an essentially catch-all point, Dahan raises a number of issues he argues should be addressed before retrial. These issues include whether imposition of liability in this case violates the First Amendment, whether summary judgment granted to Allstate and against Dahan and MNDI based on a violation of N.J.A.C. 13:35-2.6 and the IFPA violated their rights under the Commerce Clause, and whether the trial court erred by failing to sanction Allstate for payment of more than $18,000 to a fact witness, an attorney, John Grossman.
Dahan's First Amendment rights were not violated in this case because those rights, when they arise in the context of commercial speech as is implicated in this case, do not include allegedly misleading or fraudulent practices. Commercial speech receives less exacting review, where regulated to protect the public, because the concern is to protect consumers from misleading, deceptive or aggressive sales practices. 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 501 (1996). Commercial speech receives a limited form of First Amendment protection so long as it concerns a lawful activity and is not misleading or fraudulent. Posadas de Puerto Rico Assocs. v. Tourism Co. of Puerto Rico, 478 U.S. 328, 340 (1986). The First Amendment does not protect commercial speech that furthers unlawful activities. 44 Liquormart, 517 U.S. at 497 n.7.
N.J.S.A. 17:33A-4 includes the filing of false and misleading claims and false and misleading information within its ambit, as well as knowingly assisting or conspiring to file such claims or disseminate such information. The New Jersey statute includes fraudulent intent as an element. Therefore, Dahan's seminars and materials are not entitled to First Amendment protection under the commercial speech doctrine. See United States v. White, 769 F.2d 511, 517 (8th Cir. 1985) (representations regarding the allowable deductions, the excludability of income and certain tax benefits which were misleading and promoted tax evasion and avoidance were not protected commercial speech).
Dahan's claims regarding the violation of the Commerce Clause involve the imposition of an order on MNDI compelling disgorgement of $586.43 in fees. That order, however, was never included in Dahan's notice of appeal, so we will not address it further. See R. 2:5-1(e)(2).
Finally, Dahan challenges the trial court's decision not to sanction Allstate for fees it paid Grossman. The payment did not violate the Rules of Professional Conduct, and in any event, was not included in the overall damage award. Grossman met with Neuner, and spoke to Dahan about whether a medical doctor could be the sole owner of a medical corporation while not participating in the practice. At Dahan's suggestion, Grossman spoke to Borsody, researched the law, and provided legal advice to Neuner. The amount paid by Allstate to Grossman was the latter's standard hourly rate. He submitted an invoice for seventeen billable hours in preparation for his testimony, and also billed for his appearance.
Judge Hansbury said on the subject:
[Allstate] elected to pay [Grossman] a standard hourly rate which he charges clients and seeks reimbursement of that amount. Although defendants argue that this constitutes a violation of R.P.C. 3.4(b), the [c]ourt disagrees. However, the court does agree that [Allstate's] election to pay a witness his normal hourly rate as an attorney does not constitute "a reasonable investigation expense, cost of suit or attorneys' fees." The [c]ourt, therefore, disallows this amount for that reason.The decision whether to sanction an attorney is within the discretion of the trial court. Mandel v. UBS/PaineWebber, Inc., 373 N.J. Super. 55, 82-83 (App. Div. 2004). The trial court reasonably exercised its discretion here.
Under RPC 3.4(b), a lawyer is not permitted to offer an inducement to a witness that is prohibited by law. In general, however, a party subpoenaing a witness is required to reimburse the witness for the out-of-pocket expenses and loss of pay in attending the taking of a deposition. R. 4:14-7(b)(1).
As noted, the payments to Grossman were for his time in preparing for, attending, and testifying at trial—essentially reimbursement for Grossman's loss of billable hours. It was not an improper inducement to obtain his testimony. The court did not abuse its discretion in refusing to sanction Allstate's attorneys. In addition, the trial court rejected Allstate's request to include the payment in the damages award.
Remanded for the completion of a jury trial. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION