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Applied Underwriters, Inc. v. Top's Personnel, Inc.

United States District Court, D. Nebraska

February 6, 2019

APPLIED UNDERWRITERS, INC., a Nebraska Corporation; Plaintiff,
v.
TOP'S PERSONNEL, INC., A New Jersey Corporation; Defendant.

          FINDING, RECOMMENDATION AND ORDER

          CHERYL R. ZWART UNITED STATES MAGISTRATE JUDGE.

         Defendant/Counter-Plaintiff Top's Personnel, Inc. (“Top's”) initiated this class action lawsuit pursuant to Fed.R.Civ.P. 23, claiming that Plaintiff/Counter-Defendant Applied Underwriters, Inc. (“Applied”) unlawfully marketed and sold fraudulent workers' compensation insurance policies in violation of state and federal law. This matter is before the court on Top's motion for class certification. (Filing No. 161). For the reasons stated below, the motion should be denied.

         BACKGROUND

         Applied is a Nebraska corporation, with its principal place of business in Omaha, Nebraska. Applied markets and sells workers' compensation insurance programs under the names EquityComp and SolutionOne (collectively “the Program”). The Program offers loss-sensitive workers' compensation insurance and profit-sharing policies that Applied has marketed and sold in numerous states since 2007. (Filing No. 217, at CM/ECF p. 18).

         The state of New Jersey requires all employers to maintain workers' compensation insurance coverage for employees that suffer injury or death due to an occupational hazard. (Filing No. 129, at CM/ECF p. 9, ¶ 17; N.J. Stat. Ann. § 34:15-88). New Jersey workers compensation law requires that all workers' compensation policies, together with their classification of risks, premiums, and rules pertaining thereto, in addition to their basis rates and applicable system of merit or schedule rating be filed for approval with the New Jersey Commissioner of Banking and Insurance (the “New Jersey Commissioner”) (Id.)

         In 2011, Top's purchased an EquityComp policy from Applied. (Filing No. 146, at CM/ECF p. 2). The EquityComp program consists of three separate agreements. (Filing No. 162, at CM/ECF p. 6; Filing No. 217, at CM/ECF p. 18). The first contract is a traditional guaranteed rate workers compensation policy (“GC Policy”), issued by Applied affiliates-Continental Indemnity Company (“Continental”) and California Insurance Company (“CIC”) (Id.) GC policies are not “loss-sensitive, ” meaning that premiums charged are not affected by the filing of claims. (Id.) Applied filed this policy with the New Jersey Commissioner and received approval. (Id.)

         The second contract is a reinsurance agreement. (Id.)

         The third contract is titled a Reinsurance Participation Agreement (“RPA”). (Id.) The RPA is a profit-sharing agreement with Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”) that is loss-sensitive, meaning that premiums fluctuate with the insured's claims activity. (Id.) Under the program, if a participant maintains low workers' compensation insurance claims, it reaps the benefits of correspondingly lower ultimate premium costs. (Filing No. 217, at CM/ECF p. 18). On the other hand, as workers' compensation claims go up, so, too does the participant's ultimate cost (up to a specified maximum). (Id.) Neither the reinsurance agreement nor the RPA is filed with, or approved by, the New Jersey Commissioner. (Filing No. 162, at CM/ECF p. 6; Filing No. 217, at CM/ECF p. 18).

         Top's states that under the EquityComp proposal:

[C]ertain GC Policy information is presented first, but with the qualification that a Profit Sharing Plan, affected through a reinsurance transaction that is separate from the guaranteed cost policies and independently rated, also applies. The aspects of the RPA are then presented, along with an estimated net cost, which contains an estimated minimum cost and maximum cost for a single year, and also for the three-year RPA period. These estimated net costs reflect both premiums paid pursuant to the GC Policy as well as the RPA. . . .
This document also includes a scenario worksheet that set forth the highest possible cost and lowest possible cost for Top's.

(Filing No. 162, at CM/ECF p. 7).

         Over the course of approximately its first two-years of enrollment, between late 2011 and 2013, Top's received monthly invoices from Applied averaging around $100, 000 per month. (Filing No. 129, at CM/ECF p. 21, ¶¶ 62-63; Filing No. 165, at CM/ECF p. 7, ¶¶ 62-63). In December 2013, following a significant rise in its claims incurred under the Program, Top's received an invoice for over $500, 000. (Filing No. 129, at CM/ECF p. 21, ¶ 64; Filing No. 165, at CM/ECF p. 7, ¶ 64). Unable to pay this amount in full, in January 2014, Top's executed a promissory note for the invoice's full amount, agreeing to pay $125, 000 initially, followed by nine monthly payments of $43, 000. (Filing No. 129, at CM/ECF p. 121, ¶ 65; Filing No. 165, at CM/ECF p. 7, ¶ 65).

         Top's made its initial agreed payments on the note; but then, finding itself once again unable to pay its invoice, executed a second promissory note for the approximate sum total of $538, 000. (Filing No. 129, at CM/ ECF p. 22, ¶ 67; Filing No. 165, at CM/ECF p. 7, ¶ 67). On the note, Top's “acknowledge[d] its indebtedness” and “promise[d] to pay” the reflected amount. (Filing No. 23-1, at CM/ECF p.1). In 2015, Applied filed suit when Top's failed to pay this obligation. (Filing No. 1).

         Top's responded with a motion to dismiss. After several rounds of briefing on the motion, Applied filed an amended complaint. (Filing No. 23). Defendant then filed a second motion to dismiss, which was formally denied on June 16, 2016. (Filing No. 35). On June 30, 2016, Top's filed its Answer and discovery commenced in August 2016. (Filing No. 36).

         Following various discovery delays, on January 26, 2018, the court granted Top's leave to amend its answer to include a class action counterclaim and conduct limited class discovery. (Filing No. 127). Top's filed its amended answer with a class counterclaim on February 2, 2018. (Filing No. 129). In early February, the parties filed cross-motions for summary judgment. (Filing No. 141; Filing No. 145).

         On August 2, 2018, this court granted Applied's motion for summary judgment, denied Top's' motion, and ordered Top's to pay outstanding payments owed under the May 2014 promissory note in the amount of $166, 202.65. (Filing No. 202). Judge Gerrard found the note to be an independently enforceable obligation, but he explicitly left open the question of whether the programs properly adhered to state statutory and regulatory requirements.

         On March 2, 2018, Top's filed the instant motion for class certification, seeking certification on behalf of a Nationwide class or, in the alternative, a statewide New Jersey class. (Filing No. 162, at CM/ECF p. 13). Specifically, Top's seeks certification on behalf of a Nationwide class that includes:

All individuals or entities in the United States who purchased an EquityComp or SolutionOne workers' compensation insurance policy from Applied Underwriters, Inc. or any of its affiliates, and subsequently executed a promissory note with Applied Underwriters, Inc. or one of its affiliates relating to sums allegedly owed pursuant to either the EquityComp or SolutionOne programs.

         (Filing No. 162, at CM/ECF p. 13).

         In the alternative, Top's seeks class certification of a New Jersey statewide class, encompassing:

All individuals or entities in the state of New Jersey who purchased an EquityComp or SolutionOne workers' compensation insurance policy from Applied Underwriters, Inc. or any of its affiliates, and subsequently executed a promissory note with Applied Underwriters, Inc. or one of its affiliates relating to sums allegedly owed pursuant to either the EquityComp or SolutionOne programs.

         (Filing No. 162, at CM/ECF p. 13).

         Top's seeks certification of its counterclaims based on the allegedly “unlawful and deceptive acts” of Applied “relating to its sale of unlawful workers' compensation insurance policies to employers across the United States.” (Filing No. 162, at CM/ECF p. 2). Top's contends that Applied unlawfully collected monies from Top's and other “similarly situated insured-employers through various promissory notes” issued in accordance with the underlying sale of its allegedly unlawful workers' compensation insurance programs. (Filing No. 162, at CM/ECF p. 2-3).

         Top's seeks certification of its claims on behalf of the classes as follows:

On behalf of the Nationwide class, Top's seeks certification of the claims for violations of the Nebraska Consumer Protection Act (NEB. REV. STAT. §§ 59-1601, et seq.) (“NCPA”), and the Nebraska Uniform Deceptive Trade Practices Act (NEB. REV. STAT. §§ 87-301, et seq.) (“NUDTPA”), in addition to certification of the claims for rescission or unjust enrichment. (Filing No. 162, at CM/ECF p. 13).

         In the alternative, on behalf of the New Jersey subclass, Top's seeks certification of the claim for violations of the New Jersey Consumer Fraud Act (N.J. STAT. ANN. §§ 56:8-1, et seq.) (“NJCFA”), in addition to certification of the claims for rescission or unjust enrichment. (Filing No. 162, at CM/ECF p. 13).

         The court analyzes each class certification sought by Top's individually, in turn.

         ANALYSIS

         Class actions are “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Wal-Mart Store, Inc. v. Dukes, 564 U.S. 338, 348 (2011). A Plaintiff seeking leave to serve as a class representative and obtain class certification has the burden of proving the requirements of Rule 23 are met. Coleman v. Watt, 40 F.3d 255, 258-59 (8th Cir. 1994).

         Under Federal Rule of Civil Procedure 23(a), four threshold requirements are applicable to all class actions: (1) numerosity-“the class is so numerous that joinder of all members is impracticable”; (2) commonality-“there are questions of law or fact common to the class;” (3) typicality-“the claims or defenses of the representative parties are typical of the claims or defenses of the class;” and, (4) adequacy of representation-"the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a).

         Once each element of Rule 23(a) is demonstrated, a class action may be maintained so long as at least one of the Rule 23(b) sub-parts is satisfied. Fed.R.Civ.P. 23(b)(1)-(3).

         A. Fed.R.Civ.P. 23(a).

         (i) Numerosity.

         When assessing Rule 23(a)(1)'s numerosity requirement, the court must determine “whether the class is so numerous that joinder of all members is impracticable.” Paxton v. Union Nat. Bank, 688 F.2d 552, 559 (8th Cir. 1982). Additionally, the court may consider the nature of the case, the size of the individual claims and relative inconvenience of trying individual suits, and “any other factor relevant to the practicability of joining all the putative class members.” Klein v. TD Ameritrade Holding Corp., 327 F.R.D. 283, 292 (D. Neb. 2018).

         Nationwide class - Numerosity.

         Top's argues that based on this court's Harris decision, “upon information and belief”, [1] the numerosity requirement is satisfied because “[w]hile the exact number of putative Class members is uncertain, it will certainly surpass the number [89] in Harris.” (Filing No. 162, at CM/ECF p. 14). See Harris v. D. Scott Carruthers & Assoc., 270 F.R.D. 446, 450 (D. Neb. 2010). To this end, Top's argues the class consists of “hundreds if not thousands of employer-insureds who are geographically dispersed and who purchased Applied's unlawful insurance Programs and executed a Promissory Note.” (Filing No. 162, at CM/ECF pp. 15-16).

         Applied counters that Top's has failed to establish numerosity under Rule 23(a)(1). First, Applied argues that Top's estimate is purely speculative because “Top's has offered no evidence of the actual number of putative class members, ” and Top's extrapolates a range in the “hundreds if not thousands” from the testimony of a sole Applied employee. (Filing No. 217, at CM/ECF p. 31-35)(emphasis in original). Second, Applied contends Top's fails to account for the class members who must be left out: “[a] substantial number of potential class members will have to be excluded from the proposed class because either they signed class action waivers, their claims are barred by applicable statutes of limitations, or they are already members of other ...


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