No Right to a Jury Under the Insurance Fraud Prevention Act

The New Jersey Appellate Division, on Oct. 9, 2013, held that there exists no statutory or constitutional right to a jury trial under the Insurance Fraud Prevention Act (“the Act”), N.J. Stat. Ann. ” 17:33A-1 to -30. Allstate N.J. Ins. Co. v. Lajara, No. A-5684-11T4, 2013 WL 5538723 (N.J. Super. Ct. App. Div. Oct. 9, 2013).

The Case

The plaintiffs, various insurance companies, alleged they had paid $8.2 million in benefits to physicians, chiropractors, companies, and certain unlicensed individuals (collectively, “defendants”) as a result of violations of the Act. Id. at *1. Among their allegations, the insurers asserted that the defendants had violated various professional regulations, billed for services performed by unlicensed persons, engaged in unlawful fee-splitting, billed for services and equipment not actually provided or unnecessary, and paid kickbacks to referring attorneys. Id. These actions, according to the complaint, were undertaken as part of a scheme to defraud the plaintiffs. Id. Accordingly, the plaintiffs sought, among other things, a declaratory judgment that they were not obligated to pay benefits to the defendants, disgorgement of sums already paid to the defendants, imposition of a constructive trust and equitable lien on the defendants' assets, and damages allowed under the Act. Id.

The insurers initially had demanded a jury trial, as had some of the defendants. Id. After answers were filed, the insurers moved for leave to withdraw their demand. Id. The defendants opposed the insurers' motion and demanded a trial by jury. The trial court, however granted the insurers' motion and struck the defendants' jury demand. Id. at *1-2. Thereafter, the Appellate Division granted the defendants leave to appeal the trial court's order, and affirmed the trial court's decision. Id. at *1.

The Appellate Court's Ruling

The appellate court observed, as an initial matter, that “[t]he Act is silent on the right to trial by jury.” Id. The court also recognized that a court may even grant a party's late request to withdraw a jury demand over an adversary's opposition if there exists no statutory or constitutional right to a jury trial. Id. at *2. The court thus set out to determine whether the Act implies a jury trial right, or whether the Constitution's right to trial by jury, N.J. Const. art. I, para. 9, encompasses a private action under the Act. Id. at *1.

With respect to the first issue before it, the court considered “the Act's plain language, its legislative history, and the legislative intent, and appl[ied] well-settled principles of statutory construction,” ultimately holding that “the Act does not [implicitly] create a right to a jury trial.” Id. The court reasoned, among other things, that “[w]hen conferring a right to a jury trial for newly-created statutory causes of action, the Legislature has [done] so by express provision.” Id. at *2. According to the court, “in the absence of an express provision, [New Jersey] courts have consistently denied a right to a jury trial for newly-created statutory causes of action.” Id. at *6. The court acknowledged that “[t]he Legislature is empowered to confer a right to a jury trial where it otherwise would be unavailable.” Id. The court emphasized that “[w]hen the Legislature has carefully employed a term in one place and excluded it in another, it should not be implied where excluded.” Id. at *5. Applying the foregoing principles to the statute before it, the court observed that, unlike other enactments, in which the Legislature “expressly provided a right to trial by jury,” the Act “does not expressly grant a jury trial right.” Id. at *2. Accordingly, the court held that “there is no statutorily implied right to a jury trial in an insurer's action under [the Act], where none is expressly provided.” Id. at *7.

The Court's Reasoning

The court explained that, “[a]lthough the Legislature's silence is not dispositive, it is a significant factor weighing against the finding of a statutorily implied right.” Id. Indeed, courts “should be reluctant to infer statutory provisions of law when the Legislature has not seen fit to expressly include them,” the court said. Id. Further concluding that neither the structure or intent of the Act, the remedies provided, the Act's legislative history, nor prior New Jersey precedent “compel a finding of an implied jury trial right,” the court turned to “whether, even absent any statutorily implied right, the [New Jersey] Constitution guarantees a jury trial.” Id. at *7-8.

Reasoning that “the equitable nature of the statutorily-created right to relief was unknown at common law before adoption of the State Constitution,” the court ultimately held that the New Jersey Constitution does not guarantee a right to a trial by jury for it. Id. at *1. The court recognized, as an initial matter, that the New Jersey Constitution provides that “right of trial by jury shall remain inviolate.” Id. at *8. The court observed, however, that “[i]t is well-established that this protection applies to civil cases only where the right to a jury trial existed at common law and does not normally apply to cases in equity.” Id. Indeed, “[o]nly those actions that triggered the right of a jury trial that predated our State Constitutions, and those that were created anew with enactment of New Jersey's 1776 Constitution, the 1844 Constitution, or the 1947 Constitution serve as the basis for that constitutional right today,” the court said. Id.

The court reaffirmed that, “[g]enerally, the New Jersey Constitution protects the right of trial by jury in legal, but not equitable, actions” Id. The court stated that, when determining whether a right to a jury trial constitutionally attaches to a statutory action, “both the historical basis of the cause of action and the relief sought must be considered.” Id. at *9. Recognizing that “[t]he remedy sought 'remains the most persuasive factor,'” the court emphasized that “the mere availability of monetary relief is not decisive.” Id.

Indeed, the court observed that New Jersey courts properly have “considered whether, despite the availability of compensatory monetary damages, other forms of available relief are equitable in nature.” Id. Moreover, courts may consider “whether the statute is 'distinctively oriented to the achievement of ' broad objectives' that go beyond the remedy of an individual wrong.” Id.

Reiterating that New Jersey courts assess “the nature of the underlying controversy as well as the remedial relief sought in determining whether the cause of action has been historically primarily equitable or legal in nature,” the court concluded that “[w]here actions created by statute have distinctive features with respect to substantive and procedural standards that would render them virtually unknown to the common law, there is no right to jury trial.” Id.

Applying the foregoing principles, the court found “no constitutional right to a trial by jury under the Act.” Id. The court observed that an insurer-plaintiff may recover not only money damages if incurred, but also things like attorneys' fees, which the court determined are equitable in nature. Id. The court also recognized that “the monetary relief available to an insurer, although denominated as compensatory damages in N.J.S.A. 17:33A'7a, is in the nature of restitution,” and “restitution [likewise] is an equitable remedy.” Id. The court, thus, concluded that the nature of the action was equitable and no jury trial right attached. It therefore affirmed the trial court's order, denying the jury trial demand, in its entirety. Id.

Editor's Note: Thomas Mulvihill, Editor-in-Chief of this newsletter, represented the Plaintiffs in this matter.

Sherilyn Pastor, a member of this newsletter's Board of Editors, is a partner at McCarter & English, LLP, where she is Practice Group Leader of the firm's Insurance Coverage & General Litigation Group. Mario S. Russo is a law clerk in the Group. This publication is not intended to provide legal advice. Issues relating to insurance coverage are fact-specific, and their resolution will depend on the precise facts, policy terms involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English, LLP or its clients.

The New Jersey Appellate Division, on Oct. 9, 2013, held that there exists no statutory or constitutional right to a jury trial under the Insurance Fraud Prevention Act (“the Act”), N.J. Stat. Ann. ” 17:33A-1 to -30. Allstate N.J. Ins. Co. v. Lajara, No. A-5684-11T4, 2013 WL 5538723 (N.J. Super. Ct. App. Div. Oct. 9, 2013).

The Case

The plaintiffs, various insurance companies, alleged they had paid $8.2 million in benefits to physicians, chiropractors, companies, and certain unlicensed individuals (collectively, “defendants”) as a result of violations of the Act. Id. at *1. Among their allegations, the insurers asserted that the defendants had violated various professional regulations, billed for services performed by unlicensed persons, engaged in unlawful fee-splitting, billed for services and equipment not actually provided or unnecessary, and paid kickbacks to referring attorneys. Id. These actions, according to the complaint, were undertaken as part of a scheme to defraud the plaintiffs. Id. Accordingly, the plaintiffs sought, among other things, a declaratory judgment that they were not obligated to pay benefits to the defendants, disgorgement of sums already paid to the defendants, imposition of a constructive trust and equitable lien on the defendants' assets, and damages allowed under the Act. Id.

The insurers initially had demanded a jury trial, as had some of the defendants. Id. After answers were filed, the insurers moved for leave to withdraw their demand. Id. The defendants opposed the insurers' motion and demanded a trial by jury. The trial court, however granted the insurers' motion and struck the defendants' jury demand. Id. at *1-2. Thereafter, the Appellate Division granted the defendants leave to appeal the trial court's order, and affirmed the trial court's decision. Id. at *1.

The Appellate Court's Ruling

The appellate court observed, as an initial matter, that “[t]he Act is silent on the right to trial by jury.” Id. The court also recognized that a court may even grant a party's late request to withdraw a jury demand over an adversary's opposition if there exists no statutory or constitutional right to a jury trial. Id. at *2. The court thus set out to determine whether the Act implies a jury trial right, or whether the Constitution's right to trial by jury, N.J. Const. art. I, para. 9, encompasses a private action under the Act. Id. at *1.

With respect to the first issue before it, the court considered “the Act's plain language, its legislative history, and the legislative intent, and appl[ied] well-settled principles of statutory construction,” ultimately holding that “the Act does not [implicitly] create a right to a jury trial.” Id. The court reasoned, among other things, that “[w]hen conferring a right to a jury trial for newly-created statutory causes of action, the Legislature has [done] so by express provision.” Id. at *2. According to the court, “in the absence of an express provision, [New Jersey] courts have consistently denied a right to a jury trial for newly-created statutory causes of action.” Id. at *6. The court acknowledged that “[t]he Legislature is empowered to confer a right to a jury trial where it otherwise would be unavailable.” Id. The court emphasized that “[w]hen the Legislature has carefully employed a term in one place and excluded it in another, it should not be implied where excluded.” Id. at *5. Applying the foregoing principles to the statute before it, the court observed that, unlike other enactments, in which the Legislature “expressly provided a right to trial by jury,” the Act “does not expressly grant a jury trial right.” Id. at *2. Accordingly, the court held that “there is no statutorily implied right to a jury trial in an insurer's action under [the Act], where none is expressly provided.” Id. at *7.

The Court's Reasoning

The court explained that, “[a]lthough the Legislature's silence is not dispositive, it is a significant factor weighing against the finding of a statutorily implied right.” Id. Indeed, courts “should be reluctant to infer statutory provisions of law when the Legislature has not seen fit to expressly include them,” the court said. Id. Further concluding that neither the structure or intent of the Act, the remedies provided, the Act's legislative history, nor prior New Jersey precedent “compel a finding of an implied jury trial right,” the court turned to “whether, even absent any statutorily implied right, the [New Jersey] Constitution guarantees a jury trial.” Id. at *7-8.

Reasoning that “the equitable nature of the statutorily-created right to relief was unknown at common law before adoption of the State Constitution,” the court ultimately held that the New Jersey Constitution does not guarantee a right to a trial by jury for it. Id. at *1. The court recognized, as an initial matter, that the New Jersey Constitution provides that “right of trial by jury shall remain inviolate.” Id. at *8. The court observed, however, that “[i]t is well-established that this protection applies to civil cases only where the right to a jury trial existed at common law and does not normally apply to cases in equity.” Id. Indeed, “[o]nly those actions that triggered the right of a jury trial that predated our State Constitutions, and those that were created anew with enactment of New Jersey's 1776 Constitution, the 1844 Constitution, or the 1947 Constitution serve as the basis for that constitutional right today,” the court said. Id.

The court reaffirmed that, “[g]enerally, the New Jersey Constitution protects the right of trial by jury in legal, but not equitable, actions” Id. The court stated that, when determining whether a right to a jury trial constitutionally attaches to a statutory action, “both the historical basis of the cause of action and the relief sought must be considered.” Id. at *9. Recognizing that “[t]he remedy sought 'remains the most persuasive factor,'” the court emphasized that “the mere availability of monetary relief is not decisive.” Id.

Indeed, the court observed that New Jersey courts properly have “considered whether, despite the availability of compensatory monetary damages, other forms of available relief are equitable in nature.” Id. Moreover, courts may consider “whether the statute is 'distinctively oriented to the achievement of ' broad objectives' that go beyond the remedy of an individual wrong.” Id.

Reiterating that New Jersey courts assess “the nature of the underlying controversy as well as the remedial relief sought in determining whether the cause of action has been historically primarily equitable or legal in nature,” the court concluded that “[w]here actions created by statute have distinctive features with respect to substantive and procedural standards that would render them virtually unknown to the common law, there is no right to jury trial.” Id.

Applying the foregoing principles, the court found “no constitutional right to a trial by jury under the Act.” Id. The court observed that an insurer-plaintiff may recover not only money damages if incurred, but also things like attorneys' fees, which the court determined are equitable in nature. Id. The court also recognized that “the monetary relief available to an insurer, although denominated as compensatory damages in N.J.S.A. 17:33A'7a, is in the nature of restitution,” and “restitution [likewise] is an equitable remedy.” Id. The court, thus, concluded that the nature of the action was equitable and no jury trial right attached. It therefore affirmed the trial court's order, denying the jury trial demand, in its entirety. Id.

Editor's Note: Thomas Mulvihill, Editor-in-Chief of this newsletter, represented the Plaintiffs in this matter.

Sherilyn Pastor, a member of this newsletter's Board of Editors, is a partner at McCarter & English, LLP, where she is Practice Group Leader of the firm's Insurance Coverage & General Litigation Group. Mario S. Russo is a law clerk in the Group. This publication is not intended to provide legal advice. Issues relating to insurance coverage are fact-specific, and their resolution will depend on the precise facts, policy terms involved and the law governing the disputes, which varies from state to state. The views expressed in this publication are not necessarily those of McCarter & English, LLP or its clients.