2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-17-2003

Lexington Natl Ins v. Ranger Ins Co

Precedential or Non-Precedential: Precedential

Docket 02-2635

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Recommended Citation

"Lexington Natl Ins v. Ranger Ins Co" (2003). 2003 Decisions. Paper 580.

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PRECEDENTIAL

Filed April 17, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-2635

LEXINGTON NATIONAL INSURANCE CORPORATION,

Appellant

v.

RANGER INSURANCE COMPANY

On Appeal from the United States District Court

for the District of New Jersey

District Judge: Honorable Joel A. Pisano

(D.C. Civ. No. 02-00028)

Argued February 28, 2003

Before: SCIRICA, GREENBERG, and GIBSON*,

Circuit Judges

(Filed: April 17, 2003)

* Honorable John R. Gibson, Senior Judge of the United States Court of

Appeals for the Eighth Circuit, sitting by designation. 
David C. Dreifuss (argued)

Nagel Rice Dreifuss & Mazie

301 South Livingston Avenue,

Suite 201

Livingston, N.J. 07039-3991

Attorneys for Appellant

Joseph P. LaSala (argued)

Nancy McDonald

McElroy, Deutsch & Mulvaney, LLP

1300 Mount Kemble Avenue

P.O. Box 2075

Morristown, N.J. 07962-2075

Attorneys for Appellee

OPINION OF THE COURT

GREENBERG, Circuit Judge: 

I. INTRODUCTION

This matter comes on before this court on appeal from an

order entered May 23, 2002, granting defendant Ranger

Insurance Company’s (“Ranger”) motion under Fed. R. Civ.

P. 12(b)(6) to dismiss this action for failure to state a claim

on which relief may be granted. In view of the procedural

posture of the case we set forth the facts as alleged by the

plaintiff, Lexington National Insurance Corporation

(“Lexington”), and decide this appeal on the basis of them.

See Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000).

Lexington and Ranger are licensed insurance companies

which underwrite bail bonds in New Jersey. They conduct

their bail bond businesses through contract bail agents

who, as between the agents and the companies, bear any

losses on bail bonds they issue. In the bail bond business

in New Jersey the purchasers of the bonds usually pay a

premium of ten per cent of the amount of the bond to the

bondsmen who divide the premiums with the companies.

The percentage of the premium the bondsmen retain varies

but typically they remit 20% of the premium to the

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company for its share of the premium and 10% of the

premium to the company for payment into a reserve fund to

secure the company against loss in the event of a forfeiture.

N.J. Stat. Ann. § 54:18A-2 (West 2002) imposes a tax of

2.1% on taxable premiums and N.J. Stat. Ann. § 54:18A-4

(West 2002) provides that taxable premiums consist, inter

alia, of “gross premiums.” Ranger calculates its tax only on

the portion of the premium that the bondsmen remit to it

but Lexington calculates its tax on the entire premium paid

for the bond. By reason of the differential in the tax

calculation, Lexington charges that Ranger “has the ability

to contract with its contract bail agents at a lower cost than

its competitors . . . and has done so.” App. at 4. Moreover,

Lexington claims that it has lost business to Ranger by

reason of Ranger’s underpayment of taxes. 

Lexington alleges that Ranger’s failure to pay the

premium tax on gross premiums “is a deceptive and

wrongful business practice [which] constitute[s] unfair

competition under New Jersey law” causing it injury. Id. It

further alleges that Ranger’s acts constitute intentional and

negligent interference with Lexington’s economic

relationship with customers and prospective customers and

interfere with Lexington’s prospective economic advantage.

Furthermore, Lexington asserts that by reason of Ranger’s

method of paying taxes it is “committ[ing] an

unconscionable commercial practice, deception, fraud,

falsity, or misrepresentation” in violation of the New Jersey

Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq. (West

2001). App. at 7. Accordingly, Lexington seeks

compensatory, punitive, and treble damages, attorney’s

fees, interest, and costs. It also seeks injunctive relief,

apparently in the form of an order requiring Ranger to pay

its taxes to the State of New Jersey on what Lexington

believes is a correct basis. 

As we have indicated, Ranger moved to dismiss the

complaint pursuant to Rule 12(b)(6). It attached to its

motion an affidavit of its vice president responsible for its

bail bond business who stated that from the time Ranger

became authorized to underwrite bail bonds in New Jersey

in the early 1990s it has filed annual tax returns with the

State of New Jersey pursuant to N.J. Stat. Ann. 54:18A-1

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(West 2002), the state has accepted every tax return as

filed, and the New Jersey Director of the Division of

Taxation “has never issued any deficiency assessments or

penalties against Ranger in connection with any return.”

App. at 12. In response, Lexington submitted an affidavit to

which it attached a letter from its own certified public

accountant to an officer or employee of the Office of

Financial Examination of the New Jersey Department of

Banking and Insurance reading in pertinent part as follows:

I wanted to confirm my understanding of our earlier

phone conversations. Based on these conversations, I

am confirming that premium taxes on bail premiums

must be paid on ‘gross premiums’ and our

interpretations of the New Jersey Taxation statute, Title

54: section 18A-2, et. seq. are correct and that my

client has therefore been properly reporting and paying

New Jersey premium taxes on this basis. 

App. at 16. Without apparent objection of the parties the

district court considered these affidavits on the motion to

dismiss though it did not convert the motion into a motion

for summary judgment pursuant to Rule 12(b), see Rose v.

Bartle, 871 F.2d 331, 339-40 (3d Cir. 1989), and thus we

will consider them as well. 

The district court in granting Ranger’s motion to dismiss

discussed Lexington’s claims seriatim. First, it indicated

that New Jersey’s common law unfair competition law does

not have clear boundaries but is instead flexible and elastic

as evolving standards of morality demand and the essence

of an unfair competition claim is the enforcement of fair

play. See Duffy v. Charles Schwab & Co., 123 F. Supp. 2d

802, 815 (D.N.J. 2000); Ryan v. Carmona Bolen Home for

Funerals, 775 A.2d 92, 94 (N.J. Super. Ct. App. Div. 2001).

It then pointed out that Lexington did “not assert that

Ranger attempted to mislead the public, create confusion in

the trade, or misappropriate[ ] Lexington’s product.” App. at

24. Furthermore, Lexington did not have a property interest

in the allegedly withheld tax dollars. Thus, the court

concluded that Ranger’s failure to pay its taxes “is an issue

between Ranger and the State of New Jersey [and] [e]ven if

[Lexington] conclusively establishes that Ranger failed to

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pay its taxes, it would not amount to an unfair competition

claim.” Id. at 25. Accordingly, it dismissed that claim. 

The district court then dismissed Lexington’s claims for

tortious interference with prospective economic advantage

as it did not consider that its complaint adequately pled

that there was “a causal connection between Ranger’s

conduct and [its] loss of . . . business.” App. at 28. While

it recognized that it was required to accept Lexington’s

allegations it was not required to accept “bald assertions,

subjective characterizations, or legal conclusions.” See

General Motors Corp. v. The New A.C. Chevrolet, Inc., 263

F.3d 296, 333 (3d Cir. 2001). Finally, it held that the New

Jersey Consumer Fraud Act is inapplicable here as this

case “does not directly involve any merchandise that is

being sold to the public,” app. at 31, and thus does not

come within the act. See Cox v. Sears Roebuck & Co., 647

A.2d 454, 462 (N.J. 1994); J & R Ice Cream Corp. v.

California Smoothie Licensing Corp., 31 F.3d 1259, 1270-74

(3d Cir. 1994); N.J. Stat. Ann. 56:8-1(c) (West 2001). The

court then entered the order of May 23, 2002, from which

Lexington appeals. 

II. JURISDICTION AND STANDARD OF REVIEW

The district court exercised diversity of citizenship

jurisdiction under 28 U.S.C. § 1332(a)(1) and we exercise

jurisdiction under 28 U.S.C. § 1291. Our standard of review

is plenary and we treat Lexington’s allegations as true for

the purposes of this appeal and draw all reasonable

inferences in its favor. See Maio, 221 F.3d at 482. We will

apply New Jersey law as the parties have briefed the case

on that basis.1

1. Lexington alleges that states other than New Jersey have tax laws

similar to N.J. Stat. Ann. § 54:18A-2 and that Ranger has been acting

unlawfully with respect to its taxes in those states as well. We, however,

will disregard these allegations as the parties do not cite the law of those

unspecified states and instead brief this case as if only New Jersey law

applies. 

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III. DISCUSSION

We are in agreement with the district court’s disposition

of this case and also are in accord with its reasoning. We

nevertheless place our decision on a slightly modified basis.

First, we point out that Lexington does not assert that

Ranger directly injured it by, for example, disparaging its

product. Nor does Lexington make factual allegations that

Ranger dealt unfairly with its customers, i.e., the bail

bondsmen or, more remotely, the persons purchasing

bonds, as it does not assert that the State of New Jersey

could hold them responsible for Ranger’s allegedly

underpaid taxes.2 In fact, quite the opposite is true as

Lexington charges that by reason of Ranger’s wrongful

conduct it was able to give its bondsmen more favorable

rates than those of its competitors. Rather, Lexington

contends that Ranger acted illegally with respect to the

State of New Jersey in a matter plainly collateral to its

dealings with its own customers. 

It should be clear that the implications of this case

cannot be cabined. For example, if a business may assert

a valid claim against a competitor for unlawfully reducing

its costs by underpaying its taxes it follows that a business

could assert a claim against a competitor predicated upon

a theory that it is obtaining an economic advantage by

underpaying its employees in violation of minimum wage

act or similar laws. Indeed, the principles underlying

Lexington’s claims, if accepted, would justify a business

suing its competitor on the theory that it is reducing its

costs by violating environmental protection laws or any

other federal or state law regulating its operations. If we

hold that Lexington has pled a claim on which relief may be

granted we will invite a tidal wave of litigation as

businesses find opportunities to meddle in their

competitors’ affairs. We are aware that in New Jersey

2. Lexington relies heavily on Feiler v. New Jersey Dental Association,

467 A.2d 276 (N.J. Super. Ct. Ch. Div. 1983), aff’d, 489 A.2d 1161 (N.J.

Super. Ct. App. Div. 1984), but that case concerned allegations charging

a dentist with untruthful and deceptive billing practices, 467 A.2d at

429, and thus, unlike this case, did not involve a matter collateral to the

defendant’s business dealings. 

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arguments that a result in a case may open a Pandora’s

box do not always fare well. Nevertheless, we will not reach

the result that Lexington seeks in part because a federal

court in a diversity case should be reluctant to expand the

common law. See Northview Motors, Inc. v. Chrysler Motors

Corp., 227 F.3d 78, 92 n.7 (3d Cir. 2000). 

In reaching our result we recognize that anyone familiar

with the development of New Jersey law over the last half

century fairly must acknowledge that the state’s courts

have expanded the circumstances that may give rise to tort

liability. But there has to be a limit somewhere. Our duty

here is to predict how the New Jersey Supreme Court would

view this case and we will discharge that duty by holding

that it would reject Lexington’s claims. See Leo v. KerrMcGee Chem. Corp., 37 F.3d 96, 99, 101 (3d Cir. 1994). 

We do not know whether Lexington’s or Ranger’s view of

the New Jersey tax law is correct and, though we do not

doubt our ability to do so, we will not decide that issue as

our result does not depend on it. We point out, however,

that Lexington’s letter confirming its conversations with an

officer or employee in the New Jersey Department of

Banking and Insurance surely cannot establish what the

New Jersey law is and, indeed, probably is not even binding

on the state. See Airwork Serv. Div. v. Director, Div. of

Taxation, 478 A.2d 729, 733 (N.J. 1984). Nor are we

impressed by the circumstance that the state has accepted

Ranger’s returns as filed for Ranger does not make a

showing that its returns reflected the circumstance that it

was paying tax only on the basis of the percentage of the

premiums paid for the bonds that reached it. Thus, for all

we know the state may not know how Ranger has been

computing premiums for tax purposes. 

In our view if Ranger has been underpaying its taxes that

matter is, as the district court said, an issue between the

State of New Jersey and Ranger. As Ranger correctly points

out in its brief, the state has a comprehensive system for

the examination of tax returns and may assess taxpayers

for deficiencies under the State Tax Uniform Procedure

Law. See N.J. Stat. Ann. §§ 54:48-1 to 54:53-18 (West

2002); see also N.J. Stat. Ann. § 54:18A-1.3(c) (West 2002).

If the state makes such an assessment against Ranger,

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Ranger may seek a review of the assessment in the New

Jersey Tax Court. See N.J. Stat. Ann. § 2B:13-2 (West

Supp. 2002). In the circumstances, we agree with Ranger’s

contention that if it has underpaid its taxes, which it denies

is the case, the determination that it has done so must be

made in state administrative proceedings subject to state

judicial review. We also agree that its failure, if such be the

case, to pay its taxes in full cannot create “a private right

of action for a third party to seek an audit of [its] return”

on any of the theories Lexington has advanced in this

litigation even though the remedy it seeks is damages

payable to itself rather than the state. Appellee’s br. at 25.

We do not know whether Lexington at a trial could

establish that it lost business because of Ranger’s ability to

reduce costs by underpaying its taxes but in deciding this

case we are assuming that it can do so, though, as the

district court noted, its factual allegations along these lines

seem to be insubstantial. Moreover, we will assume without

deciding that Lexington’s view of the tax law is correct.

Nevertheless, we hold that Lexington must suffer the loss of

which it complains without a remedy. 

IV. CONCLUSION

For the foregoing reasons the order of May 23, 2002, will

be affirmed. 

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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