In Allstate Insurance Co. v. Lajara, (A-70-13)(073511)(July 16, 2015), the New Jersey Supreme Court held that the right to a jury trial in a private action filed under New Jersey’s Insurance Fraud Prevention Act, N.J.S.A.17:33A-1to -30 (IFPA), is mandated by Article I, Section 9 of New Jersey’s Constitution.  In so holding, the Court reversed the decision of the Appellate Division, affirming the trial court’s determination that neither the IFPA nor the state Constitution grants such a right, and resolved the sometimes inconsistent approaches taken by the state’s lower courts in allowing IFPA claims to be tried before juries.

The IFPA was enacted by the Legislature to “confront aggressively the problem of insurance fraud,” N.J.S.A. 17:33A-2, and represents the strong public policy of the state in combating insurance fraud.  The statute authorizes the Commissioner of Banking and Insurance (Commissioner) to bring a civil action for penalties, including fines and restitution, for any violation of the act. The statute also authorizes any person who has been damaged as a result of any violation of the action to bring a private right of action. A private party filing suit under the IFPA may recover compensatory damages, including costs of investigation, costs of suit and attorneys’ fees. A private party also may be entitled to an award of treble damages, which are intended to be punitive in nature, where a pattern of fraud is established.

In Lajara, plaintiffs/insurers filed a 604-paragraph complaint, alleging that 63 medical practitioners, attorneys and others engaged in a scheme to defraud plaintiffs of over $8.14 million of personal injury protection benefits under policies issued by them by providing unnecessary care and treatment to patients, unlawfully splitting fees and purposely concealing prohibited self-referrals, among other things,  in violation of the IFPA. The Commissioner filed a separate action for penalties against some defendants arising from the same set of allegations. Plaintiffs sought compensatory and treble damages and attorneys’ fees under the IFPA, as well as declaratory relief, the disgorgement of benefits paid, and the imposition of constructive trusts and equitable liens on defendants’ assets.  Plaintiffs requested a jury trial in their complaint, which they later moved to withdraw. Several defendants opposed that request, asserting their right to a trial by jury.  The trial court denied defendants’ requests for a jury trial, relying on State v. Sailor, 355 N.J. Super. 315 (App. Div. 2001), where the court held that a plaintiff was not entitled to a jury trial under the IFPA because the statute does not expressly provide such a right and the remedies sought thereunder were essentially equitable in nature.

On defendants’ motion for leave to appeal the trial court’s determination, the Appellate Division affirmed. SeeAllstate N.J. Ins. Co. v. Lajara, 433 N.J. Super. 20 (App. Div. 2013). Noting that the IFPA contains no express right to a jury trial, the Appellate Division declined to find an implied right to same under the statute.  The Appellate Division held further that defendants did not have a constitutional right to a jury trial on plaintiffs’ claims under the IFPA because the relief sought by plaintiffs “more closely resemble[s] an equitable action for which there is no jury-trial right.” Slip op. at 8.  In so holding, the Appellate Division concluded that a private party action for fraud under the IFPA is significantly different than legal fraud and more akin to equitable fraud.

The New Jersey Supreme Court granted defendants’ motion for leave to appeal. On appeal, defendants argued that the Appellate Division erred in denying them a right to a trial by jury, relying on Zorba Contractors, Inc. v. Housing Authority of Newark, 362  N. J. Super. 124 (App. Div. 2003), where the court found an implied right to a jury trial under New Jersey’s Consumer Fraud Protection Act, N.J.S.A. 56:8-1 to -109. Defendants maintained that an action and the remedies available under the Consumer Fraud Act are “nearly identical” to those under the IFPA and are more “akin to common-law fraud than equitable fraud.” Slip op. at 9. Plaintiffs, in response, again argued that the remedies under the IFPA sound in restitution and that the statute specifically affords the court and not a jury with fact-finding authority to award treble damages.

The Supreme Court reversed, rejecting plaintiffs’ arguments and the reasoning of the courts below. After a lengthy recitation of the “historical development and importance of the jury-trial right in [New Jersey’s] constitutional scheme” tracing as far back as the Magna Carta, slip op. at 11-15, the Court stated first that the right to a jury trial in New Jersey extends to all causes of action sounding in law, even statutory actions. The Court then articulated a dual-part analysis for determining whether a right to a jury trial exists in the state:  the historical basis for the cause of action and whether the cause of action resembles one that existed in common law as well as the nature of the remedy.  Under the Court’s analysis, “New Jersey’s jury-trial right attaches to statutory actions that confer legal remedies and resemble actions in common law.” Slip op. at 25. (emphasis added).

Finding that monetary damages (including compensatory and punitive damages) are traditionally a form of legal relief and that an action under the IFPA more closely resembles an action for common law fraud than an action for equitable fraud, the Court held that a right to a jury trial is implied in private party actions under the IFPA in accordance with Article I, Paragraph 9 of the New Jersey Constitution.  The Court expressly noted that plaintiffs’ claims for equitable relief cannot extinguish defendants’ rights to a jury trial, but may be parsed from the legal issues presented to the jury, including any ancillary claims for violations asserted by the Commissioner. A copy of the Court’s decision may be reviewed here.