New Jersey Attorney Law Review Blog

Prominent NJ Law Firm Sues Former Associate for Website Infringement

2009-11-12T23:40:00.009-05:00

(November 2009) Levinson Axelrod, a prominent New Jersey personal injury law firm, has filed suit against its former disgruntled associate, Edward Heyburn, who in September 2009 registered and published a website domain using Levinson Axelrod's name for the purpose of airing his grievances against them. The firm filed suit in the Superior Court of New Jersey on an emergent basis, seeking to shut down the website, www.levinsonaxelrod.net, alleging, among other claims, that the content posted on the site is defaming the firm's reputation, the site is diverting traffic from the firm's legitimate website, www.levinsonaxelrod.com, and the use of the firm's name in the domain registration constitutes cybersquatting and trademark infringement.

However, Heyburn quickly removed the lawsuit to the United States District Court for the District of New Jersey because Levinson Axelrod’s complaint provides a federal question basis for removal by claiming violations of the federal Anticybersquatting Consumer Protection Act and the Lanham Act on trademarks. Two state law counts of the firm's Complaint allege unfair competition and breach of the duty of loyalty by Heyburn, who worked at Levinson Axelrod from 1998 to 2004. Although Heyburn’s site does not disclose client names, the firm is accusing him of disclosing confidential communications by providing enough case specifics to identify clients.

The "gripe site", www.levinsonaxelrod.net, includes videos from Heyburn in which he sharply criticizes the firm's partners, describing one of them to have a "1970's porno mustache," and contains various blog posts where he accuses the firm of engaging in unethical conduct such as trying to "stiff attorneys on referral fees" for cases referred by lawyers from other firms. In one prominent blog post, Heyburn boasts that he's created a group on the social networking site Facebook called, "Levinson Axelrod Really Sucks."

In an attempt to fend off Heyburn from publishing additional websites using the Levinson Axelrod name, the firm purchased www.levinsonaxelrodsucks.com, and www.levinsonaxelrodsucks.net. In an open letter to Levinson Axelrod's litigation counsel which he conveniently publishes on the "gripe site," Heyburn openly mocks the firm for purchasing these domains:

Unfortunately, your client’s Web Master has already purchased levinsonaxelrodsucks.com and levinsonsexaxelrodsucks.net through Go Daddy. * * * Do they really need 2 LevinsonAxelrodSucks websites? I can only assume that they plan to launch a competing LevinsonAxelrodSucks.com website and steal my web traffic. I applaud you for your creativity. Clearly, they have an inside tract to what sucks. If I am incorrect and they merely plan to park the domains for eternity, then I have a proposal for you. I will give Levinson Axelrod the levinsonaxelrod.net domain name in exchange for the levinsonaxelrodsucks.com domain. My viewers would like continuity between the URL and the content anyway. This would satisfy both your client and my readers.

In his defense, Heyburn claims that he has no intention to profit from the "gripe site," but rather only to air his grievances against the firm. According to Heyburn, he launched the site because "(the firm's partners) have such an elitist attitude."

The case has gained significant news coverage in New Jersey, including the Newark Star Ledger and New Jersey Law Journal, and contains fascinating legal issues about the developing law of online defamation between former employee and employer, cybersquatting, diversion of website traffic, and trademark infringement. Thus far, the firm's interim attempts to force an immediate shut down of the "gripe site" have been unsuccessful.

I will continue to monitor this case in future posts.

Attorney-Client Privilege Attaches to Employee Yahoo! E-Mails Sent Through Employer's Computer

2009-07-29T22:40:00.016-05:00

In a published decision issued on June 26, 2009 in an employment litigation case, a New Jersey appeals court held that the attorney-client privilege applies to e-mails that the employee sent to her attorney while accessing the company's computer to send the e-mails through her private Yahoo! e-mail account. (Stengart v. Loving Care Agency Inc., A.-35-6-08T1).

With all due respect to the trial court, in my March 9, 2009 post discussing this case I expressed my opinion that the trial judge's decision was incorrect and predicted that an interlocutory appeal would be forthcoming because of the far-reaching effects of the trial court's decision. Both predictions turned out to be accurate.

For the convenience of our readers, although I extensively commented on the facts of this case in my March 9, 2009 post, the brief facts of the case are as follows: The plaintiff was the executive director of nursing at Loving Care Inc. ("Loving Care"). During her employment, Loving Care provided plaintiff with a laptop computer and a work e-mail address. Loving Care apparently had a company wide policy indicating that all e-mails sent through the company's computer system constitute the company's personal property.

Plaintiff resigned from her position at Loving Care on or about January 2, 2008. Prior to her resignation, she was communicating with her attorneys about filing a lawsuit against Loving Care and used the company's laptop to send e-mails to her attorney by accessing her Yahoo! e-mail account. In other words, instead of using her personal e-mail account at the company to communicate with her lawyers, the plaintiff instead chose to send the e-mails through her private Yahoo! e-mail account.

Approximately 1 month after resigning from her positition at Loving Care, plaintiff filed an employment discrimination suit against Loving Care. This prompted Loving Care to create a forensic image of the hard driver from plaintiff's lap top computer. When Loving Care ultimately shared this information its attorneys they discovered numerous communications between plaintiff and her lawyers during the time period preceding her resignation. This discovery was not made immediately known to plaintiff or her attorneys.

A few months later when responding to plaintiff's written discovery demands in the course of pretrial discovery, Loving Care referenced and attached some of the e-mails exchanged between plaintiff and her lawyers thus prompting plaintiff to demand the return of this confidential information. When Loving Care refused, plaintiff filed a motion before the trial court contending that all such e-mails were protected by the attorney-client privilege and could not be used in the case. The trial court rejected plaintiff's argument, finding that no attorney-client privilege attached to the disputed e-mails because the company's electronic communications policy put plaintiff on sufficient notice that her e-mails would be treated as company property. The trial court determined that plaintiff "took a risk of disclosure" when in view of the company policy she nevertheless proceeded to send e-mails to her counsel through her work computer.

Nonsense said the Appellate Division, which granted leave to appeal the interlocutory decision of the trial court - a remedy that is sparingly granted due to the preference that appeals not be filed until the entire case has concluded.

". . . merely because the company owned the computer used to make private communications or used to access such private information during work hours -- furthers no legitimate business interest, " the Appellate Division concluded. Although the appellate court recognized that New Jersey employers may unilaterally establish company rules and policies through handbooks or manuals, the court opined that the regulated conduct should concern the terms of employment and "reasonably further the legitimate business interests of the employer."

The Appellate Division's opinion reveals a rather pragmatic view toward the realities of how much sensitive personal information is readily available to individuals by simply pointing and clicking on computers connected to the Internet:

Using a computer, individuals may access their medical records, examine activities in their bank accounts and phone records, file income tax returns, and engage in a host of other private activities, including, as here,e-mail an attorney regarding confidential matters. Regardless of whereor how those communications occur, individuals possess a reasonable expectation that those communications will remain private.

Weighing the company's claimed interest in ownership and access to all e-mail communications transmitted over its computers against the attorney-client privilege, the appellate court concluded that the attorney-client privilege must prevail because of the important societal considerations that underpin the privilege.

In this author's opinion, the fact that plaintiff thought carefully enough to send the e-mails through her Yahoo! account, as opposed to using her employee e-mail account, demonstrates that she expected those communications to remain private and not become property of the company.

To obtain a free copy of this appellate case, please contact our New Jersey attorneys.

The case is now before the New Jersey Supreme Court, which accepted appellate review.

Bergen County Judge Rules No Attorney-Client Privilege Attaches to E-Mail Sent by Employee’s Personal Yahoo! Account While Using Company’s Computer

2009-03-09T12:11:00.006-05:00

Before Maria Stengart quit her job, she was already making plans to sue her employer. She e-mailed her lawyer during business hours from her company-issued laptop, though she was circumspect enough to use her personal Web-based Yahoo e-mail account. It was not until discovery in the ensuing hostile-workplace, constructive-discharge case that she learned company lawyers had a copy of the message, which was automatically saved on the laptop's hard drive as a temporary file.

Now a Bergen County judge, Estella De La Cruz, has held the e-mail isn't protected as an attorney-client communication, finding Stengart waived the privilege by using the company computer and network even though she sent the e-mail from her personal e-mail account with Yahoo!. The ruling, in Stengart v. Loving Care Agency , BER-L-858-08, is a first for a New Jersey state court and one of only a few across the country to deal with the factual scenario presented.

The other cases cited by De La Cruz turned on whether the employer had a clear policy putting the employee on notice that e-mails sent on company systems are not private. One of the cases De La Cruz cited was Kaufman v. SunGard Investment Systems , 05-Civ.-1236, a New Jersey federal case in involving e-mails between an employer and her lawyers recovered from company laptops after the employee deleted them. In 2006, U.S. District Judge Jose Linares upheld a U.S. magistrate judge's ruling that the employee waived the privilege by failing to take reasonable steps to protect the e-mails and by using the company network with knowledge that company policy allowed searching and monitoring e-mails.

Stengart was employed by Loving Care Agency (“Loving Care”), a home health-care company based in Fort Lee, New Jersey. Loving Care maintains an employee handbook which is distributed to staff and made available on the company’s computer servers, which warned that e-mail and voice-mail messages "are considered part of the company's business and client records" and "are not to be considered private or personal to any employee." The handbook prohibits using the e-mail system for job searches, "other employment activities outside the scope of the company business" or for "solicitation of outside business ventures." It allows "[o]ccasional personal use."

Stengart, the director of nursing, had worked for Loving Care since 1994 and helped create and distribute the handbook. "Consequently, when plaintiff decided to use company time, equipment and resources to communicate with her attorney regarding the terms of her resignation from Loving Care, she proceeded with knowledge that such computer use and communications would not be private or personal to her," Judge De La Cruz remarked. Stengart took the risk of waiver by the method of communication she chose, said De La Cruz, finding Stengart's avowed unawareness of the policy "not persuasive" in light of her high position, long tenure at Loving Care and her work on the handbook.

With all due respect to Judge De La Cruz, I respectfully disagree with her decision. The attorney-client privilege is one that is deeply rooted in American jurisprudence. The central purpose behind the privilege is that a client should be allowed to communicate with his/her attorney without fear of the communication being disclosed to others. The fact that Stengart used her own personal Yahoo! e-mail account as opposed to the company’s e-mail server undoubtedly establishes that she did not use the “company’s e-mail system” as contemplated by the employee handbook Consequently, the attorney-client privilege should apply. Due to the far-reaching aspects of this ruling, I expect that an interlocutory appeal will be forthcoming.

NJ Trial Court Tosses Defamation Case Against Hot Chicks With Douchebags

2009-02-26T22:08:00.008-05:00

A Superior Court judge in Bergen County New Jersey dismissed a defamation case against a number of defendants based on the claims of two women who sued over photographs taken of them clubbing at a Clifton, NJ bar which were included in a book titled, "Hot Chicks With Douchebags," published by a Simon & Schuster division.

In a 9-page written opinion granting summary judgment, the trial judge dismissed the complaint finding there was no actionable defamation claim because the photographs and accompanying text are used for humorous social commentary and the book is protected by the First Amendment.

The photos showed the women with one or more men described as "douchebags", which the book's author describes as men with "Greasy foreheads, spiked frosted hair, oiled up faces dripping with Tag Shot spray", dressed in "Armani Exchange T-shirts and rank cologne wafting off their backs like fetid pollen clouds as they pump their fists and attempt to grind into any hotties nearby."

The book's author, who also runs a website with the domain name http://www.hotchickswithdouchebags/, defines "hot chicks" as "young beauties oblivious to the hulking monstrosity clutching at their butts like snapping turtles on a Red Bull."

The plaintiffs appear together in a photo with a man reclining across their laps. One of the women is shown blowing a kiss at the camera, with a spiked-haired man throwing his arm around her. The photos were taken by a nightclub promotion company. The plaintiffs did not consent to the use of their photos and were not asked to give consent. Although neither of the women's names were identified in the photos or the book they objected being depicted as "females who date dubious men", and alleged that the book damaged their career prospects.

In addition to alleging defamation, the plaintiffs' complaint sought recovery for negligent infliction of emotional distress, conspiracy to commit fraud, and invasion of privacy.

As one would expect from a lawsuit with a defendant named “Hot Chicks With Douchebags”, the Court's decision contains some humorous quotes:

A reasonable person would conclude a book named "Hot Chicks With Douchebags" is meant to be satirical, and, while some would consider it vulgar, it is not an assertion of fact, the trial judge said.
Citing passages from the book as examples, the trial judge remarked that a reasonable person would not believe that "in 1981 archaeologist Renee Emile Bellaqua uncovered in a cave in Gali Israel a highly controversial Third Century religious scroll suggesting that the 'douchey/hotty' coupling was a troublesome facet in early social religious structures" or that "Jean-Paul Sartre stated 'man is condemned to be douchey because once thrown into the world he is responsible for every douchey thing that he does.'"

One has to wonder whether the attorney defending "Hot Chicks With Douchebags" was able to keep a straight face while announcing his client's name during his opening appearance before the trial judge at the motion hearing. "Good morning Your Honor. I represent Hot Chicks With Douchebags."

NJ Supreme Court Orders New Trial Due To Appearance of Impropriety Created by Retiring Trial Judge Negotiating Employment With Trial Counsel

2008-09-24T16:08:00.002-05:00

In an important decision that provides guidelines for retiring judges seeking future employment in the legal profession, on September 24, 2008 the New Jersey Supreme Court ordered that a new trial must be conducted because of the appearance of impropriety created by a then soon-to-be retiring Chancery Court trial judge who, before the case had been concluded, began negotiating employment with an attorney appearing before him whose firm represented one of the litigants in the same case. DeNike v. Cupo (A-61-07, September 24, 2008).

In so ruling, the New Jersey Supreme Court reversed the decision of the lower court (Appellate Division) which had determined that the trial judge's conduct, although inappropriate, did not influence the outcome of the case because the trial judge already had issued his substantive rulings in several written opinions and that his remaining functions as the presiding judge in this case were "ministerial."

The NJ Supreme Court concluded that the public trust in the judicial system would be compromised in the absence of a new trial. Specifically, the NJ Supreme Court held:

Judges must avoid actual conflicts as well as the appearance of impropriety to promote confidence in the integrity and impartiality of the Judiciary. Unfortunately, the negotiations between trial judge and lawyer in this case created an appearance of impropriety. Stated simply, the conduct here fell far short of the high standards demanded of judges and fellow members of the legal profession and had the capacity to erode the public's trust. Because any lesser remedy would allow reasonable doubts to linger about the fairness of the outcome of the case, the judgment of the Appellate Division is reversed and the matter is remanded for a new trial.

Although there was no evidence that this respected trial judge acted out of actual bias in favor of the firm whom he was in the midst of negotiating terms of employment, the NJ Supreme Court was of the opinion that the appearance of impropriety generated by these employment negotiations and the prospect of a financial relationship between the law firm and the judge raises doubts about those decisions and the judge's impartiality in general.

Regrettably, from the standpoint of a knolwedgeable, objective observer, the brief negotiations toward the end of the litigation could reasonably have infected all that occurred beforehand. As a result, a full trial is required to restore public confidence in the integrity and impartiality of the proceedings, to resolve the dispute in particular, and to promote generally the administration of justice.

Recognizing that the existing Rules of Professional Conduct and Code of Judicial Conduct do not specifically provide instructions for post-retirement employment discussions between judges facing mandatory retirement and private employers in the legal profession, the NJ Supreme Court offers the following guidelines:

1. Judges may not discuss or negotiate for employment with any parties or attorneys involved in a matter in which the judge is participating personally and substantially. If the subject is raised in any fashion, judges should put a halt to the conversation at once, rebuff any offer, and disclose what occurred on the record.

2. Judges who engage in retirement discussions while still on the bench - with attorneys who do not have a matter pending before them - must proceed in a way that minimizes the need for disqualification and upholds the integrity of the courts. To that end, judges should delay starting any discussions until shortly before their planned retirement, and should discuss post-retirement employment opportunities with the fewest possible number of of prospective employers.

3. Judges must disqualify themselves from matters involving parties or attorneys with whom they have discussed future employment, whether or not those discussions lead to a future relationship.

4. Judges should wait a reasonable period of time before discussing employment with an attorney or law firm that has appeared before the judge.

The NJ Supreme Court referred the matter to the Professional Responsibility Rules Committee and the Advisory Committee on Extrajudicial Activities for their recommendations.

NJ Appeals Court Says Commercial Bank Subject to Consumer Fraud Act Claim

2008-09-23T21:15:00.000-05:00

A bank employee who misappropriates a customer's cash deposit can expose the bank to a claim under the New Jersey Consumer Fraud Act, a NJ appeals court ruled in Lee v. First Union National Bank, et al., App. Div., Case No.: 09-2-1547.

In this case, the plaintiff, an existing customer of First Union National Bank, alleged she paid $2,000 in cash to a bank employee who worked in the bank's brokerage services unit which was supposed to be used to purchase shares of a mutual fund. Instead of depositing these funds into her brokerage account, the plaintiff claimed the bank's employee misappropriated her $2,000 cash tender for his own personal use which resulted in an overdraft in her checking account. The bank covered the shortfall by taking money from plaintiff's checking account and liquidating some of the mutual fund shares.

Plaintiff's complaint alleged violation of the Consumer Fraud Act (CFA) and common-law conversion. The trial judge granted summary judgment in favor of the bank and its brokerage arm, holding that the CFA was not applicable to a sale of securities and the count for misappropriation was barred by the two-year statute of limitations under the Blue Act, N.J.S.A. 49:3-71(g).

On appeal, the New Jersey Appellate Division reversed on the following grounds: (1) The transaction is not exempt from the CFA prohibition on deceptive sales practices because the claim relates to misrepresentation as to performance of services and not the nature or existence of the security; (2) N.J.S.A. 49:3-71(g) is not applicable because the gravaman of this count of the complaint concerns the unlawful "taking, detaining, or converting of personal property," which is subject to the six-year statute of limitations.

NJ Appellate Court Says Banks Owe Duty Of Care To Victims Of Identity Theft

2008-09-17T21:06:00.004-05:00

Banks beware! In a case of first impression, a New Jersey appeals court held that a bank that pursues criminal charges against an innocent third party whose identify is stolen and used to defraud the bank can be sued civilly for negligence and malicious prosecution.

In this particular case, Brunson v. Affinity Federal Credit Union, A-4439-06, the bank employed a fraud and loss prevention specialist (Mr. Wilcox) who happened to be a certified fraud examiner. According to the appellate record, an imposter posing as the plaintiff Brunson opened an Affinity account in Brunson's name using Brunson's social security number and an out-of-state driver's license bearing Brunson's date of birth and a Paterson, NJ address (misspelled with two "t's".) Within days of opening this account, the imposter successfully cashed $9,506 in phony checks drawn against a corporation known as Viva International Group.

The bank's fraud and loss prevention specialist Wilcox was provided with surveillance tapes and still photographs depicting the imposter as a black male about five feet six inches tall. Wilcox verified that Viva International Group did not employ anyone named "Brunson" on its payroll nor was there any "Brunson" authorized to sign company checks. Wilcox also learned that Brunson had a criminal record. Hastily reaching the conclusion that Brunson was responsible for this fraud, Wilcox filed two criminal complaints against Brunson for uttering a forged document and for theft by deception and testified before the grand jury that ultimately indicted Brunson. Critically, Wilcox didn't bother to review police photographs of Brunson to compare against the surveillance images maintained by the bank, nor did he show the bank's tellers who dealt with the imposter a photo of Brunson to confirm the identification. Had he taken these extra precautions, Wilcox would have learned that Brunson is six foot three, nine inches taller than the imposter.

Brunson, a New York City resident, was arrested in Virginia, was extradited to New Jersey and was released after spending 13 days in jail. The charges were ultimtaely dropped.

At the trial level, the Superior Court judge dismissed Brunson's suit against Affinity and Wilcox on motion practice without the case having reached a jury, labeling the incident as an innocent mistake and finding that Wilcox did not willfully withhold or misrepresent information in his grand jury testimony. Brunson timely appealed the granting of summary judgment in defendants' favor, arguing that there were disputed factual issues and that a grand jury indictment did not preclude a claim for malicious prosecution.

The appeals court agreed with Brunson, ruling that financial institutions and fraud investigators have a duty to "pursue with reasonable care their responsibility for protecting not only their own customers, but non-customers who may be victims of identity theft." In the absence of any reported New Jersey legal precedent supporting a duty of care in this particular setting, the 3-judge appellate panel was persuaded to follow the holding of the Alabama Supreme Court in similar decision where that court ruled that a bank could be liable for the false arrest of someone whose stolen identity was used to open an account. Patrick v. Union State Bank, 681 So.2d 1364 (Ala. 1995).

The New Jersey Appellate Division concluded that the trial court erroneously granted summary judgment in favor of Affinity and Wilcox, noting that the facts surrounding whether Wilcox had probable cause to file criminal complaints against Brunson were in dispute, and that the mere existence of a grand jury indictment against Brunson does not bar Brunson's claim for malicious prosecution.

"Because of the foreseeability of harm, fairness and public policy require financial institutions to be accountable when they negligently put individuals at risk by failing to exercise reasonable care in undertaking investigations of fraud claims," the Appellate Panel remarked ... [even when the person is not an account holder].

Only a civil jury can determine "whether the grand jury would have indicted plaintiff [Brunson] if it had been presented with photographs of the imposter along with the disparity in their [physical] descriptions," the 3-Judge Appellate Panel concluded. In remanding the case back to the trial court for further proceedings, Brunson will have to demonstrate the following elements to sustain a civil claim for malicious prosecution arising out of a criminal prosecution: (i) the ciminal proceeding was instituted by the defendant, (ii) the criminal proceeding was actuated by malice, (iii) there was no probable cause for the proceeding, and (iv) the proceeding was terminated in his favor.

New Jersey Supreme Court Applies Full Faith & Credit to Tennessee Class Action Settlement

2008-08-13T08:34:00.005-05:00

In Simmermon v. Dryvit Systems, Inc. (A55-07), the New Jersey Supreme Court was presented with determining whether the full faith and credit clause of the US Constitution requires a New Jersey court to give preclusive effect to a nationwide class action consumer fraud settlement approved by a Tennessee circuit court. (View the video of oral argument before the NJ Suprem Court http://njlegallib.rutgers.edu/supct/args/A_55_07.php)

The New Jersey Supreme Court held that the Tennessee court is the appropriate forum to determine whether Simmermon should be bound by the settlement entered in that court and thus barred from pursuing his own individual case in New Jersey. However, because of tactical gamesmanship employed by the principal defendant in Simmermon's individual lawsuit, the New Jersey Supreme Court held that the defendant will be responsible for Simmermon's attorneys' fees and litigation expenses.

In the New Jersey lawsuit, the plaintiff asserted the same types of claims against the same defendant named in the Tennessee class action, Dryvit Systems, Inc. ("Dryvit"), a manufacturer of a synthetic stucco exterior installation and finishing system. In 1995, plaintiff Simmermon purchased Dryvit's synthetic stucco system from one of Dryvit's distributors for installation in his custom-made home in New Jersey. Approximately 4 years later in 1999, Simmermon discovered that the stucco was defective due to observable bubbling and peeling. Simmermon filed suit in 2001 against Dryvit, its distributor, and the company that installed the system on his custom-made home.

THE TENNESSEE CLASS ACTION LAWSUIT

Only a year before Simmermon filed his New Jersey lawsuit, a group of Tennessee homeowners filed a class action against Dryvit in the Tennessee Circuit Court, asserting the same basic claims that Simmermon alleged in his Complaint. On April 8, 2002 - 7 months after Simmermon filed his New Jersey complaint - the Tennessee class action, which until then had been limited to Tennessee homeowners, was converted into a nationwide homeowners' class action. On the same day, representatives of the now nationwide class action and Dryvit entered into a settlement agreement that received preliminary approval by the Tennessee Circuit Court. The principal terms of the settlement agreement obligated Dryvit to provide class members with property inspections, 3-year limited warranties, and reimbursement of repair costs as determined by a certain formula.

In furtherance of the settlement, in June 2002 the claims administrator of the settlement sent all identifiable class members a first-class mailing containing settlement information, a claim form, and an opt-out form. Additionally, information about the class action and settlement terms was published in advertisements in national and local newspapers, national magazines, trade publications, and online at http://www.stuccosettlement.com/. Homeowners could opt-out of the class and thus be free to pursue their own individual lawsuits against Dryvit by timely completing and returning the opt-out form to the claims administrator. According to records maintained by the claims administrator in the Tennessee class action, on June 24, 2002 a notification letter was mailed to Simmermon's home in New Jersey as per the terms of the settlement. The letter sent to Simmermon was not among those returned by the US postal service as undeliverable, and Simmermon was not among the class members who filed a request to opt out of the proposed settlement.The Tennessee Circuit Court held a hearing on October 1, 2002 addressing the objections from certain objectors challenging the fairness and adequacy of the notice procedures of the proposed settlement.

On January 14, 2003, the Tennessee Circuit Court approved the class action settlement and determined that the notification to class members "constituted the best practicable notice" and was "reasonably calculated . . . to apprise class members of the pendency of [the] class action, [and of] their right to exclude themselves from the class and the proposed settlement. In addition, the Tennessee Circuit Court ordered that any class member who had not returned the opt-out form to the claims administrator were "permanently barred and enjoined" from obtaining "any benefits or other relief" in a lawsuit filed in another jurisdiction related to claims asserted in the class action."

The Tennessee Court of Appeals stayed enforcement of the class action settlement through January 2005 to allow homebuilders the opportunity to intervene in order that their rights could be determined under the settlement. In April 2005, the Tennessee Circuit Court dismissed the homebuilders' objections, confirmed the fairness of both the settlement notification procedures and the settlement terms, and entered final judgment approving the settlement in all respects.

SIMMERMON'S NEW JERSEY LAWSUIT

Just 3 weeks before the Tennessee Circuit Court certified the nationwide class action against Dryvit and preliminarily approved the class action settlement, on March 15, 2002 Dryvit filed its answer in Simmermon's New Jersey litigation but made no mention of the class action lawsuit as required by New Jersey Court Rule 4:5-1(b)(2). In accordance with this New Jersey pleading rule, in answering a complaint defense counsel is required to certify "whether the matter in controversy [was] the subject of any other action pending in any court . . . or whether any other action . . . [was] contemplated." R. 4:5-1(b)(2). The rule also requires the defendant to file with the "[plaintiff] and with the court an amended certification if there is a change in the original certification." Ibid.

It was undisputed that Dryvit did not comply with R. 4:5-1(b)(2) by informing Simmermon or the Court in its initial answer. or by way of a subsequent amended certification, that the subject matter of Simmermon's lawsuit was also the subject of the previously filed and existing nationwide class action suit in Tennessee.On March 25, 2003, 1 year after filing its answer in the New Jersey case, 11 months after preliminary approval of the nationwide class action settlement, 6 months after the opt-out deadline had expired, and 2 months after the Tennessee court entered its final approval of the settlement, Dryvit's counsel first sent a letter to Simmermon's counsel informing him of the nationwide class action settlement and that it was Dryvit's position that because Simmermon did not opt-out of the settlement that he was "barred and enjoined" from continuing his litigation against Dryvit in New Jersey. It was not until some 2 months later on May 30, 2003 that Dryvit's counsel finally notified the trial court about the Tennessee class action settlement and that it barred Simmermon from proceeding with his claims in New Jersey.

TRIAL COURT LEVEL

At the trial court level, Dryvit moved to dismiss Simmermon's claims based on the terms of the Tennessee class action settlement which by that time was considered as a final judgment in Tennessee. In other words, Dryvit asserted that the New Jersey court should give full faith and credit to the final judgment of a sister state - Tennessee. The trial court agreed with Dryvit, finding that the Tennessee court properly exercised jurisdiction over the class action and that Simmermon was subject to jurisdiction as a class member in Tennessee, the settlement notification procedure and opt-out provision satisfied federal due process requirements, and Simmermon's failure to opt-out rendered him bound by the settlement.

APPELLATE DIVISION

On appeal, the Appellate Division reversed the trial court, holding that Dryvit's failure to timely disclose to Simmermon and to the court its knowledge of the class action settlement, pursuant to R. 4:5-1(b)(2), prevented Dryvit from invoking the preclusive effect of the Tennessee judgment. The Appellate Division declined to address the due process analysis conducted by the trial court because the Appellate Division panel concluded that Dryvit's violation of R. 4:5-1(b)(2) was an independent legal basis for not enforcing the Tennessee judgment.

SUPREME COURT HOLDING

On petition for certification, the New Jersey Supreme Court reversed the Appellate Division's decision, holding that the Tennessee judgment is entitled to full faith and credit in the absence of Simmermon obtaining relief therefrom in a Tennessee court. This means that Simmermon must apply to a Tennessee court to avoid the preclusive effect of the settlement entered in the nationwide Tennessee class action. If Simmermon is unsuccessful in Tennessee, then the New Jersey courts must abide by the terms of the nationwide class action settlement reduced to judgment in Tennessee. On the other hand, if Tennessee excludes Simmermon from the class action settlement, then he may proceed with his New Jersey claims against Dryvit, the New Jersey Supreme Court declared.

Under either scenario (i.e., should Simmermon's succeed or fail in his future application to the Tennessee court), the New Jersey Supreme Court at least put Simmermon in a position to recoup his attorneys' fees and litigation expenses. The Court was particularly critical of Dryvit's failure to comply with the certification requirements of R. 4:5-1(b)(2), noting that Simmermon would have avoided unnecessary legal fees and costs and the New Jersey courts' resources had been spared had Dryvit simply been more forthcoming in its disclosure about the Tennessee class action lawsuit and settlement.

About the author: Glenn R. Reiser is a New Jersey attorney and partner at the law firm of LoFaro & Reiser, LLP with offices in Montclair and Hackensack, N.J. Mr. Reiser did not represent any party to this lawsuit. To visit LoFaro & Reiser's official websites, go to www.njlawconnect.com and www.new-jerseylawyers.com.

NJ Supreme Court Declines To Affirm Prima Facie Tort Remedy in NJ

2008-07-01T20:57:00.005-05:00

Richard A. Pulaski Construction Co., Inc. v. Air Frame Hangars, Inc. (A-40-07, July 1, 2008).

The New Jersey Supreme Court leaves open the question of whether New Jersey common law recognizes a prima facie tort claim. The legal definition of "prima facie" is evidence sufficient in law to establish a fact unless rebutted.

In this case the New Jersey Supreme Court had to decide whether New Jersey common law provides a remedy for misconduct that did not meet the traditional standards of a tort cause of action (i.e., such as fraud). This was not the first time the Court confronted this issue, for 10 years earlier in Taylor v. Metzger, 152 N.J. 490 (1998), the Court expressly declined to recognize a prima facie tort claim under New Jersey common law. However, in Taylor the Court noted that a leading treatise (Restatement) explained that such a cause of action encompasses the intentional, willful and malicious harms that "fall within the gaps of the law" and have been most frequently permitted only in limited situations in which a plaintiff would have no other cause of action.

The facts of the Pulaski case are quite complex, and must be abbreviated for purposes of this article. In simple terms, the defendant Air Frame Hangars ("Air Frame") entered into a lease with Mercer County for the development of "condominium-style" aircraft hangars. Air Frame retained Pulaski to perform certain site development work for the construction of these aircraft hangers. It was undisputed that Pulaski faithfully and dutifully performed its contractual services and that Air Frame failed to pay Pulaski all amounts due under their contract.

Pulaski proceeded to file a construction lien claim with the Mercer County Clerk's office in August 1997; the lien was subsequently ruled to be defective because the lien specified the wrong property address location. After Pulaski filed the construction lien claim but before it was declared defective, the parties engaged in a series of settlement discussions. When those discussions failed, in October 1997 Pulaski filed a demand for arbitration as required under the terms of the parties' written contract. While the arbitration was pending, in February 1998 Pulaski filed a separate lawsuit against Air Frame and Mercer County. The parties agreed to dismiss that lawsuit without prejudice with the applicable statutes of limitations period tolled (or preserved) pending the outcome of the arbitration.

In April 1999, Pulaski obtained a favorable arbitration award and thereafter filed a separate suit in the Superior Court of New Jersey to confirm the arbitration award. Prior to the conclusion of Pulaski's lawsuit to confirm the arbitration award and before Pulaski's construction lien was declared "defective", Air Frame sold 9 of its 9 aircraft hangers to various third party purchasers. In connection with each aircraft hangar sale Air Frame's principal (Mr. Ritterson) executed and delivered to each purchaser an Affidavit of Title affirmatively representing that he, as principal of Air Frame, was not aware of any adverse claims or liens against each particular aircraft hangar. Mr. Ritterson's representations were untruthful because Air Frame was in the midst of litigating its disputes with Pulaski.

The trial court determined that Ritterson's misrepresentations were deliberately intended to close title on the properties without having to pay Pulaski's unpaid lien claim. Not surprisingly, the evidence at trial revealed that Air Frame was insolvent. Refusing to let Air Frame and Ritterson "get away with it", the trial court concluded that Pulaski established a prima facie tort claim and entered judgment in Pulaski's favor in the amount of $105,932 plus an additional $39,000 in prejudgment interest and counsel fees. On defendant's appeal, the Appellate Division affirmed the trial court's opinion.

The New Jersey Supreme Court reversed the Appellate Division's decision and remanded the matter to the trial court with instructions to enter judgment in defendant's favor. In declining to address the utlimate issue (whether NJ common law recognizes a prima facie tort claim), the Court explained that Pulaski had other remedies that were available to him to redress his monetary loss:

"At its core, plaintiff's complaint is for breach of contract. It sought to prosecute that claim against Air Frame by demanding contract arbitration, procuring an arbitration award in its favor, and seeking to enforce its construction lien. Although plaintiff's construction lien was procedurally defective, plaintiff nevertheless had a judgment entered in its favor and against Air Frame for the amount of the arbitration award. Thus, plaintiff had successfully prosecuted a traditional cause of action at law for its breach of contract claim and was awarded a judgment in the full amount it sought."

The Court further stated that a defendant's insolvency does not in-and-of-itself give rise to a prima facie tort claim. "Stated differently, a prima facie tort may be triggered by the absence of a cause of action, but not by the lack of an effective remedy," the Court remarked. Lastly, the Court held that an unperfected construction lien claim is a "nullity" and cannot serve as an independent basis to support a prima facie tort claim.

Despite the apparent malicious conduct of Air Frame and its principal Ritterson the justices unanimously concluded that because Pulaski had other remedies available Pulaski could not satisfy the Restatement test for establishing a prima facie tort regardless whether or not New Jersey common law supports this cause of action.

Apparently for this unscrupulous business owner "crime does pay." It is rather surprising that the New Jersey Supreme Court, long a zealous victims rights advocate, saw fit to reverse the Appellate Division thus allowing the defendants, in the trial court's words, "to get away with it."

NJ Supreme Court Declares Substance Over Form in Breach of Contract Case

2008-06-04T09:08:00.002-05:00

On June 4, 2008, the New Jersey Supreme Court in Romagnola v. Gillispie, Inc. (A-57-07), held that a litigant who complied with a procedural court rule that was subsequently amended was entitled to enforce the rule as it existed pre-amendment. The plaintiff in this case availed himself of the offer of judgment rule, R. 4:58-2, which allows a litigant to recover his/her counsel fees if the litigant offers to accept a judgment for a specific amount, the defendant rejects the offer, and the litigant prevails at trial. Prior to September 1, 2004, to trigger an award of counsel fees R. 4:58-2 required that the litigant obtain a money judgment for a sum "as least as favorable as the rejected offer." On September 1, 2004, R. 4:58-2 was amended to increase the money judgment requirement to be "an amount that is 120% of the offer or more."

In 2002 plaintiff sued the defendants for breach of contract and other related claims. The parties engaged in extensive pretrial discovery and motion practice. During the course of the case, on March 20, 2002 plaintiff submitted an offer of judgment to defendant, offering to accept judgment in the amount of $1,165,000. In compliance with R. 4:58-2, plaintiff's offer of judgment notified defendants that they had 10 days before trial started or 90 days after service of the offer, whichever expired sooner, to accept the offer or it would be withdrawn. Defendants did not accept plaintiff's offer of judgment, and the offer was deemed rejected as of June 28, 2002. Under R. 4:58-2 as it existed then, plaitniff would have been entitled to recoup all of his litigation expenses and reasonable attorney's fees incurred after June 28, 2002 plus 8% interest on the judgment from the date of completion of discovery.

The case was tried without a jury between October 2003 and March 2004. Post-trial written submissions were completed by June 2004. Before the trial court ruled on the outcome, R. 4:58-2 was amended effective September 1, 2004, so that the qualifiying amount of money judgment required to trigger the remedies under the Rule was increased from a sum "at least as favorable as the rejected offer" to an "amount that is "120% of the offer or more." 3 weeks later the trial court returned a a judgment in favor of plaintiff and against defendants for the sum of $1,315,909.63, excluding pre-judgment interest. Significantly, the judgment satisifed the prior version of R. 4:58-2 in that it was "at least as favorable as the rejected offer" of $1,165,000, but did not satisfy the amended version of R. 4:58-2 because it was not "120% of the offer or more."

The trial court denied plaintiff's post-judgment application for attorneys' fees and expenses, finding that although the result was harsh it had no choice but to enforce the current version of R. 4:58-2 thereby barring plaintiff's remedy even though plaintiff fully complied with the Rule as it existed at the time he submitted his offer of judgment. Defendants appealed the underlying judgment and plaintiff cross-appealed. The Appellate Division agreed with the trial court's decision to enforce R. 4:58-2, as amended, reasoning that the Rule is procedural in nature, and normally, procedural rules in effect on the date a judgment is entered govern. The Appellate Division determined that plaintiff had no vested right in the pre-amendment operation of R. 4:58-2.

In a victory of substance over form, the Supreme Court reversed the Appellate Division's decision denying plaintiff a remedy under R. 4:58-2 by applying R. 1:1-2 -also known as the "relaxation rule". R. 1:1-2 provides that the NJ Rules of Court "shall be construed to secure a just determination, simplicity in procedure, fairness in adminstration and the elimination of unustifiable expense and delay." If further provides that, "unless otherwise stated, any rule may be relaxed ... if adherence to it would result in an injustice." "Determining whether relaxtion [under R. 1:1-2] is appropriate ... requires an examination and balancing of the interests that are at stake." State v. Williams, 184 N.J. 432, 433 (2005). Nevertheless, our courts have held that resort to R. 1:1-2 "should be used sparingly..." See Bender v. Adelson, 187 N.J. 411, 431 (2006).

Circumstances as unique as those presented here -- where a party fully complies with the letter and spirit of a Rule but the Rule changes after a party can no longer alter or modify its position to comply with the amended Rule -- animate the more flexible approach Rule 1:1-2 embodies and weigh heavily in favor of relaxation. At its core, plaintiff's plea is that, once trial had started, his offer of judgment was fixed and could not be changed and, hence, the application of the rules other than those under which the offer of judgment was made violates fundamental principles of fairness. In this limited instance, we agree.

This case represents a strong example of the New Jersey Supreme Court's willingness to reward substance over form. In my opinion, it is difficult to comprehend why 2 courts (trial court and appellate court) did not share the view espoused by the NJ Supreme Court. A question not addressed here, however, is whether the plaintiff would be entitled to recover his attorneys' fees and expenses incurred in the appeals to the Appellate Divison and NJ Supreme Court. The NJ Supreme Court remanded (or returned) the case to the trial court for furthe proceedings.

New Jersey Predatory Lending Practices Associated with NJ Foreclosure Bailout Questioned by NJ Appellate Court

2008-05-22T14:07:00.002-05:00

Score a victory for homeowners in New Jersey who have been duped by “white knight” lenders on the eve of sheriff’s foreclosure sale! In a published opinion issued by the New Jersey Appellate Division on May 19, 2008, Nowoleska vs. Steele, et als., Appellate Div. 2008, Docket No.: A-5759-06T15759-06T1, the Court came to the rescue of an elderly lady and her daughter and son-in-law who unwittingly gave up title to their family home in order to avoid a sheriff’s sale thinking they would be able to get the property back.

In this case, the Appellate Division was presented with the question of whether to vacate a default judgment entered against defendants that resulted in awarding possession of the family home to a subsequent purchaser who acquired title to the property based upon prior predatory lending practices of predecessors in title. Defendants, including an 83-year old woman named Marjorie Steele, faced ejectment from the house that was occupied as the family home for 43 years. Originally, the property was occupied as Ms. Steel’s marital residence, and thereafter ownership was shared with her daughter and son-in-law. Defendants lost title to the house through a series of questionable lending transactions.

In June 2003, defendants borrowed $95,000 to make home improvements and repairs, and to consolidate other debts. The loan was secured by a mortgage. At some point in time, defendants defaulted on this mortgage by failing to make regularly scheduled payments. The mortgage holder filed a foreclosure suit, obtained a judgment, and received a sheriff's sale date of February 7, 2006. Defendants avoided the sheriff’s sale, however, by borrowing funds from an entity known as Property Vestors. In exchange for this “white knight” loan, defendants executed a promissory note with Property Vestors requiring them to pay back the loan plus interest within 30 days (or by February 28, 2006 which was 21 days from the date of the scheduled sheriff’s sale). Defendants expected to repay this loan by borrowing from their 401(k) accounts. In any event, defendants believed that Property Vestors would be required to commence a new foreclosure case if they failed to repay the monies within 30 days. However, as part of the transaction with Property Vestors, the defendants signed a Deed in Lieu of Foreclosure to Property Vestors as security for the loan. The promissory note provided that if the monies were not paid by February 28, 2006, Property Vestors would pay defendants $20,000 and, upon payment of an outstanding mortgage, would have all rights to the property.

Once again faced with the prospect of losing their property, on February 24, 2006 defendants obtained new financing through Lenny Hernandez and Michael Figler of Equity Solutions, L.L.C. (collectively “Equity Solutions”) and paid off their prior loan to Property Vestors As a result this transaction with Equity Solutions, Figler took title to the property, paid off Property Vestors’ mortgage along with other liens and judgments against the property, which totaled approximately $145,000, plus title and closing costs of approximately $10,000. In addition, Figler included as part of his "purchase price" for the property the sum of $50,000 representing a fee to his company Equity Solutions. Defendants signed a use and occupancy agreement with their new lender allowing them to remain on the premises for 1 year provided they made monthly payments of $2,200 to Figler, and they had an option to buy back the property for $202,400 within one year (before February 24, 2007).

On April 24, 2006, after defendants defaulted on the payments to Figler, he transferred title to the property to plaintiff Ewelina Nowosleska for $260,000. Nowosleska subsequently transferred title to Jean Sidibe for $405,000, and a mortgage in that amount was recorded with the County clerk’s office. Defendants asserted that both parties (plaintiff Nowosleska and Sidibe) were connected with Figler's business. Assuming that $405,000 represents the value of the property, defendants were thus induced to part with title to property valued at $405,000 in order to pay off debts totaling a mere $145,000

Since defendants made no payments under the use and occupancy agreement with Figler, plaintiff (who had acquired the property from Figler) commenced an action to eject or remove defendants from the property. Defendants were served with the lawsuit on August 24, 2006, but failed to file an answer. Consequently, default was entered against them, and plaintiff's unopposed motion for a default judgment was granted. The default judgment entered on January 9, 2007, gave plaintiff possession of the premises.

Approximately 4 months later, on April 25, 2007, defendant filed an emergency application before the trial court asking to vacate the default judgment. The trial court denied their application on May 11, 2007. Defendants filed a motion for reconsideration, which the trial court also denied. Thereafter, defendants appealed and the trial court issued a stay of the ejectment pending the outcome of the appeal.

In their appeal, defendants argued that Figler misrepresented that the monthly payments would be only slightly higher than their current $1,200 mortgage payment and that a portion of their home equity would be used to make these payments. They contend that they signed the documents understanding that they were obtaining a loan and that only later did they discover that they had signed a deed transferring title to the house to Figler. Figler arranged for an attorney to represent defendants for the transaction and, not surprisingly, argued that defendants understood the nature of the transaction and agreed to it.

Defendants maintained that the trial court should have vacated the judgment for ejectment pursuant to subsection (f) of New Jersey Court Rule 4:50-1, which allows the court to set aside a judgment in “exceptional situations.” In determining whether relief is warranted under this section of the rule, courts focus on equitable considerations. Hous. Auth. of Morristown v. Little, 135 N.J. 274, 294 (1994). In Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 100-01 (App. Div. 1998), certif. denied, 158 N.J. 686 (1999), this court stated, in the context of an application to vacate a default judgment, that:

As the Appellate Division explained, R. 4:50-1(f) calls for the exercise of sound discretion, "guided by equitable principles, and in conformity with the prescription that 'any doubt should be resolved in favor of the application to set aside the judgment to the end of securing a trial upon the merits.'" (quoting Goldfarb v. Roeger, 54 N.J. Super. 85, 92 (App. Div. 1959). An application for relief from a default judgment under subsection (f) is treated "indulgently." Mancini v. EDS, 132 N.J. 330, 335 (1993). The decision on whether to vacate a judgment under the terms of this rule is left to the sound discretion of the trial court and will not be overturned on appeal absent a mistaken exercise of that discretion. Mancini v. EDS, 132 N.J. at 334.

In this instance, the Appellate Division put down its foot on these types of predatory lending practices by reversing the trial court’s decision and vacating the judgment of ejectment. “Since the loss of the home may have resulted from predatory lending practices, in the interests of justice and due to these extraordinary circumstances, the default judgment should be set aside under Rule 4:50-1(f), so that the dispute can be resolved on the merits, and, if necessary, appropriate legal and equitable adjustments be made,” the Appellate Division held. “Allowing the default judgment to stand in this case may result in a grave injustice. These defendants may have been the victims of predatory lending practices,” the Appellate Division further remarked.

It remains to be seen whether the defendants will ultimately prevail on their predatory lending claims at a trial on the merits, but the Appellate Division determined that they at least deserve the opportunity.

"Not in the Cards," says NJ Appellate Court to Self-Professed Problem Gambler

2008-03-25T21:09:00.003-05:00

A self-professed problem gambler who voluntarily placed himself on the New Jersey Casino Control Commission's lifetime self-exclusion list is not entitled to removal from that list on becoming aware that out-of-state casinos affiliated with New Jersey casinos would also exclude him from their gaming facilities, the Appellate Division ruled on March 20, 2008 in The Matter of the Petition of S.D. for Removal From the Voluntary Self-Exclusion List, A-3427-06T2.

In this particular case, on July 26, 2004 the gambler (S.D.) submitted a "self-exclusion questionnaire" for lifetime placement on New Jersey's self-exclusion list. In signing the questionnaire, S.D. acknowledged that he was a problem gambler; that he authorized the New Jersey casino and casino simulcasting facilities to exclude him from all gaming activities; that he read and understood the instructions appearing on the questionnaire; and affixed his initials to to a question explaining that by choosing a lifetime ban he could not request to be taken off the list.

Only a month later, on August 24, 2004, S.D. sent the division a letter requesting that his lifetime ban be rescinded or downgraded. According to S.D., he claimed he agreed to ban himself only from Atlantic City, which was near his home, so that he would force himself to restrict his gambling to Vegas trips. S.D. having received a letter from Ceasers, which maintains casinos in Atlantic City and Las Vegas, notifying him that his voluntary submission to New Jersey's resulted in his being banned in its Las Vegas casino, S.D. claimed that he never would have voluntarily banned himself if he knew the ban would extend to other gaming facilities in other parts of the United States.

Ultimately, S.D. filed a formal petition with the New Jersey Casino Control Commission seeking an order removing his lifetime ban from the SEL. According to his petition, S.D. argued that he did not knowingly and voluntarily waive his rights because the questionnaire did not inform him that putting himself on New Jersey's SEL would result in his being excluded from other affiliated casinos throughout the USA. The Commission denied S.D.'s petition for, among other reasons, that there was no regulation justifying removal of a person who voluntarily chooses a lifetime self-exclusion ban, or any regulation directing casinos in other states to allow a voluntary participant in a New Jersey SEL to gamble at their facilities.

Dissatisfied, S.D. appealed the Commission's denial of his petition to the Superior Court of New Jersey, Appellate Division, which has appellate jurisdiction from final orders of administrative agencies. Applying an "abuse of discretion standard", the Appellate Division found that the Commission's decision was supported by ample facts, law and public policy. Recognizing that there is no fundamental right to gamble, either by statute or by constitution, the Appellate Division concluded that S.D. voluntarily surrendered whatever right he had to participate in gaming activities in New Jersey when he placed himself on lifetime SEL. That S.D.'s decision to submit to New Jersey's SEL resulted in his banishment from casinos in other jurisdictions was a collateral consequence of his contract or agreement with the State of New Jersey, the Appellate Division reasoned.

Further, the appellate court remarked that the voluntary exclusion policies of the private parent companies of New Jersey casino licensees was not something within the purview or jurisdiction of the New Jersey Casino Control Commission. Hence, the appellate court held that the Commission had no obligation to inform S.D. of any collateral consequences of his New Jersey SEL.

What does this case mean for NJ gamblers? Think carefully before folding your hand.

NJ Supreme Court Rules in Favor of Homeowner in Challenge to Foreclosure Sale Based on Deficient Sheriff's Sale Notice

2008-02-29T14:28:00.001-05:00

In a victory for homeowners, the New Jersey Supreme Court has ruled that where notice of a sheriff's sale was procedurally deficient, the equitable doctrine of laches will not serve to bar relief to the homeowner. U.S. v. Scurry, A-14 September Term 2007.

In this case, the homeowner was sued in foreclosure by her lender after falling behind in her mortgage payments. The homeowner subsequently filed Chapter 13 bankruptcy in an effort to save her home, however she also fell behind in her post-petition mortgage payments resulting in the bank obtaining relief from the automatic stay of the bankruptcy case. The bank then returned to the foreclosure court, obtained final judgment and received notice of a sheriff's sale date. Pursuant to NJ Court Rule 4:65-2, the bank was required to provide the homeowner with at least 10 days' prior written notice of the sheriff's sale by registered or certified mail return receipt requested. The bank was unable to prove that it satisfied this requirement, failing to produce a return receipt card. Notwithstanding, the sheriff's sale was held and the bank was the successful bidder.

Approximately 3 months after the sheriff's sale had concludedd, the sheriff's department served the homeowner with a writ of possession which prompted the homeowner to immediately contact her bankruptcy lawyer. The homeonwer then deposited the post-bankruptcy mortgage arrears with her lawyer, and her lawyer promptly notified the bank's foreclosure counsel that he was holding the funds necessary to cure the post-petition arrears. The bank's counsel never responded, and on September 8, 2005 the homeonwer and her personal belongings were removed from the property.

Three months after the lockout, the homeowner filed a motion before the Chancery Court seeking to vacate the sheriff's sale on the basis of lack of proper notice. Not surprisingly, the bank opposed the motion claiming it had incurred $3000 in costs to enforce the lockout and that it would be prejudiced by the inordinate delay - the sheriff's sale having occured some 7 months earlier. The trial court denied the homeowner's motion, and after an unsuccessful motion for reconsideration she appealed to the Appellate Division. The Appellate Division affirmed, finding that even though the bank didn't properly provide notice of the sheriff's sale the trial court did not abuse its discretion given the delay caused by the homeowner's bankruptcy case, the furtehr delay after she became aware of the sheriff's sale, and the absence of any evidence of her financial ability to rectify the situation. The Appellate Division concluded that the equitable doctrine of laches, which will deny a party enforcement of a known right when the party engages in an inexcusable delay in exercising that right to the prejudice of the other party, barred relief to the homeowner.

Championing the rights of substantive due process, the New Jersey Supreme Court overturned the Appellate Division's decision. The Court found, in balancing the equities, the prejudice, alleged by the bank did not match the prejudice sustained by the defendant who had been dispossessed from her home without the bank's compliance with the procedural notice requirements. The Supreme Court therefore concluded that application of the equitable doctrine of laches to bar relief to the defendant constituted an abuse of discretion.

In this author's opinion, this represents a substantial victory for homeowners. Too many times, lenders' foreclosure attorneys don't comply with procedural rules and get away with it because most litigants in this position don't have the financial resources to mount a challenge. The Supreme Court apparently was not willing to overlook such a substantial defect in the notice requirements imposed by the New Jersey Court Rules.

NJ Tax Sale Foreclosure Doesn't Strip Municipality From Obtaining Dedicated Land

2008-01-24T22:34:00.000-05:00

In a decision rendered on January 15, 2008, the New Jersey Supreme Court held that a tax sale certificate and subsequent foreclosure by the purchaser of a tax sale certificate did not prevent the municipality from obtaining the land, which prior owners had dedicated for public use as a park 78 years ago. However, the township must reimburse the tax sale certificate holder for its expenses plus interest, the Supreme Court ruled.

The irony of this case is that the township sold the lot at a municipal tax sale without realizing that the property was previously dedicated for public use. After the sale, the township approached the purchaser on several occasions offering to buy the lot back so that it could be dedicated as a park. The purchaser declined, and thereafter successfully obtained title to the property in a separately filed foreclosure suit, and contracted to sell the property to a construction company for the building of a residence.

The township filed a separate lawsuit against the tax sale certificate holders and the construction company, claiming that the park lot was dedicated to the township for public use and that the conversion of the lot for private use would violate the rights of the public in the property. In its complaint, the township asked the court to fix the amount it should pay to the certificate holders to reimburse them for the amounts paid on the certificates, the subsequent taxes they paid, plus a reasonable interest rate. Although losing at the trial level, the township was successful on appeal and the Supreme Court affirmed.

It is rather remarkable that the Supreme Court allowed the township to belatedly accept a 78-year old dedication after the township sold the property at a tax sale and the purchaser completed the foreclosure process. In my opinion, this decision reflects the Supreme
Court's desire to protect open space in New Jersey.

NJ Foreclosure Ruling - Final Judgment Merges Mortgage

2007-09-24T20:38:00.000-05:00

In a case that merits attention by banks and lawyers practicing debtor and creditors' rights, the Chancery Division in Middlesex County held that upon satisfaction of a final judgment of foreclosure a mortgagor is entitled to receive only a warrant of satisfaction of judgment, not a discharge of the mortgage in the County recording office.

Washington Mutual, FA v. Wroblewski, F-1865-05. In this case, the bank sought reconsideration of an order issued by the Chancery Court requiring that it provide a discharge of mortgage to the defendant mortgagor based on the mortgagor's satisfaction/payment of the final judgment of foreclosure. The applicable statute, N.J.S.A. 2A:50-32 provides that when a judgment of foreclosure is satisfied, a warrant of satisfaction shall be entered. The defendants argued that upon satisfaction of a final judgment of foreclosure the lender should no longer have a claim for monies due and the mortgage should therefore be discharged.

The bank's counter argument centered on the merger doctrine (where it has been held that the mortgage merges into the final judgment of foreclosure) and N.J.S.A. 2A:50-32 which clearly states that a warrant of satisfaction "shall be entered" when a final judgment of foreclosure is satisfied. More specifically,

the bank contented that the purpose of New Jersey's merger doctrine is to avoid the inequitable result of a defaulting mortgagor paying the lesser amount of a foreclosure judgment, while also receiving the same benefit as a non-defaulting mortgagor who pays the full contractual obligation.

Finding in favor of the bank, the trial court reasons that when a judgment is entered, a final foreclosure judgment in New Jersey establishes rights in property distinct from those conferred by the mortgage. For example, "the judgment fixes the amount due under the mortgage and directs the sale of the real estate to raise funds to satisfy that amount. Further, all the terms, including the rights and obligations under the mortgage merge into the foreclosure judgment and the only thing remaining is the foreclosure judgment itself," the court rermarked. The trial court was persuaded by the bank's equitable argument,

that granting a discharge of the mortgage would "reward" a defaulting mortgagor who ultimately redeems the mortgage simply by paying the sheriff because it gives the defaulting mortgagor what a party who contractually pays its obligations in full received.

LoFaro & Reiser, LLP represents lenders and borrowers in foreclosure cases throughout the State of New Jersey. The firm did not represent either party to this action. This article is not intended to be a full description of the case, but rather just a brief informative summary.

NJ Supreme Court Issues Significant Ruling in Medical Malpractice Case Involving Termination of Pregnancy

2007-09-14T23:09:00.000-05:00

September 12, 2007

In this case, the New Jersey Supreme Court was faced with the difficult question of determining whether a physician is required to inform a patient, who was in the 6th to 8th week of her pregnancy, that an abortion procedure will kill not just potential life, but an actual existing human being. In this case, the plaintiff filed a medical malpractice action claiming that her physician, an obstetrician-gynecologist, performed an abortion without her informed consent. Specifically, the plaintiff alleged in her Complaint that the doctor breached his duty to her by failing to inform her of "the scientific and medical fact [that her six-to-eight-week-old embryo] was a complete, separate, unique, and irreplaceable human being" and that an abortion would result in "killing an existing human being."

In finding in favor of the doctor,

the New Jersey Supreme Court concluded that there is no common law duty requiring a physician to inform a pregnant patient that an embryo is an existing, living human being and that an abortion results in the killing of a family member

. Click here to read the full case opinion.

NJ Supreme Court Justice Now Admits Ethics Violation

2007-06-02T11:25:00.001-05:00

June 1, 2007. New Jersey Supreme Court Justice Roberto Rivera-Soto conceded that he violated judicial ethics rules by creating an appearance of impropriety in contacting school, police and court authorities in a dispute involving his son, but denied any deliberate misconduct. In a letter to the Advisory Committee on Judicial Conduct, he stated that in order to "prevent any further harm to the Court's reputation" he would waive a formal hearing and stipulate that the charges against him be decided on the basis of the investigatory record and his statement in lieu of formal testimony.

"I deeply regret that my actions in defense of my son have raised questions about my integrity, and have created the potential to undermine the public's trust and confidence in the Court," Rivera-Soto remarked, adding he was "profoundly sorry" for his actions and their effect.

But Rivera-Soto did not recede his position asserted in his May 18 answer that he sought no preferential treatment when he pressured Haddonfield Township school officials to act, called the town police chief's cell phone, reached out to a prosecutor and two judges and handed his business card to a court employee. Rivera-Soto explained that he was trying to have the matter handled "in the ordinary course" and that in hindsight, "I underestimated the capacity that my position has to influence others."

Rivera-Soto's actions occurred last fall in response to alleged bullying of Rivera-Soto’s 15-year-old son Christian by C.L., an older teammate on the Haddonfield Township High School football team. A juvenile delinquent complaint filed by Rivera-Soto against C.L. in Camden County Family Part was resolved on Dec. 15 when the parties agreed to let the matter rest if there were no further incidents between the youths by June 19, 2007, the end of the school year. In his answer to the complaint, Rivera-Soto said he used his own stationery, not the Court's, when he wrote to Camden County Presiding Family Judge Charles Rand about the case against C.L. and implied that the limitations imposed by his position on the Court left his son unable to defend himself against C.L.'s "assaults." He also says, in his letter, that he was not seeking revenge, only "that my son be left alone."

The complaint in In the Matter of Roberto Rivera-Soto, ACJC 2007-097, filed May 11, accuses Rivera-Soto of violating Judicial Canons 1, 2A and 2B and a rule, 2:15-8(a)(6), that bars conduct bringing the judicial office into disrepute. Rivera-Soto, appointed to the Court by Gov. James McGreevey in 2004, will be reviewed for tenure in 2011.

New Jersey Supreme Court Justice Faces The Heat in Judicial Ethics Charges

2007-05-22T11:13:00.000-05:00

A New Jersey judicial ethics committee filed a Complaint against New Jersey associate Supreme Court Justice Roberto River-Soto on May 11, 2007 accusing him of violating certain Judicial Canons, and R. 4:15-8(a)(6) which bars conduct that brings the judicial office into disrepute. The Complaint stems from Justice Rivero-Soto's involvement with his son's juvenile delinquency complaint filed in municipal court against another high school football player accused of harassment.

Rivera-Soto's son accused the captain of the Haddonfield Memorial High School football team of assaulting him during practice. According to the ethics committee complaint — just the second ethics complaint filed against a state Supreme Court justice in more than three decades — Rivera-Soto made phone calls or wrote letters to team and school officials, the local police chief, two judges and the Camden County prosecutor on behalf of his son.

At times, the ethics complaint charged, Rivera-Soto alluded to his office while placing calls. When introducing himself to a detective sergeant, Rivera-Soto handed out his business card. He also asked a Camden County Superior Court assignment judge to treat his charges the same as any other, but asked him "to make certain his complaint received attention." He did the same with Camden County's acting prosecutor.

When a court hearing was delayed without his knowledge or prior notice, Rivera-Soto allegedly asked a court employee "if she knew who he was" and gave her a business card, then wrote the presiding judge to complain about the postponement.

Rivera-Soto admitted contacting the Haddonfield police chief, the acting Camden County prosecutor, and judges in the case. But, the response says, he did not mean to improperly influence them and in one circumstance wrote to a judge on personal letterhead bearing his name and home address.

“It was never his purpose or intention to influence the acts of anyone by reference to his judicial position," the response says of Rivera-Soto. "His intent at all times was to avoid any appearance of impropriety," and he regrets any misunderstanding.

A hearing remains to be scheduled and conducted by the judicial ethics committee.

NJ Internet Users' Aliases Are Private, Appellate Court Rules

2007-01-26T10:41:00.001-05:00

Computer users in New Jersey can expect that personal information they give their Internet service providers will be treated as private, a state appellate court decided yesterday in the first such case considered in the state.

The court ruled that a computer user whose screen name hid her identity had a "legitimate and substantial" interest in anonymity.

As a result, New Jersey and several other states will give greater privacy rights to computer users than do most federal courts, and law-enforcement officers in New Jersey will need to obtain valid subpoenas or search warrants to obtain the information.

The appellate panel's unanimous ruling stemmed from the indictment of Shirley Reid, who was suspected of breaking into the computer system of her employer in Cape May County in 2004 and changing its shipping address and password for suppliers.

The decision upholds a lower court ruling suppressing information from Reid's Internet service provider that linked her with a screen name that did not reveal her identity. Lower Township police obtained the information after having the township's Municipal Court administrator issue a subpoena to the provider, Comcast Internet Service.

However, the appellate panel found that the subpoena was invalid because the crime being investigated was not within that court's jurisdiction and the subpoena was not issued, as required, in connection with a judicial proceeding.

And because "New Jersey is among the few states to have found an implied right to privacy in its state charter," a proper subpoena or search warrant is required to obtain private information, the appeals court decided.

By using a coded screen name, the "defendant manifested an intention to keep her identity publicly anonymous. She could have used her own name or some other ISP address that would have readily revealed her identity, but she did not. Having chosen anonymity, we conclude that defendant manifested a reasonable expectation of privacy in her true identity, known only to Comcast," Appellate Judge Harvey Weissbard wrote for the panel.

The court said it was not issuing blanket protection for computer-based criminals.
"Just as with telephones or bank records, computers cannot be used with impunity for unlawful purposes. When there is probable cause to believe unlawful use has occurred, law enforcement has the tools to respond," the court said.

Federal courts have held that Internet subscribers have no right of privacy under Fourth Amendment protections against illegal search and seizure regarding identifying information on file with their service providers. That stems from U.S. Supreme Court decisions that held that a person cannot expect privacy for information voluntarily given to others, the New Jersey court said.

"However, the right to privacy of New Jersey citizens under our state constitution has been expanded to areas not afforded such protection under the Fourth Amendment," the court added.

"Judge, Don't Interrupt My Client's Testimony To Warn About Criminal Implications"

2007-01-11T23:46:00.000-05:00

A trial court judge's actions in interrupting a litigant's testimony during cross-examination to warn him about possible criminal implications if his testimony revealed tax fraud was improper, the Appellate Division held in All Modes Transport Inc. v. Hecksteden, A-0361-05T5, December 27, 2006. Combined with this warning, the trial court suggested the parties settle the case. After this exchange by the trial judge, the defendants agreed to settle the case for a substantial sum of money. Shortly thereafter, the defendants filed a motion requesting the trial court to vacate the settlement arguing that they were coerced into the settlement by the trial judge's threat of criminal prosecution. The trial court denied defendants' motion, concluding that the settlement agreement was not procured by coercion. The trial court was of the opinion that it had a duty to warn to warn the defendant that continuation of his testimony on cross-examination could result in self-incrimination.

The defendants appealed, and the Appellate reversed the decision and remanded the matter back to the trial court for reconsideration of whether the defendants voluntarily entered into the settlement. In so ruling, the Appellate Division remarked that the proper judicial course for the trial judge to have followed would be to leave the matter of suspicion of criminality for such attention at the end of the case, including referral to the appropriate prosecuting authority. The appellate court further commented that it was the responsibility of defendant's counsel, not the trial court, to advise him about his legal rights and potential liabilities flowing from his testimony. Evaluating the impact of the trial judge's warning, the Appellate Division believed that such statements had to have exerted substantial pressure on him to settle the case in order to avoid criminal prosecution.

New Jersey Passes Same Sex Civil Unions

2006-12-21T21:46:00.000-05:00

On December 21, 2006 New Jersey became the third U.S. state to provide equal rights for same-sex couples in committed relationships known as civil unions.

Gov. Jon Corzine, signing the Civil Unions bill into law, said the state has an obligation to give such partnerships the same legal rights as married couples.

"We must recognize that many gay and lesbian couples in New Jersey are in committed relationships, and deserve the same benefits and rights as every other family in the state," Corzine said in a statement.

The bill was passed by lawmakers last week following a ruling by the state Supreme Court affirming equal rights for same-sex couples, but deferring to the legislature a decision on whether to call their relationships "marriage."

Lawmakers opted to call them "civil unions."

Massachusetts is the only U.S. state to have legalized same-sex marriage, which supporters say is necessary to establish true equality for homosexual partnerships. Connecticut and Vermont have civil union laws.

New Jersey Supreme Court Rules that Same Sex Couples Entitled to Same Rights as Married Couples

2006-10-30T23:21:00.000-05:00

On October 25, 2006, the New Jersey Supreme Court ruled in a 4-3 decision that New Jersey must extend all the rights of marriage to gay couples. But the Supreme Court justices left it to the New Jersey legislature to decide whether to provide those rights in the form of marriages, civil unions or something else — and gave the Legislature 180 days to reach a decision.

The New Jersey Supreme Court ruling is similar to the 1999 high-court ruling in Vermont that led that state to create civil unions, which confer all of the rights and benefits available to married couples under state law.

"Although we cannot find that a fundamental right to same-sex marriage exists in this state, the unequal dispensation of rights and benefits to committed same-sex partners can no longer be tolerated under our state Constitution," New Jersey Supreme Court Justice Barry T. Albin wrote for New Jersey's four-member majority.

The court said the Legislature "must either amend the marriage statutes to include same-sex couples or create a parallel statutory structure" that gives gay couples all the privileges and obligations afforded to married couples.

The three dissenting justices, including outgoing Chief Justice Deborah Poritz who was serving her last day on the Court, argued that the majority did not go far enough. They demanded gay couples be given the right to marry.

Insurance Brokers Excluded From New Jersey Consumer Protection Act

2006-09-13T11:03:00.000-05:00

Plemmons v. Blue Chip Insurance Services, A-0414-04T3, Appellate Division (August 21, 2006). An insurance broker is excluded from liability under the New Jersey Consumer Fraud Act for the performance of brokerage services, the Appellate Division held in a published opinion approved for publication on August 21, 2006.

In this particular case, the plaintiff entered into a contract to purchase residential property in New Jersey, which he planned to convert to commercial use. In anticipation of a closing, plaintiff paid a $361 premium to obtain homeowner's insurance coverage from defendant Blue Chip Insurance, and Blue Chip issued a policy declaration sheet providing for homeowner's coverage. The policy was ultimtely voided because of a delay in the closing date, however Blue Chip never refunded plaintiff his $361 premium.

A new closing date was arranged,and prior thereto an insurance representative with Blue Chip advised plaintiff's representative that plaintiff needed to obtain a business operations policy rather than a homeowner's policy. Plaintiff never paid a premium for a business operations policy, and Blue Chip neither issued a business operations policy nor a homeowner's policy. Consequently, the property was uninsured at the time it was damaged by a storm and by the alleged negligence of contractors who performed work required to convert the property from residential to commercial use. Blue Chip never returned the $361 premium paid by plaintiff and alegedly failed to inform plaintiff that he did not have the coverage that such a policy would have provided.

The full Appellate Division opinion can be downloaded here

Because insurance brokers are semi-professionals, subject to testing, licensing and regulation by the State of New Jersey they cannot be sued under the Consumer Fraud Act, the Appellate Division concluded.

New Jersey Judge Facing Ethics Charges Seeks to Recuse 2 NJ Supreme Court Justices

2006-08-30T22:40:00.000-05:00

A New Jersey judge facing a Supreme Court hearing on charges he made inappropriate comments to jurors and about other judges is asking that two members of the New Jersey Supreme Court recuse themselves due to alleged bias.

Superior Court Judge Wilbur Mathesius filed a motion on Aug. 23, 2006 urging that Chief Justice Deborah Poritz and Justice Jaynee LaVecchia not participate in his disciplinary case because they have criticized him in the past. Mathesius is challenging the Advisory Committee on Judicial Conduct's findings that he committed ethics violations the committee said warranted a six-month suspension, half without pay.

At issue is Mathesius' conduct in Mercer County's Criminal Part in 2004 and 2005 and conduct resulting in two admonitions while he was a municipal court judge. ACJC Chairman Alan Handler found that ethics prosecutors proved by clear and convincing evidence allegations in a four-count complaint charging that Mathesius:

• berated a jury for acquitting a defendant of illegal handgun possession;
• talked ex parte to jurors in the midst of deliberations in a murder case;
• made derogatory comments, some in public, about appellate judges; and
• made gratuitous remarks that show bias about cases or defendants.

A September 25, 2006 hearing is scheduled, but Mathesius argues that Justices Poritz and LaVecchia should not be sitting. In Mathesius' certification that he filed supporting his recusal motion, he claims both justices have accused him or made findings of wrongdoing, which means they are predisposed to find against him.

We will report further on the outcome of this hearing.

New Jersey Supreme Court Committee on Attorney Advertising

2006-07-20T21:50:00.000-05:00

What are the limitations imposed on New Jersey attorney advertisements? Read online opinions issued by the Supreme Court of New Jersey Committee on attorney advertising at http://lawlibrary.rutgers.edu/cgi-bin/ethics.cgi#caa