Unenforceable Clause In Arbitration Agreement Does Not Void Agreement

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)One of my children's preschool teachers was fond of saying, "you get what you get and you don't get upset." (Not to my little angel, of course, but to other children.) In Curran v. Curran, the Appellate Division basically applied this admonition to the parties to an arbitration agreement, holding that they got what they intended out of the agreement, therefore they could not argue, after the fact, that an unenforceable provision in the agreement voided the entire agreement.

In Curran, plaintiff filed for divorce from defendant. With the advice of counsel, the parties entered into a consent order to refer all issues incident to their divorce to arbitration under the New Jersey Arbitration Act. In the consent order, the parties acknowledged that any arbitration award that was entered could only be set aside or modified by a court under the limited grounds set forth in the Arbitration Act — e.g., the award was procured by fraud, corruption, or undue means, the court found evidence of "evident partiality" by the arbitrator, the arbitrator exceeded his or her powers, etc.  But the parties also included a handwritten provision, which provided: "The parties reserve their rights to appeal the arbitrator's award to the appellate division as if the matter was determined by the trial court." This is the provision that would cause all of the problems.

After the arbitrator entered a preliminary award, plaintiff requested reconsideration. The arbitrator then issued a comprehensive award setting forth his findings of fact and conclusions of law. Plaintiff filed a motion in the Law Division for an order modifying the award, citing eight alleged "mistakes of law" made by the arbitrator. Plaintiff also argued that the intent of the handwritten provision was not to allow for direct appeal to the Appellate Division, but was instead was evidence that the parties intended a more searching review of the award that what would normally be allowed under the Arbitration Act. The trial court agreed, holding that the paragraph itself was unenforceable because it purported to "create subject matter jurisdiction by agreement." The trial court noted that "[t]he authority of a court to hear and determine certain classes of cases rests solely with the Constitution and the Legislature." But the trial court agreed with plaintiff that the handwritten provision demonstrated the parties' intent to provide for "a little more review" than what would normally be allowed under the Arbitration Act. Therefore, the trial court "in essence act[ed] as the Appellate Division of the arbitrator." It performed a comprehensive review of the arbitrator's decision and affirmed the award. 

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Married in 1967, Divorced in 1982, Sued for 47 Years of Alimony in 2014

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Divorce (pd)It seems like the plot of a Lifetime movie, but it is not (or, at least, not yet). Plaintiff and defendant marry in 1967 in Vietnam. In 1975, plaintiff flees Vietnam because of the "impending communist takeover." He ends up in New Jersey where, in 1981 he files for divorce. The judgment of divorce is entered in 1982, after which plaintiff re-marries. In 2004, defendant immigrates to the United States and ten years later seeks to vacate the divorce and collect alimony and equitable distribution "based on a 47 year marriage." These are the basic facts in a recent unpublished Appellate Division decision, Chau v. Khon.  

Here are the relevant missing details. After coming to America in 1975, plaintiff sent letters to defendant, "including a signed application for family reunification." Plaintiff's brother also sent letters to defendant. These letters were sent between 1975 and 1981, but defendant never responded. Plaintiff filed for divorce in 1981, asserting a separation of more than 18 consecutive months as the basis for the divorce. Because he had not heard from his wife in six years, and did not know here whereabouts, he sought permission to serve her by publication. The court agreed, and following publication, a judgment of divorce was entered.

Plaintiff remarried and the couple had a son. Plaintiff also had two daughters from his first marriage. In 1993, the daughters came to live with their father and his new wife. In 1996, plaintiff and his son even visited Vietnam and met with defendant. In 2004, defendant immigrated to the United States. She claims that she learned about the divorce in 2006 when she obtained copies of the original complaint and judgment of divorce. Nonetheless, she waited until 2014 to (1) move to vacate the original divorce and (2) file her own complaint for divorce, seeking alimony and equitable distribution going back to the original 1967 wedding date. She also filed lis pendens on three properties, only one of which was owned by plaintiff (the other two were owned by his son). Defendant claimed that she waited ten years to file the complaint because it took her that long to "obtain all of the papers they needed to prove that plaintiff knew where she was living in 1981 and 1982 so she could challenge his fraudulent divorce from her." This was important to her because, among other arguments, defendant claimed that plaintiff's assertion that he did not know her whereabouts when he filed the complaint for divorce was a fraud on the court.

Plaintiff opposed the motion to vacate the divorce and cross moved to discharge the lis pendens and for an award of attorney's fees. The trial court denied defendant's motion and granted plaintiff's motion (except the request for fees). The trial court explained that defendant "admitted that she knew of the divorce in 2006 , but failed to act diligently by waiting until 2014 to file her motion to vacate the divorce."  It also held that defendant failed to "address[] how her motion and proposed new divorce complaint would affect plaintiff's second wife, who had been married to plaintiff for over thirty years." Defendant appealed.

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Good News: That Tenant You May Not Have Known You Had Is Not A Cloud On Title

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

AuctionIf you have ever been to a sheriff's sale in New Jersey then you are familiar with the litany of announcements that precede each sale — "This sale is made subject to easements of record," "The property is being sold on an 'as is' basis," etc. Sellers make these announcements because, under New Jersey law, they are required to disclose "any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable." If a seller intentionally or negligently fails to disclose any substantial defects or clouds on title, then a court may vacate the winning bid and return the winning bidder's deposit. For example, if a seller fails to reveal the amount of unpaid taxes on a property before a sheriff's sale, the sale can be vacated if the winning bidder discovers the amount and is unwilling to pay it.

Usually included in these announcements is something making clear that the property is being sold subject to the rights of tenants and occupants, if any. But what happens when, after the sale, the winning bidder visits the property and discovers a tenant, or at least someone claiming to be a tenant, occupying the property? Does that entitle the winning bidder to vacate the sale and get its deposit back?

This is exactly what happened in PHH Mortgage Corporation v. Alleyne. In that case, the winning bidder at a sheriff's sale moved to set aside its successful bid and compel a refund of the amount it tendered to the sheriff at the sale (winning bidders are generally required to put 20% of the bid price down at the sale and pay the balance within 30 days). The winning bidder argued that, after the sheriff's sale, it sent a representative to the property and he discovered an individual who "refused to give his name but asserted rights to possession of the property as a tenant." The winning bidder argued that (1) this tenancy was a cloud on title, therefore it should have been disclosed at the sale, and (2) the seller has an independent duty to inspect for tenants on the property before the sale. The trial court rejected these arguments and the Appellate Division affirmed.

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Just In Time For Finals: Court Poses, Then Answers, Law School Exam Question On Fraudulent Conveyances

Money
In Motorworld, Inc. v. Benkendorf, the Appellate Division decided to "put the issue raised in [the] appeal as if it were a law school exam," and then answer the exam question. Here is how it described the case:

A owns all the outstanding stock of DEF and GHI; her husband, B, operates all these and other entities wholly-owned by A. XYZ has done work for some of A and B's entities over the course of many years.

One of XYZ's principals asked B for a loan. B agreed, and A transferred $499,000 to DEF, a moribund entity. DEF then transferred $500,000 to XYZ, which executed a promissory note in DEF's favor; this note became DEF's only asset and its only debt is its unspoken obligation to repay A.

XYZ continued to perform work for GHI, and the note's due date was repeatedly extended; meanwhile, GHI's indebtedness to XYZ rose to approximately $1,000,000. Consequently, DEF executed a release of the note in exchange for XYZ's forgiveness of GHI's debt.

Was DEF's release of the note a fraudulent conveyance?

Believe it or not, this description was actually less complicated than the facts of the case.

 

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