Wait. This Is Arbitration? I Thought It Was Mediation.

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

Early in the movie, My Cousin Vinny, Joe Pesci's character, Vincent Gambini, tells the judge that he has significant experience trying cases in New York. The judge does some research and learns that there is no record of anyone named Vincent Gambini trying any cases in New York. Gambini then does what one should never do, he lies to the judge. He tells the judge that he tried cases under the name Jerry Gallo. Gambini thinks this is a brilliant move because Jerry Gallo is a notable New York lawyer who Gambini has read about in the papers. Unfortunately for Gambini, however, he never read the articles about Jerry Gallo's death. Naturally, the judge finds out that Jerry Gallo is dead, and confronts Gambini, which leads to the following exchange:

I imagine this may have been similar to what the defendant in Marano v. The Hills Highlands Master Association, Inc. said when it received an unfavorable arbitration award. "Did you say binding arbitration? No. We were participating in non-binding mediation. Not arbitration." Things worked out for Vincent Gambini in the movie, they did not work out so well for defendant in Marano. 

In Marano, plaintiffs owned a unit in a condominium development. The relationship between unit owners, like plaintiffs, and the association was governed by the association's bylaws, which "arguably include[d] an arbitration provision." So, after a dispute developed between plaintiffs and the condominium association over a "flooding condition" in their backyard, plaintiffs' attorney wrote to the association's attorney to demand arbitration. He received no response, so he wrote again and stated that unless the association's attorney confirmed that he was "in the process of arranging for the arbitration proceeding," plaintiffs would sue to compel arbitration. The association's attorney responded by disputing some of the claims in plaintiffs' letter but agreeing to participate in "ADR" (alternative dispute resolution). Several weeks later, plaintiffs' attorney again wrote to the association's attorney asking for confirmation that the parties would proceed to an "arbitration hearing," with a hearing officer who would serve "as an arbitrator." In response, the association's counsel contacted a retired judge to determine his availability and willingness to serve as "the arbitrator."

Up to this point, it appears clear that the parties were discussing arbitration, not mediation. What happened next created the confusion that sent the case down the path that would eventually land it before the Appellate Division.  

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When Is Possession Not Really Possession? (And By “Possession” I Mean In The “Mortgagee In Possession” Sense Of The Word)

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

Lenders are often faced with a dilemma when dealing with property that is in foreclosure and has been abandoned by the borrower. A lender must, under New Jersey law, maintain the property "to such standard or specification as may be required by state law or municipal ordinance." Also, the lender has an obvious interest in protecting the value of its collateral. But the lender does not want to take "possession" of the property and be deemed a "mortgagee in possession," because that would impose upon the lender the duty of a "provident owner," which includes the duty to manage and preserve the property, and which subjects the lender to liability for damages to the property and damages arising out of torts that occur on the property. Unfortunately, the point at which a lender takes "possession" of property is not entirely clear. I have written about this before, and the Appellate Division's recent opinion in Woodlands Community Association, Inc. v. Mitchell provides some additional guidance, which should be helpful to lenders.

In Woodlands, defendant was the assignee of a note and mortgage related to a unit in plaintiff's condominium development. The unit owner defaulted on the loan and vacated the unit. At the time, the unit owner was not only delinquent on his loan payments, but also owed "substantial sums" to the association for "unpaid monthly fees and other condominium assessments." After the unit owner vacated the unit, defendant changed the locks and winterized the property. (As the Appellate Division noted, "[w]interizing entails draining the  pipes, turning off the water and setting the thermostat for heat to protect the pipes.") After the unite owner vacated the unit, plaintiff sued him to recover the delinquent fees. It later amended its complaint to include the lender, "alleging that [[the lender] was responsible for the association fees as it was in possession of the property."

Both parties moved for summary judgment. The trial court granted plaintiff's motion, holding that defendant was a mortgagee in possession and therefore was liable for the maintenance fees. On the key of issue of what it meant to be in "possession" of the unit, the trial court held as follows: "[D]efendant held the keys, and no one else [could] gain possession of the property without [defendant's] consent. This constitutes exclusive control, which indicates the status of mortgagee in possession." Defendant appealed. 

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In New Jersey, You Can Now Disapprove A Real Estate Contract By Email Or Fax (But Not Telegram)

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

Telepgraph (pd)Anyone who has bought or sold real estate in New Jersey is familiar with "attorney review." When you buy or sell a house, you sign a contract that is almost always prepared by a broker. The contract must contain a standard provision stating that the buyer and seller have the right to have an attorney review the contract. This "attorney review" period lasts three days. The contract becomes legally binding if, at the end of that three-day period, neither the buyer's nor the seller's attorney disapproves of the contract. If either side disapproves, their attorney must notify the other side's broker by certified mail, telegram, or personal service. In Conley v. Guerrero, a case that seems to be a case study in the concept of raising form over substance, the New Jersey Supreme Court updated this requirement to allow the notice of disapproval to also be sent by fax or email. (Those of you still using telegrams may be out of luck, however, because this no longer appears to be an appropriate method of service for the notice of disapproval.) 

In Conley, plaintiffs signed a form contract to purchase a condominium unit from sellers. It contained the standard "attorney review" provision. After signing the contract, but during the attorney review period, sellers received competing offers to purchase the property and eventually entered into a new contract to sell it to a new buyer for a higher price. Sellers' attorney sent a disapproval of plaintiffs' contract to both plaintiffs' counsel and the broker (who was a duel agent represented both plaintiffs and seller) during the attorney-review period. He sent the notice via email, which plaintiffs' counsel and the agent acknowledged receiving within the attorney review period. Nonetheless, plaintiffs claimed that the sellers were bound by the contract and had to sell to his clients because the disapproval was not sent in the proscribed manner — by certified mail, telegram, or hand delivery.

Plaintiffs sued, seeking specific performance. Both sides moved for summary judgment. The Chancery Division granted defendants' motion and dismissed the complaint. The Chancery Division held that, while seller did not comply with the method-of-delivery requirements set forth in the contract, this breach was only "minor" because plaintiffs' counsel acknowledged receiving the notice within the attorney review period. Therefore, the Chancery Division held that the "underlying justification for the attorney review clause" — to protect parties against being bound by broker-prepared contracts without the opportunity to review them with their attorneys — was accomplished.

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No Pay, No Play: Defendant’s Failure To Advance Arbitration Fees Is A Material Breach Of Arbitration Agreement And Precludes Enforcement Of Agreement

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

Arbitration (pd)One of the more vexing procedural issues in arbitration arises when the other side refuses to pay its share of the arbitration fees. The arbitrator won't work for free so you are faced with a dilemma, advance the fees for the other side and try to recover them through the arbitration or have your arbitration dismissed. And, if you opt for the latter approach, can you then sue in court notwithstanding the admittedly valid and binding agreement to arbitrate? The New Jersey Supreme answered one aspect of this question in Roach v. BM Motoring, LLC, holding that defendant's refusal to advance arbitration fees as it was required to do under an arbitration agreement with plaintiffs was a material breach of the contract that precluded defendant from later trying to enforce the agreement.

In Roach, plaintiffs each purchased used cars, at separate times, from defendant. As part of their purchases, each signed a Dispute Resolution Agreement, which provided that "any and all claims, disputes or issues" would be resolved through arbitration. It further required that the arbitration be conducted "in accordance with the rules of the American Arbitration Association before a single arbitrator who shall be a retired judge or attorney," and that defendant would "advance both party's [sic] filing, service, administration, arbitrator, hearing, or other fees, subject to reimbursement by decision of the arbitrator."

After purchasing her car, Plaintiff Jackson filed an arbitration demand against defendant, alleging that defendant violated the Consumer Fraud Act. The AAA advised defendant that it was required to pay the applicable filing fees and arbitrator compensation, but defendant never did. Accordingly, the AAA declined to administer the claim and further advised (1) that it would not administer "any other consumer disputes" involving defendant as a result of defendant's failure to comply with the AAA's rules, and (2) that defendant should remove the AAA name from its arbitration agreement. Jackson never received a response from defendant's to her arbitration demand.

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Third Circuit Rejects Claim For “Defamation By Relation”

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

Defamation (pd)
Is it defamatory for a book to report that you are the child of a suspected Nazi? This was the question recently addressed by the U.S. Court of Appeals for the Third Circuit in Soobzokov v. Lichtblau, an unpublished decision.

In Soobzokov, plaintiff sued the author and publisher of a book entitled, "The Nazis Next Door: How America Became a Safe Haven for Hitler's Men." In the book, the author argued that plaintiff's father was one of several former Nazis brought to the United States after World War II for "strategic purposes."  Among other things, the book described the challenges faced by the children of alleged Nazis, including plaintiff. When writing the book, the author spent nearly seven days with plaintiff and later communicated with him via email and telephone. According to the Third Circuit, plaintiff "makes a handful of appearances in the book — all of which emphasize his unwavering belief in his father's innocence."

After the book was published, plaintiff sued for defamation. His claim took two forms. First, he alleged that three references to him in the book were defamatory: a section that described his belief in his father's innocence as "an obsession;" a section that described his "determination to revive the investigation into his father's brutal murder — which had gone unsolved for nearly 25 years;" and a mention of him in the "Acknowledgements section, which plaintiff claimed could suggest that he assisted in the writing of the book, which could "lend[] [him] to be considered a traitor to his father before the entire world." Second, plaintiff alleged that these statements, even if they were not defamatory in their own right, were defamatory when combined with the negative comments about his father. The district court rejected both aspects of plaintiff's defamation claim and dismissed the complaint. Plaintiff appealed.

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On a warm summer’s evenin’, on a train bound for nowhere . . . is a dispute over insuring a stranger’s life

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

Gambling

I know it is a little obvious, but I couldn't write a post about gambling without using lyrics from "The Gambler." Fortunately, the case this post discusses — Sun Life Assurance Co. of Canada v. U.S. Bank National Association — is anything but obvious. Sun Life involved gambling on another person's life but not in a Deer Hunter, Russian roulette kind of way. In Sun Life, the U.S. Court of Appeals for the Seventh Circuit addressed the enforceability of an insurance policy that insured a stranger's life.

In Sun Life, Judge Posner began his decision by discussing the common law principle that "forbids a person to own an insurance policy that insures someone else's life unless the policy owner has an insurable interest in that life." A wife can have an insurable interest in her husband's or children's lives, a creditor can have an insurable interest in a debtor's life, but "you cannot own an insurance policy on the life of a stranger who you happen to know is in poor health and likely to die soon." The reason is that, by doing so, you are essentially gambling on another person's life, and gambling contracts are generally unenforceable as a matter of public policy. 

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NJ Supreme Court: LLP Cannot Be Converted To General Partnership For Failing To Maintain Liability Insurance

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

NJ Supreme Court (pd)On June 23, 2016, the New Jersey Supreme Court released its decision in Mortgage Grader, Inc. v. Ward & Olivo, LLP, a case in which I had the privilege of representing the New Jersey State Bar Association as amicus curiae. (I previously wrote about the case here.) As discussed below, the Supreme Court agreed with our arguments. 

In Mortgage Grader, a former client sued the defendant law firm and each of its partners after the firm dissolved. While the firm had maintained professional liability insurance while it was actively practicing, it did not purchase a "tail" policy to cover claims that arose after it dissolved. The trial court held that this violated Rule 1:21-1C(a)(3), which requires attorneys practicing as an LLP to "obtain and maintain in good standing one or more policies of lawyers' professional liability insurance which shall insure the [LLP] against liability imposed upon it by law for damages resulting from any claim made against the [LLP] by its clients." Accordingly, the trial court held that the individual partners were not shielded from liability as they would normally be as members of an LLP and were instead vicariously liable for their partners' negligence. In other words, the trial court effectively converted the LLP to a general partnership because it failed to maintain liability insurance. The Appellate Division reversed, holding that the trial court did not have the authority to strip the individual partners of their liability protections under either Rule 1:21-1C(a)(3) or the Uniform Partnership Act.

The NJSBA asked the New Jersey Supreme Court to affirm the Appellate Division's decision. The Supreme Court agreed, holding that: (1) the insurance requirements for LLPs did not extend to the period when a firm is "winding up" its business — i.e., when it is collecting receivables but no longer providing legal services; and (2) even if they did, an LLP could not be converted to a general partnership as a "sanction" for failing to maintain liability insurance. Justice Albin wrote a separate opinion, concurring with the judgment of the majority, but suggesting that the Court Rules be amended to provide that an LLP would lose its liability protection if it failed to meet the insurance requirements, and to require LLPs to purchase tail insurance for six years following their dissolution. 

The Supreme Court's opinion can be found here.