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.

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

Court Awards Attorney Almost $100,000 Less Than He Requested In New Jersey Consumer Fraud Act Case

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

Legal fees (pd)I recently wrote about Garmeaux v. DNV Consepts, Inc., a case in which the Appellate Division held that, under New Jersey's Consumer Fraud Act, successful plaintiffs can, in certain circumstances, recover legal fees they incurred in connection with both the prosecution of their affirmative claims and the defense against any counterclaims. If the facts relevant to a counterclaim are "inextricably caught up with," and related to the common core of, the facts relevant to an affirmative CFA claim, then legal fees can be awarded for both claims. In another recent decision, Riccardi v. Bruno, the Appellate Division addressed a similar issue but arrived at a result that was less favorable to plaintiff than the result in Garmeaux.

In Riccardi, plaintiff purchased a home from one of the defendants. The home had been damaged in a fire and required "extensive renovations" before being put on the market. (Although it was not listed as having been fire damaged, the certificate of occupancy issued by the township at the closing noted "rehab after fire.") After the closing, plaintiff allegedly discovered numerous problems with the house, including mold, burnt and fractured joists, and damaged foundation walls. He sued the seller and several related entities (architect, contractor, home inspector, etc.), alleging breach of contract and a violation of the CFA.

Default was entered against several defendants for failing to answer the complaint, and the claims against several others were dismissed either by summary judgment or at the close of plaintiff's case in chief. The jury then determined that the two remaining defendants — the prior owners of the property — violated the CFA. The jury's verdict was based on a "knowing concealment, suppression, or omission of a material fact with the intent that other would rely upon that fact." (The decision does not identify the fact that was omitted.) The jury found no cause of action under the CFA based on an unconscionable commercial practice, fraud, false pretense, false promise , or misrepresentation. And, it awarded plaintiff only $4,500, which was "attributable to the cost to repair a damaged window frame and to dispose of buried construction litter."

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Settlement Stands Even Though Lawyer Allegedly Settled For Less Than Authorized

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

Contract(pd)
Embarrassing as this is to admit, there was a time when I did not entirely understand the difference between "net" and "gross." I would like to say that time was long ago, but it wasn't that long ago. Rest assured, however, that I know the difference now. The difference between the two was at the heart of Thakkar v. Allers, an unpublished decision from the Appellate Division in which plaintiff claimed that he authorized his attorney to settle for a net recovery of $80,000 but his lawyer settled for the gross amount of $80,000. In other words, plaintiff thought he would receive $80,000 from the settlement but he actually received less than $80,000 after fees and costs were deducted from the gross settlement amount. Plaintiff tried to undo the settlement, but the trial court denied his request and the Appellate Division affirmed.

Thakkar involved a personal injury lawsuit. Plaintiff was awarded $50,000 through mandatory, pre-trial arbitration, but rejected that award and demanded trial de novo. Prior to trial, plaintiff claims that he authorized his attorney to settle the case for "an amount that would yield an $80,000 recovery to [plaintiff], after deductions for fees and costs." He claimed that he gave his attorney these instructions over the telephone and in a letter. Several days after the alleged telephone conversation between plaintiff and plaintiff's counsel, plaintiff's counsel settled the case in a call with defendants' counsel and later confirmed the settlement in an email to defendants' counsel, which read: "As discussed at 5 PM today, [plaintiff] has authorized [plaintiff's counsel] to accept $80,000.00 in settlement."

Four days later, plaintiff's counsel wrote to defendants' counsel to report that plaintiff refused to sign a release because he wanted a settlement yielding a net recovery of $80,000, a fact that plaintiff's counsel indicated was "in no way" communicated to him by plaintiff before plaintiff's counsel advised defendants' counsel that plaintiff's counsel was authorized to settle the case for "the sum of $80,000.00."

Continue reading “Settlement Stands Even Though Lawyer Allegedly Settled For Less Than Authorized”

Another Reminder That Even When You Win You Still Lose Under The New Jersey Consumer Fraud Act

by:  Peter J. Gallagher

The Appellate Division issued an unpublished decision today that again emphasizes the power (some might say, inequity) of the New Jersey Consumer Fraud Act.  In Logatto v. Lipsky, plaintiffs hired defendant to build an addition on their home and perform other renovations.  Although defendant prepared a written proposal with cost estimates, he never prepared a written contract.  After the project was 90% complete, and plaintiffs had paid him $247,500, defendant notified plaintiffs that actual expenses exceeded the proposed costs, and therefore he required an additional $78,469.37 to complete the project.  Plaintiffs refused and, when the parties could not come to a resolution on the issue, defendant left the job.  Plaintiffs then sued defendant under the Consumer Fraud Act for the costs of completion of the project, and defendant counterclaimed for $50,000 in unpaid costs.  Both parties moved for summary judgment, but both motions were denied.

The case was tried to a jury.  After plaintiffs put on their evidence, they moved for judgment on liability in connection with their Consumer Fraud Act Claims.  The trial court granted the motion, finding that there were technical violations of the Act (failure to have a signed contract and change orders).  However, the trial court left the question of whether plaintiffs had suffered an "ascertainable loss," a requirement under the Consumer Fraud Act, to the jury.  The jury ultimately returned a verdict in favor of defendant, finding that plaintiffs did not suffer any ascertainable loss.  After the verdict, however, plaintiffs moved for, among other things, fees and costs under the Consumer Fraud Act.  The trial court denied the motion, but the Appellate Division reversed the trial court and remanded the issue back to the trial court for disposition of the fee motion. 

You may be asking yourself – how is this possible?  How can a defendant prevail at trial but still be responsible for the plaintiffs' legal fees?  What happened to the "American Rule"?  The answer to all of these questions is, the New Jersey Consumer Fraud Act.  Under the Act, as it has been interpreted by the New Jersey Supreme Court — in cases like Cox v. Sears Roebuck & Co. and Weinberg v. Sprint Corp. — plaintiffs can recover costs and fees if they prove that a defendant committed an unlawful practice, even if the victim cannot show any ascertainable loss.  While a plaintiff cannot recover treble damages under the Act without an ascertainable loss, it can still recover its costs and fees.  What this means is that if a plaintiff survives summary judgment and presents a prima facie case of ascertainable loss, it will be able to recover its costs and fees even if, as in the Logatto case, it ultimately loses on the merits at trial. 

This case, like seemingly every other decision handed down in connection with the Consumer Fraud Act, should be a cautionary tale for any business or entities that sell products or provide services that are covered by the Act.

 

Reducing the Cost of Going Where No Man Has Gone Before

by:  Katharine A. Muscalino

Under existing Board of Public Utilities Rules, developers seeking to build in undeveloped areas have been forced to bear the full cost of utility extension, while developers building in more developed, metropolitan areas, have enjoyed the benefit of sharing the expense of utility extension with existing ratepayers in the area.  The rule was designed to encourage smart growth and reduce sprawl.  The result was that developers in rural and less developed areas of New Jersey were facing massive, if not prohibitive, infrastructure expenses.

After getting an $8 million bill for utility extension for a 555 home development in Howell, one developer sued the BPU, challenging its authority to adopt such a rule, codifying disparate treatment of developers based on the existing development and infrastructure in a given area.  The Appellate Division ultimately ruled that such a rule, treating development in some areas of the state differently than others at the developer’s expense, is beyond the state agency’s statutory authority.

In response to the Appellate Division’s opinion, the BPU has introduced a new rule, still in draft, that would allow developers to share the cost of utility extension over the entire ratepayer base.  The new rule will make large-scale development in rural areas possible, and offers the possibility of utility service to both new and existing homeowners and businesses in these areas.  The details of the new rule’s implementation will be discussed at the BPU’s meeting on Tuesday, October 18, 2011, including what portion of the extension costs should continue to borne by the developer and whether the developer should pay a deposit for the extension.  Developers with plan to build in areas that are not served by existing infrastructure, or in rural areas may want to consider attending the meeting or contacting a BPU stakeholder to express support for the proposed rule.  The meeting is expected to draw critics of the proposed rule who argue that it will lead to sprawl, compromise smart growth, and endanger scarce resources.  To review a copy of the draft rule, click here.