Party That Drafted Arbitration Provision Moves To Have Provision Deemed Unenforceable. It Lost.

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

Arbitration (pd)Most cases involving commercial contracts and arbitration provisions follow a similar pattern. They generally involve consumers arguing that they cannot be bound by arbitration clauses found in the fine print of boilerplate contracts that they had no ability to negotiate. But Shah v. T & J Builders, LLC turns this scenario on its head. In Shah, plaintiffs, the consumers, drafted the contract that contained the arbitration clause but later argued that it was unenforceable. To make matters worse (or at least more unusual), plaintiffs took this position after participating in an arbitration proceeding with defendant for two years. Not surprisingly, plaintiffs efforts to have their own arbitration clause deemed unenforceable were unsuccessful.

In Shah, plaintiffs hired defendant to build an extension on their home. The contract, which was "heavily negotiated between the parties," albeit without counsel, was drafted by plaintiffs. It contained an arbitration clause that required the parties to arbitrate "any dispute [ ] relative to the performance of [the] contract that [they could not] satisfactorily resolve." After one such dispute arose, plaintiffs terminated the contract and defendant filed an arbitration demand. Plaintiffs answered the demand and filed a counterclaim, alleging breach of contract and violations of New Jersey Consumer Fraud Act. Nowhere in their answer or counterclaim did plaintiffs address, much less challenge, the arbitration clause.

The parties, through counsel, then pursued their claims in arbitration for almost two years, exchanging discovery and expert reports, participating in a site inspection, and participating in several conferences with the arbitrator. Two weeks before the scheduled arbitration date, the parties submitted their pre-arbitration briefs. This is where the fun began. 

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What Do eBay, The “40 Year-Old Virgin,” And The Litigation Privilege Have In Common?

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

Jonah hillNot much, but please keep reading.

In the movie, the 40-Year-Old-Virgin, an almost unrecognizable Jonah Hill has a very small, but funny, part. He plays a customer at the “We Sell Your Stuff On Ebay” store, which is owned by Steve Carell’s character’s love interest, played by Catherine Keener. According to IMDB.com, Hills plays “Ebay Customer,” who is, to say the least, having trouble understanding how the store works. He wants to buy some "wonderful" shoes that he found at the store. Keener's character explains that she does not actually sell any of the items in her store at the store, she sells them on eBay. Hill's character just doesn't get it, eventually telling Keener's character that he just wanted to buy the shoes and take them home, but that she was "making it extremely difficult" for him to do so.

The recent Appellate Division decision, XCalibur Communications v. Karcich, involved a dispute over the sale of the plaintiff’s merchandise on eBay. No word on whether any of those sales involved shoes like the ones Hill’s character was looking to buy, but the decision helps clarify the scope of the litigation privilege, which is broader than many people think. 

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Words Matter: Language In Retainer Agreement Bars Recovery Of Fees Incurred In Fee Arbitration Proceeding

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

Words (pd)One of my favorite quotes from a judicial decision comes from the New Jersey Supreme Court in Atlantic Northern Airlines v. Schwimmer: "Litigation proceeding from the poverty of language is constant." I have never understood this to be a knock on the drafter. Rather, I understood it to mean that no matter how carefully you choose your words you can never make a contract, agreement, or other document litigation-proof. You see examples of this nearly every day in the daily decisions, including in the Appellate Division's recent decision in The Law Offices of Bruce E. Baldinger, LLC v. Rosen.

Baldinger involved a dispute between a law firm and its former client over attorney's fees. Defendant retained plaintiff to represent him in connection with a dispute with a contractor over work performed at defendant's home. Plaintiff and defendant entered into a retainer agreement that included an initial flat fee of $1,200 followed by hourly billing. The retainer agreement also dictated that interest at the rate of 1% per month would be charged on any unpaid balances after 30 days. The retainer agreement also contained the following provision, which is most important to our story: "If collection and enforcement efforts are required, you agree to pay counsel fees along with costs of suit." This would become important later on.

After about a month, defendant "became dissatisfied with plaintiff's representation and terminated plaintiff's services." Defendant had already paid the $1,200 flat fee, but plaintiff demanded that he also pay an addition $4,308 for work performed by plaintiff up to that point. Defendant refused to pay.

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Clear Arbitration Provision, Negotiated By Sophisticated Party While Represented By Counsel Deemed Enforceable

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

Arbitration def (pd)The headline of this post is a little like "Dog bites man." But, given the recent trend in New Jersey of "man bites dog" type cases where courts have invalidated arbitration provisions that once seemed unambiguous (look here, here, and here for examples), the headline should make more sense.

In Columbus Circle NJ LLC v. Island Construction Co., LLC, the Appellate Division enforced an arbitration provision contained in a construction contract. Plaintiff was a single-member LLC that retained defendant to build a $1.9 million home on the bay in Avalon, New Jersey. Plaintiff's representative circulated an initial draft contract for the project that used the standard American Institute of Architects (AIA) forms. These forms contain a provision entitled "BINDING DISPUTE RESOLUTION," which, as the name suggests, requires the parties to choose "the method of binding dispute resolution" for any claims between them that are not resolved by mediation. In the draft it circulated, plaintiff's representative checked off "Arbitration pursuant to Section 15.4 of AIA Document A201-2007," rather than "Litigation in a court of competent jurisdiction." Before it was signed, the attorney for the LLC's sole member reviewed the draft and proposed changes, as did defendant, but none of these changes appear to have altered the dispute resolution provision.

During construction, disagreements arose between the parties regarding the cost of the project, leading both parties to terminate the contract. When mediation apparently failed, defendant filed a demand for arbitration. Three months later, plaintiff sued in state court. Defendant successfully moved to dismiss plaintiff's complaint and compel arbitration, and Plaintiff appealed.

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Dismissal With Prejudice Too Harsh A Remedy For Expert’s Unavailability

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

Gavel (pd)There is often tension between a court's need to effectively manage its docket and the overriding objective that a lawsuit be resolved on its merits and not because a party (or its counsel) misses a deadline. Courts establish deadlines. If they are ignored, can the court — as a sanction, and in the interest of managing its docket — dismiss the lawsuit with prejudice? According to the Appellate Division in a recent unpublished decision, Trezza v. Lambert-Wooley, the answer to this question is "no," unless the noncompliance was purposeful and no lesser remedy was available to the court. 

In Trezza,plaintiffs sued defendants for medical malpractice. Three years after the lawsuit was filed, the court set a peremptory trial date. This was rescheduled when the court did not reach the case on the trial date. The trial did not take place on the rescheduled date or a subsequent rescheduled date, both times because defendant's designated trial counsel was unavailable. Thereafter, the Presiding Judge issued a sua sponte order scheduling trial for approximately four months later and setting forth "specific and stringent terms as to the course and conduct of the case relative to trial." The order mandated that: (1) the trial date would not be adjourned to accommodate the parties' or counsels' personal or professional schedules; (2) counsel was required  to monitor the schedules of their parties, witnesses, and experts, and if one or more were not going to be available on the trial date, arrange for a de bene esse deposition ahead of trial; and (3) if designated trial counsel was not available on the trial date, alternate counsel would have to be found, whether or not from the same firm.

Five days before the scheduled trial date, plaintiff's counsel requested that the trial be carried for four days due to the unavailability of plaintiff's liability expert, which he only learned about a few days prior to the request. Defendants' counsel consented to the request. The judge assigned to the case considered the request but, in light of the Presiding Judge's order, determined that he did not have the authority to grant the adjournment. He sent the parties to the Presiding Judge, who denied the request and directed the parties to proceed to trial. "Predicated upon the terms of the order, the age of the case, and plaintiff's expert's unavailability, the judge [then] dismissed the complaint with prejudice." Plaintiffs appealed.

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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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Legal Fees Incurred Defending Against Counterclaim Recoverable Under New Jersey Consumer Fraud Act

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

FireplacePerhaps no three letters strike fear in the heart of New Jersey defense attorneys more than C-F-A. It is the common abbreviation for the New Jersey Consumer Fraud Act, a consumer protection statute that, among other things, allows successful plaintiffs to recover their attorney's fees. Until recently, however, it was not clear whether the fees incurred in defense of a counterclaim raised in response to a CFA lawsuit, as opposed to fees incurred in prosecuting the affirmative CFA claim, were recoverable. In Garmeaux v. DNV Concepts, Inc., a case of first impression, the Appellate Division held that they are, provided that the counterclaim is "inextricably caught up with" the CFA claim.

Plaintiffs in Garmeaux visited a store named The Bright Acre (operated by defendant, DNV Concepts Inc t/a The Bright Acre) for the purpose of replacing their gas fireplace which had been damaged in a storm. The store manager agreed to sell them a new fireplace and help them file an insurance claim for the costs associated with the purchase and installation. During the visit, Plaintiffs met defendant, James Risa, who the manager introduced as "[plaintiffs'] installer Jim." What plaintiffs did not know at the time, however, was that Risa owned and operated an independent fireplace installation company — defendant, Professional Fireplace Services — and that Bright Acre had a practice of referring installation work to its own employees who, like Risa, owned installation service companies. In other words, Risa would be installing the fireplace in his capacity as the owner of Professional Fireplace Services, not as an employee of Bright Acre.

Shortly after their visit to the store, plaintiffs received a proposal from Risa for the installation. They accepted and made the first installment payment. Unfortunately, not long after he began the installation, plaintiffs became dissatisfied with Risa's work habits — they alleged that he "kept an unpredictable schedule" — and the quality of his workmanship. Around the same time, they also learned that he was performing the installation in his capacity as owner of Professional Fireplace Services, not Bright Acre. After several calls to Bright Acre to attempt to resolve their issues were ignored, plaintiffs sued. 

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