This Never Would Have Happened On The Nina, Pinta, Or Santa Maria.

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

Columbus boats (pd)

If the name of your company is Christopher Columbus, LLC then it is probably reasonable for you to expect that you will be subject to the maritime jurisdiction of the federal courts. Nonetheless, this was the issue presented in a recent Third Circuit decision, In The Matter Of The Complaint Of Christopher Columbus, LLC (t/a Ben Franklin Yacht), As Owner Of The Vessel Ben Franklin Yacht, For Exoneration From Or Limitation Of Liability.

The case involved a "drunken brawl which erupted among passengers who were enjoying a cruise on the Delaware River onboard the vessel Ben Franklin Yacht." Specifically, plaintiffs alleged that they were assaulted by other passengers on the vessel while the boat was docking, and at least one alleged that the assault continued in the parking lot near the dock. They alleged that the boats crew members caused their injuries by "providing inadequate security and overserving alcohol to passengers." Plaintiffs sued in state court, and Defendant responded by filing a "limitation action" in federal court. (A "limitation action" is a unique wrinkle in maritime law that allows the "owner of a vessel" to limit its liability to "an amount equal to the value of the owner's interest in the vessel and pending freight.") Both sides then moved for summary judgment. But, while these motions were pending, the district court, sua sponte, invited briefing on whether the court had jurisdiction. After briefing and oral argument, the district court found that maritime jurisdiction was lacking and, therefore, dismissed defendant's limitation action.

Defendant appealed. This is where, I think, it gets interesting, at least for someone who does not generally practice maritime law. (Although I did write about a different case not too long ago, which is actually cited in the Christopher Columbus case, so maybe I am developing a niche.) 

Continue reading “This Never Would Have Happened On The Nina, Pinta, Or Santa Maria.”

Transfer Made On The Morning Of Sheriff’s Sale, For The Purpose Of Delaying The Sheriff’s Sale, Deemed Fraudulent

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

Auction (pd)Sometimes you read decisions and you don't understand how the court arrived at its conclusion based on the facts of the case. Then other times, the conclusion just makes sense. These are the decisions you read and think to yourself, "of course you can't do that." The Appellate Division's opinion in 5 Perry Street, LLC v. Southwind Properties, LLC, is one of these cases.

In Perry Street, defendants were a limited liability corporation and the sole member of that corporation. The corporate defendant owned property in Cape May that it operated as a bed and breakfast.Two "non-institutional lenders" held mortgages on the property. After they foreclosed and obtained a final judgment of foreclosure, a sheriff's sale was scheduled. The corporate defendant obtained four adjournments of the sheriff's sale and attempted to refinance the property, but was "unable to consummate a transaction" before the sheriff's sale. 

Instead, the day before the sheriff's sale, the individual defendant filed for bankruptcy. She then transferred the underlying property from the corporate defendant to herself. The consideration for the transfer was $1 and the "Balance of outstanding mortgages $80,000.00." The $1 consideration was typed into the deed, but the individual defendant hand wrote the part about the outstanding mortgages. She claimed that her intent was to "assume personal liability for the mortgages," but the Appellate Division noted that the balance of the mortgages at the time was almost $250,000, not $80,000, and that other documents she signed reflected that the only consideration was $1. She "filed the deed the next day, an hour and a half before the Sheriff's sale."  

Continue reading “Transfer Made On The Morning Of Sheriff’s Sale, For The Purpose Of Delaying The Sheriff’s Sale, Deemed Fraudulent”

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.

Continue reading “Third Circuit Rejects Claim For “Defamation By Relation””

Appellate Division: Arbitration Agreement in Non-Profit’s Bylaws Enforceable

by:  Peter J. Gallagher (@pjsgallagher)

Contract(pd)
The enforceability of arbitration provisions is a hot topic in New Jersey right now. Several recent cases suggest that these provisions may be less readily enforceable than previously thought, or at least that courts are taking a closer look at them than they may have in the past. The author of an article in the NJ Law Journal even questioned whether New Jersey courts were "anti-arbitration." With this in mind, the Appellate Division's  unpublished opinion in Matahen v. Sehwail, in which it enforced an arbitration provision contained in the bylaws of a New Jersey mosque, is noteworthy.

In Matahen, plaintiffs and defendants were members of the general assembly in the mosque. The general assembly was comprised of all "active members" of the mosque, which was defined as "those who attend prayers regularly, participate 'actively' in mosque 'activities,' abide by the bylaws, pay dues, and practice Islam daily." The general assembly was the highest authority in the mosque, but the Board of Trustees, "which represent[ed] the general assembly," was the highest "policy-making authority" in the mosque. 

In the complaint, plaintiffs alleged that certain defendants used the mosque's credit cards for personal expenses, conspired to keep a former employee on the mosque's health insurance plan after he stopped working for the mosque, and used the mosque's funds to pay for one of defendant's children's school tuition. Rather than filing a responsive pleading, defendants moved to compel arbitration, under a provision in the mosque's bylaws, which provided:

The board shall create an Islamic Arbitration Committee of 3-5 members in case of disagreement among board members or general assembly members of matters related to the center, such committee shall consist of a Lawyer, an Imam, and Community Leaders. All disputes arising hereunder shall be resolved by arbitration by the aforementioned committee pursuant to policies and procedures established by such committee from time-to-time. All parties involved shall approve of the members of the Arbitration Committee. Decisions of the committee shall be binding on all parties and may be entered in a court of competent jurisdiction.

(emphasis added). The trial court denied the motion, holding that the claims alleging misuse of corporate funds "address those types of concerns that are standard in a corporation type dispute," and therefore "clearly belong in a court to be adjudicated." Defendants appealed.

The Appellate Division reversed, primarily because of the "utmost latitude" given to non-profits in the "regulation and management of intracorporate affairs." The Appellate Division noted that "a non-profit organization's private law is generally binding on those who wish to remain members," and "only the most abusive and obnoxious by-law provision could properly invite a court's intrusion into what is essentially a business thicket." The arbitration agreement in Matahen did not rise to this level.

Reading the arbitration provision in the bylaws as a whole, the Appellate Division had little difficulty holding that the Board and general assembly intended that all disputes pertaining to the mosque be handled through arbitration. Because the claims asserted in the complaint "concerned mosque affairs," the Appellate Division held that they fell within this provision notwithstanding that, as the trial court held, they may have also been justiciable in court.

Among other things, plaintiffs argued that the provision was unenforceable because it was not contained in a contract, but merely in the mosque's bylaws, to which, plaintiffs claimed, they were not parties. The Appellate Division disagreed, holding that, as a matter of law, "by-laws of a voluntary association become a part of the contract entered into by a member who joins the association."

The Appellate Division also rejected plaintiffs' argument that the arbitration provision was unenforceable because it failed to "advise those subject to [it] that they [ ] waived their right to maintain an action in court." While the Appellate Division acknowledged that the provision did not reference waiver, this shortcoming did not render it unenforceable. The Board and the general assembly shared the authority to amend the bylaws, but never saw fit to amend them to include any reference to waiver. Therefore, the Appellate Division held that it was "incongruous for plaintiffs to complain the arbitration clause [was] defective and unenforceable when they were part of the two intra-corporate bodies responsible for its contents." The Appellate Division further held:

Plaintiffs' position is far different from parties to the typical contract, where generally each party seeks to advance its own interests and not those of the other. There was no "adverse" party here who sought to induce plaintiffs to enter into a contract containing an arbitration clause that failed to contain the subject waiver, hoping to gain an advantage. Plaintiffs merely find themselves facing a bylaw they either composed or ratified by failing to amend its contents.

Accordingly, the arbitration provision was enforceable notwithstanding the lack of any reference to waiver of the right to sue in court.

Ultimately, the Appellate Division's holding in Matahen is noteworthy, not because it signals a shift in the recent scrutiny of contractual arbitration provisions in general, but because it suggests that courts may be more likely to enforce such provisions in specific situations involving the governance of non-profit organizations.