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)

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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You Can’t Cross Examine A Map!

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

In a case decided earlier last week, State v. Wilson, the New Jersey Supreme Court answered an interesting Constitutional Law question: Whether the admission into evidence of a map showing the designated 500-foot "drug free zone" around a public park violated an accused's right, under both the U.S. Constitution and New Jersey Constitution, to be "confronted with the witnesses against him." The court held that maps like this do not violate the Confrontation Clause and, if properly authenticated, are admissible. The problem in Wilson, however, was that the map was not properly authenticated as a public record, therefore it was inadmissible hearsay.

The Sixth Amendment to the U.S. Constitution provides that, "[i]n all criminal prosecutions, the accused shall enjoy the right . . . to be confronted with the witnesses against him." The New Jersey Constitution contains an almost identical provision. "The Confrontation Clause affords a procedural guarantee that the reliability of evidence will be tested 'in a particular manner' through the crucible of cross-examination." As interpreted by the U.S. Supreme Court, the Confrontation Clause provides that a "testimonial statement against a defendant by a non-testifying witness is inadmissible . . . unless the witness is unavailable and the defendant had a prior opportunity to cross-examine him or her." The threshold issue, therefore, is whether a statement is "testimonial."

The U.S. Supreme Court has "labored to flesh out what it means for a statement to be 'testimonial.'" It eventually arrived at the "primary purpose" test, which asks whether a statement has the primary purpose of "establishing or proving past events potentially relevant to a later criminal prosecution." If it does, then it is testimonial. If not, then it is not. For example, the U.S. Supreme Court has held that statements made to police to assist them in responding to an "ongoing emergency," rather than to create a record for a future prosecution, are not testimonial.

The New Jersey Supreme Court has wrestled with this "primary purpose" test as well. For example, in one case, police sent a defendant's blood to a private laboratory after a fatal car crash. Approximately 14 analysts performed a variety of tests on the blood. A supervisor at the lab then wrote a report concluding that the defendant's blood contained traces of cocaine and other drugs and that this "would have caused the defendant to be impaired an unfit to operate a motor vehicle." The State sought to admit the report, or statements from it, into evidence. The court refused, holding that the report was testimonial because its primary purpose was to "serve as a direct accusation against the defendant." Similarly, the court held, in a separate case, that the statements in an autopsy report were testimonial because the autopsy was conducted after a homicide investigation had begun, after the defendant was a suspect, and after he had spoken to police, and because the autopsy was conducted in the presence of the lead State investigator. Thus, the court held, the "primary purpose of the report was to establish facts for later use in the prosecution."

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File for bankrupcty when you have enough assets to pay your debts, then hide some assets . . . what could go wrong?

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

I don't usually post about bankruptcy or criminal law issues, but the facts from a recent decision from the U.S. Court of Appeals for the Third Circuit, which involved both bankruptcy and criminal law issues, were too intriguing to ignore.

In United States v. Free, defendant "made the bizarre decision to file for bankruptcy even though he had more than sufficient assets to pay his debts." Then, "having filed for bankruptcy unnecessarily, [he] hid assets worth hundred of thousands of dollars from the Bankruptcy Court." Not surprisingly, this led to criminal charges being brought against defendant and convictions for multiple counts of bankruptcy fraud. To make things even more odd, despite all of his "prevarications," defendant's creditors were paid in full from the bankruptcy estate. So, to summarize, defendant did not need to file bankruptcy but chose to do so, only to then defraud the Bankruptcy Court by hiding hundreds of thousands of dollars worth of assets, but eventually paid "100 cents on the dollar" to his creditors.

The legal issue in the case was how to properly calculate "loss" under the Sentencing Guidelines, which increase a "fraudster's" recommended sentence based on the loss he causes, or intends to cause, his or her victims. The curious part about Free was that the victims, defendant's creditors, were paid in full, therefore they had not suffered any loss in the usual sense of the word.

In Free, plaintiff filed for bankruptcy in his capacity as as the sole proprietor of an electric company he owned. He also owned a company that specialized in the sale of vintage firearms, which would become a central part of his bankruptcy case. Free claimed that he filed for bankruptcy to stay the sheriff's sale of property he was on the verge of losing through foreclosure. When he filed, he identified more than $1 million in assets — property and personal property, including firearms — and almost $700,000 in liabilities. He originally filed under Chapter 13, but the court converted it to a Chapter 7 bankruptcy, which would liquidate his assets and distribute the proceeds to his creditors.

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Citing Springsteen

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

Continuing with a Bruce Springsteen themed week as I return to regular blogging . . .

A few years ago, I wrote an article — Courts Can Make Better Use of 'The Boss" — about judges citing Bruce Springsteen's music. Here are the opening paragraphs:

Springsteen usually comes in third — behind Bob Dylan and the Beatles and slightly ahead of Paul Simon — on the list of musicians whose lyrics are most frequently cited in legal articles and judicial opinions. Several law review articles, and at least one symposium, have been dedicated to the characters in his songs, particularly those on the margins, living in the darkness on the edge of town.

These individuals are appealing to law professors and commentators, particularly those interested in social justice, because, as professor Abbe Smith noted in her article “The Dignity and Humanity of Bruce Springsteen’s Criminals,” Springsteen “takes the least popular, least sympathetic among us, and offers up their stories to teach us something about ourselves.” However, when judges cite Springsteen, something seems to get a little lost along the way.

The article then noted how one judge used the lyrics to "No Surrender" to describe a party's approach to discovery and another quoted "Badlands" in an insurance dispute about bags of coffee. Since I wrote this article, a few more judges have quoted Springsteen in their opinions, with mixed results.

One of the recent cases involved a repeat player! In my article, I noted that, in a 2011 decision, a Florida federal court judge had compared a party’s aggressive approach to discovery to the song "No Surrender" from "Born in the U.S.A.": “A ‘no surrender’ mentality may be perfectly appropriate for a Bruce Springsteen rock and roll song, but it is frequently unhelpful in litigation, as illustrated by the unfortunate scenario here.” Four years later, the same judge made a similar comparison in a different case:

In the well-known “No Surrender” song released on his “Born in the U.S.A.” album, Bruce Springsteen noted, “Well, we made a promise we swore we'd always remember, no retreat, baby, no surrender.” Springsteen's “no surrender” philosophy may be fine for a rock and roll song about the importance of being true to one's own dreams and beliefs, but it is frequently unhelpful in litigation. It is particularly inapplicable and inappropriate here.

Miami Yacht Charters, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh Pennsylvania, 2015 WL 520846 (S.D. Fla. Feb. 9, 2015). Kudos to the judge for citing Springsteen, but I am still not sure if the comparison fits.

In several other recent cases, however, the references to Springsteen were a better fit:

a California judge referred to "57 Channels (And Nothin' On)" when sympathizing with cable customers in a putative class action against the cable companies, among others, over licensing fees that increased the customers' bills: "With apologies to Bruce Springsteen, we appreciate the lament of cable television subscribers who feel that although they now receive 10 times 57 channels or more, mostly nothing's on that they wish to view." Fischer v. Time Warner Cable Inc., 234 Cal. App. 4th 784, 798 (2015); and

a federal judge in Pennsylvania cited "Glory Days" as an example of "a middle-aged man's wistful recollection of his youthful vigor." Flood v. Nat'l Collegiate Athletic Ass'n, 2015 WL 5785801 (M.D. Pa. Aug. 26, 2015).

As I was a few years back, however, I remain surprised at the lack of references to Springsteen's music from New Jersey state or federal court judges.

Alleged Omission In Consumer Contract Does Not Violate New Jersey Consumer Protection Statute

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

New Jersey's Consumer Fraud Act (CFA) has long been a favorite of plaintiff's attorneys, but there is another consumer protection statute that is rapidly gaining on the CFA in popularity — the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA) (or, as it is sometimes awkwardly pronounced, "ta-KWA-na"). Although it has been around for thirty years, case law interpreting the TCCWNA is still in its infancy because the act has only recently become a common claim in putative consumer class actions. In a new, unpublished decision, Matijakovich v. P.C. Richard & Son, the U.S. District Court for the District of New Jersey, addressed one unsettled aspect of the still developing body of case law surrounding the TCCWNA.

First, a brief primer on the TCCWNA, which provides, in part:

No seller . . . shall in the course of his business offer to any consumer or prospective consumer or enter into any written consumer contract . . . or display any written . . . notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller . . . as established by State or Federal law at the time the offer is made . . . or the . . . notice or sign is given or displayed.

Its purpose is to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties. To state a claim under the TCCWNA, a plaintiff must prove four elements: (1) that it is a consumer; (2) that defendant is a seller; (3) that the seller offered a consumer contract; and (4) that the consumer contract contained a provision that violated a legal right of the consumer or a responsibility of the seller. Any party found to have violated the TCCWNA is liable for a civil penalty of not less than $100, actual damages, or both, in addition to reasonable attorneys' fees and court costs.

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