Limiting Foreclosures to the Holder of the Original Note

If someone wants to foreclose on property, should they be required to prove that they are the holder of the mortgage, i.e. the mortgagee? That question has plagued New Jersey for a number of years. It has resulted in many court battles, including 46 orders to show cause since April of 2012 that were filed for the purpose of correcting foreclosures that had been filed with erroneous documentation.

A proposed statute (which has not yet reached the Governor’s desk) would seek to correct some of these problems. Most notably, it would require that a mortgagee who was foreclosing produce documentation proving that it was the holder of the original note. Under that proposed law (S-1346) there would be an enhanced standard for proving that the mortgagee was the owner of the note. Further, mortgage servicers would need to provide contact information, and if they did not, any payments that went to the wrong person or entity would nevertheless be deemed valid.

The bill was voted out of the Senate Community and Urban Affairs Committee on May 19, 2014.

© 2014 Nissenbaum Law Group, LLC

What is a Quit Claim Deed and How is it Used?

How do you sell something you don’t know if you own? That may sound like a nonsensical question, but there are many situations in which it comes up under the law.

The typical example is with respect to real estate. Many times the real estate records do not tell the whole story about who has an interest in the property. Sometimes there is a dispute about ownership. Other times people may have proprietary rights that are not necessarily related to actual ownership of the land, but instead may relate to how it is used (or restrictions on that use).

The law has come up with a way of dealing with such situations. It is called a quit claim conveyance. It means that the person will convey whatever interest they may have, whether or not they can define it.

One of the more interesting ways this is currently used has to do with the assignment of intellectual property. Often someone might be involved in a group project that results in creating a trademark, copyright or other such property rights. In such a situation the parties will often create a company that they jointly own and have everyone sign a quit claim transfer assigning any rights they may have, known or unknown, to that company.

A quit claim conveyance or transfer is a powerful tool for those involved in legal situations that may involve a level of obscurity or ill-defined rights.

What are the Requirements for a Business to Recover Damages Under the Theory of Quasi-Contract?

May an architect who draws up plans at the request of someone considering a land purchase recover the reasonable value of the services, if there is no written contract.  That was the issue before the Court in Israel Design Group v. Chabad of the Shore, Superior Court of New Jersey, Appellate Division, Docket No.  A-6008-11T3 (July 9, 2013).

In that case, the plaintiff was an architectural firm which developed plans for a synagogue.  The synagogue had requested the plans because it was considering purchasing property for expansion.  There was no contract; nevertheless, the parties did not dispute that the plaintiff had provided the plans.

The Court determined that, even though there was no written contract, the plaintiff would be permitted to recover under the doctrine of quasi-contract. “Quasi-contractual liability ‘rests on the equitable principle that a person should not be able to enrich himself unjustly at the expense of another.’” Wichert Co. Realtors v. Ryan, 128 N.J. 427, 437 (1992).

While this common law theory is not something that serves as a substitute for a contract, it is a useful tool for those asserting a damage claim in the absence of a written agreement.

© 2014 Nissenbaum Law Group, LLC

Can a Subcontractor Collect Money it is Owed Without Providing Evidence of Why it is Owed that Sum?

When asserting damages under the New Jersey Prompt Pay Act, what evidence should be submitted to the Court? That issue was discussed in United States v. APS Contracting, Inc., CIV. 11-779-KMW, 2013 WL 530576 (D.N.J. Feb. 11, 2013).

In that case, Plaintiff, Cardinal Contracting Company, LLC, filed a motion for final judgment by default against Defendant A.C.C. Construction, LLC (“ACC”) and to amend the pleading. No opposition was filed.
Plaintiff had sued Defendants APS Contracting, Inc. Fidelity and Deposit Company of Maryland and ACC.  Plaintiff alleged that ACC entered into a subcontract with Plaintiff wherein Plaintiff was the sub-subcontractor and was to provide a portion of the labor and material required for the construction project of a Combined Maintenance Facility at the Fort Dix United States Army Installation.

Plaintiff performed under the contract and ACC failed to pay.

The Plaintiff filed suit against ACC for breach of contract and violations of the New Jersey Prompt Payment Act. Defendant ACC was properly served but failed to answer the complaint or otherwise enter an appearance in the case.  The Clerk of the Court entered default against Defendant ACC, and Plaintiff filed a motion seeking final judgment by default.

The Court noted that the New Jersey Prompt Payment Act provides that,

 “[i]f a … subsubcontractor has performed in accordance with the provisions of its contract with the … subcontractor and the work has been accepted …, and the parties have not otherwise agreed in writing, the prime contractor shall pay to its subcontractor and the subcontractor shall pay to its subsubcontractor within 10 calendar days of the receipt of each periodic payment, final payment or receipt of retainage monies, the full amount received for the work of the … subsubcontractor based on the work completed or the services rendered under the applicable contract.” N.J. Stat. Ann. § 2A:30A–2(b). “If a payment due pursuant to the provisions of this section is not made in a timely manner, the delinquent party shall be liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%.” N.J. Stat. Ann. § 2A:30A–2(c). Further, “the prevailing party shall be awarded reasonable costs and attorney fees.” N.J. Stat. Ann. § 2A:30A–2(f).
United States v. APS Contracting, Inc., CIV. 11-779-KMW, 2013 WL 530576 (D.N.J. Feb. 11, 2013)

So far so good. The problem arose when the Plaintiff sought to prove its damages. Plaintiff proffered a very terse certification stating that Defendant failed to pay $74,002.50 and that interest was calculated pursuant to the Prompt Pay Act.  Further Plaintiff certified as to $30,808.00 in attorneys fees.

The Court found that Plaintiff was entitled to final judgment but did not enter that judgment.  It ruled that Plaintiff had submitted insufficient evidence to support its claim for damages. It required Plaintiff to provide evidence in the form of an affidavit with supporting documentation for each aspect of the damages claimed.

Can a Tenant Pay Rent in Advance and Then Stop Payment on the Check if He Decides to Terminate the Lease?

If a lease provides for a rent due date and the rent is paid in advance, is it reimbursable if the lease is thereafter terminated? That issue was considered by the New York State Court of Appeals in Eujoy Realty Corp. v. Van Wagner Communications, LLC 2013 WL 6164508 (Nov. 26, 2013).

In that case, the lease explicitly provided that the tenant would pay the rent in advance for a full year. The lease also provided that the landlord was not required to return any of the rent if it was terminated for any reason. In 2007, the tenant paid $96,000+ for a full year of rent in advance. However, the tenant claimed that the payment was sent in error and that it wanted to terminate the lease.

The Judge ruled that rent paid in advance is not recoverable if the lease is terminated prior to completion of the term. The exception would be if the lease were to provide otherwise. In this case, it did not.

The Court also explained that the tenant was a “sophisticated and counseled” business, and thus it could have bargained for what it wanted when drafting the lease. Therefore, the Court would not require the money to be reimbursed. 

Will the Economic Loss Doctrine Bar a NJ Negligence Claim if That Would Result in the Plaintiff Having No Remedy at All?

Will the economic loss doctrine bar a claim for negligence if by doing so, the plaintiff will be left without a remedy? That issue was addressed in Spectraserv, Inc. v. The Middlesex County Utilities Authority et als., Superior Court of New Jersey, Law Division, Docket No. L-2577-07 (July 25, 2013).
          In that case, the parties were disputing whether there should be damages with respect to the construction of a sludge pasteurization facility in Sayerville, New Jersey. The Defendant argued that the negligence claim relating to that construction was barred by the economic loss doctrine.
          In its opinion, the Court began by discussing the nature of the doctrine itself. It explained that a tort (e.g., fraud or negligence) claim and a contract claim usually cannot be brought under New Jersey law for the same facts. The plaintiff usually must choose one or the other.
“Economic loss can take the form of either direct or consequential damages.” Spring Motors Distribs. v. Ford Motor Co., 98 N.J. 555, 566 (1985). “A direct economic loss includes the loss of the benefit of the bargain, i.e., the difference between the value of the product as represented and its value in its defective condition.” Ibid. (emphasis omitted). “Consequential economic loss includes such indirect losses as lost profits.” Ibid. 
   As the Third Circuit has aptly noted, “[u]nder New Jersey  [*19] law, the economic loss doctrine defines the boundary between the overlapping theories of tort law and contract law by barring the recovery of purely economic loss in tort.” Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 244 (3d Cir. 2010)
(internal quotation and formatting marks omitted). “The purpose of the rule is to strike an equitable balance between countervailing public policies that exist in tort and contracts law.” Ibid. (internal quotation and formatting marks omitted). Our Supreme Court has observed that “the purpose of a tort duty of care is to protect society’s interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties[]” whereas “[a] contractual duty, by comparison, arises from society’s interest in the performance of promises.” Spring Motors, supra, 98N.J. at 579.
Id. at 15.
                   However, in Spectraserv, the Court was confronted with an interesting twist (a “case of first impression”). The issue was whether the doctrine would still be applied if the result would be to bar anyclaim. In other words, if the doctrine barred a negligence claim and there were no other claim available to the plaintiff, would it still apply?

          The answer was that the Court found it did not have to reach that issue. It found that there was another claim that could be brought: a breach of contract claim. Therefore, while the Court acknowledged that there suggesting that the application of the doctrine would be prevented if there were no other remedy, here there was another remedy. Therefore, in this case, the doctrine would be applied.

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© 2014 Nissenbaum Law Group, LLC

What is Spot Zoning?

What is spot zoning? That was one of the questions before the Appellate Division of the Superior Court of New Jersey in Hal Holding, LLC v. Mount Laurel Township, Superior Court of N.J., Appellate Division, A-1340-10T2 (May 4, 2012.)
In that case, the parties were disputing whether an ordinance passed by Mount Laurel Township requiring a parcel of land to be maintained as a golf course was an invalid exercise of the Township’s authority.  One of the issues in the case was whether that ordinance constituted “inverse spot zoning.”  That is a principle of law which states that when a land use decision “arbitrarily singles out a particular parcel for different, less favorable treatment” than the less favorable ones it will be examined to see if the decision was arbitrary in nature.  Riya Finnegan, LLC. V. Twp. Council of S. Brunswick, 197 N.J. 184, 197 (2008) quoting Pen Cent. Transport Co. v. N.Y. City, 438 U.S. 104 (1978).

In Hal Holding, the Court found that there had been no inverse spot zoning. Although the ordinance “was intended to affect, only one property: the subject property [the golf course], [in order to find that there was inverse spot zoning] the zoning must also constitute arbitrary treatment. Here, given that a purpose of the ordinance ‘was to promote the continuation of open space and natural features adjacent to fully developed residential areas,’ and the subject property consisted of open space (a golf course) adjacent to fully developed residential areas the disparate treatment here is not arbitrary.” Id. at 11.

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© 2014 Nissenbaum Law Group, LLC

What is the Standard for a Property Owner to Object to a Zoning Board Decision Based on the Appearance of Impropriety?

May a property owner object to the appeal of a Zoning Board decision solely on the basis that the way the appeal was handled presented an appearance of impropriety?  This question was addressed by the Supreme Court of New Jersey in Kane Properties, L.L.C v City of Hoboken, 2013 WL 3197164 (NJ 6/26/2013). [READ CASE HERE]

In that case, plaintiff applied to the Hoboken Zoning Board to obtain the required variances to develop a twelve story high-rise. During a Zoning Board hearing, the Skyline Condominium Association, Inc. (“Skyline”), objected to the development proposal. However, the Zoning Board granted the variances to plaintiff anyway. Skyline appealed to the Hoboken City Council challenging the approval of the plaintiff’s variances.

However, an issue arose when the attorney for Skyline, Michael Kates, Esq., was appointed to serve as Hoboken’s Corporation Counsel. Although he resigned as counsel to Skyline, nevertheless, Plaintiff objected to Kates’ participation in the proceedings before the City Council respecting the same matter. Accordingly, Kates recused (separated) himself from participating in those proceedings.

The City Council considered whether to reverse the variances given to plaintiff. Although Kates was supposed to have totally recused (separated) himself from those proceedings, he did become involved in aspects of them. Indeed, as the Supreme Court would later note, “Kates acted as counsel to the governing body, he answered questions from Council members, he advised them on voting procedures, and he signed the resolution following their vote to indicate he had approved it.” Id.

Ultimately, the City Council approved the Zoning Board’s decision. Plaintiff initiated an action in the Superior Court of New Jersey challenging the city’s decision. Ultimately, the matter was appealed all the way to the Supreme Court of New Jersey.

The Supreme Court found that Kates had violated a requirement that is normally applied to Judges: whether the action or inaction evokes the appearance that there has been an appearance of impropriety. In other words, even if technically each thing he had done was not an actual conflict of interest, taken as a whole, they appeared improper.

The Court noted that normally the appearance of impropriety standard applies to Judges, but nevertheless, when the attorney is advising a quasi-judicial body, the standard can also apply to the attorney. In this case, the City Council was considering an appeal of the Zoning Board’s determination, and that put it in a quasi-judicial capacity. For that reason, Kates’ activities were covered by the appearance of impropriety standard. Since he violated it, the Supreme Court sent the matter to the Law Division of the Superior Court of New Jersey to consider it anew in light of the Supreme Court’s ruling.

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© 2014 Nissenbaum Law Group, LLC

Does the ten year period of repose begin after a certificate of occupancy is issued?

Does the ten year period of repose begin after a certificate of occupancy is issued? This question was answered in the negative by Fairview Heights Condominium Association, Inc. v R.L. Investors, Superior Court of New Jersey, Appellate Division (Docket No. A-3128-11T3).

In that case, construction of a condominium building owned by defendant was completed in 1988. Plaintiff filed a complaint against defendant two years after purchasing the condominium building from defendant in 2001. The lawsuit alleged that plaintiff had suffered damage from hazardous construction defects.

Defendants moved for summary judgment, which was granted. Although the Court found that the condominium building was in an unsafe condition due to defective construction by defendants, it determined that the claim was barred since

“the statute of repose bars any action whether grounded in contract or torn arising out of the defective design or construction of an improvement to real property or arising out of the defective and unsafe condition of an improvement to real property.”

Fairview Heights I, supra, No. A-0225-10 (slip op. at 15-16).

Plaintiff appealed, and the Appellate Division affirmed the lower Court ruling.  

In its determination, the Appellate Division cited the Supreme Court of New Jersey’s decision in Russo Farms v. Vineland Board of Education 144 N.J. 84 (1996). In that case, the Supreme Court held that the test for determining when the statute of repose would begin to run would be the point at which the construction had reached a stage of substantial completion.

The Appellate Division noted that this was in keeping with the trend among the majority of states. It determined that

“…the triggering point is tied to substantial completion of the construction project itself, rather than other factors such as obtaining a certificate of occupancy or, as plaintiffs would urge here, relinquishment of control…”

Id. 12

Is sum, the Appellate Division held that the claim was barred by the statute of repose because it would be unfair to permit the claims against defendant that are made more than ten years after substantial completion of the condominium building. 
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© 2014 Nissenbaum Law Group, LLC

What is the Time Limit to Sue for Deficient Design, Planning, Surveying, Supervision or Construction of an Improvement to Real Estate in New Jersey?

Does the time period to sue for deficient design, planning, surveying, supervision or construction of an improvement to real estate in New Jersey run from the substantial completion of a phase or component of a construction project or from completion of the entire project? This question was answered in State of New Jersey v. Perini Corporation, 425 N.J. Super. 62 (N.J. Super. Ct. App. Div. 2012).

In that case, the centralized underground system that distributed hot water through South Woods State Prison began to fail in 2000. The State of New Jersey claimed that the defects of the pipes were so serious that the entire system needed to be replaced. If not replaced, the prison would have to be shut down and all prisoners would have to be relocated. Plaintiff claimed the defects were a direct result of construction defects, product failure and design deficiencies. The state filed suit against companies that were responsible for the construction, materials and design of the system three days short of ten years from the date the certificates of substantial completion on the prison construction project were issued by the State.
The defendants argued that the claims were brought outside of the ten year limitation of the New Jersey Statute of Repose, N.J.S.A. 2A:14-1.1, which states:

No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property,…nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction…

Plaintiff responded that the period should commence at a later point, namely when the certificates of substantial completion of the prison construction project were issued.
The court first noted that there was substantial precedent for the principle that the “ten-year statutory period runs from substantial completion of a component of a multi-phase construction project, not the completion of the project as a whole” Welch v. Engineers, Inc., 202 N.J. Super. 387 (App. Div. 1985).  However, the court also recognized that the above principles would not necessarily apply to multi-phase projects. The determination would hinge on the  meaning of the phrase, “improvement to real property” found in the Statute of Repose.
The Court found that:

The hot water system was not separately “an improvement to real property” within the meaning of N.J.S.A. 2A:14-1.1a. It was a component of an improvement, similar to the steel framing of a building, its roof, any mechanical or electrical system, or other components of a construction project

The Court noted that multiple phases of a construction project that are properly documented as separate projects in and of themselves can prompt separate periods of repose. In this case, however, the hot water system was not documented in that manner. Therefore, the statute of repose did not separately run from the point of completion of the hot water system.