BUSINESS LAWSUIT BLOG

May an individual whose rights have been affected by a municipal ordinance seek a declaratory judgment? The Supreme Court of New Jersey has construed the Declaratory Judgments Act in a way that allows such individuals to seek declaratory action. Bell v. Stafford Tp., 110 N.J. 384, 390 (1988). N.J.S.A. 2A: 16-53.

In that case, the Township of Stafford, N.J. (“Stafford”) enacted an ordinance that declared that “[b]illboards, signboards, and off-premises advertising signs and devices are prohibited within any zoning district of the Township.” Stafford Ordinance No. 84-35. The plaintiff, Wesley Bell (“Bell”), owned three billboards affected by the ordinance. The trial court found the ordinance to be constitutional, but the Appellate Division reversed. Stafford appealed.

In part of his original complaint, Bell sought a declaratory judgment that the ordinance was unconstitutional on its face. In response, Stafford contended that the Appellate Division erred and should have refrained from making any determination of unconstitutionality.

The Appellate Court found that Stafford’s response invoked the doctrine of “strict necessity”, which holds that courts will adjudicate the constitutionality of legislation only if a constitutional determination is absolutely necessary to resolve a controversy between the parties. Rescue Army  v. Municipal Court of Los Angeles, 331 U.S. 549 (1947). This was also applied in New Jersey in Donadio v. Cummingham¸ where it was held that “a court should not reach and determine a constitutional issue unless absolutely imperative in the disposition of litigation.” Donadio v. Cummingham¸ 58 N.J. 309, 325-26 (1971).

The Court also found that Bell had standing to press his constitutional challenge under the Declaratory Judgments Act. The Act “expressly confers standing on a person whose legal rights have been affected by a municipal ordinance.” Bell  at 390. The Court held that the Act is not to be used to secure court decisions that are merely advisory. Rather, the Act affords “expeditious relief from uncertainty with respect to rights when claims are in genuine conflict.” Id. at 391. The Court concluded that the issue of the constitutionality of the ordinance was properly presented, since Bell had standing to raise the constitutional issue in a context that warranted a decision so as to fairly resolve the legal controversy caused by the application of Stafford’s ordinance. It subsequently affirmed the Appellate Division’s ruling.

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© 2012 Nissenbaum Law Group, LLC

The Telephone Consumer Protection Act (“TCPA”) governs the conduct of telemarketing services and other companies that use telephone solicitation during the course of their business. A number of lawsuits have raised the question of whether debt collectors should be treated similarly to telemarketers, insofar as they should be subject to the same restrictions.

In a recent case before the United States District Court for the Western District of New York, a plaintiff argued that a debt collection agency’s continuous phone calls regarding a financial obligation that the putative debtor did not owe were in violation of the TCPA. Franasiak v. Palisades Collection, 09-cv-835S. The plaintiff, John Franasiak, claimed that the defendant, Pallisades Collection (“Pallisades”), repeatedly contacted his residence regarding a debt owed by his daughter. He alleged that Palisades did this even though Franasiak continued to inform them that he was not the debtor and that his daughter did not live at his residence. He claimed the calls continued several times a week for seven months. After Pallisades ignored a cease-and-desist letter he issued, Franasiak filed an action under the TCPA.

In its motion for summary judgment, Pallisades argued that debt collection calls are exempt from the TCPA. A Federal Communication Commission (“FCC”) administrative decision indicates “that calls solely for the purpose of debt collection are not telephone solicitations and do not constitute telemarketing.” In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 23 FCC Rcd. 559, 565, ¶¶ 11 [2008 WL 65485 (F.C.C.)]. Additionally, earlier in 2011, another Western District Court determined that “debt collection calls are exempt from the TCPA’s prohibitions against prerecorded message calls because they are commercial calls which do not convey an unsolicited advertisement and do not adversely affect residential subscriber rights.” Santino v. NCO Fin. Sys., 09-cv-982-JTC.

Franasiak argued that this exception did not necessarily include calls by debt collectors to individuals who are not the debtor. In other words, he argued that the TCPA should extend to situations where debt collectors are persistently calling those who are not actually in debt. However, the Court decided to defer to the FCC and its specific exemption of all debt collection activities from the TCPA. The Court held that it is for the FCC “to determine whether a resident’s privacy rights are adversely affected by seemingly intrusive phone calls by prerecorded messages.” The Court added that “[a]lthough it is this Court’s opinion that such calls, when they are made to non-debtors, do adversely affect the individual’s privacy interests, the FCC has found otherwise,” and noted that a holding in favor of Franasiak would overstep the bounds of the judiciary.

It is significant to note that the answer to this question could vary depending on the district. For example, the United States District Court for the Eastern District of Pennsylvania has held that non-debtors have their rights violated when they receive continuous collection calls. Watson v. NCO Group, 462 F. Supp 2d 641 (E.D. Pa. 2006). However, the majority of courts have followed the same path as the Franasiak court and decided to defer to the FCC and not interpret different rules for non-debtors. It will be interesting to see if the FCC decides to amend its regulations or take any steps to address this issue, and whether the majority of courts will continue to exercise judicial restraint.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

If a person slips in the icy parking lot of a strip mall, may the landlord be indemnified by one of the tenants’ insurance policies? In a recent decision, the Appellate Division of the Superior Court of New Jersey attempted to clarify that question. Cambria v. Two JFK Blvd, LLC, Superior Court of New Jersey, Appellate Division. A-0802-10T2 (2012).

The plaintiff, John Cambria (“Cambria”), slipped and was injured in an icy parking lot of a strip mall that was owned by the landlord and defendant Two JFK Blvd., LLC (“the landlord”). The landlord and a real estate manager, David Rubin (“Rubin”), sought a declaration that they were covered by the liability insurance policy that one of the mall’s tenants (“the tenant”) had obtained. The policy had been issued by Harleysville Insurance Company of New Jersey (“Harleysville”). A lower court determined that the tenant had failed to obtain the required coverage for the landlord by failing to name it as an additional insured. However, the lower court also held that the landlord did not have to consider whether the tenant was liable for breaching the lease because that court viewed Rubin as the tenant’s “real estate manager.” The (defendants) appealed.

The Appellate Court determined that Rubin was a real estate manager and was the landlord’s real estate manager, but said that the landlord and Rubin needed to provide evidence that Rubin was also the real estate manager for the tenant in order for them to succeed on their claim that Harleysville owed them indemnification. The Appellate Court held that the landlord and Rubin failed to meet that requirement.

In order to determine whether Rubin was acting as the real estate manager of the landlord or the tenant, the Court looked at whether the incident causing the injury occurred in the leased premises or some other area of property for which the tenant was responsible. The lease stated that the “leased premises” did not include any part of the parking lot where the plaintiff fell. Additionally, the landlord and Rubin argued that New Jersey courts have previously interpreted “real estate manager” expansively. However, the Court distinguished this case from previous interpretations, holding that here the landlord retained the sole responsibility for maintaining and caring for the parking lot. Consequently, Rubin again acted solely as the landlord’s – and not the tenants’ –  real estate manager.

Finally, the Court determined that contending Rubin was the tenant’s real estate manager would not be persuasive unless the lease saddled the tenant with a duty of care for the parking lot. The landlord and Rubin relied on a lease provision that imposed on the tenant “additional rent” for its “proportionate share” of the “operating costs,” which included, among others, that of “removing snow and debris.” However, the Court rejected this argument, stating that common law principles impose on the landlord a duty to maintain the parking lot and other common areas in a reasonably safe condition for the use of both tenants and guests. See Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 121 (2005). The Court clarified that though this provision may have advised the tenant of the manner in which part of the rent would be applied, it did not shift the burden of caring for the common areas from landlord to tenant. “That a portion of the rent was devoted by the landlord to hire someone to care for the common areas, which were the landlord’s responsibility, does not alter the parties’ rights and obligations regarding the common areas or render that hired person the real estate manager for the tenant.” Id. “The obligation to care for the common areas remained with the owner absent a clear and unambiguous declaration to the contrary that cannot be found in the parties’ lease.” Id. 

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© 2012 Nissenbaum Law Group, LLC

In order for a court to determine that a defendant is in civil contempt, it must first determine that the defendant actually exists. In a recent decision, the United States District Court for the Southern District of New York considered what evidence would be sufficient for a plaintiff to prove the existence of a competitor. BeautyBank, Inc. v. Harvey Prince LLP, No. 10 Civ. 955 (S.D.N.Y. 2011).

In October 2010, plaintiff BeautyBank, Inc. (“BeautyBank”) filed a motion to hold defendant Kumar Ramani (“Ramani”) in contempt. The original complaint was filed against the entity Harvey Prince and included, among other allegations, claims for trademark infringement and false advertising. It alleged that Harvey Prince was selling perfume and other cosmetic products that violated a BeautyBank trademark. BeautyBank later added Ramani – whose name was listed as a partner in the Harvey Prince entity – as a defendant.

When BeautyBank later pursued its default judgment against Harvey Prince, Ramani maintained that Harvey Prince did not exist as an entity. In his answer to the complaint filed against him, Ramani said that Harvey Prince LLP was never formed as a Nevada limited liability partnership and instead claimed that his attorney filed trademark applications that incorrectly listed Ramani as a controlling partner in that LLP. Despite this, BeautyBank ultimately persuaded the court to enter a default judgment that included a permanent injunctive relief against Harvey Prince. The injunction enjoined the entity and its officers from imitating, manufacturing and similar practices relating to its trademarked perfume. BeautyBank later made a motion to find Ramani in contempt because, it argued, Ramani was a principal of Harvey Prince and the website www.harveyprince.com continued to sell BeautyBank’s trademarked perfume.

In order to prove Ramani’s noncompliance with the injunction, BeautyBank had to establish that Ramani served Harvey Prince in one of the capacities listed in the injunction. This included showing, at a minimum, that the entity Harvey Prince existed.

The Court found that the evidence presented by BeautyBank did not “demonstrate to a reasonable certainty” that Harvey Prince, LLP existed. Id. at 5. Admittedly, BeautyBank introduced as evidence filings made to the United States Patent and Trademark Office that attested to the existence of Harvey Prince. However, the Court held that “the mere fact that a party states on a document, sworn under penalty of perjury, that an entity is an LLP in the state of Nevada does not result in the creation of an LLP within that state.” Id. at 6.

The Court noted that a limited liability partnership (LLP) is created by statute. It is an entity that allows two or more persons to create a partnership with the added protection that their potential liability will be limited. Therefore, the Court emphasized that whether or not an entity was created is something that is determined by the behavior of parties, not merely the words in a document. Nevada law states that a partnership is formed when

a)      two or more persons associate

b)      to carry on as co-owners of a business

c)       for profit

Nev. Rev. Stat. §§ 87.060, 87.4322.

The Court found that BeautyBank presented no evidence that indicated Ramani associated with another person to form a partnership or that he organized and formed an LLP. Because BeautyBank failed to establish the existence of Harvey Prince, the Court found that the injunction could not be enforced against Ramani. Thus, BeautyBank’s motion for contempt failed.

The Court’s decision is interesting because it suggests that merely referring to an entity as an LLP does not necessarily indicate that a legal LLP has been formed. It is important for businesses seeking to form such an entity to check the relevant state statute and ensure it is complying with the requirements established for such a business entity. Court decisions such as BeautyBank serve as reminders that simply calling a business a “limited liability partnership” on paper may not suffice. 

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Landlords are generally the parties that prepare the lease agreements into which their tenants enter. This unequal bargaining power typically allows landlords to insert language that requires tenants to pay the landlord’s attorney’s fees for any legal claims that arise out of their agreement, but does not require the landlord to pay the tenant’s attorneys fees for breach of the lease terms by the landlord. New York law requires there to be either a contractual or statutory basis for a prevailing party to collect attorney’s fees. But if there is no express language in a lease agreement allowing for tenants to demand attorney’s fees from landlords, does that mean tenants will not able to collect them?

This question was at issue in a recent New York case. Casamento v. Juaregui. Casamento v. Juaregui, 2011 WL 4090175 (2d. Dept. 2011). In the case, Luis Juaregui (“the tenant”) entered into a lease agreement for a Queens apartment owned by Dominic Casamento (“the landlord”). Paragraph 7 of the agreement required the tenant to receive the prior written consent of the landlord before making any alterations to his apartment. Paragraph 10 held the tenant liable for any damages or expenses incurred by the landlord relating to any neglectful act of the tenant. Additionally, paragraph 16 specifically referred to attorneys’ fees, stating that “[a]ny rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses” and including “reasonable legal fees” within the definition of “expenses.” Id. at 288.

In March 2007, the landlord alleged that the tenant had violated paragraphs 7 and 10 by making alterations to certain rooms without the landlord’s consent and also claimed the tenant was responsible, per the terms of the lease, for the landlord’s legal fees. He served a notice of termination and commenced a holdover proceeding.

The question for the court in Casamento was whether the lease at issue was covered by Real Property Law (“RPL”) §234. That law governs residential leases and addresses the imbalance resulting from the unequal bargaining power between landlords and tenants. It establishes an implied covenant that addresses when a tenant will be able to recover attorneys’ fees incurred in the successful defense of a summary proceeding to recover possession of a leasehold. If the court determines that the lease is covered by §234, the tenant should be able to collect attorney’s fees from the landlord.

Section 234 states that courts shall construe a lease to include this implied covenant whenever:

1)  a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of a tenant to perform any covenant or agreement contained in such lease, or

2) that amounts paid by the landlord therefore shall be paid by the tenant as additional rent

See RPL §234.

The Casamento Court determined that the outcome of any claim pursuant to §234 depends upon an analysis of the specific language of the lease provision at issue. In that case, it held that “Paragraph 16, thus, literally fits within the language of the first prong of section 234, since it does ‘provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of a failure of the tenant to perform any covenant or agreement contained in such lease.’” Additionally, the court found that construing the covenant in favor of the tenant is “consistent with the Legislature’s remedial purpose of effecting mutuality in landlord-tenant litigation and helping to deter frivolous and harassing litigation by landlords who wish to evict tenants.” The court said that RPL §234 helps avoid a situation where a landlord would have nothing to lose by instituting an eviction proceeding with a frivolous factual basis where there was  prospect of re- enting for a higher amount and the lease included a provision enabling the landlord to recover attorney’s fees. Because the Court determined that RPL §234 applied, it held that tenants can recover attorney’s fees from landlords.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

In January 2010, the New York legislature enacted Insurance Law § 3224(a) (“Prompt Pay Law”) to ensure that insurance companies paid their claims in a timely fashion. However, it was not clear whether the statute granted a party a private right of action. In a recent decision, the New York Supreme Court for Kings County held that it did. Maimonides Medical Center v. First United American Life Insurance Co., 2012 N.Y. Misc. LEXIS 701 (N.Y. Sup. Ct. Feb. 22, 2012).

The plaintiff in the case, Maimonides Medical Center (“Maimonides”), was a non-profit hospital that provided inpatient healthcare services. The cases stemmed from the hospital’s treatment of six patients, each of whom held Medigap policies issued by the defendant, First United American Life Insurance Company (“First United”). Some of the patients remained at the hospital for more than a year. Between the six, their stays at the hospital exceeded four years. Malimonides billed First United more than $19 million, but the insurance company paid them only $4,078,663.29. Consequently, Malinonides filed suit against First United, alleging breach of contract and violation of the Prompt Pay Law.

The Prompt Pay Law provides that, where an insurer is clearly liable to pay a healthcare claim, the health care provider or patient must be paid

a)      within 30 days of receipt of an electronically transmitted claim, or

b)      within 45 days of receipt of a claim transmitted by any other means.

See Insurance Law § 3224-a.

Additionally, where liability for a claim is not reasonably clear, the insurer must pay any undisputed portion and, within 30 days of receiving the claim, provide either written notification specifying why it is not liable or a written request for any additional information necessary to determine its liability. Id. This was not done.

The issue before the New York Court was whether the Prompt Pay Act gave Maimonides the ability to sue First United. When considering whether a statute implies a private right of action, courts will consider:

a) whether the plaintiff is one of the class for whose particular benefit the statute was enacted;

b) whether recognition of a private right of action would promote the legislative purpose; and  

c) whether creation of such a right would be consistent with the legislative scheme.

Sheehy v. Big Flats Community Day, Inc., 73 N.Y.2d 629 at 633 (1989).

The Court found that Maimonides satisfied the first two prongs, but First Insurance argued that the hospital did not satisfy the third – namely, that creating a right for Maimonides to sue would go against the legislative scheme of the statute. First Insurance argued that “a private right of action would be inherently inconsistent with enforcement,” but the Court disagreed. “Although defendant argues that the Prompt Pay Law is predominantly a remedial statute, it clearly creates rights for health care providers and patients and affirmative duties for insurers,” the Court held. “Before the statute was passed, the only requirements for timely payment of health care claims were contractual.”

The statute “was enacted to protect health care providers and patients against insurance companies that fail to pay claims in a timely fashion.”

The Court concluded that Maimonides was a member of the class that the legislature intended to benefit by passing the law, particularly because the purpose of the law was interpreted to be preventing the delay in the payment of health care claims. Therefore it had a private right of action available to it.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC