Category Archives: Current Affairs

May a Spoilation of Evidence Claim Protect a Contractor From a Suit for Construction Defects?

Under certain circumstances, a contractor who defectively completed a construction project may protect himself from a lawsuit by alleging that the plaintiff spoiled evidence of that defect.

An example of this proposition is New Jersey Municipal Environment Risk Management v. Killam Associates Consulting Engineers, et. al., in which the Appellate Division of the Superior Court of New Jersey considered a spoilation of evidence claim with respect to a construction project. A spoilation claim arises when a party in a civil action has “hidden, destroyed or lost relevant evidence and thereby impaired another party’s ability to prosecute or defend the action.” Id. at 5. To avoid a spoilation claim, a prospective party who is aware of the probability of a law suit has an obligation to preserve evidence related to that claim. If a party was not diligent in seeking to prevent spoliation, he may be subject to sanctions. Id.

In Killam Associates, the Plaintiff hired a contractor (“Defendant”) to design and construct a piping system to transport fuel from an above-ground storage tank to a generator. After six years, the Plaintiff found a defect in the system. Id. at 1. Three years later, the New Jersey Department of Environmental Protection demanded that the Plaintiff provide compensation for the environmental damage caused by the system’s defective condition. In turn, Plaintiff filed the action against the Defendant for negligent installation and design to recover damages for the defects found in the piping system. Id. at 2.

Though the Plaintiff contemplated suing the Defendant when the defect was initially found, the Plaintiff instead proceeded with repairs to the piping system and did not inform the Defendant of any damage. Because the Plaintiff commenced repair, replacement, maintenance and/or disposal of the underground transfer pipes that proved defective and did not notify the defendants of its conduct, the Defendants alleged that Plaintiff wrongfully spoliated the evidence of what caused the leak. The Defendants alleged that the Plaintiff compounded this spoliation of evidence by not notifying the Defendants of the defect to provide them with an opportunity to inspect the faulty piping system before it was removed.

In assessing the Defendants’ Spoilation of Evidence claim, the Court found that the Plaintiff did violate its legal duty to preserve the lost evidence by its failure to:

1) alert the defendants and thereby deprive them of any opportunity to observe the conditions as they existed and take appropriate measures to avoid prejudicial loss of evidence and

2) direct their own agents to preserve the components of the dismantled pipeline. 

Id. at 6.

However, the Court also noted that with respect to commercial construction projects, the parties may consider a “vast array of alternate sources of information that such projects generally provide.” Id. at 7. Therefore, the potential spoliation claim might be mitigated if the information were available from some other source. Id.

Ultimately, the Court held that the Plaintiff did violate its duty to preserve the evidence of the faulty piping material. However, the Court remanded the case to the trial court to rule on the Defendants’ spoliation of evidence claim only after a thorough review of other sources of relevant information regarding the piping system’s defect.

Comments/Questions: gdn@gdnlaw.com

© 2013 Nissenbaum Law Group, LLC

Can A Lessor Disregard An Exclusivity Provision In a Lease Agreement After the Lessee has Defaulted?

An exclusivity provision is a provision that bars a lessor from leasing a rental unit to an establishment that competes with the existing lessee. There may be circumstances in which a lessor or owner may disregard an exclusivity provision in its lease agreement when the lessee or tenant defaults in its lease payments.

In BG Monmouth, LLC., v. Sue’s Frozen Yogurt, Inc., et. al., No. A-2020-10T4 (N.J. Super. Ct.
App. Div. August 3, 2012), the Appellate Division of the Superior Court of New Jersey considered this issue. That case concerned the circumstances under which an exclusivity provision was rightfully abandoned.

The Plaintiff was the owner (Owner) of a shopping complex and shared a lease agreement with the Defendant, Sue’s Frozen Yogurt (Defendant, or Renter). The Defendant operated several food service establishments in Plaintiff’s shopping complex. Defendant’s establishments primarily served hot dogs, bagels, ice cream, and frozen yogurt. The lease agreement between the Plaintiff and the Defendant included an exclusivity provision that barred the Plaintiff from renting units in the shopping complex to proprietors that competed with the Defendant by providing primarily similar menu items. Id. at 2-5.

Though Defendant operated several food establishments in Plaintiff’s shopping complex, Defendant proved consistently tardy in paying rent and eventually left defaulted payments uncured. Plaintiff sent several letters to Defendant warning of the potential breach of the lease. Id. at 14.

The dispute escalated when Plaintiff granted a lease to Amazon Cafa food establishment that provided
menu items very similar to those of Defendant. Id. at 7. Defendant argued that Plaintiff breached the exclusivity provision found in its lease agreement. The exclusivity provision read as follows,

Provided the Lessee has not been in default hereunder and Lessee is operating the Demised Premises as a restaurant featuring hot dogs, ice cream, bagels, yogurt, and frozen yogurt, then Lessor agrees not to lease any space in the Shopping Center to any tenant whose primary business is either the sale of hot dogs, ice cream, bagels, yogurt and/or frozen yogurt.

Id. at 13.

In its decision, the Court began with the legal doctrine that [w]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written. Id. at 11.

In this case, the terms of the exclusivity provision clearly stated that it would only be enforced [p]rovided
the Lessee has not been in default hereunder. However, since the lessee was in default (by not paying rent), the Court held that the lessee could not enforce the exclusivity provision.

Comments/Questions: gdn@gdnlaw.com

� 2013 Nissenbaum Law Group, LLC

How Should You Structure a Settlement So That You are Not the Subject of Sanctions?

In Repole v. Gawrysiak, A-1602-11T4 (N. J. Super. Ct. App. Div. August 8, 2012), the Appellate Division of the Superior Court of New Jersey upheld the decision of the Law Division of the Superior Court of New Jersey to grant counsel fees to plaintiffs William and Maria Repole (Plaintiffs) for Danielle Gawrysiaks (Defendant) (jointly Parties) continued failure to adhere to prior orders. 

In that case, Defendant appealed the Law Division’s decision to grant the attorney fee award to Plaintiff.
The award was granted after Defendant repeatedly failed to comply with deadlines set in numerous motions enforcing a prior settlement between the Parties. Originally, Plaintiffs commenced a lawsuit against Defendant and their neighbor, seeking damages for alleged property damage and trespass. Ultimately, the litigation settled. Under the terms of the settlement, Plaintiffs were responsible for conveying a piece of their property to Defendant.  Id. at 2.  In return, Defendant was responsible for removing an existing masonry wall and replacing it with a new retaining wall.  Id.

After Defendant delayed construction of the wall, Plaintiffs filed three (3) separate motions seeking enforcement of the settlement.  Each time a new order was entered a new deadline was set for when the wall needed to be completed; Defendant missed the deadline each time.  Defendant also failed to pay the counsel fee imposed during Plaintiffs’ second motion.  As a result of Defendant’s noncompliance, the Court entered a final order enforcing the prior orders, imposed sanctions and granted additional counsel fees.  Id. at 2-3.

Defendant moved to vacate the sanctions and for reconsideration of the counsel fee awards.
Although the awards of sanctions were vacated, the Judge stated that the counsel fee awards related not to the settlement of the underlying litigation, but rather . . . defendant’s continued failure to comply with prior orders. Id. at 4. Additionally, the Judge reasoned that counsel fees were warranted because the attorney’s services were necessary to secure defendant’s compliance with the settlement. Id.

The bottom line is that you can cause yourself harm by failing to cooperate with settlement terms.
It is in your best interest to negotiate terms that you are capable of satisfying. Indeed, when you fail to comply with settlement terms, the result can involve even more cost to you. For example, in this case, the counsel fees were not initially included in the settlement.  It was not until the Defendant repeatedly failed to adhere to his side of the deal hashed out between the Parties, that attorney fees and sanctions were included as a form of penalty.

Comments/Questions: gdn@gdnlaw.com

2013 Nissenbaum Law Group, LLC

What Are the Elements of a Fraudulent Transfer Under the New Jersey Fraudulent Transfer Act, NJSA 25:2-26?

In Seta Artunian Nassif, et. al. v. Jelmac, L.L.C., No. A-4100-10T2 (N.J. Super. Ct. App. Div. July 11, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following legal issue: what constitutes a fraudulent transfer under the New Jersey Fraudulent Transfer Act (Act)? N.J.S.A. 25:2-26.

That case involved a business that was late in paying its rent. The landlord alleged that the entity that was responsible for the rent had transferred its assets to insiders who were individuals that had a relationship to the entity. The plaintiff alleged that the purpose had been to frustrate the landlords ability to collect a judgment for the rent. The Court was asked to determine whether the admitted transfer of those assets constituted a fraudulent transfer under the Act.

The Act sets forth the following factors to determine whether a fraudulent transfer occurred:

a. The transfer or obligation was to an insider;

b. The debtor retained possession or control of the property transferred after the transfer;

c. The transfer or obligation was disclosed or concealed;

d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

e. The transfer was of substantially all the debtor’s assets;

f. The debtor absconded;

g. The debtor removed or concealed assets;

h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. The transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

The Court determined that no fraudulent transfer had occurred. In reaching that holding, it focused on the fact that no evidence had been adduced as to when the transfers took place. Therefore, there was no way
of knowing whether the transfers were done knowing that they would render  the tenant insolvent. As the court stated, [i]n  other words, no evidence demonstrates whether the alleged cash transfer was made before or after plaintiff’s claim arose. Id. at 20.

This case is instructive for those individuals who control entities that may owe money to others.  The Act should be taken into account when moving funds from such an entity to be sure the transfer does not run afoul of it.

Comments/Questions: gdn@gdnlaw.com

2012 Nissenbaum Law Group, LLC

May the Owner of a New York Co-op Apartment be Evicted When He No Longer Owns Shares in the Co-op?

In Emigrant Mtge. Co., Inc. v. Greenberg, NY Slip Op 50387(U) (D. Nassau County, 1st District March 8, 2012), the court considered a very important issue for co-op owners: whether the co-op owner could be evicted if he no longer owned his shares in the co-op itself.

The difference between owning a co-op and owning a condominium is that the co-op owner is given shares in the cooperative itself.  On the other hand, the condominium owner is given a deed for the actual apartment that he purchases.

In the Emigrant case, the co-op owner pledged his stock as collateral for a debt.  He defaulted and the creditor obtained the stock.  The question was whether that also allowed the creditor to evict the former owner.

The Emigrant court first held that it had jurisdiction to evict the former co-op owner, notwithstanding the fact that the co-op itself (as opposed to the stock) was not owned by him.  Even though the actual ownership solely involved stock, not realty, the court cited a number of cases that indicate that the ownership of stock in a co-op is effectively the same as ownership of real estate.

The court cited such examples as the fact that the sale of a co-op has been held to require writing under the Statute of Frauds, because it is a conveyance of realty.  See Statute of Frauds (General Obligations Law 5-703); Maloney v. Weingarten, 118 AD2d 836, 837, 837, 500 N.Y.S.2d 320, lv. to appeal denied, 69 NY2d 608, 516 N.Y.S.2d 1023, 509 N.E.2d 358.  Likewise, the shares of a co-op are not deemed to be securities for purposes of The Securities Act of 1933 and The Securities Exchange Act of 1934.  See United Hous. Found v. Forman, 421 U.S. 837, esp854-860, 95 S.Ct. 2051, 2061-64, 44 L.Ed.2d 621 reh. Den., 423 U.S. 884. 96 S.Ct. 157, 46 L.Ed.2d 115.

In sum, the court held [a]s between the secured party and the defaulting tenant, the secured party has a superior right to the apartment and may seek to evict the defaulting tenant when his/her interest has been extinguished. Id. at 5.

Comments/Questions: gdn@gdnlaw.com

2012 Nissenbaum Law Group, LLC

What is the Standard Under the Pennsylvania Unfair Trade Practices and Consumer Protection Law for Assessing Personal Liability?

Recently, a Pennsylvania court was asked to determine the standard for finding personal liability against individuals under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”).  Greg and Sandra, et al., v. A.T. Masterpiece Homes at Broadsprings, LLC, No. 1302 MDA 2011 (Pa. Super. Ct. 2012).

In that case, the court held that there would be personal liability because the jury found “misleading conduct.”  The underlying facts involved a contractor who had constructed a home through his company.  The assertion was that he had performed a substandard job which rose to the level of violation of the UTPCPL. The question was whether he would be personally liable for the acts of his company.

One of the bases for the Court’s ruling was that the individual principal of the contractor reassured the homeowners repeatedly that the work would be performed correctly and that he would take care of any of their concerns.  This was critical to the determination that personal liability would be appropriate.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Did the NJ Department of Environmental Protection�s Refusal to Recognize a De Minimis Quantity Exemption in the Sale or Transfer of Real Estate Overstep its Statutory Authority?

Has the NJ Department of Environmental Protection (DEP) gone too far in regulating the activities of owners and/or operators of industrial establishments?  The Appellate Division of the New Jersey Superior Court recently decided that it had.  See Des Champs Laboratories, Inc., v. Robert Martin, Docket No. A-3235-10T4 (N.J. Super.Ct. App. Div. July 6, 2012).

In that case, the court held that the NJ Department of Environmental Protection had no right to bar the sale of industrial properties that had de minimis quantities of hazardous substances.  Specifically, the court found that in barring such sales, the DEP violated the Site Remediation Reform Act of 2009 and the Industrial Site Recovery Act of 1993.

Comments/Questions: gdn@gdnlaw.com

2012 Nissenbaum Law Group, LLC