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Marital Status a Consideration in Discrimination Claims Against Employers Banner Image

Marital Status a Consideration in Discrimination Claims Against Employers

Month: February 2017

Marital Status a Consideration in Discrimination Claims Against Employers

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My contributions to the Riker Danzig Family Law Blog are usually limited to matters dealing strictly with issues that squarely impact divorce litigation.  I recently researched a New Jersey Supreme Court employment law case decided this past summer, however, that I found of particular importance as it relates to client management for divorcing clients, and has been a burgeoning issue in recent years: clients being concerned about loss of employment resulting directly from their divorce.  Of course, as the divorce attorney, when this issue arises I am the first person the client looks to for advice.  Now there is some level of guidance found in Smith v. Millville Rescue Squad, 225 N.J.373 (2016), that can be given to the client just short of referring them to an employment attorney.  

The New Jersey Supreme Court, in Smith v. Millville, ruled that N.J.S.A. 10:5-1, entitled the Law Against Discrimination (”LAD”), protects employees from discrimination on the basis of marital status. This covers people who are separated, in the process of divorcing, or are divorced.

The Supreme Court unanimously ruled that employers cannot discipline, block the advancement of or terminate employees whose marital status may be disapproved of or be of concern when it has no bearing on job performance or the workplace environment.  Likewise, the Court noted that the Law Against Discrimination also bars discrimination against current or prospective employees because they are single, married, or transitioning from one status to the other.

In Millville, Plaintiff was a certified emergency medical technician and the Director of Operations for the Millville Rescue Squad, a medical transportation provider.  He had been with the company since 1998.  Allegedly, Plaintiff was having an affair with a volunteer, which was reported by Defendant to the Chief Executive Officer of the Rescue Squad.  Plaintiff’s testimony was that the CEO advised him to keep the CEO informed about his marital status, and that after he notified the CEO that he was going to file for divorce, he was terminated.  

Plaintiff filed a complaint against the Rescue Squad, the CEO/Supervisor and those who were involved in his termination. The complaint asserted wrongful discrimination on the basis of sex and marital status in violation of the LAD.  A trial commenced before a jury on the LAD claim. At the close of Plaintiff’s case, Defendant filed a motion for judgment pursuant to Rule 4:40–1 and a motion for involuntary dismissal pursuant to Rule 4:37–2. The trial court conducted oral argument, and granted the motion for involuntary dismissal, thereby dismissing Plaintiff's gender and marital status LAD claims. The Appellate Division reversed the dismissal of Plaintiff's marital status discrimination claim. The Appellate Panel held that the scope of the marital status protection under the LAD included the states of being divorced, engaged to be married, separated, and involved in divorce proceedings. The New Jersey Supreme Court agreed, stating:

Despite the absence of a definition of “marital status” or legislative history demarcating the boundaries of this protection, the stated purpose and goals of the LAD strongly suggest that we should consider “marital status” as more than the state of being single or married. A broader interpretation is consistent with the remedial purpose of the statute, advances the goal of “eradication ‘of the cancer of discrimination’ in the workplace,” Bergen Commercial Bank v. Sisler, 157 N.J. 188, 199, 723 A.2d 944 (1999) (quoting Fuchilla v. Layman, 109 N.J. 319, 334, 537 A.2d 652, cert. denied, 488 U.S. 826, 109 S.Ct. 75, 102 L.Ed.2d 51 (1988)), and prevents employers from resorting to invidious stereotypes to justify termination of the employment of a never-married employee, an engaged employee, a separated employee, an employee involved in divorce litigation, or a recently widowed employee.

This concern from clients with similar stories arises more often than one might expect.  Over many years of practice, I have had numerous cases where a spouse notifies the employer of the sordid details of the client’s divorce and overtures are made regarding employment status.  While most employers generally do not take action or overtly intertwine the issues in the divorce with employment status, it is certainly a question or concern that clients have volleyed my way as a serious concern.  Here, the New Jersey Supreme Court specifically states:

In summary, we conclude that the LAD prohibits an employer from discriminating against a prospective employee or a current employee because they are single, married, or transitioning from one state to another. 

As clients go through divorce the often-asked question about whether an employer can terminate their employment due to the divorce should be referred to an employment lawyer. Suffice it to say, however, clients should be made aware that their status as a divorcing person is afforded some level of protection.   The Millville case makes it clear that a divorcing person is a “marital status” pursuant to the LAD statute and any termination action taken by an employer directly resulting from or due to that status is subject to scrutiny as a potential discriminatory termination. It will be interesting to see the application of Millville going forward as it relates to the myriad of issues that flow from divorce, causing divorce and employment to intersect and interact in ways similar to work-related absences due to divorce, child care issues, disruption at the work place from the former spouse, and other divorce-employment related matters.  

 Allen J. Scazafabo, Jr. Esq., is a contributor to the Riker Danzig Family Legal Blog and is Board Certified by the New Jersey Supreme Court as a Matrimonial Law Attorney.  As a member of the Family Law Practice Group of Riker Danzig Scherer Hyland & Perretti LLP,  Allen practices in Riker Danzig’s Morristown, New Jersey office and focuses his practice on representing clients on issues relating to divorce, equitable distribution, support, custody, domestic violence, premarital agreements and appellate matters. You can reach Allen at 973-451-8428 or ascazafabo@riker.com.

Just Words on Paper? What Custody Terms of Your MSA Really Mean

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In the recent decision of a New Jersey family court, the standards for out-of-state relocation with a minor child were examined and the court addressed what shared physical custody really means for purposes of determining removal applications.

In Teng v. Molina, an application made by a minor child’s mother to relocate to Florida was met with opposition from the child’s father, a resident of New Jersey. The parties married in New Jersey in 2009 and had one daughter together, born shortly thereafter. Though the parties met and had lived as a family in New Jersey, the child’s mother had emigrated from Cuba with her family in 1999 and initially settled in Florida. The mother moved to New Jersey five years later to search for employment in the pharmaceutical industry. 

The parents divorced in February 2015 and executed a marital settlement agreement (MSA) addressing issues of custody and parenting time. The MSA provided that they share joint legal custody and that the mother shall be designated as Parent of Primary Residence (PPR). The father was designated Parent of Alternate Residence (PAR). The agreement further provided that, upon such time as the mother vacated the marital home, the father shall be entitled to parenting time every other weekend and each Monday and Wednesday evening. The agreement did not address relocation or out-of-state removal of the child.

Despite the terms of the MSA, the mother did not vacate the marital home until July 2016. Prior to that time, the parties continued to live as a family in the marital home and share in parenting responsibilities as they had prior to the divorce. It was undisputed that the father had a very close relationship with his daughter and that he was actively involved in her caregiving as much as the mother, up until relocation became an issue between the parties.

When the mother vacated the marital home, she moved into a one-bedroom apartment with the child. At that time, the father continued to have daily contact with his daughter. Because the father worked from home, he was able to pick up the child from her daily activities and otherwise take care of her. In August 2016, the mother traveled to Cuba and Florida with the daughter for over three weeks, with the father’s permission. Following that visit, the mother decided that she wished to move back to Florida with the child. The parties previously had a flexible and cooperative relationship regarding parenting time, but once the mother’s wishes to relocate were announced, she invoked the parenting time provisions of the MSA and only permitted the father to see the child on alternating weekends and twice a week in the evenings. 

At the removal hearing, both parties testified and presented experts in child psychology regarding the effect of the potential move on their daughter. The mother testified that she has worked in the pharmaceutical industry throughout the marriage and had lost her job due to lay-offs on several occasions. She testified that finding local work in the industry was becoming increasingly difficult and that she wished to relocate for better employment opportunities and to be closer to family, who still lived in Florida. The mother further testified that she had a job lined up in Florida which would pay her $17,000 more than her last job, though she was unemployed at the time of the application. The mother’s expert testified that relocation would allow both mother and child to enhance their lifestyle (i.e., due to the mother’s increased earnings) and foster a relationship with the mother’s family, without compromising the child’s relationship with her father. 

The father’s expert, however, testified that the co-parenting relationship which existed prior to the removal application allowed the child to develop into a healthy and emotionally good-spirited girl. He further testified that moving out of state would disturb the child’s relationship with the father and have possible negative effects on her development. Moreover, removal would involve a major distance, a total change in support system and social network and, with the mother working and commuting up to ten hours a day, novel caretakers supervising the child. The father also testified, in part, to counter the mother’s suggestion that he could move to Florida since his employment afforded the flexibility to work from home. The father testified that he had two children from a prior relationship, both in college in the New York metropolitan area, who had frequent contact with the child. The father testified that he should not be forced to choose between his children, and that moving the child to Florida would affect her relationship with her two half-brothers. 

In adjudicating the removal application, the court acknowledged that there is a different standard to determine a removal application in circumstances where physical custody is jointly shared versus a situation in which there “is some lesser” sharing of physical custody and parental responsibility. When physical custody is jointly shared, the court opined, one parent’s moves implicates the custody arrangement and the parent who wants to relocate must show changed circumstances sufficient to warrant obtaining primary custody.  However, where there is some lesser sharing of physical custody, the application for removal is granted if made in good faith and is not inimical to the child’s interest. Accordingly, in the former case, the child’s best interests govern, whereas in the latter, the parents’ interests become relevant as well.

The court further held that the labels used in the divorce decree or MSA are not determinative, but that a fact-sensitive inquiry must be conducted to determine whether physical custody is truly shared. Interestingly, in this case, it appears as though physical custody was shared to some lesser degree on paper, but in practice, was truly jointly shared. Nonetheless, the court applied the latter, less stringent standard to determine the removal application. The court assessed whether the mother had a good faith reason for the move, and then relied on the testimony of the parties and experts to determine whether the move was not inimical to the child’s best interests. Perhaps labels used in the MSA really do carry greater weight than the court initially suggested.

The seminal case on removal, Baures v. Lewis, sets forth twelve factors to assess in a removal case: 

  • the reason for the move;
  • the past history of dealings between the parties;
  • whether the child will receive educational, health and leisure opportunities at least equal to those available in the current location;
  • any special needs of the child;
  • whether a visitation or communication schedule can be developed with the non-custodial parent;
  • the likelihood of the custodial parent fostering that relationship;
  • effect of the move on extended family relationships;
  • if the child is of an age to make a reasoned decision;
  • whether the child is entering senior year of high school;
  • whether the non-custodial parent has the ability to relocate;
  • any other factor bearing on the child’s best interest.

Analyzing these factors, the court ultimately found that relocation could not be achieved without significant detriment to the child and denied the application. The court seemed most concerned with the father’s previously significant involvement in parenting and the mother’s failure to present a plan which would enable the father to maintain that relationship. For example, her proffered parenting plan contemplated frequent Skype contact with the father, but did not set forth how the parties would travel back and forth to allow the father to exercise in-person parenting time or who would pay those travel expenses. 

Given the father’s significant involvement with the child’s caregiving up to the point of the removal application, I believe the outcome of this case is correct. However, this decision raises questions about the appropriate standard to analyze such cases under and whether the characterizations of custody in an MSA truly are determinative in such instances. For example, the MSA arguably afforded the father lesser physical custody rights than the mother, though in practice they shared physical custody following the divorce. Nonetheless, the court did not address whether the mother had showed a change in circumstances sufficient to warrant a change in custody. Perhaps this is so because the mother was unable to meet even the less stringent Baures standard. Nonetheless, parties negotiating custody in an MSA should pay close attention to the labels and designations set forth in the agreement and whether they will be carried out in practice. Undoubtedly, the terms of an MSA will play a significant role in any future applications as they relate to custody or removal.

​ Katherine A. Nunziata is an associate in the Family Law Practice Group of Riker Danzig Scherer Hyland & Perretti LLP and a contributor to the Riker Danzig Family Law Blog. Katherine’s interest in family law stems from a desire to help others while navigating a difficult process, and she brings a high level of compassion and zeal to her practice. Katherine is a resident in the Morristown, New Jersey office and can be reached at 973-451-8445 or knunziata@riker.com.

First state adopts divorce law regarding pets - will NJ follow?

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I recently read an interesting article in The Huffington Post  about changes to Alaska’s divorce laws, requiring judges to consider a pet’s well-being in allocating animals in a divorce. These amendments became effective last month, making Alaska the first and only state to impose such a requirement.

Any pet-owner who has gone through a divorce in New Jersey may have been shocked to learn that under the law, animals are treated no differently than other personal property. Deciding which spouse gets to keep the family pet is no different than determining who is keeping the wedding china or the living room sectional. Because of this, pets frequently become a significant and emotional issue in a divorce.

Alaska is now the only state to make a legal distinction between pets and other personal property. The amended law requires judges to take into consideration “the well-being of the animal” and also makes joint custody an option. Exactly how the judge will ascertain what is in the animal’s best interest remains unclear. It reminds me of a novel I once read, “Lawyer for the Dog” by Lee Robinson, a fictional writing about a lawyer who is appointed guardian ad litem for a miniature schnauzer, whose divorcing owners were bitterly feuding over his ownership. Whether the Alaska courts will need to go to such lengths to adjudicate the ownership of pets remains to be seen. It is likely that, at a minimum, the courts will need to hear testimony as to the animal’s well-being before making a decision.

As the article points out, judges across the country can already voluntarily take into account an animal’s well-being in determining ownership, but most states’ laws do not require them to do so. Alaska’s amendments may mark a changing trend toward mandating that such inquiries be made before awarding ownership of a family pet to one spouse over another. Until then, litigants should remember that the majority of divorces settle out of court, without a judge deciding these kinds of issues. Accordingly, parties can always negotiate their arrangement for family pets, and even craft an agreement which contemplates joint ownership. For now, however, if a court needs to decide these issues, New Jersey law remains unchanged.

​ Katherine A. Nunziata is an associate in the Family Law Practice Group of Riker Danzig Scherer Hyland & Perretti LLP and a contributor to the Riker Danzig Family Law Blog. Katherine’s interest in family law stems from a desire to help others while navigating a difficult process, and she brings a high level of compassion and zeal to her practice. Katherine is a resident in the Morristown, New Jersey office and can be reached at 973-451-8445 or knunziata@riker.com.

A Not-So Empty Nest and Child Support

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Many people presume that child support automatically terminates upon a child’s attainment of the age of majority. However, whether an ex-spouse is entitled to continue to receive child support past that time is not so black and white. The New Jersey law which addresses “emancipation” for purposes of terminating child support was recently amended and becomes effective February 1, 2017.

The obligation to pay child support terminates by operation of law (i.e., no court order is required) when the child marries, dies or enters military service. The obligation also automatically terminates when the child reaches the age of 19, unless:

  •          another age for the termination of child support (not to exceed the date the child turns 23) is specified in a court order;
  •          a written request seeking the continuation of child support is submitted to the court by a custodial parent prior to the child reaching the age of 19; or
  •          the child receiving support is in an out-of-home placement through the Division of Child Protection and Permanency.

            In making a written request to seek a continuation of child support past the age of 19, the custodial parent should specify a proposed termination date for child support and supply evidence demonstrating that:

  •          the child is still enrolled in high school or other secondary educational program;
  •          the child is a student in a post-secondary education program and is considered to be a full-time student by the school; or
  •          the child has a physical or mental disability, as determined by a federal or State government agency, that existed prior to the child reaching the age of 19 and requires continued child support.

In a recent opinion, a New Jersey appellate court grappled with the issue of continued dependency of adult children with alleged disabilities. Though the case implicated the then-current statutory law, it sheds light on how courts may continue to address this issue going forward.

In Turkheimer v. Burke, the custodial mother appealed the trial court’s order finding that the parties’ 19-year-old son was emancipated and terminating the father’s child support obligation. After conducting a hearing, the trial court found that the son had reached the age of majority, graduated from high school, and was enrolled in a course at community college, and that no evidence was presented showing that he was disabled and incapable of supporting himself. On appeal, the mother argued that the trial court did not take into consideration the fundamental dependent relationship between the child and his parents, that the son was disabled and that custody had not been relinquished which would allow the father to be relieved of his obligation.

The parties’ marital settlement agreement (MSA) contemplated child support to be paid by the father until emancipation, defined to include, among other events, completion of high school. The MSA stated that the child would be emancipated at the age of eighteen if he did not attend college. Moreover, the MSA provided that if the child attended college, emancipation would not occur until after the child completed four continuous academic years of college education with reasonable diligence, but in no event would support extend beyond the child’s attainment of 23 years of age, unless the delay in completion of education was caused by injury or illness of the child.

Only the parties testified at the hearing. Neither party submitted expert testimony and the son did not testify. Two exhibits were submitted into evidence: a list of stipulated facts and a high school grade report. At the time of the hearing in October 2014, the parties’ son lived at home, was unemployed and was enrolled in a single course at the local community college. The child graduated high school in June 2014, a year behind schedule, due to poor grades.

While in high school, psychologists and social workers reviewed the child and concluded that he suffered from emotional problems which affected his academic performance.  He was considered “multiple disabled.” As a result, the school district formulated an individualized education plan which contemplated weekly counseling. Aside from the counseling provided at school, the child received virtually no psychiatric care or psychological treatment for his issues and was never determined to be disabled by the Social Security Administration or other evaluator.

Following the hearing, the trial judge found that the mother had the burden to rebut the presumption of emancipation and failed to do so. Moreover, the trial judge found that the financial support provided by both parents, at that point, had become voluntary and that while it is common for parents to continue to support an adult child due to his or her “failure to launch,” an adult child who has completed his education and is without disabilities is considered emancipated under the law.

The appellate court affirmed the lower court’s ruling, finding that a child’s reaching the age of majority is prima facie, but not conclusive, proof of emancipation. Once the presumption is established, the burden of proof shifts to the custodial parent to rebut the presumption. One such way to do this, the court found, is to demonstrate a continued disability. However, the court held that the disability must interfere with the child’s ability to become independent in order to rebut the presumption. In this case, the appellate court noted that the mother had the opportunity to provide evidence from experts, but failed to do so. The court found that the school reports were not an adequate substitute for expert testimony, as they did not support the contention that the child suffered from a disability which prevented him from moving beyond his parent’s sphere of influence.

This opinion is helpful to parents who anticipate a need for support beyond the statutory time of termination.  First, expert testimony may be necessary to rebut the presumption that the child is emancipated. Second, proof of disability may be insufficient if it does not interfere with the child’s ability to become independent. Third, it is important to remember that the MSA can be negotiated with respect to each party’s child support obligation. As the trial judge highlighted, payments beyond the statutory framework are voluntary. Those extended, voluntary payments can be negotiated between the parties. Using the newly amended language of the statute as a guidepost, parties with children, especially those with known disabilities, can anticipate the need for greater support than that contemplated by the statute and negotiate it as part of the MSA, eliminating the need for judicial intervention. Those who must resort to seeking assistance from the court can use this opinion as guidance as to what a court may require before ordering additional child support on the grounds of disability.

 Katherine A. Nunziata is an associate in the Family Law Practice Group of Riker Danzig Scherer Hyland & Perretti LLP and a contributor to the Riker Danzig Family Law Blog. Katherine’s interest in family law stems from a desire to help others while navigating a difficult process, and she brings a high level of compassion and zeal to her practice. Katherine is a resident in the Morristown, New Jersey office and can be reached at 973-451-8445 or knunziata@riker.com.

Appellate Court Finds Responsible Party Cannot Rely Upon Previous NFA Letters for Current ISRA Compliance

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The New Jersey Appellate Court recently found that a responsible party cannot rely solely upon previously issued No Further Action (“NFA”) letters from the New Jersey Department of Environmental Protection (“NJDEP”) when complying with a new trigger under the Industrial Site Recovery Act (“ISRA”).  Drytech, Inc. v. New Jersey Department of Environmental Protection, Docket No.: A-5619-14T4 (App Div. Dec. 12, 2016).  The Court in Drytech explained that with the passage of the Site Remediation Reform Act (“SRRA”), a party, when complying with ISRA, is required to hire a Licensed Site Remediation Professional (“LSRP”) to exercise independent judgment and identify and obtain whatever data and other information the LSRP deems is necessary to support the issuance of a Response Action Outcome (“RAO”).

The plaintiff in Drytech owned and operated a manufacturing facility that triggered compliance with ISRA on four separate occasions, in 1998, 2001, 2002 and 2013.  With respect to the ISRA triggers in 1998, 2001 and 2002, Plaintiff identified and addressed contamination at its property and received NFA letters from the NJDEP stating that no further action was necessary and Plaintiff was in compliance with ISRA.  The NFA letters also contained a covenant by the NJDEP not to sue Plaintiff with respect to the remediation conducted.  The 2013 ISRA trigger, however, occurred after the implementation of the SRRA that now requires an entity subject to ISRA to hire an LSRP to issue an RAO for the site.  Plaintiff, not wanting to hire an LSRP, argued that it was not subject to SRRA because it could rely upon previous NFA letters for ISRA compliance since no new areas of concern were identified for the site.  On this basis, Plaintiff sought a “waiver” from the NJDEP of the SRRA requirements.

Prior to requesting the waiver, Plaintiff contacted several LSRPs and was advised by each that they could not issue an RAO without “completely re-investigating” the site, including the previous remediation work conducted in connection with the NFA letters, at a cost in excess of $12,000.  Plaintiff, concerned about the expense of a re-investigation and believing that the NFA letters resulted in compliance with ISRA and were binding on the LSRP, asked the NJDEP for a “waiver” of the requirement to retain an LSRP to issue an RAO for the site.  Because the NJDEP did not immediately respond to Plaintiff’s request, Plaintiff filed a declaratory judgment action seeking a court decision that a waiver was appropriate.   In turn, the NJDEP moved to dismiss Plaintiff’s complaint asserting that Plaintiff failed to state a claim. 

The trial court granted NJDEP’s motion finding that there was no authority for Plaintiff’s waiver request.  The trial court explained that the SRRA requires an assessment by an LSRP of Plaintiff’s property and “previous determinations under a prior law are not binding on an LSRP’s determination under new laws.”  Moreover, the court found that an LSRP is required to exercise independent professional judgment when issuing an RAO for a site, which includes assessing the data and information necessary to support the RAO.  Plaintiff appealed the trial court decision and the Appellate Court upheld the dismissal.  The Appellate Court explained that the SRRA required an LSRP to conduct a detailed review of the site and did not allow the NJDEP to waive this requirement based on prior compliance with ISRA.  Consistent with the trial court decision, the Appellate Court found that the SRRA imposes new obligations on Plaintiff with which Plaintiff must comply.  The Court also stated that the covenants not to sue in the NFA letters did not relieve Plaintiff of its obligations to comply with future laws and regulations.    

The Drytech decision clarifies that a responsible party cannot rely upon a previous NFA letter to provide current ISRA compliance.  It also confirms that an LSRP has an obligation to exercise professional judgment and determine what is necessary to support the issuance of an RAO.  Some may construe Drytech to impose additional obligations on a party that previously obtained closure for a site through an NFA letter.  But it is more reasonable to interpret Drytech for the simple proposition that in order to comply with ISRA for a new transfer of ownership or other trigger, a responsible party must hire an LSRP to conduct a thorough investigation of a site, including a review of prior NFA letters, before issuing an RAO. 

For more information, please contact the author Laurie Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

Maryland Federal Court Dismisses Plaintiff’s Complaint with Prejudice on Res Judicata Grounds Due to a Previously Filed Foreclosure Action

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The United States District Court for the District of Maryland recently granted defendants’ motion to dismiss plaintiff’s complaint with prejudice, holding that a previously filed foreclosure action precluded the present action on res judicata grounds.  See Gunter v. Agents for Int’l Monetary Fund Internal Revenue Service, 2017 WL 219374 (D. Md. Jan. 19, 2017).  In the case, plaintiff obtained a mortgage loan secured by her principal residence and a Deed of Trust on the property in favor of the lender.  After plaintiff defaulted on the loan, the loan servicer brought a foreclosure action.  While that action was pending, plaintiff filed this suit against numerous defendants, alleging, among other things, violations of the Truth in Lending Act, the Home Ownership and Equity Protection Act, and the Real Estate Settlement Procedures Act.  Defendants moved to dismiss this action, arguing that plaintiff’s claims, to the extent they challenge the foreclosure action or the loan servicer’s standing to foreclose or status as a holder of the note, must fail under the doctrine of res judicata.  Under Maryland law, res judicata provides grounds for dismissal if a defendant establishes that (1) the present parties are the same or in privity with the parties to the earlier dispute, (2) the claim presented is identical to the one determined in the prior adjudication or that could have been brought in the prior action, and (3) there has been a final judgment on the merits.  The Court determined that defendants met all three factors, and plaintiff, in failing to oppose defendants’ motion, does not argue otherwise.  First, the court was satisfied that this action was between the same parties or their privies as the foreclosure action.  Second, Maryland courts apply the transaction test to determine whether claims are identical, and the court found that the foreclosure action and the present case relate to the same transaction or occurrence: the note and Deed of Trust on the property and the foreclosure action that resulted when plaintiff failed to make payments.  Therefore, all of plaintiff’s claims could have been raised in the foreclosure action.  Lastly, there was a final judgment on the merits in the foreclosure action.  Plaintiff field a Notice of Appeal, which the Court of Appeals dismissed.  Accordingly, all three elements of res judicata were met, and the claims pending in the present action, “which seek damages for the same allegedly illegal conduct regarding the foreclosure sale of the Property, are precluded[.]”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York Supreme Court Vacates Confession of Judgment Based on a Criminally Usurious Contract

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The Supreme Court of New York, Westchester County, recently granted defendant’s motion to vacate a confession of judgment entered against it, voiding the underlying written merchant agreement, and cancelling and enjoining prosecution of the agreement on the ground that the transaction was usurious. See Merchant Funding Services, LLC v. Volunteer Pharmacy Inc., 44 N.Y.S.3d 876 (Sup. Ct. 2016).  In the case, plaintiff filed an affidavit of nonpayment with the County Clerk in support of the entry of a confession of judgment against defendant.  The affidavit of nonpayment stated, in relevant part, that defendant entered into a secured merchant agreement pursuant to which “[plaintiff] agreed to buy all rights of the Defendant[’s] future accounts receivable, having a face value of $74,750.00.  The purchase price for these receivables was $50,000.00.”  Defendant moved to vacate pursuant to CPLR §5015 on the ground that the underlying Merchant Agreement constituted a usurious loan, cloaked as a purchase of defendant’s receivable, and that enforcement of a judgment based on a usurious contract is improper and against public policy.  CPLR 5015(a)(3) provides that the court may vacate a judgment on grounds of “fraud, misrepresentation, or other misconduct of an adverse party.”  Specifically, defendant argued that the Merchant Agreement is criminally usurious and void ab initio as a matter of law because it contemplates payment by the corporate defendant of interest at a rate of 167%, well above the legal rate for a corporation pursuant to Penal Law §190.40.  Plaintiff argued that the Agreement is not usurious because it memorialized a purchase and sale of future accounts receivable rather than a loan.

In granting defendant’s motion, the Court held: “upon review of the documents and consideration of the parties’ respective arguments, the Court comes to the inevitable conclusion that the real purpose of the Agreement was for plaintiff to lend money to defendants at the usurious interest rate set forth therein, and that defendant agreed to borrow the money based on the same usurious terms dictated by plaintiff. . . . Denominating a loan document by another name, as in this case, by calling it a Merchant Agreement, and including in it verbiage of [plaintiff’s] purported purchase of accounts receivable that is unsupported by actual [defendant] receivables dedicated to repayment, does not shield it from the judicial determination that it contemplates a criminally usurious transaction, which is void ab initio as a matter of law.”  Among other things, the Court referenced the fact that the Merchant Agreement had guarantors and that there were no provisions for the forgiveness of the advanced money if plaintiff was unable to collect, both of which indicated that the transaction was a loan.  The court also rejected plaintiff’s argument that defendant’s motion is procedurally defective because defendant did not proceed by way of a plenary action, holding that a plenary action is not necessary in cases where criminal usury is clear from the submissions attendant to a motion under CPLR §5015(a)(3).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York Supreme Court Dismisses Claim Against Bank for Withdrawing Deposits from Allegedly Forged Checks

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The Supreme Court of New York, New York County, recently granted defendant bank’s motion to dismiss a claim that it wrongfully withdrew plaintiff’s funds from his account after another defendant falsely claimed his checks were forged.  See Galitsa v. Berkley, 2016 N.Y Slip Opp. 32468(U) (N.Y. Sup. Ct. 2016).  In the complaint, plaintiff alleged that he received eight checks from the individual defendant and deposited the checks into his bank account at defendant bank.  After he deposited the checks, the individual defendant contacted the defendant bank and claimed that plaintiff forged his name on the checks.  In response, the bank withdrew the sum of $24,451.65 from plaintiff’s bank account and returned the money to the individual defendant.  The individual defendant then filed a formal complaint against plaintiff, resulting in plaintiff being indicted for various counts of Grand Larceny and incarcerated for approximately five months.  During the course of the criminal proceeding, plaintiff arranged for his handwriting samples to be analyzed by experts employed by the New York City Police Department.  The results concluded that plaintiff likely did not forge the checks, and the charges against plaintiff were dismissed.  Plaintiff then brought this action against the bank and the individual defendant.  Plaintiff alleged that the bank “wrongfully withdrew the sum of $24,451.65 from plaintiff’s [] accounts based on nothing but accusations made by defendant[.]”

The bank then filed a motion to dismiss, arguing that the Deposit Account Agreements, which plaintiff agreed to be bound by when he signed the Signature Card that referred to them, permit the bank to reverse payments to a customer’s account when a forgery is suspected.  The Agreements further discharge the bank from any liability for such actions, which plaintiff argued violated public policy.  The Court disagreed with plaintiff’s contention, holding that contractual provisions that exculpate parties from ordinary negligence are enforceable.  The Court further rejected plaintiff’s argument that the Signature Card violates the provisions of CPLR §4544, which provides that “[t]he portion of any printed contract or agreement involving a consumer transaction […] where the print is not clear and legible or less than eight points in depth […] may not be received in evidence[,]” because the agreements opening plaintiff’s accounts do not involve “consumer transactions” within the meaning of CPLR §4544; and further, in any event, the pertinent language the bank relies upon for its defense is contained in the Deposit Account Agreements, not the Signature Card.  The Court found that all of plaintiff’s remaining arguments lacked merit.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York District Court Affirms Plaintiff’s Standing to Bring Suit Under the FDCPA, Denies Defendant Debt Collector’s Motion to Dismiss

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The United States District Court for the Eastern District of New York recently denied a defendant debt collector’s motion to dismiss plaintiff’s putative class action alleging violation of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”), finding that plaintiff sufficiently alleged a substantive violation of the FDCPA that demonstrates a concrete and particularized injury-in-fact, or, alternatively, a procedural violation of the FDCPA that poses a risk of real harm to plaintiff’s statutory interests.  See Bautz v. ARS Nat’l Servs., Inc., 2016 WL 7422301 (E.D.N.Y. 2016).  Plaintiff’s claim was based on a letter that defendant mailed to plaintiff in an attempt to collect on a credit card debt.  The letter stated that plaintiff had an outstanding debt and offered to settle the debt for a reduced amount, but added that defendant “will report forgiveness of debt as required by IRS regulations.”  Plaintiff alleged that the language in the Letter is deceptive and misleading.  Plaintiff argued that the latter statement “could reasonably be understood by the least sophisticated consumer to mean that IRS regulations require that [defendant] report all forgiveness of debt” and that it “suggests to the least sophisticated consumer that failure to pay will get the customer in trouble with the IRS[.]”  While defendant’s motion to dismiss was pending, the Second Circuit issued, and defendant relied on, Strubel v. Comenity Bank, 842 F.2d 181 (2d Cir. 2016) (finding plaintiff had standing to assert some of her Truth in Lending Act claims pursuant to the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016)).

In denying defendant’s motion to dismiss, the District Court determined that Spokeo and Strubel addressed standing for procedural violation of statutes, not substantive violations.  It further found that adequately alleging a “false, deceptive, or misleading representation” that is materially misleading to the least sophisticated consumer was a substantive violation, which satisfies the concrete injury component of Article III.  With regard to particularity, the Court found that the letter affected plaintiff “in a personal and individual way, and her suit is not a vehicle for the vindication of the value interests of concerned bystanders or the public at large.”  Finally, assuming arguendo that the language in the Letter constitutes a procedural violation of the FDCPA, the Court held that plaintiff still had standing because plaintiff “demonstrate[d] a sufficient ‘risk of real harm’ to the underlying interest to establish concrete injury without ‘need [to] allege any additional harm beyond the one Congress has identified.’”  Specifically, plaintiff’s claims paralleled the TILA claims in Strubel for which the Second Circuit found standing because the requirement that debt collectors “may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt” is a “core object of the [FDCPA]” whose purpose is to eliminate abusive debt collection practices by debt collectors.  Therefore, plaintiff satisfied the injury-in-fact requirement of Article III.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

California Court of Appeals Affirms Dismissal of Borrower’s Complaint For Lack of Standing To Challenge Alleged Irregularities in the Securitization of Her Loan

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The Court of Appeal of California, Third Appellate District, recently affirmed the lower court’s ruling that plaintiff borrower lacked standing to challenge the alleged irregularities in the securitization of her loan, thereby dismissing her complaint alleging wrongful foreclosure, declaratory relief and quiet title.  See Mendoza v. JPMorgan Chase Bank, N.A., 2016 WL 7217199 (Cal. App. 3d Dist. 2016).  Plaintiff borrowed a loan from defendant, secured by a deed of trust.  The lender subsequently assigned the deed of trust and substituted a trustee for the deed of trust.  This assignment of the deed of trust and substitution of the trustee are what plaintiff sought to challenge in this action.  Plaintiff admitted that she is in default, but alleged that “the bank defendants are attempting to take advantage of the complex structured finance system to defraud yet another homeowner.”  On appeal, plaintiff relied on the California Supreme Court’s “narrow ruling on a borrower’s standing to challenge the validity of the chain of assignments involved in the securitization of her loans” in Yvanova v. New Century Mortgage Corp., 199 Cal. Rptr. 3d 66 (2016) and argued that her allegation that the assignment is void is sufficient to survive a demurrer.  However, the Court of Appeal determined that the Yanova court did not consider the precise question presented in the instant appeal: whether either the assignments of plaintiff’s deed of trust to the investment trust after the trust’s closing date or the alleged “robo-signing” of the documents rendered the assignment void, not merely voidable.  The Court of Appeal held that while none of the cases plaintiff cited discussed the “critical issue we face, whether an untimely assignment into a securitization trust is void or voidable,” the overwhelming majority of New York (applicable to this case because the deed of trust to the foreclosing party was transferred into a New York securitized trust), California and federal courts provides that defects in the securitization of loans can be ratified by the beneficiaries of the trusts and, as a result, the assignments are voidable.  Accordingly, a borrower does not have standing to challenge an assignment that allegedly breaches a term or terms of a pooling and service agreement because the beneficiaries, not the borrower, have the right to ratify the trustee’s unauthorized acts.  As such, an assignment after the publicized closing date is voidable, not void.  The Court of Appeal also rejected plaintiff’s alternative argument that beneficiaries of the trusts could not ratify a trustee’s late acceptance of mortgages because it would threaten the viability of the trust and held that, like the several federal courts that have rejected such an argument, “we do not believe that losing favorable tax treatment renders a transaction void as a matter of law.”  Finally, the Court of Appeal found plaintiff’s remaining causes of action for declaratory relief and quiet title to be fatally deficient on their face.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

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