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New Jersey Appellate Division Reverses Summary Judgment Decision Regarding the Termination of a Cross-Easement by Estoppel Banner Image

New Jersey Appellate Division Reverses Summary Judgment Decision Regarding the Termination of a Cross-Easement by Estoppel

Month: October 2017

New Jersey Appellate Division Reverses Summary Judgment Decision Regarding the Termination of a Cross-Easement by Estoppel

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The New Jersey Appellate Division recently reversed a lower court’s decision granting summary judgment to defendant and instead held that there were issues of fact regarding whether the easement between plaintiff’s and defendant’s neighboring properties was terminated by estoppel.  See 1701 E. Main, LLC v. Wawa, Inc., 2017 WL 4531772 (N.J. Super. Ct. App. Div. Oct. 11, 2017).  In the case, plaintiff’s predecessor-in-interest owned property on which it operated a gas station, and which was bordered on two sides by defendant’s property on which defendant operated a convenience store.  In 1972, the parties entered a written agreement through which they “both agree[d] to keep the adjoining perimeter of [their] premises free from obstructions in order to permit each other’s customers ingress and egress across said property lines from the two business operations.”  This agreement was never recorded.

In 2001, defendant began negotiations to purchase plaintiff’s predecessor’s property, but they could not agree to terms.  Defendant then advised plaintiff’s predecessor that it remained interested in purchasing the property, but would build gas pumps on its own property if an agreement could not be reached.  The parties never reached an agreement and, as part of defendant’s construction, it built curbs along the parties’ boundary.  Two years later, the predecessor’s principal died and plaintiff took title to the property.  Around 2012, plaintiff’s principal visited the property and discovered the curbs, which prompted the lawsuit.  Defendant argued that plaintiff and/or its predecessor had known about the curbs since their construction and had not objected and, therefore, the easement was terminated by estoppel.  The trial court agreed and granted defendant summary judgment.

On appeal, the Appellate Division reversed.  First, it held that “a servitude will be deemed modified or terminated when the party possessing the servitude’s benefit not only ‘communicates . . . by conduct, words, or silence, an intention to modify or terminate the servitude,’ but also communicates ‘under circumstances in which it is reasonable to foresee that the burdened party will substantially change position on the basis of that communication, and the burdened party does substantially and detrimentally change position in reasonable reliance on that communication.’”  Nonetheless, it found that the question of whether plaintiff’s or its predecessor’s silence conveyed an intention to modify or terminate the easement was a fact-sensitive question to be determined at trial.  Second, the Court found that there was no evidence that either plaintiff’s principal or its predecessor’s principal visited the property or were aware of the curbs until 2012.  Accordingly, the trial court’s decision was reversed.

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

Nevada Federal Court Reverses Bankruptcy Court and Holds Title Insurance Company May Bring Bankruptcy Claim

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The United States District Court for Nevada recently reversed a bankruptcy court’s decision and held that a title insurance company’s bankruptcy claim was not barred by the doctrine of claim preclusion because, among other reasons, it was not a party to the underlying state court action.  See Commonwealth Land Title Ins. Co. v. Creditor Grp., 2017 WL 4683968 (D. Nev. Oct. 17, 2017).  In the case, two individuals (the “Owners”) formed two companies (the “Companies”) to purchase and develop property.  In 2005, one of the Companies obtained a $29 million loan that was secured by a deed of trust on the property.  Later that same year, the Owners signed a promissory note in favor of one of the Companies that was secured by a second-position deed of trust. Two years later, the Owners sought a new loan for the Companies and, in order to convince the bank to lend the money, allegedly made several representations that they would subordinate or reconvey their second-position deed of trust to the lender’s new deed of trust.  The lender then approved the loan and the title insurance company issued a title insurance policy to the lender insuring its alleged first-position lien on the property.  Nonetheless, the Companies did not reconvey their 2005 deed of trust and it remained in the first position.  In 2009, the lender sued the Companies regarding this priority issue, however, the FDIC placed it in receivership soon thereafter and its successor-in-interest continued the lawsuit.  The successor lost on most of the claims because the court found that it could not prove it was assigned the note and deed of trust at issue, and the successor then voluntarily dismissed its misrepresentation claims without prejudice.

During this same period, the Companies declared bankruptcy.  The title insurance company filed a claim based on the alleged misrepresentations regarding priority.  The bankruptcy court, however, held that the title insurance company is in privity with the successor and that the doctrine of claim preclusion barred the title insurance company’s claim because of the adverse state court decision.  On appeal, the District Court reversed.  First, it held that the title insurance company and successor are not in privity.  Although the title insurance policy provides the title insurance company the right establish title or prevent damage to the insured, “it does not give Commonwealth the right to join its own misrepresentation claims against [the Companies or the Owners].”  The fact that the title insurance company paid for the successor’s counsel in the state court action does not change this determination.  Second, the Court held that the state court did not make any final determination as to the misrepresentation or negligence claims, which were voluntarily dismissed.  Although the state court dismissed some of the successor’s claims, that decision was based on standing and there was no final judgment on the misrepresentation or negligence claims.  Finally, the Court held that the title insurance company’s misrepresentation claim could proceed under an indirect reliance theory even though the alleged misrepresentation was made to the lender and not the title insurance company.

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

New York Federal Court Grants Servicer’s Motion to Dismiss RESPA Claims

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The United States District Court for the Eastern District of New York recently granted a defendant loan servicer’s motion to dismiss a Real Estate Settlement Procedures Act (“RESPA”) claim, holding that plaintiff’s alleged injuries were not proximately caused by defendant.  See Galli v. Astoria Bank, 2017 WL 4325824 (E.D.N.Y. Sept. 27, 2017).  In the case, plaintiff defaulted on his loan with defendant and defendant foreclosed on the property and scheduled a foreclosure sale.  According to plaintiff’s complaint, plaintiff then submitted a complete loss mitigation application two months before the scheduled foreclosure sale and, despite making assurances to the contrary, defendant did not adjourn the sale or respond to the application.  On the day of the sale, plaintiff filed for emergency bankruptcy protection.  Three months later, plaintiff brought this action under RESPA.  Among his other claims, plaintiff alleged that defendant violated 12 CFR 1024.41 by not responding to the loss mitigation package and by proceeding with the sale while the loss mitigation application was pending.  Defendant moved to dismiss the action.

The Court granted defendant’s motion to dismiss.  The Court first found that plaintiff had standing to bring these claims.  Although defendant argued that plaintiff’s harm was “self-inflicted,” the Court held that defendant’s alleged failure to respond to a timely mitigation application resulted in actual damages in the form of plaintiff’s bankruptcy-related fees.  Nonetheless, the Court found that defendant’s actions were not the proximate cause of plaintiff’s damages.  Plaintiff admitted in his papers that he would have filed for bankruptcy if defendant had denied his loss mitigation application.  “By extension, Plaintiff’s loss mitigation application would only have helped him avoid filing for bankruptcy if Defendant had provided him with a specific loss mitigation option, which it was not obligated to provide pursuant to 12 C.F.R. § 1024.41(a). Therefore, the causal nexus to Plaintiff’s actual damages is premised upon being provided with a specific loss mitigation option, and not any alleged violations of Section 1024.41.”  Accordingly, the Court dismissed the complaint with prejudice.

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

New York’s DFS Issues New Regulations Affecting Title Insurance Marketing Practices and Affiliated Entities

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New York’s Department of Financial Services (“DFS”) recently issued two regulations regarding title insurance “marketing costs” and affiliated entities that will affect the way title insurance underwriters and agents generate referrals and do business.

Regulation 206

The first regulation issued by the DFS—effective as of October 18, 2017—is entitled “Title Insurance: Title Insurance Agents, Affiliated Relationships, and Required Disclosures.” Its prohibitions are modeled after those found in the Real Estate Settlement Procedures Act (“RESPA”) and the Department of Housing and Urban Development’s 1996 Policy Statement on Sham Controlled Business Arrangements. This regulation primarily affects "affiliated persons," which include “an applicant for insurance or a person who acts as an agent, representative, attorney, or employee of the owner, lessee, or mortgagee, or of the prospective owner, lessee, or mortgagee of real property or any interest therein, or the applicant’s or other person’s spouse, when the person or spouse directly or indirectly” owns, controls or is under common control with or controlled by a title insurance underwriter or agent.

The regulation prohibits title insurance underwriters and agents from paying any compensation, directly or indirectly, for the referral of title insurance business. It further specifies that title insurance underwriters and agents are barred from compensating title insurance applicants, or anyone acting on their behalf, that refer business to the underwriter or agent. However, it carves out exceptions for payments made for bona fide services rendered and/or any return on investment for one who has an ownership interest in the title insurance underwriter or agent. The regulation also requires that title insurance underwriters and agents that accept business from affiliated persons function separately and independently from the affiliated person (including having its own employees), engage in all or substantially all core title services with respect to the referred business, and make a good faith effort to obtain business from sources other than the affiliated persons. In short, the regulation requires that these affiliated persons are legitimate businesses and not just sham corporations created to circumvent kickback prohibitions.

The regulation further provides that any referral from an affiliated person must include a written disclosure that sets forth, among other things, the affiliated person’s financial interest in the transaction and that the applicant has the right to use other title insurance underwriters or agents. Finally, the rule excepts title insurance agents that represent applicants in another capacity—such as attorneys—from these disclosure requirements so long as they still advise the applicant, in writing, that the applicant is not required to use the person as a title insurance agent.

Regulation 208

The second regulation is entitled “Title Insurance Rates, Expenses and Charges” and will take effect December 18, 2017. According to the DFS, “millions of dollars are spent by title insurance corporations and title insurance agents on inducements . . . provided to attorneys and other real estate professionals who order title insurance on behalf of their clients, in the guise of meals, entertainments, gifts, vacations, free CLE classes to select individuals, and the like, in exchange for the attorney or other professional referring title insurance business to that title insurance corporation or title insurance agent.” The DFS further found that these expenses “are then included in the calculation of the rates, resulting in consumers paying higher, excessive rates.” As a result, the regulation makes two prohibitions. First, it states that no title insurance underwriter, title insurance agent, or any other person acting for or on behalf of them, including any employee or independent contractor thereof (collectively, the “Prohibited Parties”) shall “offer or make any rebate, directly or indirectly, or pay or give any consideration or valuable thing, to any person or entity as an inducement for any title insurance business, including future title insurance business, and maintaining existing title insurance business, regardless of whether provided as a quid pro quo for specific business.” Second, the regulation states that Prohibited Parties shall not:

[P]rovide or offer to provide to any person, firm or corporation acting as an agent, representative, attorney or employee of the actual or prospective owner, lessee, mortgagee of the real property or any interest therein any payment, expense, compensation or benefit associated with the following:

(1) Meals and beverages unless otherwise authorized under sub-division (c) of this section;
(2) entertainment, including tickets to sporting events, concerts, shows or artistic performances;

(3) gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value;

(4) outings, including vacations, holidays, golf, ski, fishing, and other sport outings, gambling trips, shopping trips, or trips to recreational areas, including country clubs; [or]
(5) parties, including cocktail parties and holiday parties, open houses[.]

The regulation further proscribes Prohibited Parties from paying certain business expenses on behalf of others. This regulation nonetheless makes an exception—found in the aforementioned sub-division (c)—for reasonable and customary amounts paid for advertising and marketing, “[p]romotional or marketing events including complementary food and beverages that are open to and attended by the general public,” “[c]ontinuing legal education events including complementary food and beverages that are open to any member of the legal profession,” and “[c]omplementary attendance offered by a title insurance corporation, title insurance agent as a host of a marketing or promotional event, including food and beverages available to all attendees so long as (a) title insurance business is discussed for a substantial portion of the event including a presentation of title insurance products and services, (b) such events are not offered on a regular basis or as a regular occurrence, and (c) at least twenty-five diverse individuals from different organizations not affiliated with the host attend or were, in good faith, invited to attend in person[.]” These expenses must not be “lavish or excessive.”  In that vein, title insurance underwriters and agents must report “all expenditures made for meals and beverages, entertainment, gifts, outings, parties, sponsorships, seminars and continuing education, charitable contributions, and political contributions as separate line items in supplemental expense schedules to the expense schedules submitted annually to the department’s statistical agent.”

Finally, this regulation sets caps on fees that title insurance underwriters and agents can charge consumers for residential closings. Specifically, Section 228.5 of the regulation states that these fees are limited to:

(1) For a Patriot search, 200% of the out-of-pocket cost paid for the search. A title insurance corporation or title insurance agent shall not charge a flat fee for a specified number of names searched. If no out-of-pocket cost is paid for the search, then the charge to the applicant shall be no more than 200% of the fair market value of the search as charged by a non-affiliated third party. If an affiliated third party conducts the search, then the search shall not be billed at more than 200% of the lesser of the amount charged by the affiliated third party and the fair market value of the search as charged by a non-affiliated third party;
(2) For a bankruptcy search, 200% of the out-of-pocket cost paid for the search. A title insurance corporation or title insurance agent shall not charge a flat fee for a specified number of names searched. If no out-of-pocket cost is paid for the search, then the charge shall be no more than 200% of the fair market value of the search as charged by a non-affiliated third party. If an affiliated third party conducts the search, then the search shall not be billed at more than 200% of the lesser of the amount charged by the affiliated third party and the fair market value of the search as charged by a non-affiliated third party;
(3) Except as provided in paragraph (4) of this subdivision, for a municipal or departmental search, or any other search that is not included in the premium of the title insurance policy issued, 200% of the out-of-pocket cost. If no out-of-pocket cost is paid for the search, then the charge shall be no more than 200% of the fair market value of the search as charged by a non-affiliated third party in that county. If an affiliated third party conducts the search, then the search shall not be billed at more than 200% of the lesser of the amount charged by the affiliated third party and the fair market value of the search as charged by a non-affiliated third party in that county; (4) For a municipal or departmental search that is conducted and billed by a municipality, 100% of the fair market value of the search as charged by a non-affiliated third party in that county plus the charge by the municipality; (5) For a recording fee or charge, $25 per document plus the out-of-pocket cost charged by the county clerk, county register, or other governmental office; (6) For a survey inspection, $75 plus the out-of-pocket costs charged by the survey inspector. The cost of a survey shall be billed as a pass through; (7) For overnight mail charges, the out-of-pocket cost; and (8) For escrow services, $50 per escrow.

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

New Jersey Federal Court Denies Servicer’s Motion to Dismiss RESPA Claims

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The United States District Court for the District of New Jersey recently denied a defendant loan servicer’s motion to dismiss a Real Estate Settlement Procedures Act (“RESPA”) claim, holding that plaintiff borrowers had adequately pled that defendant had failed to respond to their qualified written request (“QWR”) under RESPA.  See Herrera v. Cent. Loan Admin. & Reporting, 2017 WL 4548268 (D.N.J. Oct. 12, 2017).  In the case, plaintiffs defaulted on their loan and, before the foreclosure sale, sent multiple requests to defendant in order to obtain their servicing files, but without success.  They also submitted loss mitigation paperwork but defendant denied their application.  In September 2016, the day after the foreclosure sale, plaintiffs sent defendant a request for information on why defendant denied their mitigation application, but defendant did not respond.  Six months later, plaintiffs sent a Notice of Error to defendant.  Defendant responded by admitting it had not responded to the September 2016 letter but claiming that it previously had responded to plaintiffs’ inquiries.  Plaintiffs then commenced this action seeking to compel defendant to comply with its RESPA obligations.  Defendant filed a motion to dismiss, arguing: (i) the September 2016 letter was not a QWR requiring a response; (ii) it previously sent most of the information requested in the QWR; and (iii) plaintiffs did not allege either actual damages or a pattern or practice of noncompliance by defendant, which is required under RESPA.  The Court denied the motion to dismiss.

First, the Court held that the September 2016 letter was a QWR under RESPA.  RESPA defines a QWR as “written correspondence . . . that includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.”  12 U.S.C. 2605(e)(1)(B)(ii).  Although defendant argued that plaintiffs did not set forth any reason to believe their account was in error, the Court held that simply seeking their mitigation files “provides sufficient detail to the servicer regarding other information sought by the borrower.”  Second, the Court held that defendant’s claim that it sent “most” of the information requested by plaintiffs in prior responses did not meet RESPA’s standards because it indicated that some requested information was omitted.  Finally, the Court found that plaintiffs’ allegations indicated that they sent a series of requests to defendant that were not timely or completely answered, which was sufficient to allege a pattern or practice of noncompliance.

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

NJDEP Revises Soil Remediation Standards Applicable to Historic Fill and Other Common Contaminants

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On September 18th, the New Jersey Department of Environmental Protection (“NJDEP”) revised its soil remediation standards for eighteen contaminants in response to new toxicology studies by the U.S. Environmental Protection Agency.  The revised standards became effective immediately; however, completed or nearly completed cleanups may be exempt from complying with certain of the new, more stringent standards in particular situations.  Numeric standards for eleven constituents have increased and now are more lenient, and the standard for one constituent, thallium, was deleted entirely.  Conversely, six other constituents now have more stringent standards.  Parties responsible for ongoing cleanups should consider whether these new standards change the scope of their investigation or remediation.  Parties responsible for completed cleanups also should consider whether a more stringent standard requires further action or whether a more lenient standard permits early termination of ongoing obligations associated with their cleanup.  Properties containing historic fill material or that have been the site of operations utilizing solvents, such as dry cleaners, metal manufacturers and parts degreasers, are among the most likely to be affected by the new standards.

NJDEP established more lenient standards for seven different polycyclic aromatic hydrocarbons (“PAHs”), which are common contaminants and often are found in contaminated historic fill material throughout the state.  The strict soil remediation standards for PAHs triggered significant remediation obligations at many of these historic fill sites, even though those sites themselves had not been subject to intensive industrial use.  The typical remediation approach is placing a cap of clean soil, asphalt, or some other barrier on top of the historic fill and recording a deed notice notifying potential buyers that the site is contaminated.  Notably, a party responsible for maintaining a historic fill cap that is no longer necessary under the new standards can obtain relief from the long-term remedial action permit compliance obligations and associated costs, including the requirement to post financial assurance, pay annual fees, conduct biennial certifications and monitor and maintain the cap itself.  Similarly, owners of property with a deed notice for historic fill can remove the deed notice, after obtaining NJDEP’s permission, if their property complies with the new, more lenient standards for PAHs. 

The soil remediation standards for tetrachloroethene (“PCE”), historically used by dry cleaners, metal manufacturers, and parts degreasers, increased substantially.  However, in practice, this change may have a less significant impact on responsible parties’ remediation costs than the change in the PAH standards, as the extent of remediation of PCE-contaminated soil often is driven by the impact to groundwater standard developed for each particular site, which can be stricter than both the old and new soil remediation standards for PCE. Nevertheless, the new standard for PCE will reduce the burden of soil remediation in situations where the impact to groundwater standard does not apply or where site-specific factors cause the impact to groundwater standard to exceed the new PCE soil remediation standard.

Parties responsible for property impacted by the six constituents subject to more stringent soil remediation standards have the less enviable task of determining the increased cost of these new obligations.  The six constituents with more stringent standards are 1,1’-biphenyl; cyanide; hexachloroethane; nitrobenzene; pentachlorophenol; and trichloroethene (“TCE”).  TCE, formerly a commonly used solvent, is the most prevalent of these constituents.  As with PCE, however, the extent of remediation of TCE often depends on the still unchanged and generally more stringent impact to groundwater standard, so the practical impact of the more restrictive soil remediation standards for TCE may not be significant. 

For sites undergoing investigation or remediation where one of these six constituents is present, the scope of the investigation or remediation may expand.  However, sites where hexachloroethane, nitrobenzene (residential sites only), pentachlorophenol, and TCE are present may take advantage of a “phase-in period” which excuses the responsible party from the new, stricter requirements.  Where the remediation standard decreased by less than an order of magnitude, i.e., a factor of ten, which is the case for the contaminants listed above, the party responsible can avail itself of the old, more lenient remediation standard if it submits its remedial action report or remedial action workplan to NJDEP before March 18, 2018.

Remediated sites that are subject to either a no further action letter (“NFA”) from NJDEP or a response action outcome (“RAO”) from a Licensed Site Remediation Professional can be reopened and subject to further clean up, but only where the new remediation standard differs from the previous standard by more than an order of magnitude.  The soil remediation standards for 1,1’-biphenyl, cyanide, and nitrobenzene (non-residential sites only) decreased by more than an order of magnitude.  Property owners or parties otherwise responsible for sites with an NFA or RAO for these constituents should seek advice regarding the need for further remediation, as the failure to do so could lead to penalties from NJDEP or difficult questions from prospective purchasers performing due diligence if the property is offered for sale. 

Whether an environmental investigation recently has begun or a remediation has been completed for many years, parties responsible for property with historic fill or property impacted by the other constituents mentioned in this article should consider the impact of the new soil remediation standards on their obligations under New Jersey law.

For more information, please contact the author Michael Kettler at mkettler@riker.com or any attorney in our Environmental Practice Group.

Georgia Federal Court Dismisses Some of the CFPB’s Claims for Willful Discovery Violations

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The United State District Court for the Northern District of Georgia recently dismissed some of the Consumer Financial Protection Bureau’s (“CFPB”) claims against debt collectors because of the CFPB’s willful violations of the Court’s discovery orders.  See Consumer Fin. Prot. Bureau v. Universal Debt Sols., LLC, 2017 WL 3887187 (N.D. Ga. Aug. 25, 2017).  The CFPB brought an action against a number of debt collectors for a “massive debt-collection scheme” through which the defendants “allegedly used the telephone broadcast services of [one defendant] to broadcast millions of threatening and false statements to consumers in telephone calls and messages.”  During the action, the defendants served the CFPB with Rule 30(b)(6) deposition notices.  The CFPB moved for a protective order, but the Court ordered the depositions to proceed.  After the first deposition, the defendants scheduled a call with the Court to discuss their objections with the CFPB’s non-responsive answers and privilege objections during the deposition, and the Court ordered the CFPB to provide more responsive answers in the remaining depositions.  After the CFPB engaged in similar conduct in the remaining depositions, the defendants moved to strike portions of the CFPB’s pleadings as a sanction.  The Court granted the motions.

First, the Court found that the CFPB’s witnesses used “memory aids” during their depositions, which essentially were scripts from which the witnesses read prepared responses that sometimes exceeded forty minutes.  Second, the witnesses were not prepared to respond to any follow-up questions.  Specifically, the witnesses testified that they had not found a single piece of exculpatory evidence for any of the defendants during their investigation.  “Surely, in the mass of evidence in this case, the CFPB could find some exculpatory evidence. Its insistence that it could not reflects an unwillingness to comply with the Court’s instructions and a bad faith attempt to frustrate the purpose of Defendants’ depositions.” (Emphasis in original).  Finally, the Court found that the CFPB refused to answer questions regarding the factual bases of its claims based on a claim of work product despite the fact that the Court had expressly ordered the CFPB to answer these questions during its conference call.  “That blatant disregard for the Court’s instruction is reflective of a larger problem. . . . [and] demonstrate[s] a willful disregard of the Court’s instructions.”  The Court then held that reopening the depositions would not be fruitful and dismissed the relevant counts of the CFPB’s complaint.

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

New York Federal Court Holds Pre-Foreclosure Notice Is Not Subject to FDCPA

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The United States District Court for the Eastern District of New York recently held that a mortgagee’s pre-foreclosure notice to a homeowner did not violate the Fair Debt Collection Practices Act (“FDCPA”) because it was not an attempt to collect a debt.  See Carbone v. Caliber Home Loans, Inc., 2017 WL 4157265 (E.D.N.Y. Sept. 19, 2017).  In the case, plaintiff and her husband fell behind on their mortgage payments and defendant mortgagee sent them a pre-foreclosure notice as required under New York law.  The notice stated, among other things, that “[t]his is an attempt by a debt collector to collect a debt and any information obtained will be used for that purpose.”  Plaintiff filed a complaint against defendant, claiming that the letter violated the FDCPA because it did not provide the requisite notices allowing plaintiff to validate the debt.  Defendant filed a motion to dismiss, arguing that plaintiff was not a consumer under the FDCPA because she did not meet the definition of “any natural person obligated or allegedly obligated to pay any debt.”  15 USC 1692a(3).  The Court agreed and dismissed the action.  Although it acknowledged that the Second Circuit had not addressed whether the initiation of a mortgage foreclosure action is done in connection with the collection of a debt, it noted that the majority of other circuits had held that it is not, because the object of a foreclosure “‘is to retake and resell the security, not to collect money from the borrower.’”  Further, the Court found that the notice was required under New York law and was not the type of harassing letter the FDCPA was designed to prevent.  Finally, the Court held that, although the letter stated that it was an attempt to collect a debt, this language alone did not convert the letter into a debt collection letter under the FDCPA.

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

CFPB Enters Consent Order with Title Agency for Failure to Disclose Affiliated Business Arrangement with Underwriter

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The Consumer Financial Protection Bureau (“CFPB”) recently entered into a consent order with Meridian Title Corporation (“Meridian”) for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) based on Meridian’s alleged failure to disclose an affiliated business arrangement with a title insurance underwriter.  See In the Matter of Meridian Title Corp., 2017-CFPB-0019 (Sept. 27, 2017).  According to the consent order, Meridian is a settlement agent and title insurance agency that issues title insurance policies and conducts loan closings.  Among its other tasks, it receives orders for title insurance policies from consumers and assigns them to a variety of title insurance underwriters, including Arsenal Insurance Corporation (“Arsenal”).  Arsenal has three individual owners, all of whom are also owners of Meridian. Despite this overlap, Meridian did not disclose the relationship to consumers.  Accordingly, Meridian “was able in some cases to deviate from its contractual terms and to keep money beyond the commission allowance outlined in its agency contract when issuing Arsenal title insurance policies. These additional amounts that fell outside the contractually-outlined commission structure were not reasonable compensation for services actually performed in the issuance of Arsenal’s title insurance policies, nor were they a return on an ownership interest or franchise relationship.”

Under RESPA, a person shall not receive a fee, kickback, or thing of value in exchange for any referral. 12 U.S.C. 2607.  Nonetheless, RESPA provides a safe harbor for affiliated business arrangements when the settlement service provider discloses the arrangement, does not require that the consumer use the affiliated entity, and receives only a return on ownership interest or reasonable compensation for services actually performed in exchange for the referral.  Here, the CFPB found that Meridian did not disclose the arrangement to consumers and, accordingly, did not meet the three-part safe harbor test and violated RESPA.  Due to the CFPB’s findings, Meridian agreed to pay a penalty of $1.25 million and submit to additional monitoring from the CFPB.  Although Meridian consented to the penalties and the issuance of the order, it did not admit or deny any of the factual or legal conclusions made by the CFPB.

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

Putting Substance Over Legal Form, Court Finds Property Owner Eligible for Innocent Party Grant

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In September, the Appellate Division determined that the current corporate owner of property qualified for an innocent party grant, which provides remediation funding to pre-1983 purchasers of contaminated property who did not cause the contamination, even though that entity did not obtain title to the property until 2006.  Cedar Knolls 2006, LLC v. New Jersey Department of Environmental Protection, Docket  No. A-1405-15T3 (Sept. 20, 2017).

Longtime owners of contaminated property in New Jersey who did not cause the pollution may be eligible for an “innocent party” grant under the Brownfields and Contaminated Site Remediation Act (the “Brownfield Act”).  In addition to being an innocent party, in order to qualify for the grant, the owner must have purchased the property prior to December 31, 1983, and must continue to own the property until such time as the grant is approved.  The New Jersey Department of Environmental Protection (“NJDEP”) had denied the grant application of Cedar Knolls 2006, LLC (“Cedar Knolls”), which became the title owner of property in Hanover, New Jersey in 2006 as a result of a series of intra-family trust transfers.  The original owner of the property, John Higginson, had purchased the contaminated parcel in 1977 and then bequeathed it to his wife, who in turn through various trust vehicles transferred her interest in the property to her son, William, who ultimately in 2006 transferred his interests to a limited liability company, Cedar Knolls, which was solely owned by William.      

NJDEP denied Cedar Knolls’ grant application on the basis that the entity was not a person who acquired the property prior to December 31, 1983.  Cedar Knolls sought reconsideration arguing that the intra-family transfers were not a “change in ownership” under New Jersey environmental laws, specifically the Industrial Site Recovery Act (“ISRA”). Based upon ISRA’s definition of “change in ownership” that specifically excludes intra-family transfers, Cedar Knolls argued there had been no change in ownership of the property since John’s 1977 acquisition. 

Agreeing with Cedar Knolls, the Appellate Division found that the Brownfields Act and ISRA are “part of a unified legislative strategy to address the remediation of contaminated sites.”  Accordingly, the Court found that it was appropriate to look to the definitions in ISRA to determine what constitutes a “change in ownership” for purposes of the innocent party grant.  In addition, the Court said it was required to liberally construe remedial statutes like the Brownfield Act and ISRA to effectuate the Legislature’s important social goals, which include helping innocent owners defray the cost of remediating contamination.   Thus, the Court found that the Legislature was “more concerned with the substance of ownership and continuity than the technicalities of legal form” and found that because ownership transferred through family members, Cedar Knolls qualifies for the innocent party grant.  Interestingly, the Court did not make a distinction between Cedar Knolls, a limited liability business entity, and a family member, which would be a natural person.       

Based upon this decision, an applicant for an innocent party grant does not have to be the same person, or entity, that purchased the property, when the transfer that vests title in the current owner is not considered a “change in ownership” under ISRA.  Here, the transfers were among family members.  ISRA, however, also excludes other transfers, for example, certain corporate mergers and inter-corporate transfers, from the definition of “change in ownership.”  As a result of this ruling, entities that become the owner of contaminated property as a result of these types of transfers also may be eligible for innocent party grants notwithstanding that their ownership begins after 1983. 

For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.  

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