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New Jersey Appellate Court Holds Business Judgment Rule Protects Decisions of Common-Interest Community Board in Adopting and Enforcing Building Height Restrictions Banner Image

New Jersey Appellate Court Holds Business Judgment Rule Protects Decisions of Common-Interest Community Board in Adopting and Enforcing Building Height Restrictions

Month: August 2018

New Jersey Appellate Court Holds Business Judgment Rule Protects Decisions of Common-Interest Community Board in Adopting and Enforcing Building Height Restrictions

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In a
decision approved for publication, New Jersey’s Appellate Division recently
held that the business judgment rule protected the actions of a common-interest
community’s board of trustees in rejecting certain residents’ requests to
elevate their homes higher than the board’s regulations allowed after
Superstorm Sandy. See Alloco v. Ocean Beach & Bay Club, 2018
WL 3999039 (N.J. Super. Ct. App. Div. Aug. 22, 2018). The decision is
significant in limiting challenges to a board’s action to grounds of fraud, self-dealing
or unconscionability.

The Ocean Beach and Bay Club (the “Club”) is a Jersey Shore
common-interest community established to manage almost 1,000 lots owned by its
members, as well as some common areas. Among other things, the Club’s
certificate of incorporation provided that “no[ ] more than one residence
nor more than [a] one-story one-family dwelling shall be allowed on any lot,”
and established a board of trustees (the “Board”) to enforce and amend the
regulations as necessary. After Superstorm Sandy, the Board amended the
regulations to allow some members to elevate their homes. Plaintiffs, all of
whom were members of the Club and lost their homes in the storm, attempted to
elevate their homes even higher than the regulations allowed in order to use
the new space under the homes for parking, but the Board rejected their request
to do so. Plaintiffs then brought this action alleging, inter alia,
that the Board violated the business judgment rule in its adoption and
enforcement of the regulations and that the “Club acted incompetently in
devising regulations limiting the height of structures.” The parties both moved
for summary judgment, and the trial court granted the Board’s motion and
dismissed the complaint.

On appeal, the Appellate Division affirmed the trial court’s
decision. Under the business judgment rule, "when business judgments are
made in good faith based on reasonable business knowledge, the decision makers
are immune from liability from actions brought by others who have an interest
in the business entity. The business judgment rule generally asks (1) whether
the actions were authorized by statute or by charter, and if so, (2) whether
the action is fraudulent, self-dealing or unconscionable." The first prong
was met because the Club’s by-laws authorize the Board to make “any and all
rules and regulations and enforce compliance therewith[.]” With regard to the
second prong, the Court found that Plaintiffs’ claims that the Board engaged in
self-dealing were unsubstantiated and unrelated to the height restrictions
Plaintiffs challenged, and “[a]llegations of self-dealing in unrelated matters
are insufficient.” Additionally, the Court rejected Plaintiffs’ claim that
“incompetence” violates the business judgment rule. In doing so, the Court
disapproved of the statement in Papalexiou v. Tower W. Condo., 167 N.J.
Super. 516, 527 (Ch. Div. 1979) that “[c]ourts will not second-guess the
actions of directors unless it appears that they are the result of fraud,
dishonesty or incompetence,” finding that the chancery court in Papalexiou
mistakenly cited an inapposite section of another case for this “incompetence”
language and that “[w]e must continue to follow the Supreme Court’s lead and
require a showing of fraud, self-dealing or unconscionable conduct.” Finally,
the Court found that any procedural errors made by the Board—such as its
alleged failure to print and send its members notice of
changes in rules and regulations within 30 days—were inconsequential and did
not show that the Board’s actions were fraudulent, self-dealing or
unconscionable.

For a copy
of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan
Goetsch at dgoetsch@riker.com.

EPA Proposes Shift in Clean Energy Policy

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States are going to have a greater role in setting energy policy under the United States Environmental Protection Agency’s (“EPA”) proposed Affordable Clean Energy (“ACE”) Rule.  EPA proposed the ACE Rule to replace the Obama Administration’s Clean Power Plan (“CPP”), which never took effect due to legal challenges.  Unlike the CPP, where the EPA set standards and requirements for state plans, the newly proposed ACE Rule tasks the States with a larger role in pursuing clean power and addressing pollution from existing coal power plants, invoking mixed emotions from various sectors of the community.

Under the CPP, the prior policy, the EPA was intimately involved in regulating the energy sector and reshaping the grid and energy markets.  The proposed ACE Rule reduces EPA’s command and control role and allows the states to set standards based on EPA guidelines.  The Rule also provides states additional time and flexibility in developing  energy efficiency plans and furnishes a list of technologies that states can use to establish performance standards rather than strict  emission standards.  

Critics of shifting energy policy from the EPA to the states argue that the states will be more vulnerable to the interests of fossil fuel groups, which could weaken standards and emission controls.  Moreover, some believe offering existing technologies as performance standards instead of setting emission reductions will result in fewer advancements in new energy technologies.   

Unlike the CPP that required the phase-out of coal fired power plants, the proposed ACE Rule would keep such plants operating but require them to become more efficient.  It also promotes investments in clean coal plants.  Although plans to increase efficiency at coal plants may lead to reductions in greenhouse gas emissions, it could result in increases in traditional pollutants, like soot.  The EPA does not refute this potential outcome, but argues that such increases in pollutants can be addressed in other ways.

Moreover, as part of the proposed ACE Rule, the EPA is proposing to change the New Source Review (“NSR”) Permitting Program, which requires a permit when there is a “major modification” at a power plant.   Coal power plant owners have argued that they have not pursued efficiency measures in fear of triggering the need for an NSR permit.  The proposed change to the NSR permit program would allow plants to use hourly emission rate increases, instead of existing annual emission rate increases, to determine whether an NSR permit is needed.  Arguably, this will allow the installation of efficiency projects without triggering the NSR permit requirements.  Opponents of this change assert it provides a loophole that allows existing coal power plants to avoid installing potentially costly emission control equipment, even though many do not meet current emission standards and would not be required to do so without the NSR permit requirement.  Even with these changes, it still may be difficult to determine when an NSR permit is necessary.

The EPA claims that the proposed ACE Rule will lead to more affordable energy bills, be less expensive than the CPP and obtain the same results as the CPP.  Others disagree.  It is anticipated that the proposed ACE Rule will be challenged in court, like the CPP.  As such, it may continue to be some time before there is an implementable clean energy plan from the EPA.    

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

New York Federal Court Holds County Tax Foreclosure May Constitute Fraudulent Conveyance

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The United States District Court for the Western District of New York recently reversed a Bankruptcy Court’s dismissal of an action and held that sales arising from tax foreclosures may be avoidable as fraudulent transfers.  See Hampton v. Ontario Cty., New York, 2018 WL 3454688 (W.D.N.Y. July 18, 2018).  The case involves two adversary proceedings commenced by homeowners against the County of Ontario (the “County”).  In each matter, the County foreclosed on plaintiffs’ homes after plaintiffs failed to pay property taxes.  In one case the plaintiffs owed about $1,200 in taxes and in the other they owed about $5,200.  After the County obtained a final judgment in each matter, the plaintiff homeowners filed Chapter 13 bankruptcy petitions and then adversary proceedings against the County, alleging that the taking of their homes were constructively fraudulent transfers under 11 U.S.C. § 548(a)(1)(B) due to the disparity between the value of the homes and the minimal taxes owed.  The County proceeded to sell the properties—one for $22,000 and one for $27,000—under a stipulation that the sales were subject to the determination in the adversary proceedings.  The County moved to dismiss the actions, and the Bankruptcy Court granted the motion.  In doing so, it cited BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), where the United States Supreme Court held that a reasonably equivalent value for foreclosed property “is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with[.]”.

On appeal, the District Court reversed.  First, it noted that the Supreme Court in BFP expressly limited its holding to mortgage foreclosures, stating that “considerations bearing upon other foreclosures and forced sales (to satisfy tax liens, for example) may be different.” Second, the Court found that the amount of the tax lien is not evidence of the property value and that the sales would result in windfalls to the County because it would receive all of the surplus funds to the detriment of other creditors.  “If this Court affirmed the Bankruptcy Court’s decision, Ontario County would receive surpluses of nearly $22,000 in one instance and more than $20,000 in another. The Appellants, on the other hand, assert that they would be homeless and unable to repay their other creditors through Chapter 13 bankruptcy.”  Thus, the Court reinstated the adversary proceedings against the County.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Rhode Island Supreme Court Holds Lender Entitled to Summary Judgment in Attorney Defalcation Case

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The Rhode Island Supreme Court recently affirmed the granting of a lender’s motion for summary judgment, holding that a settlement agent’s defalcation of loan funds was outside the scope of his agency and that the lender could not be held liable for the same.  See Pineda v. Chase Bank USA, N.A., 186 A.3d 1054 (R.I. 2018).  In 2008, the plaintiff borrower entered into a refinancing agreement with the defendant lender whereby the lender agreed to issue two loans that would pay off existing mortgages on the borrower’s properties.  However, the attorney acting as settlement agent absconded with the funds.  The borrower then brought this action against both the lender and the attorney, and the lender moved for summary judgment.  Although the trial court found there was an issue of fact as to whether the attorney was the lender’s agent, it found that the attorney’s conduct was outside the scope of any agency and granted the lender’s summary judgment motion.

On appeal, the Court affirmed.  First, it agreed that there was an issue of fact regarding whether the attorney was the lender’s agent.  Although the attorney and the borrower had a preexisting relationship and the loan documents indicated that the borrower had chosen the attorney to act as the settlement agent, the borrower denied this fact at his deposition and there were other documents linking the attorney to the lender.  Nonetheless, the Court found that the attorney’s defalcation was outside the scope of his agency.  In addition to the fact that the attorney testified that the defalcation was “in no way motivated by a purpose to serve Chase,” the Court found that the attorney’s malfeasance “caused Chase to not be placed in the first lien position on the property; therefore, instead of benefiting Chase, arguably his actions injured Chase.”  Thus, the Court affirmed the grant of summary judgment dismissing the action against the lender.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Eighth Circuit Affirms Dismissal of Borrowers’ Lawsuit, Holds Deadline to File Lis Pendens and Challenge Sale of Home Could Not Be Extended

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The United States Court of Appeals for the Eighth Circuit recently held that the plaintiff borrowers’ action challenging the sheriff's sale of their home was properly dismissed when they failed to file a lis pendens within the redemption period, and that this deadline could not be extended.  See Litterer v. Rushmore Loan Mgmt. Servs., LLC for U.S. Bank Nat’l Ass’n, 894 F.3d 1274 (8th Cir. 2018).  In the case, the property was sold at a sheriff’s sale in 2014 and purchased by the mortgagee.  On March 1, 2015, the borrowers’ time to redeem the property expired.  On March 2, 2015, the borrowers sued the defendant servicer for breach of contract, unjust enrichment, and injunctive relief.  On May 1, 2015, they filed a lis pendens against the property.  They later amended their complaint to add a claim that the servicer had violated a Minnesota statute that, among other things, prohibited dual tracking.  See Minn. Stat. § 582.043.  The borrowers eventually stopped pursuing all but this statutory claim.  Defendant moved for summary judgment, arguing that Minn. Stat. § 582.043 mandates that mortgagors file a lis pendens before the redemption period expires, and that the statute further states that “[t]he failure to record the lis pendens creates a conclusive presumption that the servicer has complied with this section.”  Thus, according to the servicer, the statutory claim was barred.  The borrowers opposed the motion, arguing that the Minnesota Rules of Civil Procedure gave the court discretion to extend any deadline for “excusable neglect.”  The District Court nonetheless granted the motion for summary judgment.

On appeal, the Eighth Circuit affirmed.  The Court first certified a question to the Minnesota Supreme Court:  “May the lis pendens deadline contained in Minn. Stat. Sec. 582.043, subd. 7(b) be extended upon a showing of excusable neglect pursuant to Minn. R. Civ. P. 6.02?”  The Minnesota Supreme Court answered in the negative, finding that the Rules of Civil Procedure cannot modify substantive law and the extension of this deadline “would alter the substantive rights of the litigants.”  Thus, because there was no question the borrowers filed their lis pendens after the redemption period expired, the Court affirmed the dismissal of the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

NJDEP Adopts Amendments to Site Remediation Rules and Initiates New Program for Remediation of “Heating Oil Tank Systems”

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Contaminated site remediation projects in New Jersey are governed by an assemblage of rules and regulations that implement the State’s environmental statutes.  Just last week, the New Jersey Department of Environmental Protection (“NJDEP”) adopted amendments to a number of these rules.  While the NJDEP has characterized the amendments as changes that will clarify the rules and further streamline the implementation of the site remediation program, there are a number of noteworthy revisions that modify existing remediation obligations and procedures.  In addition, the NJDEP adopted new regulations that address discharges from a category of heating oil tanks identified collectively as “heating oil tank systems (“HOTS”).”  Although the specific changes are numerous, below is a listing of the more significant rule changes.  If you are involved in the investigation or remediation of a contaminated property, you should review the amendments to determine whether these changes affect your site.

Discharges of Petroleum and Other Hazardous Substances, N.J.A.C. 7:1E (the “Discharge Rules”)

  • The existing rules required “major facilities” (i.e. facilities that store a certain amount of hazardous substances) to address discharges in accordance with both the facility’s discharge cleanup and removal (“DCR”) plan and the Administrative Requirements for the Remediation of Contaminated Sites, N.J.A.C. 7:26C (“ARRCS”), which require the retention of a licensed site remediation professional (“LSRP”) to oversee the remediation.  The NJDEP revised the Discharge Rules to give the facility the option to address the discharge either under the DCR plan or ARRCS. See N.J.A.C. 7:1E-5.7(a)2.  The NJDEP, however, has reserved the right to order the facility to hire a Licensed Site Remediation Professional (“LSRP”) to conduct the remediation in the event the DCR plan is not sufficient to address the discharge.

New Jersey Pollutant Discharge Elimination System Rules, N.J.A.C. 7:14A (the “NJPDES Rules”)

  • Under the NJPDES Rules, certain discharges to groundwater that result from site remediation activities (e.g., discharges associated with sampling or to implement remediation) are authorized under a permit-by-rule, and therefore, do not require an individual permit.  The NJDEP revised the NJPDES Rules to more clearly list the activities that are eligible for a permit-by-rule and identify the process for obtaining the NJDEP’s written approval for such a discharge. See N.J.A.C. 7:14A-7.5(a).  The NJDEP also has added a requirement that dischargers stop any negative impacts caused by the discharge to groundwater and remediate those impacts in accordance with the applicable site remediation requirements. See N.J.A.C. 7: 14A-7.5(f). 

Underground Storage Tank Rules, N.J.A.C. 7: 14B (the “UST Rules”)

  • The NJDEP revised the UST Rules to clarify that even if the site investigation of a suspected discharge from a UST demonstrates that no further action is required, an LSRP must still issue a response action outcome (“RAO”) to close the UST case.  See N.J.A.C. 7:14B-7.2(c).

Industrial Site Recovery Act Rules, N.J.A.C. 7:26B (the “ISRA Rules”)

  • The NJDEP revised the ISRA Rules to correct the timeframe by which the person responsible for conducting the remediation (“PRCR”) at an ISRA site must establish a remediation funding source (“RFS”) to conform with the timeframe set forth in the Brownfields Act.  Under the revised rule, the PRCR must establish an RFS within 14 days after the NJDEP receives a remedial action workplan certified by an LSRP.  See N.J.A.C. 7:26B-3.4(a).
  • As a result of the decision in Des Champs Laboratories, Inc. v. NJDEP, 427 N.J. Super. 84 (App. Div. 2012), the NJDEP revised the de minimis quantity exemption to no longer require a certification that the industrial establishment is not contaminated above applicable standards in order to qualify for the exemption.  See N.J.A.C. 7:26C-5.9(b).  The NJDEP noted in its rule proposal, however, that it has the authority to require remediation of an industrial establishment under other environmental statutes, including the Spill Act, even if the industrial establishment qualifies for a de minimis quantity exemption.

Administrative Requirements for the Remediation of Contaminated Sites, N.J.A.C. 7:26C (“ARRCS”)

  • The NJDEP amended the definition of “person” under ARRCS to include “a responsible corporate official, which includes a managing member of a limited liability company or a general partner of a partnership.”  See N.J.A.C. 7:26C-1.3.  In its rule proposal, the NJDEP noted that it was making this amendment to clarify the responsibility of certain business officials who have the actual responsibility for the condition or act resulting in a violation but neither prevent nor correct the violation.  Commenters to the rule proposal objected to this change as a broad expansion of liability and an abrogation of the protections afforded by the corporate form under well established law.
  • The definition of “statutory permittee” that is subject to remedial action permit (“RAP”) compliance has been adjusted to mean any person who becomes the owner, operator or tenant after an institutional or engineering control is placed on the property.  See N.J.A.C. 7:26C-1.3.  Also, ARRCS has been revised to require a “statutory permittee” to submit a RAP transfer application to the NJDEP within 60 days after the transfer of the property. See N.J.A.C. 7:26C-7.11
  • A number of changes have been made to the public notice requirements at N.J.A.C. 7:26C-1.7, including the following:
    • The rules clarify that (1) the NJDEP does not need to be notified via the WARNDEP Hotline if the only discharge is historic fill, and (2) owners or operators of USTs only need to notify the NJDEP via the Hotline if a discharge is confirmed, not when a discharge is merely suspected. See N.J.A.C. 7:26C-1.7 (c) and (d).
    • The timing for providing public notice has been changed to 14 days prior to commencing field activities associated with the remedial investigation (as opposed to the remedial action) and proof of public notice must be submitted to the NJDEP within 14 days after providing public notice (as opposed to being required to provide the proof with the next remedial phase report). See N.J.A.C. 7:26C-1.7(g) and (h).
  • The NJDEP has established new timeframes for providing notification to the NJDEP of the dismissal, resignation or incapacity of the LSRP and the identity of the new LSRP.  These timeframes are now two working days for a site with an immediate environmental concern (“IEC”) and 45 days for all other sites. See N.J.A.C. 7:26C-2.3(c) and (d).
  • A number of changes have been made to the RFS and financial assurance (“FA”) requirements, including the following:
    • The revised rules clarify that any person may establish FA on behalf of a responsible party; the rules previously only mentioned RFS. See N.J.A.C. 7:26C-5.2(i).
    • The trustee of a remediation trust fund cannot be the PRCR. See N.J.A.C. 7:26C-5.4(a)1.
    • A self-guarantee may be supported with financials audited in compliance with International Standards on Audits. See N.J.A.C. 7:26C-5.8(a)4.
    • If an engineering control is no longer needed at a site, the FA will not be released by the NJDEP until a RAP modification or termination is issued by the NJDEP. See N.J.A.C. 7:26C-5.11(e)2.
  • The NJDEP has also made changes to the issuance of RAOs by LSRPs, including (1) clarifying that when there is a change in the remediation, the LSRP cannot issue an RAO until after the NJDEP issues a RAP modification or termination, (2) requiring that all wells no longer used for the remediation have been properly decommissioned or otherwise accounted for prior to issuing the RAO, and (3) adding a restriction that only the LSRP retained by the PRCR can issue an RAO for the remediation. See N.J.A.C. 7:26C-6.2(a) and (h).  Notably, based on comments it received from stakeholders, the NJDEP decided not to adopt a proposed rule that required the correction, rescission, withdrawal, or invalidation of RAOs in certain circumstances.  Among other reasons for objecting to this proposed rule, commenters were concerned that it would obligate an LSRP to withdraw an RAO even where the remedial action remained protective.
  • Changes have been made to the classification exception area (“CEA”), Deed Notice, and RAP requirements, including the following:
    • The addition of an “indeterminate” CEA and “virtual RAP” for historically applied pesticides (“HAP”), giving HAP the same treatment as historic fill when it impacts groundwater. See N.J.A.C. 7:26C-7.3(h).
    • Changes to the Model Deed Notice to clarify that temporary disturbances to an engineering control do not require notice to the NJDEP or a modification to the RAP and that permanent alteration, improvement or disturbance of an engineering control is subject to a new process that requires (1) termination of the existing deed notice, (2) recording of a new deed notice and exhibits, (3) application for a RAP modification or termination, and (4) a remedial action report. See N.J.A.C. 7:26C Appendix B.
    • In the event of a subdivision of a site, a permittee now must within 30 days of municipal subdivision approval, request termination of the existing RAP and Deed Notice, record a new Deed Notice for each subdivided parcel and apply for a new RAP.  See N.J.A.C. 7:26C-7.2(d).  In addition, the NJDEP no longer requires a RAP modification when a municipality revises Block and Lot designations for a site or when the permittee changes its address, but the permittee is required to notify the NJDEP of these changes no later than the due date for the next remedial action protectiveness certification. See N.J.A.C. 7:26-7.7(a).

Technical Requirements for Site Remediation, N.J.A.C. 7:26E (the “Tech Regs.”)

  • The NJDEP has clarified that remedial action (“RA”) is required when contaminants exceed any aquatic surface water quality standard, any ecological screening criterion or any site-specific ecological risk-based remediation goal approved by the NJDEP when an environmentally sensitive natural resource is present. See N.J.A.C. 7:26E-5.1(b)2.
  • The NJDEP has also clarified that when importing alternative fill to a site without pre-approval from the NJDEP (1) each individual contaminant in the donor fill must be present in the receiving area above applicable remediation standards, and (2) the amount of alternative fill brought on-site does not exceed the amount necessary to restore the pre-remediation topography and elevation of the site.  See N.J.A.C. 7:26E-5.2(b).  This latter requirement has been hotly debated by developers who believe the requirement to obtain pre-approval from the NJDEP will slow down the pace and increase the cost of redevelopment, especially in flood zones where fill material is needed raise the grade of properties above the required flood zone elevations.
  • The presumptive remedy requirements for the remediation of schools, child care centers and residences no longer require a vapor barrier for historic fill and certain other contaminants that do not cause vapor issues.  See N.J.A.C. 7:26E-5.3 Table 5-1.
  • A remedial action workplan now must be submitted to the NJDEP prior to the implementation of the RA, as opposed to 60 days prior to the implementation.  

Heating Oil Tank Systems Rules, N.J.A.C. 7:26F (“HOTS Rules”)

  • The NJDEP has adopted new regulations to address the closure and remediation of discharges from HOTS.  HOTs include “residential aboveground heating oil tank systems,” “small aboveground non-residential heating oil tank systems” and “unregulated heating oil tank systems,” which are underground storage tank systems that are not otherwise regulated under the UST Rules.  Since the majority of HOTS are owned by homeowners, the NJDEP thought it helpful to consolidate the rules relating to closure and discharges from these systems in one location.  Owners or operators of HOTS may use a certified subsurface evaluator or an LSRP to address discharges (which must be hired within two business days after discovery of a discharge), and upon completion of any required remediation, the NJDEP will issue a No Further Action Letter (“NFA”).  One particularly unique aspect of this new program is that under certain circumstances it allows residual soil contamination to remain at a residential property under a HOTS Deed Notice (which is different than a traditional Deed Notice) and does not require a RAP.  A residential owner also may have the option of dealing with residual soil contamination by utilizing a “small quantity exemption” that allows the residential owner to leave less than 15 cubic yards of residual contamination under a residential building when excavation or treatment is impeded or impracticable.  Notably, however, recording a HOTS Deed Notice or using a “small quantity exemption” memorializes the existence of the contamination, which could affect the value of the property.

Given the breadth of these amendments, anyone conducting or overseeing an investigation or remediation at a contaminated site should review these changes.  In addition, more changes are on the horizon as stakeholders have been engaged with the NJDEP and Senator Bob Smith, Chairman of the Senate Environment and Energy Committee, to identify additional changes to improve the site remediation program, under an initiative commonly referred to as SRRA 2.0.  Our environmental attorneys are engaged in this stakeholder process and can keep you informed of the latest developments in the SRRA 2.0 discussions.

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

Indiana Appellate Court Holds Title Insurance Company Not Liable For Negligent Misrepresentation

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The Indiana Court of Appeals recently held that an insured’s negligent misrepresentation claim against a title insurance company was properly dismissed because the insured’s claims were limited to the title insurance policy.  See Pearman v. Stewart Title Guar. Co., 2018 WL 3132451 (Ind. Ct. App. June 27, 2018).  In the case, the plaintiff insured purchased three lots for $5,000, and the defendant title insurance company issued a title insurance policy with regard to the properties.  The insured later discovered that he did not have title to one of the lots because the seller previously had conveyed it to someone else, and the insured filed a claim.  The title insurance company offered $8,000 to settle the claim, but the insured rejected the offer and brought this action.  Among other claims, the insured alleged that the title insurance company negligently misrepresented the status of title to the lot at issue in both the title commitment and the title insurance policy.  After further settlement discussions, the title insurance company filed a counterclaim seeking a declaratory judgment to approve the tender of the $70,000 policy limit to the insured.  The parties then cross-moved for summary judgment.  The trial court granted the title insurance company’s motion for summary judgment, awarding the insured the policy limit but dismissing his remaining claims.  The insured appealed the dismissal of his remaining claims.

On appeal, the Court of Appeals affirmed.  First, it held that the insured’s negligent misrepresentation claim was properly dismissed because a title insurance company in contractual privity with an insured could not be liable for negligent misrepresentation:  “STGC issued the title commitment to Pearman, and the title insurance policy lists Pearman as the named insured. Thus, pursuant to U.S. Bank, Pearman may not bring a claim of negligent misrepresentation against STGC because the parties are in contractual privity.”  Second, the Court found that the insured was not entitled to attorneys’ fees because the “Policy provided for payment of attorney fees only in one specific circumstance, i.e., when a third party asserted a claim covered by the policy adverse to the insured. . . . [and] no such third party has asserted a claim[.]”  Finally, the Court found that the insured’s bad faith and punitive damages claims were not alleged in the complaint and raised only at the summary judgment stage and therefore were properly dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

California Federal Court Holds Borrowers Adequately Alleged RESPA Claim but Were Not Entitled to Restraining Order Enjoining the Sale of Their Property

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The United States District Court for the Northern District of California recently held that borrowers had adequately alleged that their servicer violated the Real Estate Settlement Procedures Act (“RESPA”) but nonetheless that they were not entitled to a temporary restraining order enjoining the sale of their property.  See Sparks-Magdaluyo v. New Penn Financial, LLC, 2018 WL 3537188 (N.D. Cal. July 23, 2018).  In the case, the borrowers obtained a loan secured by their home.  In 2015, they sent a qualified written request to the defendant servicer seeking a validation of the amount owed on the debt but the servicer allegedly never responded, in violation of RESPA.  12 U.S.C. § 2605.  The borrowers then brought this action and subsequently moved for a temporary restraining order enjoining a scheduled August 1, 2018 trustee’s sale of the property.

The Court held that the borrowers had adequately alleged a RESPA violation but still denied the request for a restraining order.  The Court first held that the 2015 letter constituted a proper qualified written request from the borrowers under RESPA because it “included their names and account number; identified the information sought, i.e., an account history of all scheduled periodic payments or a payment history; and sought information relating to servicing of the Loan, i.e., ‘scheduled periodic payments from a borrower pursuant to the terms of [the] loan.’”  Thus, the servicer was required to respond to the request and a failure to do so would have violated RESPA.  Nonetheless, the Court found that the borrowers failed to assert that they were in any way damaged by this alleged RESPA violation.  “To the extent Plaintiffs claim damages based on the foreclosure proceedings, under California law, a borrower may not seek to quiet title without first paying the outstanding debt on the property. . . . as Plaintiffs have not alleged they have paid the outstanding debt on the Property, or alleged they can do so, they have failed to establish they are likely to succeed on the merits.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York Federal Court Dismissed FHA Claim Against Housing Authority

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The United States District Court for the Western District of New York recently granted the Rochester Housing Authority’s (the “RHA”) motion dismissing an action against it alleging violations of the Fair Housing Act (the “FHA”).  See Byrd v. Rochester Hous. Auth., 2018 WL 2739790 (W.D.N.Y. June 7, 2018).  In the case, plaintiff alleged that that the RHA refused to place her on a waiting list for public housing for discriminatory reasons in violation of the FHA, which prohibits discrimination in the sale or rental of property based on “race, color, religion, sex, familial status, or national origin.”  See 42 U.S.C. §§ 3604-3606.  The RHA denied the allegations and filed a motion to dismiss, which the Court converted to a motion for summary judgment.

The Court granted the RHA’s motion.  Under the FHA, the plaintiff must make a prima facie case of housing discrimination by alleging “(1) the plaintiff is a member of a protected class; (2) the plaintiff sought and was qualified to rent or purchase the housing; (3) the defendant denied the plaintiff the opportunity to rent or purchase the housing; and (4) the housing opportunity remained available to other renters or purchasers.”  Once the plaintiff establishes the prima facie case, the burden shifts to the defendant to “assert a legitimate, nondiscriminatory rationale for the challenged decision.”  The burden then shifts back to the plaintiff to prove defendant’s rationale was pretext.  Here, the Court found that, even if plaintiff could make a prima facie case, the RHA demonstrated that it denied plaintiff’s rental application because of prior lawsuits filed against her by a landlord, one of which resulted in a judgment.  Accordingly, the Court held “Plaintiff has failed to show that a reasonable jury could conclude that unlawful discrimination was the real reason her rental application was rejected by RHA” and granted the RHA’s motion dismissing the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

There is a New Sheriff in Town – State Files Six New Environmental Enforcement Cases

Posted on by rd_admin

Touting it as the “largest single-day environmental enforcement action in New Jersey in at least a decade,” the State yesterday filed six lawsuits seeking to recover cleanup costs, three of which also seek recovery of natural resource damages (“NRD”).  The dramatic announcement yesterday left no doubt that the Murphy Administration’s approach to environmental enforcement will be markedly different than the essentially non-existent enforcement under the Christie Administration.  As the administration considers pursuing other cases, many parties involved with environmentally impaired property should be aware of the new enforcement initiative and renewed efforts to obtain NRD.  These parties may not realize that they have potential liability for NRD even after active remediation is completed. 

The message from the State to industry is clear: “If you pollute our natural resources, we are going to make you pay.”  The view held by the new administration is that companies have failed to act responsibly and as a result have endangered the environment and health of the citizens of New Jersey.  Accordingly, the State will hold polluters responsible, which it is seeking to do through robust enforcement.

As noted above, of the six lawsuits filed, three include claims for NRD.  According to the Attorney General, the State did not file a single NRD case during the Christie Administration.  It will be interesting to see how the State will handle valuation of its NRD claims in these new cases, especially in the wake of the criticism it received in the recent settlement of its case against ExxonMobil. In that case, the State initially valued its claim at approximately $9 billion, but ultimately agreed to settle the lawsuit for approximately $225 million.  Moreover, to date, NJDEP has not been successful in litigating NRD claims because it has not been able to appropriately support its valuation calculations.  While NJDEP had committed to adopting regulations on how to value resources for damages calculations, it has not yet done so.  Accordingly, NJDEP has been defending its calculations on an ad hoc basis and has not yet been able to establish that the value it seeks is commensurate with the loss or impairment of the injured resource.

Parties that are remediating sites need to be aware that NRD liability will not be resolved automatically through remediation.  In fact, recent practice has been to reserve the ability of the State to seek NRD.  The Response Action Outcome issued by a Licensed Site Remediation Professional expressly states that NRD liability is not resolved.  Very few parties who are remediating their sites are thinking about resolving NRD, although it may be more efficient and economical to resolve NRD through restoration during remediation rather than waiting for the State to seek to recover compensatory NRD.  Although remediation does not protect against NRD liability, potentially responsible parties are not without hope as there are a number of potential defenses to NRD claims that should be evaluated (including statute of limitations and valuation defenses).

All parties involved with environmentally impaired property, including owners, operators, developers, lenders and others remediating sites, need to be aware of the State’s new enforcement perspective as well as the renewed focus on NRD as these will likely play a role in resolving liability under the new administration.

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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