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Supreme Court Holds Class Arbitration Is Not an Available Remedy Unless the Arbitration Agreement Expressly Allows for It Banner Image

Supreme Court Holds Class Arbitration Is Not an Available Remedy Unless the Arbitration Agreement Expressly Allows for It

Month: April 2019

Supreme Court Holds Class Arbitration Is Not an Available Remedy Unless the Arbitration Agreement Expressly Allows for It

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In a 5-4 decision, the United States Supreme Court held on April 24, 2019 that an employment agreement that was ambiguous about class arbitration could not be used to compel class arbitration.  See Lamps Plus, Inc. v. Varela, 2019 WL 1780275 (U.S. Apr. 24, 2019).  In 2016, a hacker obtained tax information for about 1,300 of defendant’s employees.  After someone filed a fraudulent income tax return for plaintiff, one of defendant’s employees, plaintiff brought a class action lawsuit against defendant.  Plaintiff’s employment agreement contained an arbitration agreement that required that “any and all disputes, claims or controversies” be arbitrated.

Based on that agreement, defendant filed a motion to compel individual arbitration and dismiss the action, but the District Court instead ordered class arbitration and dismissed the action.  On appeal, the Ninth Circuit affirmed.  Although the Ninth Circuit acknowledged that Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010) prohibits a court from ordering a party to class arbitration unless the party agreed to it, the Court found that the parties in Stolt-Nielsen had stipulated that the agreement was silent as to class arbitration.  Because the parties here had not so stipulated, the Ninth Circuit found that Stolt-Nielsen was not controlling.  The Ninth Circuit proceeded to find that the agreement was ambiguous about class arbitration and, following California law, construed the ambiguity against defendant, who drafted the agreement.  Thus, the Ninth Circuit affirmed the order compelling class arbitration.

The Supreme Court reversed in a decision written by Chief Justice Roberts.  First, the Court found that it had jurisdiction to decide this appeal.  Under the Federal Arbitration Act (the “FAA”), a party may appeal “a final decision with respect to an arbitration that is subject to this title.”  See 9 U.S.C. § 16(a)(3).  Because the District Court both compelled arbitration and dismissed the action, the order was final and appealable under the FAA.  Second, although the Court deferred to the Ninth Circuit in its finding that the agreement was ambiguous, it found that this was insufficient to compel class arbitration.  “Because class arbitration fundamentally changes the nature of the ‘traditional individualized arbitration’ envisioned by the FAA, ‘a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so’ . . . our reasoning in Stolt-Nielsen controls the question we face today. Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[ ] the principal advantage of arbitration.’”  Similarly, the Court found that the Ninth Circuit erred in construing the ambiguity against defendant.  “The doctrine of contra proferentem cannot substitute for the requisite affirmative ‘contractual basis for concluding that the part[ies] agreed to [class arbitration].’”

Justices Ginsburg, Breyer, Sotomayor and Kagan each wrote a dissent to this opinion.  Justice Ginsburg stated that “mandatory individual arbitration continues to thwart ‘effective access to justice’ for those encountering diverse violations of their legal rights” and noted that, although the majority focused on the consent of the parties, most employment contracts are forced upon employees who are not willingly foregoing their rights to go to court.  Justice Breyer argued that the Court did not have jurisdiction and that “if a district court determines that arbitration of a claim is called for, there should be no appellate interference with the arbitral process unless and until that process has run its course.”

Justice Sotomayor expressed her disagreement with Stolt-Nielsen and further stated that “[w]here, as here, an employment agreement provides for arbitration as a forum for all disputes relating to a person’s employment and the rules of that forum allow for class actions, an employee who signs an arbitration agreement should not be expected to realize that she is giving up access to that procedural device.”  Finally, Justice Kagan argued that the agreement’s statement that it encompasses “any and all disputes, claims or controversies” necessarily includes class claims, and that, even if the contract was ambiguous, the Court should have deferred to California law and construed the contract against defendant.

While this was a decision on an employment agreement, it is equally applicable to other consumer or commercial contracts in all industries and businesses.  It gives defendants assurances that, in moving to dismiss a class action for failure to arbitrate, they will not be dragged into a class arbitration when their agreement provides no basis for same.

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

The Third Circuit Ruled That a Condominium Association’s Gender-Segregated Pool Schedule Was Unlawful Under the Fair Housing Act

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On April 22, 2019, the United States Court of Appeals for the Third Circuit held that a condominium association’s gender-segregated pool schedule policy discriminated against women at a predominantly Orthodox Jewish community in Lakewood, New Jersey. See Curto v. A Country Place Condo. Ass'n, Inc., 2019 WL 1758320 (3d Cir. Apr. 22, 2019).  The plaintiffs, Maria Curto, Steve Lusardi and Diana Lusardi (collectively, “Plaintiffs”), brought an action against A Country Place Condominium Association, Inc. (the “Association”), alleging that the Association’s policy of gender-segregated swimming hours at a community pool violated the Fair Housing Act, 42 U.S.C. § 3604(b) (“FHA”).  The United States District Court for the District of New Jersey granted the Association’s motion for summary judgment on the grounds that the gender-segregated schedule applied to both men and women equally. The Plaintiffs’ appeal followed.

By way of background, the Association is a “55 and over” age-restricted condominium association located in Lakewood. In 2016, at the time the events in this litigation took place, approximately two–thirds of the Association’s residents were Orthodox.  In order to accommodate the religious beliefs of the Orthodox residents, the Association adopted rules for pool use creating certain hours when only members of a single sex were allowed to use the pool. Before 2016, the schedules provided for only a handful of gender-segregated swimming hours throughout the week, but as the number of Orthodox residents at the Association grew, the Association increased the number of gender-segregated hours.

Under the gender-segregated pool schedule, a total of 31.75 hours each week were reserved for men, while 34.25 hours were reserved for women.  25 hours were open to people of all genders. Excluding Saturday, which was left open for mixed-gender swimming because the Orthodox residents do not swim on the Jewish Sabbath, 12 hours during the other six days of the week were left available for integrated swimming. Sometime after the dispute with the Plaintiffs began, the Association adopted a modified schedule. However, the only significant change was expanding the “adult residents only” period of “ladies’ swim.”  Specifically, the revised schedule provided for 56 hours of segregated hours (32.5 hours for men and 33.5 hours for women), along with the same 12 hours of integrated swimming Sunday through Friday.

On June 15, 2016, a resident at the Association notified the Board that Marie Curto had been swimming during a time reserved only for male residents.  In order to address the resident’s complaint, the Board held a meeting the following day.  At the Board meeting, Steve Lusardi, who resided at the Association with his wife Diana Lusardi, also challenged the gender-segregated pool schedule as discriminatory. Mr. Lusardi explained to the Board that in 2013, his wife suffered from two strokes, which resulted in physical disabilities. Thus, in order to recover from her injuries, his wife needed to utilize the pool with him so that he could assist her in pool therapy.

In violation of the Association’s pool schedule, the Plaintiffs continued to use the pool and were fined $50.00 each by the Board.  The Plaintiffs then filed a complaint alleging violations of the FHA as well as several New Jersey State laws regarding both discrimination and the rules for condominium associations.  After the District Court granted the Association’s motion for summary judgment, Plaintiffs appealed.

In reviewing the District Court’s order in favor of the Association, the Third Circuit stated that the FHA:

makes it an unlawful housing practice to ‘discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities therewith, because of race, color, religion, sex, familial status, or national origin’. . . this includes ‘[l]imiting the use of privileges, services or facilities associated with a dwelling because of race, color, religion, sex, handicap, familial status, or national origin of an owner, tenant or a person associated with him or her.’

The Court found that, although the Association’s pool use policy was motivated by the Orthodox Jewish residents’ religious beliefs, the Association waived any possible defense under the Religious Freedom Restoration Act, 42 U.S.C. §2000bb et seq. (“RFRA”), as the Association did not mention the RFRA at any point in its filings. However, the Court further explained that even had the Association raised a RFRA defense, it lacked associational standing to assert the religious free exercise rights of its Orthodox Jewish members as the Association did not have a religious purpose.

The Court stated that “[w]here a regulation or policy facially discriminates on the basis of the protected trait, in certain circumstances it may constitute per se or explicit discrimination because the protected trait by definition plays a role in the decision-making process.” The Court further noted that while the Association argued that its pool schedule was not motivated by malice towards either sex, malice is not required “where a plaintiff demonstrates that the challenged action involves disparate treatment through explicit facial discrimination . . . Rather, the focus is on the explicit terms of the discrimination.”

Additionally, the Court rejected the Association’s argument that the pool schedule allowed for roughly equal swimming time for both men and women. The Court held that the express terms of the pool policy were discriminatory in its allotment of different times to men and women in addition to employing sex as its criterion. The Court further found the pool schedule reflected “particular assumptions” about the roles of men and women, in violation of the Fourteenth Amendment. Citing to the express terms of the pool policy, the Court noted that the pool schedule assigned to men the entire period of 6:45 p.m. onward every day of the week (except Saturday) and from 4:00 p.m. onward on Friday afternoons. Thus, women who were working during the day had little access to the pool during the work week. In other words, the pool schedule’s gender-based distinctions hinged on the assumption that women would be home during the day to access the pool.  As such, the Court found the pool schedule discriminates against women in violation of the FHA.

In a concurring opinion, Judge Fuentes expresses his “skepticism” that the Association’s gender-segregated pool schedule could be saved by a more even allocation of evening hours, stating that “separate but equal treatment on the basis of sex is as self-contradictory as separate but equal on the basis of race.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Sarah Heba-Escobar at sheba@riker.com.

New Jersey Appellate Court Dismisses Lender’s Deficiency Action When Required Notice Was Not Recorded Before Lender Filed Complaint, Despite Purportedly Timely Mailing

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The New Jersey Appellate Division recently held that a lender’s deficiency action was barred because the Notice of Proposed Deficiency Action was not recorded by the county clerk until five days after the lender’s deficiency complaint was filed, even though the lender had mailed the Notice to the clerk two weeks earlier.  See Foreclosed Assets Sales & Transfer P’ship v. Strauss, 2019 WL 1092703 (N.J. Super. Ct. App. Div. Mar. 8, 2019).  In the case, defendant defaulted on a loan with plaintiff and plaintiff sold defendant’s property via a sheriff’s sale on November 17, 2016.  Under N.J.S.A 2A:50-2, plaintiff was required to bring any action for a deficiency within three months from the date of the sale—i.e., by February 17, 2017.  Under N.J.S.A 2A:50-6, plaintiff also was required to file a Notice of Proposed Deficiency Action with the county clerk before filing the complaint.  Thus, on February 8, 2017, plaintiff sent the Notice to the county clerk via regular mail, but the clerk did not record the Notice until February 22, 2017.  On February 17, 2017, plaintiff filed the deficiency action.  Plaintiff moved for summary judgment in the action, but the trial court denied the motion and dismissed the complaint, finding that plaintiff lacked standing to bring this action because it filed the complaint before the clerk recorded the Notice.

On appeal, the Appellate Division affirmed the trial court’s order.  The Court rejected plaintiff’s argument that it substantially complied with the statute, finding that “[t]he doctrine of substantial compliance, equitable in nature, cannot be invoked to circumvent the mandate of the statute.”  Further, the Court found that “Plaintiff does not present any basis as to why the Notice could not have been mailed earlier or why it could not be hand-delivered and stamped ‘received’ by the clerk’s office prior to filing the deficiency complaint.”  Accordingly, the Court affirmed the denial of the motion and 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.

New York Court Invalidates Mortgage to Church for Failure to Comply with the Religious Corporations Law

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The New York Supreme Court, Kings County recently dismissed a lender’s foreclosure action against a church and determined that the mortgage was invalid because the mortgage did not comply with the Religious Corporations Law (“RCL”).  See John T. Walsh Enterprises, LLC v. Grace Christian Church, 62 Misc. 3d 1224(A) (N.Y. Sup. Ct. 2019).  In 2007, the defendant church executed a mortgage to plaintiff lender to secure a $350,000 loan.  The note required monthly payments for one year until the entire debt would become due, with the option to extend the duration for another year in exchange for a renewal fee.  The note also called for a 16% contract rate of interest and 24% default rate.  After defendant failed to pay the full amount due on the maturity date, plaintiff brought this action.  Although the procedural history is convoluted, in 2018, the Court vacated a previously-issued order granting plaintiff summary judgment and restored the motion to its calendar.  Defendant cross-moved to dismiss the complaint because, among other things, defendant’s congregation did not approve the transaction (as required under RCL § 200) and defendant did not obtain leave of the court or attorney general for the mortgage (as required under RCL § 12(1)).  Although there was no dispute that defendant did not obtain leave of the court or attorney general, plaintiff sought to have the mortgage retroactively confirmed pursuant to RCL § 12(9).

The Court granted defendant’s motion and dismissed the action.  The Court applied the Second Department’s two-part test to ratify a mortgage under RCL § 12(9), which requires the Court to determine: (i) that the terms and consideration of the transaction were not unwise; and (ii) that the transaction would benefit the corporation or that the best interests of its members would be promoted thereby.  See Church of God of Prospect Plaza v. Fourth Church of Christ, Scientist, of Brooklyn, 76 A.D.2d 712 (2d Dept. 1980).  With regard to the first prong, the Court found that although defendant needed the loan proceeds to pay certain expenses and to act as a bridge until defendant could find other refinancing, “the probability that refinancing would have been readily available in the one or two years following closing cannot be determined from the record. If a sensible refinancing option was not realistic, the subject mortgage loan was doomed to failure as defendant faced the obligation to make a substantial balloon payment on the maturity date[.]”  Additionally, the Court expressed “concern” about defendant’s allegation that plaintiff had unilaterally increased the loan amount from $300,000 to $350,000 at the closing.  With regard to the second prong, “it is clear that nunc pro tunc approval of a $350,000 mortgage with a 16% rate of interest and default interest rate of 24%, upon which it was previously determined that the amount of indebtedness due and owing as of November 30, 2017 exceeded one million dollars, would not be in defendant’s best interest as it will likely result in the loss of its house of worship in foreclosure.”  Accordingly, the Court deemed the mortgage invalid and dismissed the complaint, albeit leaving the door open for plaintiff to bring an action on the note.

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

Environmental Justice Initiatives Soon May Impact Permitting and Other Regulatory Actions

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Since taking office last year, New Jersey Governor Phil Murphy has sought to place concerns about environmental justice in the foreground of New Jersey’s regulatory decision-making process.  Advocates and policymakers long have maintained that locally undesirable or polluting land uses disproportionately are located in low-income, typically urban communities that lack political influence or sufficient resources to protect their interests.  Environmental justice efforts attempt to respond to this imbalance and, as the New Jersey Department of Environmental Protection (“NJDEP”) defines the concept, aspires that “no one group of people will have a disproportionate share of negative environmental consequences stemming from industrial, governmental and commercial operations or policies.”  Recently, both the executive and legislative branches have taken steps to implement new environmental justice policies.  Last year, Governor Murphy issued an Executive Order and NJDEP distributed a draft guidance document that instruct State agencies to account for environmental justice concerns in their decision-making processes.  In addition, S1700, a bill imposing additional environmental permitting requirements in certain “burdened communities,” was unanimously reported out of the Senate Environment and Energy Committee in February.

The Murphy administration took its first steps toward addressing environmental justice concerns with Executive Order 23, issued in April 2018, which directed NJDEP to develop a guidance document providing direction for all executive agencies to take environmental justice into account in their decision-making.  NJDEP published its draft guidance in December 2018 in response to the E.O. 23 directive.  In its current form, the draft guidance directs fifteen State agencies to prepare Environmental Justice Action Plans that would focus on internal training of agency employees and provide the public with greater opportunities to participate in agency decisions that impact environmental justice communities.  A new interagency working group would develop solutions to the exposure of underprivileged communities to lead in paint and drinking water and would study ways in which those communities are vulnerable to climate change.  In short, the environmental justice draft guidance is heavy on interagency cooperation and public participation, but does not impose new requirements on regulated entities.

On the other hand, S1700, the environmental justice bill currently before the Legislature, if passed, would impose stringent requirements on some regulated entities.  This bill has been introduced in several successive legislative sessions in the last decade, but always died in committee; however, the current administration, as noted, has put its influence behind environmental justice efforts.  As modified in the Senate Energy and Environment Committee before being reported to the Senate Budget and Appropriations Committee on January 24th, S1700 requires NJDEP to designate census tracts ranked in the bottom third of tracts in the state for household median income as “burdened communities.”  Before NJDEP could issue a permit to build or expand certain facilities located in burdened communities, including electric generating facilities, sewage treatment plants, solid waste transfer stations or recycling centers, or landfills, S1700 would erect several new procedural barriers:  (1) the applicant must prepare an environmental impact statement and hold a public hearing in the burdened community; (2) NJDEP can deny a permit application that otherwise meets all other requirements if the cumulative health and environmental effects of the permitted activity, combined with existing environmental conditions, would constitute an “unreasonable risk” to the burdened community; and (3) NJDEP must consider the community support for or opposition to the project before issuing the permit.  However, the Senate Energy and Environment Committee made the bill less burdensome than the initial draft; for example, the committee limited the types of facilities to which S1700 would apply, and it removed a requirement that the municipal governing body separately approve permits for facilities in burdened communities.

Notwithstanding these committee changes, S1700 still would make siting or expanding covered facilities more onerous than it is under existing law.  An existing facility located in an area designated as a burdened community could find that its ability to expand is severely constrained.  The somewhat vague term “unreasonable risk” (to be further defined by NJDEP through promulgation of rules and guidance) also invites litigation over NJDEP’s permit decisions in burdened communities.  It should be noted, however, that the bill’s permissive language—NJDEP “may deny a permit application”—could make it difficult to challenge NJDEP’s exercise of discretion to deny a permit on environmental justice grounds or to grant a permit despite environmental justice concerns.  The scope of NJDEP’s obligation to “consider” community support or opposition to the permit is unclear.  Would the agency have acted in error if it “considers” near unanimous community opposition to a permit, but grants the permit nonetheless? 

Interested parties should closely follow and consider participating in these ongoing efforts to implement environmental justice principles.  The Legislature’s effort to inject environmental justice principles—usually reserved for the rarefied precincts of inter-agency discussion groups—into the everyday work of issuing permits for facilities could change the course of development in New Jersey.

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

New Jersey Federal Court Denies Motion to Dismiss RESPA Claim Based on Alleged Kickbacks Between Lender and Title Agent

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The United States District Court for the District of New Jersey recently denied a lender’s motion to dismiss a putative class action complaint in which plaintiffs alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) arising out of an alleged kickback scheme between the lender and the title agent.  See Conover v. Patriot Land Transfer, LLC, 2019 WL 397978 (D.N.J. Jan. 31, 2019).  Plaintiffs all closed on their loans with the defendant lender in 2014.  In 2017, they brought an action alleging that the lender referred them to the defendant title agent for title and settlement services.  According to the complaint, the title agent provided the lender with “borrower leads and data lists” in exchange for these referrals, and “these kickbacks were funded by systematically overcharging Plaintiffs ‘the maximum amount for settlement services, including special and/or extra charges and discretionary fees.’”  Plaintiffs then brought this action, alleging that these kickbacks violated RESPA.  After the Court dismissed the first complaint in 2018, plaintiffs filed this amended complaint and the lender again moved to dismiss.  The lender argued that (i) RESPA’s one-year statute of limitations barred the claim; (ii) the amended complaint failed to state a claim; and (iii) the claims are too individualized to warrant a class.

The Court denied the motion.  First, it found that plaintiffs had sufficiently pleaded equitable tolling of their claims because they alleged that the defendants “‘chose to omit the kickbacks and the facts of Defendants’ coordinated business relationship under the . . .  Kickback Agreement’ from Plaintiffs’ loan documents and that the ‘purpose of these omissions was to conceal the kickbacks and Defendants’ coordinated business relationship under the . . . Kickback Agreement.’”  The Court nonetheless ordered expedited discovery on this issue.  Second, the Court rejected the lender’s argument that plaintiffs failed to state a claim because any fees charged were for services actually rendered.  The fact that plaintiffs alleged a kickback scheme was sufficient to plead a claim under RESPA, and “there are disputes of material fact as to whether there was a link between fees charged to borrowers and the alleged kickback scheme, as well as whether Plaintiffs paid higher fees than they would have in the absence of a kickback scheme. These factual issues cannot be resolved on a motion to dismiss.”  Finally, the Court found that the request to dismiss the class allegations was premature on a motion to dismiss.

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

California Appellate Court Holds Insured Not Entitled to Coverage for Easement When Policy Excepted Agreement That Included Easement

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A California appellate court recently affirmed that an insured property owner was not entitled to coverage for a neighbor’s easement running across the insured property because the policy excepted “matters contained in” a Shared Road Maintenance Agreement, and this Agreement described the easement rights.  See Beaudin v. Stewart Title Guar. Co., 2019 WL 422208 (Cal. Ct. App. Feb. 4, 2019), reh’g denied (Feb. 21, 2019), review filed (Mar. 13, 2019).  In 2010, the owner of a large parcel of land subdivided it into three parcels.  In November 2012 and January 2013, the owner sold two of the parcels.  Each deed included an easement across the third parcel.  These parties later entered into a Shared Road Maintenance Agreement through which the parties, among other things, agreed that the neighboring parcel owners would use the roadway running across the third parcel “as their exclusive point of vehicular ingress and egress for all domestic, construction and agricultural access[.]”  In December 2013, the insureds purchased the third parcel and the title insurance company issued a policy.  Both the title commitment and the title policy included exceptions for an “emergency access easement” along the roadway as well as “[m]atters contained in that certain document entitled ‘Shared Road Maintenance Agreement’ dated January 15, 2013, executed by Henry Turmon, Jacqueline P. Little, Recorded: February 4, 2013, as Instrument No. 2013-011809 of Official Records. Reference is hereby made to the public record for full particulars.”  Neither the commitment nor the policy excepted the deeds to the neighbors that created the easement.  In 2014, the insureds asserted a claim with the title insurance company, claiming that the policy only explicitly mentioned that the neighbors could use the easement for “emergency access” and failed to note that the neighbors would be regularly using the easement, as they were allowed to do based on the Shared Road Maintenance Agreement.  The title insurance company denied the claim and the insureds brought this action.  The trial court granted the title insurance company’s motion for summary judgment, and the insureds appealed.

On appeal the Court affirmed.  It found that the policy excepted matters contained in the Shared Road Maintenance Agreement, which specifically stated that the neighbors would use the easement as their “exclusive point” of access to their property.  Additionally, the insureds had been emailed a copy of the Shared Road Maintenance Agreement before purchasing the property.  Although the insureds claimed they only skimmed the agreement and thought it only discussed who had to maintain the easement, “[a] party’s subjective intent cannot be used to create an ambiguity or a material factual issue. . . . No reader could review this agreement and reasonably conclude the southern easement was limited to emergency access.”  Moreover, the Court rejected the insureds’ argument that the title insurer had a duty to except the deeds creating the easement, holding that the title insurer did not have “a duty to warn [the insureds] regarding the consequences of the grant deed.”  Accordingly, the Court affirmed the decision.

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

Storm(y) Waters on the Horizon: Changes Coming to Regulation of Stormwater in New Jersey

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Regulation of stormwater in New Jersey is undergoing a shakeup that may have significant consequences for redevelopers and property owners.  In fact, New Jersey recently enacted legislation that allows municipalities to create stormwater utilities.  This legislation, which has been called a “rain tax,” authorizes these utilities to impose fees and take other actions to control stormwater.  The New Jersey Department of Environmental Protection also recently proposed changes to the regulations governing stormwater management in connection with certain construction projects.  The newly proposed requirements include minimizing the use of impervious materials and promoting green stormwater infrastructure.  While conservationists argue that these proposed rules do not go far enough to address environmental issues relating to stormwater, if adopted the proposed changes would impose more burdensome requirements on construction projects.  In any event, redevelopers and property owners should carefully consider these new developments, as they will have an impact on existing and planned projects.

As noted, a major change in the regulation of stormwater in New Jersey results from the passage of legislation that allows municipalities to create stormwater utilities.  A key component in the legislation is the ability for these utilities to impose fees on a property owner based on “a fair and equitable approximation” of how much runoff is generated from its property, but property owners can obtain fee reductions through certain stormwater management activities.  The “fair and equitable” standard is vague and may be subject to challenge, if and when local governments begin to form stormwater utilities.  The new legislation is permissive, not mandatory, and it is not yet clear how many local governments will decide to set up stormwater utilities.  The new legislation also contains other provisions relating to stormwater management, including procedures and standards for the dedication of a stormwater management system to a municipality.  Redevelopers and property owners should monitor the creation of stormwater utilities within their municipalities.

The proposed changes to the stormwater regulations are more technical in nature and include:

  • Replacing the current requirement that major developments incorporate nonstructural stormwater management strategies to the “maximum extent practicable” with the more onerous requirement that such developments meet groundwater recharge standards, and stormwater runoff quantity and quality standards.  (Nonstructural stormwater management activities include practices such as reducing and disconnecting impervious cover, flattening slopes, utilizing native vegetation, and maintaining natural drainage features and characteristics.)  The proposed amendments also would require green infrastructure to be used to satisfy these same standards. 
  • Expanding the projects subject to the stormwater rules by changing the definition of major development, which triggers the applicability of the rules.  Under the current rules, “major development” is defined as development ultimately disturbing one or more acres of land, or increasing impervious surface by one-quarter acre or more. One proposed change to the definition of major developments is to include within the definition, the creation of one-quarter acre or more of “regulated motor vehicle surface.”  Another proposed change clarifies that “major development” includes any project that is part of a larger common plan of development or sale that cumulatively disturbs one or more acres or creates one-quarter acre or more of impervious surface.  These changes will significantly expand the reach of the stormwater rules.

While there has been some praise for certain of these proposed changes from environmentalists—such as the focus on requiring green infrastructure to better manage stormwater— if these additional changes are adopted, which seems likely, they could raise costs for new developments and construction projects. 

For more information, please contact the author Jason M. Boyle at jboyle@riker.com or any attorney in our Environmental Practice Group.

Wisconsin Appellate Court Finds Lender Can Proceed With Foreclosure Despite Previous Stipulation Stating Loan Was Paid

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A Wisconsin appellate court recently reversed a trial court’s order granting summary judgment for the homeowners and held that a lender’s foreclosure claim could proceed, despite the fact that the lender’s predecessor previously had filed a stipulation dismissing a foreclosure “due to payoff of the loan.”  See Deutsche Bank National Trust Company, v. Buboltz, et al., 2019 WL 549771 (Wis. Ct. App. Feb. 12, 2019).  The plaintiff-lender’s predecessor brought a foreclosure action and obtained a judgment in 2013.  Two years later, the parties filed a stipulation reopening the action and dismissing it without prejudice “due to payoff of the loan.”  The court entered an order stating the same.  However, the borrowers’ payoff check did not clear, the loan was not paid off, and the mortgage was never discharged.  In 2016, defendants purchased the property from the original borrowers, and plaintiff was assigned the note and mortgage.  In 2017, plaintiff brought this foreclosure action on the mortgage.  Defendants filed a motion for summary judgment arguing that the stipulation and order extinguished the mortgage, that Wis. Stat. § 806.07 required the lender to seek to vacate the order within one year, which it failed to do, and that laches applied to bar the claim.  The trial court granted defendants’ summary judgment motion and dismissed the action with prejudice.

On appeal, the Court reversed.  First, it found that there was no dispute that the original loan was never paid off or discharged and that the stipulation was mistaken.  Second, it found that the order dismissing the action was without prejudice, which allowed plaintiff (or its predecessor) to bring another action on the mortgage, and therefore that Wis. Stat. § 806.07 did not apply because there was no need to vacate the order.  Finally, the Court found that laches did not apply here because “the fact that the prior foreclosure action was dismissed without prejudice, and the fact that no satisfaction of the mortgage was ever recorded, gave the Purchasers . . . notice that [plaintiff] could reassert its claim of default on the loan and commence a new foreclosure action.”  Accordingly, the Court reversed the trial court and reinstated the action.

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

California Appellate Court Holds Insured Lender Not Entitled To Coverage in Action Regarding Validity of Subdivision

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A California Appellate Court recently affirmed that an insured lender was not entitled to coverage for an action in which a party challenged the validity of a subdivision, and that a court’s determination that the subdivision was invalid did not render title unmarketable under the policy.  See Northern California Comm. Development Corp. v. First American Title Ins. Co., 2019 WL 1397040 (Cal. Ct. App. Mar. 28, 2019).  In 2008, a lender issued two construction loans of $195,500 each, which were secured by deeds of trust on two properties of a new subdivision.  First American issued title insurance policies to the lender.  Through assignments in 2013 and 2014, plaintiff was assigned the deeds of trust and, as part of the assignments, the original lender disclosed that “there are material limitations and conditions to further development of the Property. Development of the Subdivision is not complete in that common area construction and the development and entitlement processes are not complete, and the Subdivision has not received final governmental approval for the sales of lots and homes in the Subdivision to the general public.”  In 2014, a lawsuit was filed against the insured, among others, seeking to declare the subdivision invalid and seeking partition.  The insured tendered the defense to First American, who denied coverage.  In that underlying action, the trial court found that the subdivision was never completed, the properties were “landlocked” because no street was validly dedicated to the city, and that partition by sale was appropriate.  The insured ultimately received $20,000 in total for its two lots, and brought this action against First American for breach of contract and breach of the implied covenant of good faith and fair dealing.  First American moved for summary judgment, arguing that the claim was not a covered claim and that the claim was expressly excluded under the policy, including by exclusions 1(a) (relating to government ordinances and regulations) and 3(a) (relating to defects “created, suffered, assumed or agreed to by the insured claimant”).  The District Court granted First American’s motion for summary judgment.

On appeal the Court affirmed.  In doing so, the Court rejected the insured’s claim that the underlying action established that the property was unmarketable and landlocked and, therefore, that collateral estoppel applied to the coverage determination.  The Court held that the insured “appears to confuse marketability of title, which is covered by the title insurance policy, with marketability of land, which was discussed in the underlying action” and that the diminished value of the properties did not render title unmarketable.  Likewise, the Court found that the trial court only decided that the access road was “not a dedicated city street,” which “is not the same as finding a lack of right of access to the lots.”  Finally, the Court held that the insured failed to address First American’s argument that policy exclusions applied.

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

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