SHOW ME THE MONEY: PUBLIC BIDDING

By Richard D. Trenk, Esq.

Westfield Public School Athletic Field Sprints to the Finish: expediting appeals.

A recent unpublished Appellate Division case indicates a trend in the Superior Court of New Jersey, Appellate Division, to expedite public bidding appeals. After Assignment Judge Karen Cassidy of Union County heard oral argument and dismissed Plaintiff’s Verified Complaint, the Appellate Division heard oral argument within 60 days and rendered a decision 30 days thereafter. Thus, from start to finish, the Trial Court and Appellate Division resolved this public bidding case within 90 days.

This is an important practice pointer for contractors and public entities and permits matters of taxpayer funds and construction projects to be resolved expeditiously.

In the underlying merits, the Appellate Division’s unpublished decision in H&S Construction and Mechanical, Inc. v. Westfield Public Schools and Your Way Construction, Inc. stands for the proposition that a certification of no material change of circumstances (CNMCC) can be waived by the contracting entity as non-material and waivable. The Appellate Division indicated that absent the CNMCC being a statutorily mandated document or some clear and unequivocal language in the bid documents that the CNMCC was mandatory and non-waivable, the correct analysis is to review the two-prong materiality test set forth in Township of River Vale v. R.J. Longo Construction Company, 127 N.J. Super 207, 216 (Law Div. 1974) as adopted by the Supreme Court in Meadowbrook Carting Company v. Borough of Island Heights, 138 N.J. 307, 315(1994). The Opinion references that the winning bidder provided the names of 8 sub-contractors but failed to submit the CNMCC for 3 of the 8 listed sub-contractors.

In the end, the practice pointers are as follows:

1. Always seek expedited consideration pursuant to Rule 2:9-2.
2. The materiality test set forth in River Vale is alive and well.
3. Even if a form is contained on the bidder checklist, there must be language within the bid that makes clear that non-compliance constitutes automatic rejection and/or some clear and unequivocal statement that explains the purpose for which the documents are requested.
4. Mandated documents continue to be non-waivable. See NJSA 40A:11-23.1.
5. Assignment Judges who handle public bidding prerogative writ actions and provide clear explanations of their determinations will frequently be affirmed.

The Westfield case is cited as 2018 WL 3282287 (App. Div. 2018).

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The Court Has Gone Bananas

By: Jessica A. Maier, Esq.

Bananas. Yes, I said bananas. This week the Federal District Court in Camden, New Jersey granted a preliminary injunction preventing Kangaroo Manufacturing (“Kangaroo”) from manufacturing, marketing and selling a banana costume made and copyrighted by a company named Silvertop Associates, Inc. doing business under Rasta Imposta (“Rasta”). This fruitful opinion was recognized by the New York Times on June 7, 2018.

But it was not just the fact that the bananas were both yellow that led the court to its decision to grant the preliminary injunction. Instead, it was the district court’s finding that there was a reasonable likelihood of success on the merits of a copyright infringement claim by Rasta which led to its decision to grant the preliminary injunction.

On March 26, 2010, a copyright registration was issued to Rasta for its banana costume. Thereafter, Rasta entered into a business relationship with Yagoozon, Inc. in order to sell its banana costume. The founder of Yagoozon, Inc. is also founder of Kangaroo.
After the business relationship ended between Rasta and Yagoozon, Rasta discovered that Kan
garoo was selling a costume that resembled Rasta’s banana costume. Accordingly, in October 2017, Rasta filed a complaint against Kangaroo for copyright infringement, trade dress infringement, and unfair competition.

On October 19, 2017, the parties entered into a Stipulation of Standstill Period whereby, in anticipation of discussing an amicable resolution to the case, the parties agreed that Kangaroo would cease manufacturing, ordering, advertising, selling, or marketing the banana design until December 1, 2017. The parties further stipulated that if the case was not settled by December 1, 2017, Rasta would file a preliminary injunction. Settlement discussions were not successful and on December 4, 2017, Rasta filed a motion for preliminary injunction.

In determining whether to grant a preliminary injunction, a district court must consider the following four elements: (i) reasonable probability of success on the merits; (2) irreparable injury to the moving party; (3) harm to the nonmoving party; and (4) the public interest.

Here, the district court first considered the reasonable probability of success of Rasta’s copyright infringement claim. To establish a copyright infringement claim, two elements must be proven: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original. In conducting its analysis, the district court considered the Certificate of Registration held by Rasta, as well as the banana design and features of the costume. As to the second element, the Court held that due to the prior existing relationship between Yagoozon and Rasta, it is likely that Rasta could prove that Kangaroo had access to the copyrighted work.

As for the other three elements for a preliminary injunction, the Court was satisfied of the irreparable harm that could occur to Rasta without the injunction compared to the harm to Kangaroo. Additionally, the court found that the public interest factor was easily satisfied. In light of the findings, the court required Rasta to post a $100,000 bond to maintain the preliminary injunction.

On June 11, 2018, Kangaroo aPEELed the district court’s decision.

For a complete copy of the district court’s opinion captioned SILVERTOP ASSOCIATES, INC. d/b/a RASTA IMPOSTA, v. KANGAROO MANUFACTURING, INC., 2018 WL 2427120 (D.N.J. May 30, 2018) please click HERE.

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In New Jersey: Tenancy by the Entirety Ownership of Marital Property Bars Creditor Collection Efforts

By: Richard D. Trenk and Joao F. Magalhaes

Marital property owned under a “tenancy by the entirety” arrangement is not subject to partition or forced sale due to judgments against one spouse under a recently-decided appellate decision in New Jersey. In Jimenez v. Jimenez, the Appellate Division for the Superior Court of New Jersey, in a case of apparent first impression, held that joint ownership of marital assets through a tenancy by the entirety prohibited the non-consensual severance or alienation of such assets. The court thus ruled that unsecured creditors of one spouse could not force the partition and sale of real property owned jointly by both spouses as tenants by the entirety.

The matter before the court concerned collection efforts made by creditors of one spouse who had obtained a consent judgment in the amount of $225,000. Such judgment was duly filed and recorded as a lien, and the creditors-plaintiffs pursued post-judgment remedies, including the issuance of a post-judgment information subpoena which revealed martial assets, including real property in Mansfield, New Jersey.

The creditors-plaintiffs subsequently moved to compel the partition and sale of the Mansfield property pursuant to Rule 4:59-1(d) of the Rules Governing the Courts of the State of New Jersey. The Mansfield property, however, was owned by both spouses as tenants by the entirety. Tenancy by the entirety is a form of joint property ownership that arose from the desire to protect one spouse upon the death of the other by protecting and enabling a right of survivorship. Through a tenancy by the entirety, each spouse is “seized and possessed of the entire estate.”

The Appellate Division, affirming the lower court, held that creditors may not obtain the partition and forced sale of real property co-owned by spouses as tenants by the entirety in light of N.J.S.A. 46:3-17.4, which provides as follows:

Neither spouse may sever, alienate, or otherwise affect their interest
in the tenancy by entirety during the marriage or upon separation
without the written consent of both spouses.

In holding that this statute barred the husband’s creditors from seeking a partition and forced sale, the court explained that statutes “must be construed in a sensible fashion to give meaning” to their provisions, and in addition, that the Legislature intended to protect spouses from the non-consensual diminution of martial assets. The court further explained that N.J.S.A. 46:3-17.4 had superseded and nullified prior case-law allowing the partition and sale of spousal interests in certain circumstances, subject to certain equitable factors.

Notably, the Appellate Division clarified that its ruling would not preclude creditor action when an underlying transfer constituted a fraudulent conveyance. Stated otherwise, if title to property was deeded to the tenancy by the entirety in an attempt to thwart creditors, then such tenancy to the entirety would not bar creditor efforts as it did in Jimenez.

Equally important, the result in Jimenez could vary if at least one of the spouses is a debtor in a bankruptcy proceeding. Pursuant to section 363(h) of Title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy trustee can move to sell a co-owned interest in property held by a debtor as either a tenant in common, joint tenant, or – as relevant to Jimenez – a tenant by the entirety. As one might expect, however, a trustee’s power to do so is conditioned under Bankruptcy Code section 363 and subject to a multi-factor test. Thus, interested parties should consult with an attorney experienced in debtor-creditor matters in determining the impact of a potential bankruptcy on marital or other property.

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TD PREVAILS IN CHALLENGE TO CONSENT OF SURETY OF LOW BIDDER

On May 7, 2018, the Appellate Division of the Superior Court of New Jersey upheld a decision awarding a solid waste collection and disposal contract to Trenk DiPasquale client Sterling Carting, Inc. after TD partners Richard D. Trenk and Mark Y. Moon successfully challenged the low bid which contained a defective consent of surety. J. Smentkowski, Inc. v. Garfield City and Sterling Carting, Inc., 2018 WL 2089871 (N.J. App. Div. May 7, 2018), Docket No. A-2394-17t2. This decision represents TD’s latest successful public bidding outcome before the Appellate Division.

In its opinion, the Appellate Division concluded that the low bidder’s Consent of Surety, by using vague and general language that the bidder would provide “standard” bonds upon award of the contract, had deviated from the requirements of Garfield City’s bid specifications. Following an extensive review of laws regarding bond requirements, the court found that no one standard performance bond form exists in the State of New Jersey. More specifically, the Appellate Division found that the vague term “standard” did not track the specific promises and indemnification obligations set forth in the City’s specifications. The Appellate Division further found that the City, as the contracting authority, has the authority to mandate the precise language of the Consent of Surety form, so long as it is not contrary to applicable regulations.

Based on this analysis, the Appellate Division, in a unanimous decision, affirmed the City’s award of the contract to TD client Sterling Carting, Inc. For more information concerning bid specifications and bond or procurement issues, please call Mr. Trenk or Mr. Moon at 973-243-8600.

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Insurance Carriers Beware: Statutory Fraud Claims Must Mirror Actual Fraud to Ensure Non-Dischargeability

By Richard D. Trenk, Esq. and Joao F. Magalhaes, Esq.

     Insurance carriers litigating fraud claims often look to statutory rights, for example the New Jersey Insurance Fraud Prevention Act, for relief against those who have submitted false claims or otherwise defrauded a carrier. Prevailing carriers may be subsequently confronted with debtor-defendants who attempt to frustrate collection efforts through initiating bankruptcy proceedings, which automatically invokes the jurisdiction of the United States Bankruptcy Court. Carrier-creditors must act quickly to avoid the presumptive discharge of all pre-petition debts pursuant to Title 11 of the United States Code, which is also known as the Bankruptcy Code. Depending upon the type of relief that the creditor seeks, an adversary proceeding must be filed as early as 60 days after the first date set for the meeting of creditors.[1]

     Bankruptcy Code section 523 (“Exceptions to discharge”) governs the types of debt that may be excepted from a debtor’s discharge; i.e., the debts that will not be erased as a result of the bankruptcy proceeding. Included within these exceptions, pursuant to section 523(a)(2), are debts in connection with money or other property obtained through, among other acts, false pretenses, false representations, or actual fraud.[2] Whether a claim is non-dischargeable under the Bankruptcy Code is a matter within the sole authority of bankruptcy courts.[3] Notwithstanding, principles of collateral estoppel – the doctrine prohibiting the relitigation of issues that have been adjudicated in a prior lawsuit – apply such that bankruptcy courts can rely upon state court findings for purposes of establishing non-dischargeability under Bankruptcy Code section 523.[4]

     For collateral estoppel to applied, it must be shown that a state court’s findings were the types of findings necessary under the subsections of Bankruptcy Code section 523. For instance, in In re Drossel, wherein judgment creditors cross-moved for summary judgment to except a state court judgment under the New Jersey Consumer Fraud Act from discharge pursuant to Bankruptcy Code section 523(a)(2)(A), the United States Bankruptcy Court for the District of New Jersey denied summary judgment because “[t]he state court opinion did not affirmatively articulate, that the Debtor’s violations were the result of his intentional conduct or that they amounted to actual fraud.”[5] As the court further explained:

     Here, the underlying state court opinion did not address the crucial elements of actual fraud such as intent, knowledge, and reliance but instead found regulatory violations for which knowledge and intent are not elements. Even though a regulatory violation of the Act has already been determined, whether the Defendant committed actual fraud when entering into the home improvement contract with the Plaintiffs is still an open issue for which Plaintiff must be afforded a “full and fair opportunity” to litigate.

     The bankruptcy court’s decision in Drossel was consistent with the Third Circuit’s decision in In re Schlessinger, wherein a judgment creditor pursued non-dischargeability based on a debtor’s diversion of partnership funds. The Third Circuit held that the debtor was not collaterally estopped from denying that the damages award arose from the conduct specified by Bankruptcy Code section 523 because the issue decided in the state court was not identical to a finding that the debtor willfully and maliciously injured the partnership or its property.<a

     Thus, an insurance carrier pursuing fraud claims against a defendant must be aware of whether a bankruptcy court would construe the carrier’s judgment as satisfying the elements of fraud mandated under Bankruptcy Code section 523. Carriers must be mindful of these critical points of differentiation, and should consult with a bankruptcy specialist during the pendency of a state court action to ensure that the findings made will suffice to ensure that the resulting judgment will not be nullified by a bankruptcy proceeding. In any event, if a bankruptcy filing does ensue, additional litigation within the bankruptcy court will almost certainly be necessary to determine the non-dischargeability of the debt.

___________________

Endnotes

[1] 11 U.S.C. § 341(a); compare Fed. R. Bankr. P. 4004 (requiring that, in a chapter 7 case, objections to a debtor’s discharge under 11 U.S.C. § 727(a)(8) or (a)(9) must be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a)) with Fed. R. Bankr. P. 4007 (providing that a complaint to determine the dischargeability of a particular debt, except under § 523(c), may be filed at any time).

[2] 11 U.S.C. § 523(a)(2)(A).

[3] Grogan v. Garner, 498 U.S. 279, 284-85 n. 11 (1991).

[4] In re Leonelli-Spina, 426 Fed.Appx. 122, 125-26 (3d Cir. May 4, 2011) (wherein former client of debtor who had obtained state court judgment against debtor-attorney brought adversary proceeding to except judgment from discharge, holding that state court judgment finding violation of New Jersey Rules of Professional Conduct in withdrawing funds from client trust account, and in turn committing fraud, breach of contract and breach of fiduciary duty, was entitled to issue preclusive effect in non-dischargeability proceeding under 11 U.S.C. § 523(a)(4) because determination that attorney had committed fraud or defalcation while acting in fiduciary capacity was essential to judgment entered in state court lawsuit, and matter was actually litigated to final judgment on merits in proceeding in which parties were identical, and in which attorney, as party against whom preclusion was sought, had full and fair opportunity to defend).

[5] 2007 WL 3375073, at **1, 8 (Bankr. D.N.J. Nov. 7, 2007) (denying dueling motions for summary judgment, and scheduling trial, in part on grounds that plaintiffs’ judgment was not premised upon a finding of actual fraud).

[6] Id. at *5.

[7] 208 Fed.Appx. 131, 133-34 (3d Cir. Dec. 14, 2006) (explaining that (1) “embezzlement and larceny both require the appropriation or taking of another’s property[,]” and (2) “[n]egligent or reckless acts do not suffice to establish that a resulting injury is ‘willful and malicious.’”).

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INSURANCE BROKER MALPRACTICE TARGETED

By: Richard Trenk, Esq., Franklin Barbosa, Jr., Esq., and Michael Mondelli, III.

Richard Trenk and Franklin Barbosa, Jr., are attorneys at Trenk, DiPasquale, Della Fera & Sodono, P.C. Michael Mondelli, III, is a summer law clerk at Trenk DiPasquale and a third-year law student at Seton Hall University School of Law.

             Insurance is one of the most overlooked and misunderstood commodities purchased by nearly all individuals or businesses.  Insurance coverage is critical and offers invaluable protection against the many risks and dangers that may befall an individual or business.  As per Murphy’s law, anything that can go wrong will go wrong, and thus it is important to have adequate coverage in place when a challenge inevitably arises.

Herein lies the role of the insurance broker. Insurance brokers, once retained, are responsible for procuring insurance coverage that is tailored to meet a client’s particular needs and minimize the client’s risk exposure.  For that reason, brokers are required to exercise a duty of care when dealing with clients.  Under New Jersey law, insurance brokers owe the following duties to their clients: (i) having the knowledge and skill necessary to carry out their employment responsibilities; (ii) exercising good faith and reasonable care, diligence, and skill in the execution of their employment responsibilities; (iii) possessing “reasonable” knowledge of available policies and terms of coverage in the areas in which the insured seeks coverage; and, (iv) procuring the necessary coverage tailored to meet a client’s needs and wants, or advise the client of their inability to procure the desired coverage.  See Rider v. Lynch, 42 N.J. 465, 476-77 (1964).

The average individual or business owner justifiably assumes that the insurance broker has performed his/her duties to the best of his/her abilities.  Sometimes, however, brokers fail to adhere to their mandated duties and leave insureds exposed to unnecessary risks and liabilities. In assessing whether a broker failed to meet their duty of care, insureds should look for certain telltale signs, such as the following: (i) failure to procure the insurance coverage requested; (ii) invalid, illusory, or deficient coverage; (iii) coverage that does not cover the risks or liabilities that the broker said it would cover; or, (iv) lack of coverage for certain risk factors that directly affect or apply to the client.  The presence of any of these factors could signal a valid cause of action for broker negligence and/or malpractice.

In recent years, brokers have tried to use automation processes to limit their liability for negligence or malpractice.  For example, brokers will often send mass mailings to clients vaguely notifying them of possible coverage deficiencies and/or the general availability of greater coverage limits.  Unfortunately, courts have occasionally found that even the most perfunctory forms of notice adequately put clients on notice of deficient coverage or the availability of greater coverage limits, and thus satisfy the broker’s duty to its clients.  C.S. Osborne & Co. v. Charter Oak Fire Ins. Co., 2017 WL 1548796, (N.J. Super. Ct. App. Div. May 1, 2017).   This practice, however, does not completely insulate brokers from the duty to diligently provide adequate coverage to their clients.

For example, the duty of care owed by brokers is largely informed by industry standards. When a broker’s conduct falls below these industry standards, the duty of care owed to the client is breached.  Industry standards and customary practices dictate that brokers are responsible for providing the following services: (i) surveying business operations for the purpose of identifying exposures; (ii) analyzing exposures in relation to the available and applicable policy coverages, exclusions, and endorsements; (iii) completing all applications necessary to acquire the desired or selected coverages, limits, and coverage-extending endorsements; and (iv) reviewing policies, especially during renewal periods, to assure that they are maintained accurately and properly, and continue to provide coverage against the client’s exposures without any lapses or gaps in coverage.

Brokers can also be subjected to a more exacting and strict duty of care where a “special relationship” exists between a broker and the insured.  A special relationship exists where a broker invites reliance upon their expertise, as evidenced by the broker’s conduct and whether the client clearly exhibited reliance.  Where an average, unsophisticated insurance consumer requests the “best” coverage available or otherwise notifies the broker that it is relying upon the broker’s expertise, a special relationship is formed.  Asking for the “best” available coverage creates a heightened burden on the broker to adequately explain all relevant, applicable coverage options and limits.  The existence or creation of a special relationship is the best way to ensure that your rights as an insurance consumer are preserved and protected.

It may seem as though purchasing insurance coverage is a fairly innocuous transaction, but inadequate coverage can expose an insured to suffocating liabilities potentially amounting to millions of dollars.  That is why it is essential that you remain vigilant of the duties owed by a broker, carefully choose your coverage, and consult an attorney if you believe the broker has violated the duty of care owed to you.

Richard D. Trenk and Franklin Barbosa, Jr., of Trenk DiPasquale have vigorously litigated claims against insurance brokers and agents.  They are available for consultation to help you determine whether you have a viable claim against your broker.

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BROKEN WINDOWS MATTER

Since the 1990’s when then New York City Mayor Giuliani got rid of the squeegee people in New York City, many municipalities have vigorously pursued code enforcement matters.  Since the Honorable John F. McKeon was elected mayor in 1998, The Township of West Orange has pursued these cases with a cadre of young and talented lawyers at Trenk, DiPasquale, Della Fera & Sodono, P.C.

Most recently, these cases have led to certain appeals and affirmances before the Superior Court of New Jersey, Law Division, Essex County.  Specifically, two trial courts in November, 2016 and January 2017 have affirmed fines in excess of $35,000 concerning peeling paint, exterior mildew, and broken fences.  In both cases, the property owner argued that the Township Ordinances were “unconstitutionally vague” and that the fines imposed “shocked the conscience” as excessive.  Both claims were rejected.

Property maintenance codes are designed to ensure that standards of maintenance and norms are maintained.  When one property is allowed to become dilapidated or unkept, an entire neighborhood is directly impacted.   Additionally, a property that is not maintained, including a failure to cut the lawn, can become a breeding ground for vermin and other health hazards.

Next, if someone was looking for a property to burglarize or vandalize, an unkept property is probably a good candidate because it is likely the property is abandoned.

Next, when properties in the neighborhood become run down, it is highly likely that any potential buyer will devalue the neighboring properties or refuse to live near a dilapidated property.  Thus, property values decline.

Plain and simple, quality of life matters and requires vigilance in maintaining properties.

Fixing peeling paint, picking up garbage and repairing fences are not overly expensive ventures.  If the property owner involved had immediately abated the violations by investing in their property, then it is likely that the fines would have been negligible or non-existent.  However, when a property owner is convicted of ten (10) violations during a thirteen (13) year period, it becomes clear that that property owner’s willfulness requires punishment and a need to deter others from similar conduct.

Plain and simple, if you are going to own real property, maintain it.  It affects not only you as an owner, but everyone around you and the entire community.  The result of not maintaining your property is substantial.  The attorneys at Trenk DiPasquale understand the ramifications both from a governmental and property owner prospective.  Feel free to contact the firm if you are faced with property maintenance violations or your neighbor fails to take care of their property.

by George P. Cornell, Esq.
973-243-8600

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