BUSINESS LAWSUIT BLOG

In Zehl v. City of Elizabeth Bd. Of Educ., No. A-1296-11T3 (N.J. Super. Ct. App. Div. May 31, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following question: should the court take into account the ability of someone to pay the fees of a discovery master when determining whether a discovery master should be appointed?

In that case, a cafeteria worker sued her employer for violations of the New Jersey law Against Discrimination (NJLAD), N.J.S.A. 10:5-1 et. seq., and the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 et. seq.  The underlying discovery in the case (exchange of information by way of testimony, documents and answers to written questions) was complex and voluminous. The Court decided to appoint an impartial discovery master to manage the discovery process. The Plaintiff and Defendants were required to split the fee for the discovery master.

The Appellate Division held that when the court below appointed a discovery master, it erred because it did not consider “that the appointment of a discovery master in fee-shifting remedial cases, which by their very nature oftentimes involve litigants with limited resources, may impose a cost burden on litigants that creates a de facto bar to their access to the justice system.” Id. at 1. On that basis, the Appellate Division reversed and remanded the case.

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© 2012 Nissenbaum Law Group, LLC

Gray market goods are those that are exchanged in a market that is unauthorized or unintended by the original manufacturer of the goods. Many of these goods contain either a copyright or trademark that is registered and owned by the original manufacturer. However, the manufacturer does not reap the benefits of the exchange of his goods in the gray market because it is done in an unauthorized manner. In order to stop those selling their goods on the gray market, an owner might seek to have the court grant a temporary restraining order (“TRO”) against the seller to stop the alleged infringing conduct immediately and to preserve evidence for eventual litigation.

Owners of a copyright or trademark will often bring infringement claims against those selling goods containing their mark on the gray market. However, it is possible that those receiving notice of impending litigation could conceal or destroy evidence of infringing behavior during the time between notification and discovery. In order to avoid this problem, plaintiffs often seek to have a court issue a TRO against defendants.

Under Rule 65(b) of the Federal Rules of Civil Procedure, a TRO may be granted without notice to the opposing party (or the party’s counsel) when “it clearly appears from the specific facts shown by affidavit…that immediate and irreparable injury, loss or damage will result to the applicant before the adverse party or that party’s attorney can be heard in opposition.” F.R.C.P. 65(b).

TROs can be an effective way for mark owners to shut down the infringing behavior of defendants. An example is North Face Apparel Corp. v. Fujian Sharing Import & Export Lts. Co., No. 10-cv-1630 (S.D.N.Y. December 20, 2010). In that case, the defendants were alleged to have been operating hundreds of websites that were similar to the sites operated by North Face and Polo. Examples of the websites included “4thenorthface.com,” “northfaceoutletsale.com,” “poloralphworld.com” and “poloshirtcompany.com.” Upon filing their complaint, North Face and Polo Ralph Lauren (“Polo”) requested that a TRO prohibiting this be issued.

The Court granted the TRO, determining that the brand owners were likely to succeed at trial and that the defendant’s infringing conduct was likely to cause the brand owners irreparable harm. The temporary injunction restrained the defendants from committing any of the acts alleged in the complaint, which included claims for federal trademark infringing, unfair competition and false designation of origin. The TRO enabled the mark owners to shut down many of the sites and to seize some of the counterfeit sales from the defendants’ accounts.

There are several other recent examples within the United States District Court for the Southern District of New York of this approach to prohibiting gray market goods. See Rolex Watch U.S.A., Inc. v. Oganesyan, No. 11-CIV-8182 (S.D.N.Y. Nov. 14, 2011), Coach, Inc. v. Andre, No. 11-CIV-6215 (S.D.N.Y. Sept. 6, 2011), Coach, Inc. v. Smith, No. 11-CIV-3573 (S.D.N.Y. May 26, 2011).

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© 2012 Nissenbaum Law Group, LLC

May an insurer reject a demand that would make its contribution to a settlement contingent upon the outcome of a suit to establish the limits of liability under the policy? In Greenridge v. Allstate, the United States District Court for the Southern District of New York answered that question in the positive. Greenridge v. Allstate Ins. Co., 312 F. Supp. 2d 430 (S.D.N.Y. 2004).

The plaintiffs (the “Greenridges”) owned a three-family home in the Bronx. One of their tenants sued them, alleging that his daughter suffered lead poisoning from exposure to lead paint in the building owned by the Greenridges. The plaintiffs were insured by Allstate Insurance Company (“Allstate”). They purchased homeowners’ liability insurance from them on an annual basis from February 1988 through the time of the dispute. The policy provided coverage for claims for bodily injury up to a $300,000 limit. The Greenridges alleged that the limit should be $600,000 because the exposure at issue allegedly occurred over two different policy periods. Allstate argued its liability was limited to $300,000.

The plaintiff tenant offered to settle his claim against the Greenridges for $300,000 plus an additional $300,000 if, through a declaratory judgment, a court ruled that Allstate was liable for the second policy limit. Allstate subsequently refused to consent to the settlement. A judgment of more than $1.6 million was eventually entered against the Greenridges. They then sued Allstate, claiming it was liable for the $600,000 under the two policies. They also claimed the company was liable because it had demonstrated bad faith when refusing to accept the settlement.

The Greenridge Court acknowledged that an insurer may be held liable for a breach of its duty of good faith in defending and settling claims against its insured. Pavia v. State Farm Mutual Automobile Insurance Co, 82 N.Y.2d 445, 452 (1993). But it also held that bad faith “is not a free-floating concept to be invoked whenever the insurer fails to maximize the interests of the insured.” Gordon v. Nationwide Mut. Ins. Co.¸ 30 N.Y.2d 427, 437 (1972). Bad faith is an implied obligation that derives from an insurance contract. Id. at 452.  The Greenridge Court found in favor of Allstate, denying the bad faith claim and finding that an anti-stacking clause in the contract between the two parties was arguably enforceable. Therefore, there was a basis for the insurer’s position that its liability was limited to one policy period ($300,000.00), rather than stacking two policy periods that followed one another (which would double the limit to $600,000.00), was enforceable. The decision was later affirmed by the United States Court of Appeals for the Second Circuit.

The Greenridge Court’s decision suggests that an insurer’s refusal to consent to an insured’s declaratory judgment action is not likely to be considered sufficient to find that the insurer grossly disregarded the interests of the insured party.

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© 2012 Nissenbaum Law Group, LLC

The Telephone Consumer Protection Act (“TCPA”) governs the conduct of telemarketing services and other companies that use telephone solicitation during the course of their business. A number of lawsuits have raised the question of whether debt collectors should be treated similarly to telemarketers, insofar as they should be subject to the same restrictions.

In a recent case before the United States District Court for the Western District of New York, a plaintiff argued that a debt collection agency’s continuous phone calls regarding a financial obligation that the putative debtor did not owe were in violation of the TCPA. Franasiak v. Palisades Collection, 09-cv-835S. The plaintiff, John Franasiak, claimed that the defendant, Pallisades Collection (“Pallisades”), repeatedly contacted his residence regarding a debt owed by his daughter. He alleged that Palisades did this even though Franasiak continued to inform them that he was not the debtor and that his daughter did not live at his residence. He claimed the calls continued several times a week for seven months. After Pallisades ignored a cease-and-desist letter he issued, Franasiak filed an action under the TCPA.

In its motion for summary judgment, Pallisades argued that debt collection calls are exempt from the TCPA. A Federal Communication Commission (“FCC”) administrative decision indicates “that calls solely for the purpose of debt collection are not telephone solicitations and do not constitute telemarketing.” In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 23 FCC Rcd. 559, 565, ¶¶ 11 [2008 WL 65485 (F.C.C.)]. Additionally, earlier in 2011, another Western District Court determined that “debt collection calls are exempt from the TCPA’s prohibitions against prerecorded message calls because they are commercial calls which do not convey an unsolicited advertisement and do not adversely affect residential subscriber rights.” Santino v. NCO Fin. Sys., 09-cv-982-JTC.

Franasiak argued that this exception did not necessarily include calls by debt collectors to individuals who are not the debtor. In other words, he argued that the TCPA should extend to situations where debt collectors are persistently calling those who are not actually in debt. However, the Court decided to defer to the FCC and its specific exemption of all debt collection activities from the TCPA. The Court held that it is for the FCC “to determine whether a resident’s privacy rights are adversely affected by seemingly intrusive phone calls by prerecorded messages.” The Court added that “[a]lthough it is this Court’s opinion that such calls, when they are made to non-debtors, do adversely affect the individual’s privacy interests, the FCC has found otherwise,” and noted that a holding in favor of Franasiak would overstep the bounds of the judiciary.

It is significant to note that the answer to this question could vary depending on the district. For example, the United States District Court for the Eastern District of Pennsylvania has held that non-debtors have their rights violated when they receive continuous collection calls. Watson v. NCO Group, 462 F. Supp 2d 641 (E.D. Pa. 2006). However, the majority of courts have followed the same path as the Franasiak court and decided to defer to the FCC and not interpret different rules for non-debtors. It will be interesting to see if the FCC decides to amend its regulations or take any steps to address this issue, and whether the majority of courts will continue to exercise judicial restraint.

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© 2012 Nissenbaum Law Group, LLC

If a person slips in the icy parking lot of a strip mall, may the landlord be indemnified by one of the tenants’ insurance policies? In a recent decision, the Appellate Division of the Superior Court of New Jersey attempted to clarify that question. Cambria v. Two JFK Blvd, LLC, Superior Court of New Jersey, Appellate Division. A-0802-10T2 (2012).

The plaintiff, John Cambria (“Cambria”), slipped and was injured in an icy parking lot of a strip mall that was owned by the landlord and defendant Two JFK Blvd., LLC (“the landlord”). The landlord and a real estate manager, David Rubin (“Rubin”), sought a declaration that they were covered by the liability insurance policy that one of the mall’s tenants (“the tenant”) had obtained. The policy had been issued by Harleysville Insurance Company of New Jersey (“Harleysville”). A lower court determined that the tenant had failed to obtain the required coverage for the landlord by failing to name it as an additional insured. However, the lower court also held that the landlord did not have to consider whether the tenant was liable for breaching the lease because that court viewed Rubin as the tenant’s “real estate manager.” The (defendants) appealed.

The Appellate Court determined that Rubin was a real estate manager and was the landlord’s real estate manager, but said that the landlord and Rubin needed to provide evidence that Rubin was also the real estate manager for the tenant in order for them to succeed on their claim that Harleysville owed them indemnification. The Appellate Court held that the landlord and Rubin failed to meet that requirement.

In order to determine whether Rubin was acting as the real estate manager of the landlord or the tenant, the Court looked at whether the incident causing the injury occurred in the leased premises or some other area of property for which the tenant was responsible. The lease stated that the “leased premises” did not include any part of the parking lot where the plaintiff fell. Additionally, the landlord and Rubin argued that New Jersey courts have previously interpreted “real estate manager” expansively. However, the Court distinguished this case from previous interpretations, holding that here the landlord retained the sole responsibility for maintaining and caring for the parking lot. Consequently, Rubin again acted solely as the landlord’s – and not the tenants’ –  real estate manager.

Finally, the Court determined that contending Rubin was the tenant’s real estate manager would not be persuasive unless the lease saddled the tenant with a duty of care for the parking lot. The landlord and Rubin relied on a lease provision that imposed on the tenant “additional rent” for its “proportionate share” of the “operating costs,” which included, among others, that of “removing snow and debris.” However, the Court rejected this argument, stating that common law principles impose on the landlord a duty to maintain the parking lot and other common areas in a reasonably safe condition for the use of both tenants and guests. See Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 121 (2005). The Court clarified that though this provision may have advised the tenant of the manner in which part of the rent would be applied, it did not shift the burden of caring for the common areas from landlord to tenant. “That a portion of the rent was devoted by the landlord to hire someone to care for the common areas, which were the landlord’s responsibility, does not alter the parties’ rights and obligations regarding the common areas or render that hired person the real estate manager for the tenant.” Id. “The obligation to care for the common areas remained with the owner absent a clear and unambiguous declaration to the contrary that cannot be found in the parties’ lease.” Id. 

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© 2012 Nissenbaum Law Group, LLC

In order for a court to determine that a defendant is in civil contempt, it must first determine that the defendant actually exists. In a recent decision, the United States District Court for the Southern District of New York considered what evidence would be sufficient for a plaintiff to prove the existence of a competitor. BeautyBank, Inc. v. Harvey Prince LLP, No. 10 Civ. 955 (S.D.N.Y. 2011).

In October 2010, plaintiff BeautyBank, Inc. (“BeautyBank”) filed a motion to hold defendant Kumar Ramani (“Ramani”) in contempt. The original complaint was filed against the entity Harvey Prince and included, among other allegations, claims for trademark infringement and false advertising. It alleged that Harvey Prince was selling perfume and other cosmetic products that violated a BeautyBank trademark. BeautyBank later added Ramani – whose name was listed as a partner in the Harvey Prince entity – as a defendant.

When BeautyBank later pursued its default judgment against Harvey Prince, Ramani maintained that Harvey Prince did not exist as an entity. In his answer to the complaint filed against him, Ramani said that Harvey Prince LLP was never formed as a Nevada limited liability partnership and instead claimed that his attorney filed trademark applications that incorrectly listed Ramani as a controlling partner in that LLP. Despite this, BeautyBank ultimately persuaded the court to enter a default judgment that included a permanent injunctive relief against Harvey Prince. The injunction enjoined the entity and its officers from imitating, manufacturing and similar practices relating to its trademarked perfume. BeautyBank later made a motion to find Ramani in contempt because, it argued, Ramani was a principal of Harvey Prince and the website www.harveyprince.com continued to sell BeautyBank’s trademarked perfume.

In order to prove Ramani’s noncompliance with the injunction, BeautyBank had to establish that Ramani served Harvey Prince in one of the capacities listed in the injunction. This included showing, at a minimum, that the entity Harvey Prince existed.

The Court found that the evidence presented by BeautyBank did not “demonstrate to a reasonable certainty” that Harvey Prince, LLP existed. Id. at 5. Admittedly, BeautyBank introduced as evidence filings made to the United States Patent and Trademark Office that attested to the existence of Harvey Prince. However, the Court held that “the mere fact that a party states on a document, sworn under penalty of perjury, that an entity is an LLP in the state of Nevada does not result in the creation of an LLP within that state.” Id. at 6.

The Court noted that a limited liability partnership (LLP) is created by statute. It is an entity that allows two or more persons to create a partnership with the added protection that their potential liability will be limited. Therefore, the Court emphasized that whether or not an entity was created is something that is determined by the behavior of parties, not merely the words in a document. Nevada law states that a partnership is formed when

a)      two or more persons associate

b)      to carry on as co-owners of a business

c)       for profit

Nev. Rev. Stat. §§ 87.060, 87.4322.

The Court found that BeautyBank presented no evidence that indicated Ramani associated with another person to form a partnership or that he organized and formed an LLP. Because BeautyBank failed to establish the existence of Harvey Prince, the Court found that the injunction could not be enforced against Ramani. Thus, BeautyBank’s motion for contempt failed.

The Court’s decision is interesting because it suggests that merely referring to an entity as an LLP does not necessarily indicate that a legal LLP has been formed. It is important for businesses seeking to form such an entity to check the relevant state statute and ensure it is complying with the requirements established for such a business entity. Court decisions such as BeautyBank serve as reminders that simply calling a business a “limited liability partnership” on paper may not suffice. 

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© 2012 Nissenbaum Law Group, LLC