New Jersey Litigation Lawyer Blog

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Banks beware! In a case of first impression, a New Jersey appeals court held that a bank that pursues criminal charges against an innocent third party whose identify is stolen and used to defraud the bank can be sued civilly for negligence and malicious prosecution.

In this particular case, Brunson v. Affinity Federal Credit Union, A-4439-06, the bank employed a fraud and loss prevention specialist (Mr. Wilcox) who happened to be a certified fraud examiner. According to the appellate record, an imposter posing as the plaintiff Brunson opened an Affinity account in Brunson's name using Brunson's social security number and an out-of-state driver's license bearing Brunson's date of birth and a Paterson, NJ address (misspelled with two "t's".

Within days of opening this account, the imposter successfully cashed $9,506 in phony checks drawn against a corporation known as Viva International Group. The bank's fraud and loss prevention specialist Wilcox was provided with surveillance tapes and still photographs depicting the imposter as a black male about five feet six inches tall. Wilcox verified that Viva International Group did not employ anyone named "Brunson" on its payroll nor was there any "Brunson" authorized to sign company checks.

Wilcox also learned that Brunson had a criminal record. Hastily reaching the conclusion that Brunson was responsible for this fraud, Wilcox filed two criminal complaints against Brunson for uttering a forged document and for theft by deception and testified before the grand jury that ultimately indicted Brunson. Critically, Wilcox didn't bother to review police photographs of Brunson to compare against the surveillance images maintained by the bank, nor did he show the bank's tellers who dealt with the imposter a photo of Brunson to confirm the identification. Had he taken these extra precautions, Wilcox would have learned that Brunson is six foot three, nine inches taller than the imposter.

Brunson, a New York City resident, was arrested in Virginia, was extradited to New Jersey and was released after spending 13 days in jail. The charges were ultimtaely dropped.At the trial level, the Superior Court judge dismissed Brunson's suit against Affinity and Wilcox on motion practice without the case having reached a jury, labeling the incident as an innocent mistake and finding that Wilcox did not willfully withhold or misrepresent information in his grand jury testimony.

Brunson timely appealed the granting of summary judgment in defendants' favor, arguing that there were disputed factual issues and that a grand jury indictment did not preclude a claim for malicious prosecution. The appeals court agreed with Brunson, ruling that financial institutions and fraud investigators have a duty to "pursue with reasonable care their responsibility for protecting not only their own customers, but non-customers who may be victims of identity theft."

In the absence of any reported New Jersey legal precedent supporting a duty of care in this particular setting, the 3-judge appellate panel was persuaded to follow the holding of the Alabama Supreme Court in similar decision where that court ruled that a bank could be liable for the false arrest of someone whose stolen identity was used to open an account. Patrick v. Union State Bank, 681 So.2d 1364 (Ala. 1995). The New Jersey Appellate Division concluded that the trial court erroneously granted summary judgment in favor of Affinity and Wilcox, noting that the facts surrounding whether Wilcox had probable cause to file criminal complaints against Brunson were in dispute, and that the mere existence of a grand jury indictment against Brunson does not bar Brunson's claim for malicious prosecution.

"Because of the foreseeability of harm, fairness and public policy require financial institutions to be accountable when they negligently put individuals at risk by failing to exercise reasonable care in undertaking investigations of fraud claims," the Appellate Panel remarked ... even when the person is not an account holder.

Only a civil jury can determine "whether the grand jury would have indicted plaintiff [Brunson] if it had been presented with photographs of the imposter along with the disparity in their [physical] descriptions," the 3-Judge Appellate Panel concluded.

In remanding the case back to the trial court for further proceedings, Brunson will have to demonstrate the following elements to sustain a civil claim for malicious prosecution arising out of a criminal prosecution: (i) the ciminal proceeding was instituted by the defendant, (ii) the criminal proceeding was actuated by malice, (iii) there was no probable cause for the proceeding, and (iv) the proceeding was terminated in his favor.

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In Simmermon v. Dryvit Systems, Inc. (A55-07), the New Jersey Supreme Court was presented with determining whether the full faith and credit clause of the US Constitution requires a New Jersey court to give preclusive effect to a nationwide class action consumer fraud settlement approved by a Tennessee circuit court. The New Jersey Supreme Court held that the Tennessee court is the appropriate forum to determine whether Simmermon should be bound by the settlement entered in that court and thus barred from pursuing his own individual case in New Jersey. However, because of tactical gamesmanship employed by the principal defendant in Simmermon's individual lawsuit, the New Jersey Supreme Court held that the defendant will be responsible for Simmermon's attorneys' fees and litigation expenses.

In the New Jersey lawsuit, the plaintiff asserted the same types of claims against the same defendant named in the Tennessee class action, Dryvit Systems, Inc. ("Dryvit"), a manufacturer of a synthetic stucco exterior installation and finishing system. In 1995, plaintiff Simmermon purchased Dryvit's synthetic stucco system from one of Dryvit's distributors for installation in his custom-made home in New Jersey. Approximately 4 years later in 1999, Simmermon discovered that the stucco was defective due to observable bubbling and peeling. Simmermon filed suit in 2001 against Dryvit, its distributor, and the company that installed the system on his custom-made home.

THE TENNESSEE CLASS ACTION LAWSUIT

Only a year before Simmermon filed his New Jersey lawsuit, a group of Tennessee homeowners filed a class action against Dryvit in the Tennessee Circuit Court, asserting the same basic claims that Simmermon alleged in his Complaint. On April 8, 2002 - 7 months after Simmermon filed his New Jersey complaint - the Tennessee class action, which until then had been limited to Tennessee homeowners, was converted into a nationwide homeowners' class action. On the same day, representatives of the now nationwide class action and Dryvit entered into a settlement agreement that received preliminary approval by the Tennessee Circuit Court. The principal terms of the settlement agreement obligated Dryvit to provide class members with property inspections, 3-year limited warranties, and reimbursement of repair costs as determined by a certain formula.

In furtherance of the settlement, in June 2002 the claims administrator of the settlement sent all identifiable class members a first-class mailing containing settlement information, a claim form, and an opt-out form. Additionally, information about the class action and settlement terms was published in advertisements in national and local newspapers, national magazines, trade publications, and online at http://www.stuccosettlement.com/. Homeowners could opt-out of the class and thus be free to pursue their own individual lawsuits against Dryvit by timely completing and returning the opt-out form to the claims administrator.

According to records maintained by the claims administrator in the Tennessee class action, on June 24, 2002 a notification letter was mailed to Simmermon's home in New Jersey as per the terms of the settlement. The letter sent to Simmermon was not among those returned by the US postal service as undeliverable, and Simmermon was not among the class members who filed a request to opt out of the proposed settlement.

The Tennessee Circuit Court held a hearing on October 1, 2002 addressing the objections from certain objectors challenging the fairness and adequacy of the notice procedures of the proposed settlement. On January 14, 2003, the Tennessee Circuit Court approved the class action settlement and determined that the notification to class members "constituted the best practicable notice" and was "reasonably calculated . . . to apprise class members of the pendency of [the] class action, [and of] their right to exclude themselves from the class and the proposed settlement. In addition, the Tennessee Circuit Court ordered that any class member who had not returned the opt-out form to the claims administrator were "permanently barred and enjoined" from obtaining "any benefits or other relief" in a lawsuit filed in another jurisdiction related to claims asserted in the class action."

The Tennessee Court of Appeals stayed enforcement of the class action settlement through January 2005 to allow homebuilders the opportunity to intervene in order that their rights could be determined under the settlement. In April 2005, the Tennessee Circuit Court dismissed the homebuilders' objections, confirmed the fairness of both the settlement notification procedures and the settlement terms, and entered final judgment approving the settlement in all respects.

SIMMERMON'S NEW JERSEY LAWSUIT

Just 3 weeks before the Tennessee Circuit Court certified the nationwide class action against Dryvit and preliminarily approved the class action settlement, on March 15, 2002 Dryvit filed its answer in Simmermon's New Jersey litigation but made no mention of the class action lawsuit as required by New Jersey Court Rule 4:5-1(b)(2). In accordance with this New Jersey pleading rule, in answering a complaint defense counsel is required to certify "whether the matter in controversy [was] the subject of any other action pending in any court . . . or whether any other action . . . [was] contemplated." R. 4:5-1(b)(2). The rule also requires the defendant to file with the "[plaintiff] and with the court an amended certification if there is a change in the original certification." Ibid. It was undisputed that Dryvit did not comply with R. 4:4-1(b)(2) by informing Simmermon or the Court in its initial answer. or by way of a subsequent amended certification, that the subject matter of Simmermon's lawsuit was also the subject of the previously filed and existing nationwide class action suit in Tennessee.

On March 25, 2003, 1 year after filing its answer in the New Jersey case, 11 months after preliminary approval of the nationwide class action settlement, 6 months after the opt-out deadline had expired, and 2 months after the Tennessee court entered its final approval of the settlement, Dryvit's counsel first sent a letter to Simmermon's counsel informing him of the nationwide class action settlement and that it was Dryvit's position that because Simmermon did not opt-out of the settlement that he was "barred and enjoined" from continuing his litigation against Dryvit in New Jersey. It was not until some 2 months later on May 30, 2003 that Dryvit's counsel finally notified the trial court about the Tennessee class action settlement and that it barred Simmermon from proceeding with his claims in New Jersey.

TRIAL COURT LEVEL

At the trial court level, Dryvit moved to dismiss Simmermon's claims based on the terms of the Tennessee class action settlement which by that time was considered as a final judgment in Tennessee. In other words, Dryvit asserted that the New Jersey court should give full faith and credit to the final judgment of a sister state - Tennessee. The trial court agreed with Dryvit, finding that the Tennessee court properly exercised jurisdiction over the class action and that Simmermon was subject to jurisdiction as a class member in Tennessee, the settlement notification procedure and opt-out provision satisfied federal due process requirements, and Simmermon's failure to opt-out rendered him bound by the settlement.

APPELLATE DIVISION

On appeal, the Appellate Division reversed the trial court, holding that Dryvit's failure to timely disclose to Simmermon and to the court its knowledge of the class action settlement, pursuant to R. 4:5-1(b)(2), prevented Dryvit from invoking the preclusive effect of the Tennessee judgment. The Appellate Division declined to address the due process analysis conducted by the trial court because the Appellate Division panel concluded that Dryvit's violation of R. 4:5-1(b)(2) was an independent legal basis for not enforcing the Tennessee judgment.

SUPREME COURT HOLDING

On petition for certification, the New Jersey Supreme Court reversed the Appellate Division's decision, holding that the Tennessee judgment is entitled to full faith and credit in the absence of Simmermon obtaining relief therefrom in a Tennessee court. This means that Simmermon must apply to a Tennessee court to avoid the preclusive effect of the settlement entered in the nationwide Tennessee class action. If Simmermon is unsuccessful in Tennessee, then the New Jersey courts must abide by the terms of the nationwide class action settlement reduced to judgment in Tennessee. On the other hand, if Tennessee excludes Simmermon from the class action settlement, then he may proceed with his New Jersey claims against Dryvit, the New Jersey Supreme Court declared.

Under either scenario (i.e., should Simmermon's succeed or fail in his future application to the Tennessee court), the New Jersey Supreme Court at least put Simmermon in a position to recoup his attorneys' fees and litigation expenses. The Court was particularly critical of Dryvit's failure to comply with the certification requirements of R. 4:5-1(b)(2), noting that Simmermon would have avoided unnecessary legal fees and costs and the New Jersey courts' resources had been spared had Dryvit simply been more forthcoming in its disclosure about the Tennessee class action lawsuit and settlement.

About the author: Glenn R. Reiser is a New Jersey attorney and partner at the law firm of LoFaro & Reiser, LLP with offices in Montclair and Hackensack, N.J. Mr. Reiser did not represent any party to this lawsuit. To visit LoFaro & Reiser's official websites, go to http://www.njlawconnect.com and www.new-jerseylawyers.com.

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Richard A. Pulaski Construction Co., Inc. v. Air Frame Hangars, Inc. (A-40-07, July 1, 2008).

The New Jersey Supreme Court leaves open the question of whether New Jersey common law recognizes a prima facie tort claim. The legal definition of "prima facie" is evidence sufficient in law to establish a fact unless rebutted.

In this case the New Jersey Supreme Court had to decide whether New Jersey common law provides a remedy for misconduct that did not meet the traditional standards of a tort cause of action (i.e., such as fraud). This was not the first time the Court confronted this issue, for 10 years earlier in Taylor v. Metzger, 152 N.J. 490 (1998), the Court expressly declined to recognize a prima facie tort claim under New Jersey common law. However, in Taylor the Court noted that a leading treatise (Restatement) explained that such a cause of action encompasses the intentional, willful and malicious harms that "fall within the gaps of the law" and have been most frequently permitted only in limited situations in which a plaintiff would have no other cause of action.

The facts of the Pulaski case are quite complex, and must be abbreviated for purposes of this article. In simple terms, the defendant Air Frame Hangars ("Air Frame") entered into a lease with Mercer County for the development of "condominium-style" aircraft hangars. Air Frame retained Pulaski to perform certain site development work for the construction of these aircraft hangers. It was undisputed that Pulaski faithfully and dutifully performed its contractual services and that Air Frame failed to pay Pulaski all amounts due under their contract.Pulaski proceeded to file a construction lien claim with the Mercer County Clerk's office in August 1997; the lien was subsequently ruled to be defective because the lien specified the wrong property address location.

After Pulaski filed the construction lien claim but before it was declared defective, the parties engaged in a series of settlement discussions. When those discussions failed, in October 1997 Pulaski filed a demand for arbitration as required under the terms of the parties' written contract. While the arbitration was pending, in February 1998 Pulaski filed a separate lawsuit against Air Frame and Mercer County. The parties agreed to dismiss that lawsuit without prejudice with the applicable statutes of limitations period tolled (or preserved) pending the outcome of the arbitration.

In April 1999, Pulaski obtained a favorable arbitration award and thereafter filed a separate suit in the Superior Court of New Jersey to confirm the arbitration award. Prior to the conclusion of Pulaski's lawsuit to confirm the arbitration award and before Pulaski's construction lien was declared "defective", Air Frame sold 9 of its aircraft hangers to various third party purchasers. In connection with each aircraft hangar sale Air Frame's principal (Mr. Ritterson) executed and delivered to each purchaser an Affidavit of Title affirmatively representing that he, as principal of Air Frame, was not aware of any adverse claims or liens against each particular aircraft hangar. Mr. Ritterson's representations were untruthful because Air Frame was in the midst of litigating its disputes with Pulaski.

The trial court determined that Ritterson's misrepresentations were deliberately intended to close title on the properties without having to pay Pulaski's unpaid lien claim. Not surprisingly, the evidence at trial revealed that Air Frame was insolvent. Refusing to let Air Frame and Ritterson "get away with it", the trial court concluded that Pulaski established a prima facie tort claim and entered judgment in Pulaski's favor in the amount of $105,932 plus an additional $39,000 in prejudgment interest and counsel fees.

On defendant's appeal, the Appellate Division affirmed the trial court's opinion.The New Jersey Supreme Court reversed the Appellate Division's decision and remanded the matter to the trial court with instructions to enter judgment in defendants' favor.

In declining to address the utlimate issue (whether NJ common law recognizes a prima facie tort claim), the Court explained that Pulaski had other remedies that were available to him to redress his monetary loss:

"At its core, plaintiff's complaint is for breach of contract. It sought to prosecute that claim against Air Frame by demanding contract arbitration, procuring an arbitration award in its favor, and seeking to enforce its construction lien. Although plaintiff's construction lien was procedurally defective, plaintiff nevertheless had a judgment entered in its favor and against Air Frame for the amount of the arbitration award. Thus, plaintiff had successfully prosecuted a traditional cause of action at law for its breach of contract claim and was awarded a judgment in the full amount it sought."

The Court further stated that a defendant's insolvency does not in-and-of-itself give rise to a prima facie tort claim. "Stated differently, a prima facie tort may be triggered by the absence of a cause of action, but not by the lack of an effective remedy," the Court remarked.

Lastly, the Court held that an unperfected construction lien claim is a "nullity" and cannot serve as an independent basis to support a prima facie tort claim.

Despite the apparent malicious conduct of Air Frame and its principal Ritterson the justices unanimously concluded that because Pulaski had other remedies available Pulaski could not satisfy the Restatement test for establishing a prima facie tort regardless whether or not New Jersey common law supports this cause of action.Apparently for this unscrupulous business owner "crime does pay."

It is rather surprising that the New Jersey Supreme Court, long a zealous victims rights advocate, saw fit to reverse the Appellate Division thus allowing the defendants, in the trial court's words, "to get away with it."

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In a 4-3 decision, the New Jersey state Supreme Court ruled on October 25, 2006 that New Jersey must extend all the rights of marriage to gay couples. But the justices left it to state lawmakers to decide whether to provide those rights in the form of marriages, civil unions or something else — and gave the Legislature 180 days to reach a decision.

The New Jersey Supreme Court ruling is similar to the 1999 high-court ruling in Vermont that led that state to create civil unions, which confer all of the rights and benefits available to married couples under state law.

"Although we cannot find that a fundamental right to same-sex marriage exists in this state, the unequal dispensation of rights and benefits to committed same-sex partners can no longer be tolerated under our state Constitution," Justice Barry T. Albin wrote for New Jersey's four-member majority.

The court said the Legislature "must either amend the marriage statutes to include same-sex couples or create a parallel statutory structure" that gives gay couples all the privileges and obligations afforded to married couples.

The three dissenters, including Chief Justice Deborah Poritz, argued that the majority did not go far enough. They demanded gay couples be given the right to marry.

Find free litigation forms at www.njcourtsonline.com, including pro se litigation kits for divorces, contract cases, name change applications, guardianship, criminal expungement and more. http://www.judiciary.state.nj.us/prose/index.htm