CONSUMER PROTECTION

Green v. Morgan Properties

New Jersey Law Journal

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Green v. Morgan Properties, A-100 September Term 2011; Supreme Court; opinion by Hoens, J.; decided September 17, 2013. On certification to the Appellate Division. [Sat below: Judges Axelrad and Ostrer in the Appellate Division.] DDS No. 09-1-1347 [42 pp.]

In this appeal, the court considers the sufficiency of plaintiffs' pleading as it relates to claims against corporate and individual defendants for consumer fraud and negligence based on lease provisions that imposed fixed attorney fees on tenants that were unrelated to in-house counsel's actual fee to evict.

Plaintiffs assert that they were tenants in apartment complexes that are owned, managed or operated by the corporate defendants. Plaintiffs further assert that they were each the subject of an action to evict them from their apartments for nonpayment of rent and that, in order to avoid eviction, they were required to pay attorney fees in amounts fixed by a provision in their leases. Believing that the attorney fees were unreasonable, plaintiffs initiated litigation in the Superior Court, both individually and as representatives of a class of similarly situated tenants, seeking recovery from the corporate defendants and from their in-house counsel, individual defendant Rosemary Spohn, Esq.

Plaintiffs' complaint included three separate counts. First, they asserted that the eviction complaints violated the Anti-Eviction Act because defendants misrepresented that plaintiffs would be evicted if the attorney fees were not paid. Second, plaintiffs asserted that they were entitled to relief pursuant to the Consumer Fraud Act (CFA) because the attorney fee provisions in the leases constituted an unconscionable business practice and because they can demonstrate that they have suffered an ascertainable loss. Third, plaintiffs allege that defendants are liable to them for negligently misrepresenting the true amount of attorney fees incurred in the eviction proceedings.

The defendants collectively filed a motion seeking the dismissal of the complaint for failure to state a claim on which relief may be granted pursuant to R. 4:6-2(e). The trial court dismissed the complaint with prejudice.

The Appellate Division reversed, determining that the first count alleging unlawful eviction should have been dismissed without prejudice, and that the second and third counts sufficiently set forth the elements of consumer fraud and negligence and that they should be permitted to proceed.

The court granted defendants' petition for certification.

Held: Plaintiffs alleged sufficient facts to state claims for consumer fraud and negligence against the corporate defendants based on lease provisions that imposed fixed attorney fees on tenants who were subject to eviction. Plaintiffs have not, however, alleged sufficient facts to support a consumer fraud or negligence claim against the individual defendant who was in-house counsel for the corporate defendants.

The Anti-Eviction Act protects residential tenants from unreasonable evictions by setting forth the bases on which a tenant may be evicted in a summary dispossess action. A tenant may be evicted for nonpayment of rent. Frequently, leases include other terms relating to payment of rent, including late fees and attorney fees payable in the event that the landlord is required to proceed against the tenant in court because of unpaid rent. The landlord is permitted to include such fees if the lease characterizes them as "additional rent" and if not otherwise prohibited by law.

The court's motion to dismiss inquiry under Rule 4:6-2(e) is limited to an examination of the face of the complaint for legal sufficiency. Plaintiffs are entitled to every reasonable inference of fact. The test is simply whether a cause of action is suggested by the facts.

Despite the corporate defendants' claims, the attorney fee provision is not a form of liquidated damages that is presumptively reasonable. In the context of a summary dispossess action based on a residential lease, an attorney fee clause is an additional rent term, not a form of damages. Even were that not so, the lease provision does not fit the traditional definition of liquidated damages because, rather than fixing a liquidated sum, it obligates the tenant to pay actual attorney fees that exceed $400. In addition, the leases signed by plaintiffs are contracts of adhesion. It would also be inappropriate to shift the burden of proving reasonableness to plaintiffs. Landlords bear the burden of proving the reasonableness of the lease clauses on which they rely. In addition, attorney fees awarded by courts, regardless of their basis, are governed by principles of reasonableness.

Applying those principles, when tested in accordance with the indulgent Rule 4:6-2(e) standard, plaintiffs' claim that the attorney fees fixed in the leases were unreasonable because they bore no relationship to actual attorney fees sufficiently states a CFA claim against the corporate defendants. The complaint, however, does not state a CFA claim against the individual defendant. The complaint does not suggest that the individual defendant had any role in the drafting of the leases, or the calculation of the alleged improper fees, or that she performed any other act that falls within the scope of the CFA.

The complaint could be read to allege that the corporate defendants misrepresented their actual costs of legal representation, and that allegation could meet the definition of negligent misrepresentation: an incorrect statement, negligently made and justifiably relied on, and economic loss or injury sustained as a consequence of that reliance. Therefore, pursuant to the indulgent Rule 4:6-2(e) standard, plaintiffs alleged sufficient facts to support a negligent-misrepresentation claim against the corporate defendants. Plaintiffs, however, did not sufficiently state a professional negligence claim against the individual defendant. First, the assertion that an attorney has violated a professional ethics rules does not give rise to a cause of action. Second, the court has traditionally been reluctant to permit a nonclient to sue an adversary's attorney.

The judgment of the Appellate Division is affirmed in part and reversed in part.

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