Join a non-party with potential liability

The NJ Supreme Court Reminds Lawyers they Better Comply with the Joinder Rule

“The report of my death was an exaggeration” ~ Mark Twain (1)

The NJ Supreme Court in Kent Motor Cars, Inc. d/b/a Honda of Princeton v. Reynolds & Reynolds, Co. (A-102/103-09) placed attorneys on notice that the requirements of the Joinder Rule, R. 4:5-1(b)(2) are alive and well; and remain a useful tool in the high court’s toolbox of remedies.

The facts, according to the NJ Law Journal:

Henry Wilson signed a purchase order, printed by Reynolds, to buy a car from Honda of Princeton, a subsidiary of Kent Motor Cars Inc. Language in the form said there would be charges for registration and title, a “documentary fee,” an “M.V. Messenger Service” charge, a “Clerical Fee” and an “Admin. Fee.”

At the bottom, in small print, the form said the buyer had the right to a written, itemized price for each charge and informed him that the dealer could not charge for pre-delivery services for which the dealer is reimbursed by the manufacturer.

In July 2003, Wilson filed a class-action suit against Kent, alleging violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, and the Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:12-14 to -18, for alleged overcharges on registration and title fees and for other services that were not performed. The suit also said the notice at the bottom of the form was not printed in 10-point type, as statutes and regulations require, but in 7.5-point type.

Wilson did not name Reynolds. But in August 2005, as settlement talks began, Kent’s second attorney in the case, Jeffrey Pollock, said that while Reynolds should have been brought in earlier, he was now considering bringing in Reynolds as a third-party defendant. Pollock, of Fox Rothschild in Princeton, also told Mercer County Superior Court Judge Mary Jacobson about his plans. But he did not tell Reynolds until September 2005, when he sued. At the time, the Wilson settlement, the terms of which were not disclosed, was being finalized.”

The dealerships file separate action; summary judgment granted; dealers join their carrier

The Dealerships then filed the complaint against Reynolds in this case, alleging that the required notice concerning pre-delivery/documentary service prices in its “Buyer’s Order” forms violated regulations, giving rise to one of the claims in Wilson. The Dealerships demanded that Reynolds indemnify them for all costs, losses, and counsel fees, and that those amounts be trebled under the CFA.

Meanwhile, the Wilson court approved the settlement agreement and entered final judgment, which did not apportion settlement amounts among the claims. Reynolds then moved for summary judgment in this case. The trial court granted the motion, concluding that the Dealerships’ failure to comply with Rule 4:5-1(b)(2) in the Wilson action “substantially prejudiced” Reynolds. The Dealerships filed an amended complaint in this case asserting coverage claims against their insurer, Universal Underwriters Group, arguing that they were entitled to a defense and indemnity relating to the Wilson claims. Under the policy, coverage for Statute and Title Errors and Omission (STEO) is limited to defense and indemnification relating to customer claims “arising out of . . . an alleged violation . . . of any federal, state or local . . . truth-in-lending or truth-in-leasing law.” The trial court granted summary judgment in favor of Universal, finding that none of the Wilson litigation claims was based on a violation of a “truth-in-lending” or “truth-in-leasing” law.

The App. Div.

The Appellate Division reversed the judgment in favor of Reynolds and remanded those claims to the trial court, and it affirmed the dismissal of the coverage claims against Universal. 412 N.J. Super. 1 (App. Div. 2010). The panel noted that under Rule 4:5-1(b)(2), a court may not dismiss a party’s action based on its failure in a prior action to provide notice of potentially liable parties unless that failure was “inexcusable” and the undisclosed party’s right to defend the later action is “substantially prejudiced.”

The panel found that Reynolds was not “substantially prejudiced” by the Rule violation. The Appellate Division also found that the Wilson claims were based on “general consumer protection laws” and not related to leasing or financing, and thus did not fall within the STEO coverage of the Universal insurance policy. The Court granted the parties’ cross-petitions for certification. 203 N.J. 92 (2010).

The NJ Supreme Court

HELD: (1) Because the Dealerships seek trebling of counsel fees and damages that were already trebled in Wilson, allowing the CFA claim to proceed following an inexcusable violation of Rule 4:5-1(b)(2) will result in substantial prejudice to Reynolds; and permitting the contribution claim will allow for fair compensation and prevent Reynolds from avoiding responsibility for an alleged regulatory violation.

(2) Because the claims in Wilson did not relate to leasing or financing, they did not give rise to a duty to defend within the meaning of the Universal policy’s coverage for violations of “truth-in-lending or truth-in-leasing” laws.

Kent-v-Reynolds-Entire-Controversy-Doctrine-A-102-09

Footnote

(1) Mark Twain Quotation historical controversy

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About Lawrence "Larry" Berezin

I retired from the private practice of law after a 35-year legal career and fight parking tickets for people like you and me. I love sharing valuable information and beating NYC parking tickets for the driving community

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